HEGDE - (1.) , J.: The first of these two appeals (both by certificates) viz. that filed by the Commissioner of Income Tax succeeds and the second, that filed by the legal representatives of the assessee fails. The facts as found by the Tribunal and set out in the statement of the case, relevant for the purpose of these appeals are as follows:
(2.) THE relevant assesment year is 1944-45, corresponding to the accounting year ended on 12/04/1944. THE assessee is one Chidambaram Chettiar (since deceased). THE father of the assessee Palaniappa Chettiar was a money lender. He had made various advances to one Nallathambi Sakkarai Manradiar, who will hereinafter be referred to as the Pattayagar, a prominent landlord in Coimbatore District, on promissory notes. THE total principal advanced by the father of the assessee upto 6/07/1932 amounted to Rs. 1,38,535.00. THE interest on the same came to Rs. 1,34,965,.00. On 6/07/1932, a further advance of Rs. 2500/- was made to the Pattayagar and for the amounts due from him, the Pattayagar executed a mortgage of some of his properties in favour of the assessee's father for a sum of Rupees 2,76,000/-. Till 1938, only a sum of Rs. 13,620.00 was paid by the mortgagor in part payment of the debt due from him. On 14/12/1940 the mortgagee instituted a suit on the foot of the mortgage bond claiming a sum of Rs. 5,50,573.00 inclusive of principal and interest. On 19/09/1943, the claim was compromised and on 5/10/1943, a compromise decree was passed for a sum of Rs. 3,50,500.00 in full satisfaction of the mortgagee's claim. THE decree amount was made payable on cr before 1/10/1944. THE debt under the compromise decree was subsequently discharged. For the assessment year 1944-45, the assessee Chidambaram Chettiar, as karta of his Undivided Hindu Family was assessed under Section 23 (3) of the Income Tax Act, 1922 (to be hereinafter referred to as the Act), on 12/02/1946, on a total income of Rs. 78,556.00 which, on appeal was reduced to Rs. 53,153.00. When the assessment proceedings of the assessee were pending before the Income-tax Officer, Trichy, that Income-tax Officer received information from the Income-tax Officer, Erode that the mortgagor had paid secretly to the mortgagee a sum of Rupees 1,50,000/- during the year ended on 1/04/1944 and that the same was not included in the compromise decree. When the Income-tax Officer asked the assessee about the same, he denied having received any amounts secretly. Apart from the information conveyed by the Income-tax Officer, Erode, the Assessing Officer had no other material before him to show that any amount had been paid secretly by the mortgagor to the mortgagee. Hence on 27/05/1945, the Income-tax Officer made the following note in the order sheet: "It is denied that there was any secret understanding not to show the payment of Rs. 1,50,000.00. The receipt of this amount is entirely denied... . The Income-tax Officer, Erode should be asked to give further details and to ask the Pattayagar to produce evidence of the payment. In any event, this should come up for consideration only in the assessment year 1944-45 as only the excess over Rs. 2,76,000.00 plus legal expenses can be treated as interest income in the hands of the assessee and so, the assessment for 1944-45 should not be held up pending further investigation." After sometime the Assessing Officer made further enquiry into the information given by the Incometax Officer, Erode and thereafter he came to believe that a sum of Rupees 1,50,000/- had escaped assessment by reason of the omission of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1944-45. He accordingly issued a notice under Section 34 (1) (a) on 9/03/1953. In reply to that notice, the assessee filed a return similar to the one filed by him earlier. He denied having received Rs. 1,50,000.00 secretly from the mortgagor. The Income-tax Officer did not accept the plea of the assessee. He accordingly included an additional sum of Rs. 1,50,000.00 to the income of the assessee earlier determined for the assessment year 1944-45 and taxed him on that basis. In appeal, the Appellate Assistant Commissioner set aside the order of the Income-tax Officer and directed the Income-tax Officer to re-do the assessment after giving the assessee an opportunity to cross-examine the parties examined by the Income-tax Officer on the basis of whose statements he had come to the conclusion that a sum of Rs. 1,50,000.00had been secretly paid to the mortgagee by the mortgagor. Thereafter the Income-tax Officer further inquired into the matter; Pattayagar's books of account were got produced to prove that an additional sum of Rs. 1,50,000.00had been paid to the assessee. Some witnesses were also examined in the presence of the assessee to prove that fact. After doing so, a fresh order of assessment was made on the assessee under Section 23 (3) read with Sec. 34. His order was affirmed by the Appellate Assistant Commissioner as well as by the Tribunal. At the instance of the assessee, the following three questions were submitted to the High Court under Section 66 (1) of the Act. "(1). Whether assessment under Section 34 was valid and proper? (2). Whether the Income-tax Officer rightly acted in giving effect to the order of the Appellate Assistant Commissioner setting aside the assessment to re-do the same according to law after giving an opportunity to the appellant to place all his cards before the Department? (3). Whether Rs. 1,50,000.00 is taxable as income of the year of account?"
