COSTELLO, J. - (1.) ON the 5th of Dec., 1934, a Rule was issued by Mr. Justice LORD-WILLIAMS and Mr. Justice JACK in the matter of an application under S. 66(3) of the Indian IT Act, 1922, at the instance of Jawala Prasad Chobey calling upon the CIT, Bengal, to show cause why he should not draw up a statement of the case mentioned in the petition on which the application was based and refer the statement of the case to this Court under S. 66(3) of the Indian IT Act for its opinion on the question of law referred to in the order made by this Court. Those questions of law were stated under three heads after the original questions given in the petition had been redrafted by Counsel on behalf of the petitioner at the suggestion of the Court. In their final shape the questions were as follows : (i) Whether, having regard to the fact that S. 34 of the Act requires "particulars" to be stated in the notice and that the notice is the basis of the proceedings under the said section, the ITO was competent in law to go behind the particulars as specified in the notice under S. 34 in the present case ? (ii) Whether in view of the fact that admittedly the previous assessment did not give the details of the estimate on which the assessment was made, and in view of the nature of the business carried on by the assessee, the ITO was entitled to assume that income from dividends had not and could not have been included in the previous assessment ? or, was it not open to the assessee to rebut the said assumption by reference to his books of account and other evidence and claim to reopen the said previous assessment accordingly ? (iii) Whether or not in the circumstances of the case, the ITO was justified in law in holding that he was precluded from entering into the merits of the former assessment ?" The CIT was required to show cause why he should not state a case raising those three questions for the opinion of this Court.
(2.) IN the proceedings now before us the CIT, Bengal, is showing cause why he should not be required to state a case. He has submitted a somewhat comprehensive statement to this Court and in paragraph 4 he says "I presume I am required to show cause only in respect of the questions as formulated by the leave of the Court and in this connection I would respectfully urge that the first of the 3 questions thus formulated was never raised, at the stage when the matter was before the Asstt. CIT or CIT. The second question also would appear to be new except for the last portion thereof which corresponds to some extent to question (D) of the applicant's list, while question No. III would also appear to be new in form and in substance" . In order to appreciate how the questions which were formulated on behalf of the petitioner can in any way be material it is necessary that I should recapitulate the history of this matter. The petitioner originally submitted a return of his income under the provisions of S. 22(2) of the IT Act on the 3rd of June, 1929 and in that return he showed his income under the heading "Business, trade, commerce, manufacture, or dealing in property, shares or securities" that is to say, heading 5 as being the sum of Rs. 9,412-10-0, that is to say, he gave that figure as the amount of profits or gains or income during the previous year under the heading of "business". A week or two later, that is to say, on the 27th of June, 1929, the present petitioner submitted a revised return as he was entitled to do under the provisions of S. 22(3) and in that revised return the statements in the column heading "amount of profits or gains or income during the previous year" were amended. Under heading 1 "Salaries" he put the word "nil"; under heading 1 B "the interest accruing to the account mentioned in 1-A which is not exempt for income tax" ditto; under heading 3 "Interest on Securities of the Government of India or of local Government declared to be income-tax free"- ditto; under heading 5 "Business" he stated the amount to be Rs. 11,752; under heading 6 "Profession" he put the word "nil" under heading 7 "Dividends from companies" ditto; and under heading 8 "Interest on mortgages, loans, fixed deposits, current accounts etc." ditto : the total being stated to be Rs. 11,752. It has thus to be seen that in the revised return which was made on the 27th of June, 1929, the assessee had put the return in such a form as would indicate that he had given close attention to the various headings under which he might be chargeable to income- tax. The importance of this return is that against heading 7 "Dividends" he had put "nil". The ITO was then of opinion that even this second return did not properly or fully disclose the whole of the taxable income of the assessee and accordingly the ITO served a notice upon the assessee under the provisions of ss. 22(4) and 23(2) calling upon him to furnish such evidence as was available to substantiate the return which he had made and also calling upon to produce accounts and other documents in support of it. In pursuance of that notice the assessee did produce certain accounts in the form of a "daily purchases and sales book" sowda book, and as a result of the enquiry that ensured, on the 10th of Dec., 1929, an assessment was made under the provisions of S. 23(3) of the Act which provides that "the ITO after hearing such evidence as such person, i.e., the assessee, may produce and such other evidence as the ITO may require on specified points shall, by an order in writing, assess the total income of the assessee