Jagannadhadas, J. - (1.) This is an appeal by the assessee on leave granted under S. 66-A, Income-tax Act. The assessee by name Chatturam Horilram Ltd., who is the appellant before us, is a private limited company carrying on in Chota Nagpur the business of exporting mica for sale to foreign countries. The assessment in question is for the year 1939-40 and the accounting year is the calendar year 1938. These proceedings were initiated on a notice issued to the assessee under S. 34, Income-tax Act 1922 (Act 11 of 1922) (hereinafter referred to as the Act). It is the applicability of this section to the fact of this case that is the sole matter for consideration in this appeal. The circumstances under which the above mentioned notice under S. 34 was issued are as follows. The appellant had previously been assessed to tax on an income of Rs. 1,09,200 for the same year 1939-40 by an order dated 22-12-1939 which was reduced on appeal by Rs. 31,315. That assessment was set aside by the Income-tax Appellate. Tribunal on 28-3-1942, on the ground that the Indian Finance Act of 1939 was not in force during the assessment year 1939-40 in Chota Nagpur, which was a partially-excluded area. On a reference by the Tribunal at the instance of the Income-tax authorities the High Court of Patna agreed with this view and pronounced on 30-9-1943, its judgment confirming the setting aside of the assessment. Meanwhile, the Governor of Bihar promulgated Bihar Regulation 4 of 1942, which was assented to by the Governor-General on 30-6-1942. By this Regulation, the Indian Finance Act of 1939 (along with Finance Acts of other years with which we are not concerned) was brought into force in Chota Nagpur retrospectively as from 30-3-1939. The relevant portion of the Regulation was in the following terms: "The Indian Finance Act, 1939, shall be deemed to have come into force in the area to which this Regulation extends on the 30th day of March, 1939". On 8-2-1944, the Income-tax Officer passed an order as follows: "Due to recent judgment of the High Court the assessment under S. 23(3) stands cancelled and with it the notice under S. 34 issued in this case becomes ineffective and is withdrawn. Assessee derives income from mica mining and dealing, money-lending, mining rents and non-agricultural sources of zamindary, and this has escaped assessment in its entirety. Issue notice under S. 22(2) read with S. 34 again to file a return of income in the prescribed form and within the prescribed time, and inform the assessee that the original notice under S. 34 has been cancelled". It may be mentioned, in passing, that the notice under S. 34 which is referred to in the above order as having become ineffective and as, therefore, withdrawn was a prior one which was issued on 8-7-1941, i.e. during the pendency of the assessee's appeal relating to the earlier assessment before the Income tax Appellate Tribunal. It is not quite clear from the record in what circumstances that notice came to be issued. But it looks probable that it relates to certain items appearing in the accounts as cash-credits to the tune of four lakhs which, as will appear presently, were treated in the later proceedings as concealed income in the absence at any proper explanation by the asssessee. This prior notice under S. 34 having been withdrawn, has no hearing on the question at issue before us in this appeal and has not been relied on by either side. In pursuance of the order dated 6-2-1944. quoted above, a fresh notice under S. 34 of the Act was issued to the appellant on 12-2-1944. The income of the assessee-company was thereupon determined at a sum of Rs. 4,86,351, which on appeal to the Assistant Commissioner, was reduced by Rs. 11,187. Out of this amount a sum of Rs. 4,04,618 related to two items of cash-credits appearing in the name of the partners of the Company which in the absence of any satisfactory explanation, was treated by the Income-tax authorities as secreted profits of the Company. Before the Income-tax Appellate Tribunal two points were raised. (1) Whether the notice dated 12-2-1944, under S. 34 of the Act was validly issued. (2) Whether the Income-tax authorities were right in holding that the cash-credit items were secret profits. Both the points were decided against the assessee, on the assessee's application to refer both the points for the decision of the High Court, the Tribunal declined to make a reference as regards the second point but referred the first for the opinion of the Court in the following terms: "Whether in the circumstances of the case, the notice issued on 12-2-1944 under S. 34 Income-tax Act was validly issued for the assessment year 1939-40. " The question was answered against the assessee by the High Court and hence this appeal before us. The assessee attempted to reopen the second question relating to secret profits before the High Court but the learned Judges declined to allow it to be canvassed, since the Tribunal did not refer the question to them. We are, therefore, concerned in this appeal only with the question relating to the Validity of the notice issued on 12-2-1944, under S. 34 of the Act. it is obvious that if this notice is found to be invalid the assessee would get relief for the entire amount including the amount of secret profits.
