Income-tax reassessment of a Hindu undivided family after demonetisation encashments by its members. The Supreme Court held that when primary facts were already before the Income-tax Officer at the first reassessment, escapement resulted from his own failure, and he could not reopen by merely changing opinion. Appeal dismissed.
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283
A COMMISSIONER OF INCOME-TAX, WEsr BENGAL CALCUTTA & ANR.
v.
HEMCHANDRA KAR & ORS.
B
April 16, 1970
[J.C. SHAH, K. S. HEGDE AND A. N, GROVER, JJ.]
Indian lncomt•tax Acr (11 of 1922), s. 34 and Indian Income-tax Amendment Act, 1953, s. '31-Scope of.
The anessee was a Hindu undivided family. The Income-tax Ofllcer determined the total Income. of the assessee at a certain figure. Foliowlna c demonetization of blah denomination notes the anmee encashed notes of the value of Rs. f9,000 and each of five members of the family en· cashed certain notes, the total encaslied by all the five members belna Rs. 1,10,000. The Income-tax Officer reopened the assessments under s. 34 of the Income-tax Act, 1922 (as amended in 1948 and made applicable by reason of s. 31 of the Income-tax Amendment Act, 1953) and completed the reassessment on January 31, 1955. He included Rs. 19,000 in the total income of the family and the amounts which had been sepa· D ratelv encashed by the five members were included in the reassessments of their respectiYe individual incomes. On February 2, 1955, he issued another notice under s. 34 and after hearing the assessee, included the •um of Rs. 1,10,000 in the total income of the family.
On the question whether the second notice was competent.
HELD : Under s. 34, as it stood at the relevant time, what the IncomeE tax Officer has to see is if by reason of omission or failure on the part of the assessee to disclose fully and truly •all material facts l\CCessary for his assessment there had been escapement of income. From 'the primary facts disclosed by the assessee or discovered by the authoritl', the authority has to draw inferences as regards other facts and ultimately draw the proper legal inferences. In the present case, the primary facts were within the knowledge of the Income-tax Officer at the time when he completed the first reassessment. When he was in possession of all facts F and proceeded to make the reassessment by including the. amount in the individual accounts of the members of the family, the escapement h"' occurred by reason of· the failure of the officer to include the total sum in the assessment of the family, He could not therefore, a few day~ later, merely changed his opinion and issue the second notice under s. 34 to the family. [286 F-H; 287 A-CJ
Majority opinion in Calcutta Co. Ltd. v. lnccme-tax Of!icer, Companies G Pistl'ict l Calcutta & Anr, 41 1,T.R. 191. followed. C1v1L APPELLATE JUR1soicti6N : Civil Appeal No 2273 o{ 1%6. .
. S. C. Manchanda, R N. Sachthey and B. D. Sharma, for the appellants.
fl971] I S.C.R.
284
SUPREME COURT REPORTS
A
A. K. Sen and D. N. Mukherjee, for the respondent No. 2.
The Judgment of the Court was delivered by
Grover, J.-This is an appeal by certificate from a judgment of the Calcutta High Court i<n an Income ta" Ref~rence.
The assessee during the material time was a Hindu Undivided Family consisting of the six memb.:rs. In the original assessment for the assessment year 1946-4 7 the year of account being from April 14, 1945 to April 13, 1946, the Income tax Officer determmed the total income of the assessee at Rs. 35,741 accruing from the business and other sources such as sale proceeds of forest produce, fisheries etc. Following demQnetization of High Denomination Notes in January 1946 the assessee encashed such notes of the value of Rs. 19,000. The five membP·~ of the family named below also encashed notes of the value shown against each of them, the total value of the notes so encashed being Rs. 1,10,000:
B
c
D
| 1. | Hen1ChandraKar | Rs. 26,000/- |
|---|---|---|
| 2. | JatindraNath!<." | . Rs.24,000/- |
| 3. | Atul Chandra Kar | Rs.23,000/- |
| 4. | NarendraNathJ<,ar | Rs.21,000/- |
| 5. | Bishnt.ram ¥.ar | Rs.16,0CO/- |
E
The Income tax Officer reopened the assessments of the H:1ndu Undivided Family and of the five members for the assessment year J 946•47. He included Rs. 19,000 in the total income of the family and the amounts which had been separately encashed by the five members were included in the reassessments of their res·pective individual income. This reasses~ment was completed on January 31, 1955. Two days later i.e. February 2, 1955 the Income tax Officer issued another notice under s. 34 of the Income tax Act 1922 to the family seeking to include in the income of the family the amount of the High Denomination notes of the total value of Rs. 1,10,000 which had been encashed separately by the five members. On behalf of the assessee it was explained that each of the five members was in receipt of the pocket allowance varying from Rs. 100 to Rs. 150 per month an.d also received cash and jewellery as gifts from his relations; therefore the ·amounts encashed by such members .belonged to 'them individually. The .Income tax Officer was not satisfied with the explanation. He )ncluded the sum of Rs. l, 10,000 in the total income of the family. The Appellate Assistant Commissioner, on appeal, held that the second notice under s. 34 issued to the family on February 2, 1955 was incompetent. He annulled the reassessment made pursuatit
F
G
H
C.I.T., w. BENGAL v. H.· KAR (Grover; J.)
285
D
[l 971 J l S.C.R.
SUPREME COURT REPORTS
286
could be brought under that provision the second notice which was issued in February 1955 would not be barred by time. But if action . could not be taken under it there could be no manner of doubt that the notices which were issued and the reassessment which was . made would be beyond the period prescribed. Section 34 ( 1) (a) is in the following tenns :
A
B
"Income escaping assessment.-(!) I.f( a) the Income tax Officer bas reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment f<fr that year, or have been um!er-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive Joss or depreciation allowance has been computed or"
What has to be seen is whether the Income tax Officer could have reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment there had been esc'apement of income ? The High Court rightly relied on the observations in the majority judgment in Calcutta Discoun,t Co. Ltd. v. Income tttx Officer, Companles District I Calcutta & Another(') that in every assessment proceeding the assessing ·authority will, for the purpose of computing or determining the proper tax, require to know all · the facts which help him in coming to the correct conclusion. · From the primary facts in his possession whether Ot!l. disclosure by · the assessee or discovered by him on the basis of facts disclosed or otherwise the assessing authority has to draw in.ferences as regards certain other facts and ultimately from the primary facts and · the further facts inferred from them the authority has to draw the proper legal inferences. Therefore, the duty of disclosing all ·the primary facts lies on the assessee. The primary facts were admittedly within the knowledge of the Income tax Officer at the time when he completed the first reassessmaiit under s. 34. This is clear from the order of the Appellate Assistant Comm :ssioner to whom the Income tax Officer reported that in the course of reassessment under s. 34 in respect of individual members it became apparent that "they ,acted as merely name lenders of the Hindu Undivided Family and that the total sum of Rs. 1,10,000 encashed by them actually belonged to the Hindu Undivided
c
D
F.
G
H
(I) 41 T T.R. 191.
c.1.t., w. BENGAL v. H. KAil ((;rover, J.)
287
Appeal dismissed.
'
2 issues framed by the court
Whether the second notice under section 34 issued on February 2, 1955 to the Hindu undivided family was competent.
Whether Rs. 1,10,000 was rightly included in the assessment of the family.
Colour shows how this judgement treated each authority
3 provisions across 2 enactments
Commissioner of Income-tax, West Bengal, Calcutta
Hemchandra Kar
J.C. Shah
K.S. Hegde
A.N. Grover
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