and determine the sum payable by him on the basis of such assessment." The assessment made on the 10th of Dec., 1929, was on the basis of a total income of Rs. 38,000 of which Rs. 28,000 was in respect of "business" and Rs. 10,000 in respect of "interest". Some months after it came to the knowledge of the IT authorities that the assessee had a business in Agra and he had been assessed in Agra in respect of the business. Accordingly on the 21st of March, 1930, a notice was served under the provisions of S. 34 of the IT Act which provides "If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year, or has been assessed at too low a rate, the ITO may, at any time within one year 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 reassess 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." That means of course that where a notice is served under S. 34 the ITO may again require a production of accounts or other evidence bearing on either of the two points on which the notice may be, that is to say, the income which has escaped assessment or the income on which tax has been charged at to low a rate. This notice of the 21st of March was directed to the second part of S. 34 and was intended to enable the IT authorities to amalgamate the original assessment on the Calcutta business Rs. 38,000 with the assessment on the Agra business which was to the amount of Rs. 12,000. At that time no question had arisen as to the escape of any income from assessment and, therefore, the ITO at that time did not require a production of any further account or documents or other evidence. As a result of the issue of that notice a return was submitted on the 25th of April, 1930, again duly signed by the assessee in which he stated that the income of the Calcutta business was Rs. 38,000 and the income of the Agra business Rs. 12,000 making a total of Rs. 50,000. A month later, on the 21st of May, 1930, an assessment was duly made upon the basis of that return with the addition of a sum of Rs. 100 on account of certain house property owned by the assessee in Agra whereby the total income was brought up to a sum of Rs. 50,100. The assessment was in these terms : "In this case notice under S. 22 (2) r/w S. 34 was issued as per orders dt. 20th March, 1930. The assessees filed a duly verified return on 23rd April, 1930. They have failed to comply with the terms of the notice under S. 23(2). It has been alleged that no accounts are kept by them. This is unthinkable. A business firm like theirs cannot do without accounts and I am of opinion that the books are being intentionally withheld. They are thus liable for assessment under S. 23(4). I assess them accordingly under S. 23(4) for 1929-30 r/w S. 34 on a total income of Rs. 60,100. Income tax now due Rs. 1,156-4-0."
(3.) AFTER that there was an interval of some five months and on the 9th of Oct., 1930 a second notice under the provisions of S. 34 was served on the assessee and in that notice it was averred that "income from dividends etc., has partially escaped assessment." So, that was a notice under the first part of the provisions of S. 34. Pursuant to that notice a return was submitted in which it was stated that the assessee had no income from dividends apart from the income disclosed under the heading "business". That return is somewhat illuminating. It is dt. the 27th of Nov., 1930, and in it the assessee once more revised the amount of his income under the heading of "business." I emphasise again that originally it was stated by him to be Rs. 9,000, it was then stated by him to be Rs. 11,000 odd; and it was ultimately assessed at Rs. 38,000. When the second notice under s. 34 was served and the return of the 27th Nov., 1930, was made in consequence of that notice the assessee thought fit to reduce the assessable income under the heading "business" to the figure of Rs. 5,544 and he stated that the tax already charged on the income was Rs. 8,457- 11-9. But the really significant part of this return is a sort of postscript added to the foot of the first page of the return in these terms : "The assessee has no income from dividends as contemplated in the notice under S. 34 distinct from his income from dealing shares. Income from dividends accrues to him as part of his business income and passes through the Revenue account." One can only say-it seems somewhat curious, to say the least of it, that the first effect of the IT authorities saying that a part of the assessee's income had escaped assessment was for the assessee to contend that he had already been assessed at too high a figure under the heading "business". It is not surprising however that in those circumstances the IT authorities were not content with that return; and on the 8th of May, 1931, fresh notices under S. 23(2) and S. 22(4) were issued calling upon the assessee to produce accounts for the year 1982-83, to 1984-85, i. e., corresponding to 1925-26 to 1927-28. After receipt of those notices on the 18th of May, 1931, the assessee did produce certain books-khata books, rokurs, delivery book, Bank pass books, sowda books, share stock books, share security books and some others and the accounts disclosed in these documents were under examination by the IT authorities for a considerable period of time; and ultimately on the 28th of April, 1933, an assessment was made which is the assessment now called in question in these proceedings. The relevant part of the order of the 28th of April, 1933 is in these terms : I compute assessee's income as under : ;