(3.) THE High Court answered the first two questions against the assessee and the third question against the Department. THE legal representative of the assessee are challenging the High Court's decision on the first two questions and the Commissioner is challenging the High Court's decision on the third question. We shell first take up the assessee's appeal. There is hardly any merit in that appeal. It was urged on behalf of the representatives of the assessee that as, even when the original assessment proceedings for the relevant year were before the Income-tax Officer, he had before him the information given by the Income-tax Officer, Erode, but yet, he did not choose to act on that information, it was not open to him thereafter to initiate proceedings under Section 34. We are unable to accept this contention. On the facts found by the Tribunal, it is established that the assessee's father had clearly suppressed the receipt of Rs. 1,50,000.00 from the mortgagor. The assessee had a duty to disclose fully and truly all material facts necessary for his assessment. Herein we are not dealing with a case coming under Section 34 (1) (b). All that we have to see is whether the requirements of Section 34 (1) (a) are satisfied. This Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I. Calcutta, 41 ITR 191 = ( AIR 1961 SC 372), ruled that to confer jurisdiction on the Income-tax Officer to take action under Section 34 (1) (a) two conditions must be satisfied viz. (1) he has reason to believe that there was under-assessment and (2) that he must have reason to believe that the under-assessment has resulted from non-disclosure of material facts. On the facts found, under-assessment is established and it is also established that the under-assessment was due to non-disclosure of material facts. There can be no doubt that at the time he issued notice under Section 34 (1) (a) on the basis of the material before him, the Income-tax Officer could have formed the necessary belief. In the notice issued he says that he had formed that belief. In our opinion the requirements of Section 34 (1) (a) are fully satisfied. The fact that there was some vague information before the Income-tax Officer that the assessee's father had secretly received a sum of Rs. 1,50,000.00 from the mortgagor was by itself not sufficient to bring to tax that amount particularly in view of the fact that the assessee had stoutly denied that fact and the court records did not support that information. It is true that the Income-tax Officer could have made further enquiry into the matter but the fact that he did not make any further enquiry does not take the case out of Section 34 (1) (a) particularly when the assessee had failed to place truly and fully all the material facts before him. The remark of the Income-tax Officer that "in any event this (the receipt of Rs. 1,50,000.00) should come up for consideration only in the assessment year 1944-45 as only the excess over Rs. 2,76,000.00 plus legal expenses can be treated as interest income in the hands of the assessee and so, the assessment for 1944-45 should not be held up pending further investigation" in the order sheet does not amount to a decision taken by him. It may be noted that those remarks were not made in the order assessing the income of the assessee. It must also be remembered that the Income-tax Officer, at the time he made those remarks was not satisfied about the correctness of the information given by the Income-tax Officer, Erode. Hence those remarks must be treated as casual observations and not a decision taken on the basis of facts found.;