HARRIES, J. - (1.) THIS is a reference made under s. 66(1) of the Indian IT Act in which the Court is asked to express its opinion upon the following questions :-- (1) Where the source of income has been mentioned in previous assessment orders and is thus by implication within the knowledge of the Department is the ITO debarred from taking action under s. 34 if any fresh information about the income from that source having arisen and escaped assessment comes to his knowledge ? (2) Whether it is necessary for the ITO under s. 22(2) r/w s. 34 to give in the notice a detailed list of income which has escaped assessment and, if so, can the ITO in these proceedings, assess any other items of income which may have escaped assessment but were not included in the list given with the above notice ? (3) Whether in the circumstances of this case Rs. 79,532 has been rightly assessed as the income for the asst. yr. 1939-40 ? (4) Whether the sum of Rs. 5,249 was rightly assessed in the hands of the assessee when although assessment proceedings were started against the Receiver but only the quantity of income was determined and no tax was either levied on it or recovered from the Receiver ?.
(2.) THE reference was made at the instance of the assessee. THE assessee carried on the business of money-lending and also owned certain zamindary property. On 10th Aug., 1908, certain properties were mortgaged by an estate known as the Searsole Estate to Laik Banerjee and Co. for Rs. 1,00,000 ; interest on the mortgage money was to be paid at the rate of 7 per cent per annum. On the same date the mortgagors leased out the lands in question to the mortgagee and it was provided that as far as possible the interest payable by the mortgagor on the mortgage was to be paid out of the rents and royalties payable by the mortgagee to the mortgagor under the lease. On 9th Feb., 1920, the mortgagee and lessee's interest was sold in execution of a decree which had been obtained against M/s Laik Banerjee and Co. by the father of the assessee. THE assessee purchased both the mortgagee and the lessee's interest for Rs. 1,10,000. It appears that the assessee became entitled to surrender the lease and eventually the lease was surrendered. On 31st March, 1922, a suit was instituted on the original mortgage and on 31st July, 1928, a preliminary decree was made and on 25th Feb., 1929, the final decree was made. On 4th Aug., 1930, the mortgaged property was put up for sale and was purchased for Rs. 59,000 and on 13th June, 1931, this sale was confirmed. On 31st Oct., 1935, the mortgagee obtained a personal decree against the mortgagor for Rs. 1,27,179 and on 4th Jan, 1939, this personal decree was satisfied by the mortgagor transferring another property to the decree-holder which was worth Rs. 50,000 and remitting the balance. THE mortgagee of course was the assessee who had purchased the interest of the original mortgagee. It appears that in the mortgage suit the mortgagee admitted the receipt of Rs. 22,372 as interest and that was set-off as against the total claim which amounted to over Rs. 2,00,000, the balance after allowing for this interest being Rs. 1,85,139. The learned Subordinate Judge who decided the case came to the conclusion that the mortgagee had received a further sum of Rs. 11,133-3-11 as interest and he directed that this sum would have to be credited as having been paid by the mortgagor. During the pendency of the mortgage suit a Receiver was in possession who had collected rents and profits amounting to over Rs. 65,000. The decree of the learned Subordinate Judge directed that this sum should be paid to the mortgagee and credited in the decree. This sum was actually paid to the assessee by two payments one of Rs. 24,394-8-0 on 16th Jan, 1929, and the balance by the payment of Rs. 40,632-14-9 on 18th Jan, 1930. The IT authorities seem to be of opinion that the assessee had treated all payments as being made into a suspense account and it is clear that in the years preceding 1939-40 the assessee had not included any of these payments in his returns of income.
(3.) THE original assessment for the asst. yr. 1939-40 was made on 30th Dec., 1939, when none of the amounts to which I have made reference were included in the assessable income. Later it is said that the ITO received information from the Searsole Estate and the assessee was served with a notice under s. 34 of the Indian IT Act on 19th May, 1943, alleging that items of his income had escaped assessment. THEse items are set out at pages 2 and 3 of the paper book. THE first three items are the items of Rs. 22,372, Rs. 11,133 and Rs. 65,027 to which I have already made reference. It will be seen that all these items are said to have been received in the years 1928, 1929 and 1930, the last receipt being the receipt of Rs. 40,632 being a part of the sum of Rs. 65,027 which was received on 18th Jan, 1930. Two items are then shown as having been received later, namely, an item of Rs. 59,000 received on 4th Aug., 1930, being the proceeds of the sale of the mortgaged property in execution, and an item of Rs. 50,000 received on 4th April, 1939, which was the value of property transferred to the assessee in satisfaction of his personal decree. All the receipts total Rs. 2,07,532. Against that amount is set off the cost of the loan as it is said, that is Rs. 1,10,000, which is what the assessee paid for the interest of the mortgagee and the lessee. THEre is a further deduction of Rs. 18,000 showing a balance of payments in favour of the assessee of Rs. 79,532. According to the IT authorities no tax had been paid upon this amount of Rs. 79,532 which the authorities treated as entirely income and the authorities claimed that in the circumstances this amount was income received by the assessee for the asst. yr. 1939-40 and as it had escaped assessment, the assessment was made under the provisions of s. 34 after notice had been served on the assessee. A number of points appear to have been taken by the assessee before the Tribunal, but Mr. Atul Gupta who has appeared for the assessee before us has limited his argument to one ground, namely, that an assessment could not be made under s. 34 of the Indian IT Act because the income alleged to have escaped assessment was income received more than eight years before the assessment was made.;