Shah, C. J. - (1.) Burlop Dealers, Ltd.- hereinafter referred to as the 'assessee' is a limited company. For the assessment year 1949-50 the assessee submitted a profit and loss account disclosing in the relevant year of account Rs. 1,75,875/- as profit in a joint venture from H. Manory Ltd., and claimed that Rs. 87,937/- being half the profit earned from H.Manory Ltd. was paid to Ratiram Tansukhrai under a partnership agreement. The assessee stated that on June 5, 1948, it had entered into an agreement with H. Manory Ltd., to do business in plywood chests and in consideration of financing the business the assessee was to receive 50% of the profits of the business. The assessee also claimed that it had entered into an agreement on October 7, 1948, with Ratiram Tansukhrai for financing the transactions of H. Manory Ltd. in the joint venture, and had agreed to pay to Ratiram Tansukhrai 50% of the profit earned by it from the business with H. Manory Ltd.
(2.) The Income-tax Officer accepted the return filed by the assessee and included in computing the total income for the assessment year 1949-50 Rs. 87,937/- only as the profit earned on the joint venture with H. Manory Ltd. In the assessment year 1950-51 the assessee filed a return also accompanied by a profit and loss account disclosing a total profit of Rs. 1,62,155/- in the relevant account year received from H. Manory Ltd., and claimed that it had transferred Rs. 81,077/- to the account of Ratiram Tansukhrai as his share. The Income tax Officer on examination of the transactions brought the entire amount of Rs, 1,62,155/- to tax holding that the alleged agreement of October, 1948 between the assessee and Ratiram Tansukhrai had merely been "got up as device to reduce the profits. received from H. Manory Ltd.". This order was confirmed by the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal. The Tribunal then stated a case under Section 66 (1) of the Income-tax Act to the High Court of Calcutta. The High Court agreed with the view of the Tribunal and answered the question against the assessee.
(3.) In the meanwhile on May 13, 1955, the Income-tax Officer issued a notice under Section 34 to the assessee for the assessment year 1949-50 to re-open the assessment and to assess the amount of Rs. 87,937/- allowed in the assessment of income-tax as paid to Ratiram Tansukhrai. The assessee filed a return which did not include the amount paid to Ratiram Tansukhrai. The Income-tax Officer re-assessed the income under Section 34 (1) (a) and added Rs, 87,937/- to the Income returned by the assessee in the assessment year 1949-50. The Appellate Assistant Commissioner held that the Income-tax Officer was entitled to take action under Section 34 (1) (a) of the Income-tax Act 1922, after the amendment in 1948, and to re-open the assessment if income had been under assessed owing to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. He confirmed the order observing that the assessee had misled the Income-tax Officer into believing that there was a genuine arrangement with Ratiram Tansukhrai and had stated in the profit and loss account that the amount paid to Ratiram Tansukhrai was the share of the latter in the partnership, whereas no such share was payable to Ratiram Tansukhrai.;