(2.) The answer to the question which arises for consideration in this appeal depends on a correct appreciation of the requirements of S. 34 of the Act. Now, it has to be mentioned that S. 34 of the Act, as it originally stood in the Act of 1922, was amended by Act 7 of 1939 and this was in turn amended by Act 48 of 1948. At the relevant date, i.e, for the assessment year 1939-40, S. 34(1) as amended by Act 7 of 1939 (and before its amendment in 1948) was in force. It was as follows: "If in consequence of definite information which has come into his possession the Income -tax Officer discovers that Income, profits or gains chargeable to income-tax have escaped assessment in any year, (or have been under-assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act) the Income-tax Officer may, (in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight year and) in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of S. 22, and may proceed to assess or re-assess such income profits or gains, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section". Omitting from the above sub-section those portions which are inapplicable to the facts of the present case-marked out within brackets - it may be seen that the facts which require to be established for the validity of the notice under this sub-section are (1) the income, profits or gains sought to be assessed should be chargeable to income-tax and have escaped assessment in any year, and (2) the Income-tax Officer should have discovered it is consequence of definite information which has come into his possession. The contention of the learned counsel for the appellant is that, with reference to the facts of this case, none of these conditions can be said to have been satisfied. It is urged that the income sought to be assessed under these proceedings was not, as a fact, chargeable to income-tax during the assessment year 1939-40. It is said that in any case there can be no question of the income having escaped assessment because, as a fact, the income-tax authorities did proceed to assess the income and that what happened is that the proceedings became infructuous by reason of the High Court having pronounced them to be void. It is also contended that there is no question of discovery of any relevant fact or information, because the non-assessment of the income of the asseessee for the period in question was in spite of all the information relating to the income of the assessee having been previously furnished and being in the possession of the Income-tax Officer as would appear from the order of the Officer dated 22-12-1939. It is convenient to deal with this last objection in the first instance.
(3.) It may be true that all the information relating to the relevant income of the assessee which is now sought to be taxed was in the possession of the Income-tax Officer in the year 1939 itself when the return was submitted in compliance with the notice under S. 22 (2) of the Act then issued. But what was required under S. 34(1) was not merely fresh information as to the income that escaped assessment but information as to the fact of escapement from assessment of the chargeable income. In the present case the income-tax authorities proceeded to assess the appellant in the normal way during the assessment year 1939-40 itself. Those proceedings became infructuous, by virtue of the decision of the Income-tax Appellate Tribunal and the decision of the High Court confirming it, which disclosed that the Indian Finance Act of 1939 was not in operation in the relevant area at the relevant period and that in the absence thereof no valid assessment could be made. The fact, therefore, that the income of the appellant for the relevant year remained without any valid assessment emerged only on the High Court finally giving its decision that the assessment proceedings previously taken were invalid. If, in the circumstances, there was "escapement of chargeable income from assessment" - a question to be dealt with presently - there can be no doubt that this fact can be reasonable said to have been discovered by the Income-tax Officer only when he got definite information as to (1) the passing of the Bihar Regulation 4 of 1942 applying the Indian Finance Act of 1939 retrospectively for the relevant accounting period, and (2) the judgment of the High Court pronouncing prior proceedings to be invalid. It is knowledge of both these facts, together, that would, with reference to the circumstances of the present case, constitute the discovery of the relevant fact in consequence of definite information received by the Income-tax Officer. The information as to both these facts taken together could only be after the decision of the High Court on 30-9-1943. As already stated, the notice under S. 34(1), whose, validity is in question, was based on the order of the Income-tax Officer dated 8-2-1944, after the judgment of the High Court was pronounced. That order which has been extracted above, shows clearly that it was in consequence of the judgment of the High Court in the back-ground of the promulgation of Regulation 4 of 1942 that fresh action under S. 34(1) was being initiated.;