Case: Malegaon Electricity Co. (P) Ltd Vs. The Commissioner Of Income-Tax, Bombay

disclose fully and truly all material facts necessary for his assessment for that year. Further, Explanation to section 34 (1) says :"Production before the Income-tax Officer of account-books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this Section".10. If the assessee had disclosed to the Income-tax Officer, the surplus price realised by it over and above the written down value of the assets sold or in the alternative if it had informed, the Income-tax Officer the price realised as well as the written down value of the assets sold, then it could have been said that the assessee had done its duty and it was for the Income-tax Officer to draw any inference on the facts placed before him. But the failure of the assessee to disclose to the Income-tax Officer the fact that the price realised by it by sale of its assets was more than the written down value of those assets or at least the written down value of those assets amounts, in our opinion, to a failure on its part to disclose fully and truly the material facts necessary for its assessment. From the cryptic statement of the Income-tax Officer in the original assessment order that "no adjustment is necessary" the tribunal was not justified in drawing the inference that the Income-tax Officer had considered all the relevant facts.11. In support of his contention that the disclosure made by the assessee was true and full in all material particulars and hence no proceedings could have been taken under Section 34 (1) (a), Mr. A. K. Sen, learned Counsel for the assessee relied on the decision of this Court in V. D. M. RM. M. RM. Muthiah Chattier v. Commr. of Income-tax, Madras, 74 ITR 183 = (AIR 1970 SC 10 ). In that case the question that arose for decision was whether the assessees failure to include in his return the income of his wife and his minor sons admitted to the partnership of which he was a partner assessable in his hands under Section 16 (3)(a) (ii) can be considered as a failure to disclose truly and fully all facts material for the assessment. This Court came to the conclusion that the omission in question did not come within the scope of Section 34 (1) (a). Therein this Court observed that in the form of return prescribed under Rule 19 of the Indian Income-tax Rules, 1922, framed under Section 59 of the Act, there was no clause which required disclosure of the income of the assessee, which was liable to be included in his total income. Nor was the assessee required under Section 22 (5) of the a Act, in making a return, to disclose that any income was received by his wife or minor child admitted to the benefits of partnership in a firm of which he was a partner. Hence by not showing the income of his wife and minor children, the assessee cannot be deemed to have failed to disclose fully and truly all material facts necessary for his assessment within the meaning of Section 34 (1) (a) of the Act. Therein this Court further observed that Section 16 (3) of the Act imposes an obligation upon the Income-tax Officer to compute the total income of an individual for the purposes of assessment by including the items of income set out in Clauses (i) to (iv) and (b) but thereby no obligation is imposed upon the tax payer to disclose the income liable to be included in his assessment under Section 16 (3). For failing or omitting to disclose that income proceedings for reassessment cannot therefore be commence under Section 34 (1) (a). The ratio of the above decision is inapplicable to the facts of the present case.If any part of the price with which we are concerned in this case can be considered as deemed profits under Section 10 (2) (vii), then the assessee had a duty to include it in his return. His failure to do so brings his case within the scope of Section 34 (1) (a).Mr. Sen next relied on the decision of this Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies Dist I, Calcutta 41 ITR 191 at p. 201 = (AIR 1961 SC 372 at p. 376). Therein this Court had observed :"Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee - to tell the assessing authority what inferences whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences - whether of facts or law - he would draw from the primary facts."12. In that case the question for consideration was whether the assessee had a duty to inform the Income-tax Officer with what intention the shares concerned in that case were sold. We do not think that the decision in question is of any assistance to the assessee.13. For the reasons mentioned above, we are of the opinion, that the High Court should not have and we in our turn will not answer the questions referred under S. 66 (1) of the Act because in our opinion those questions cannot be answered without first deciding whether the part of the sale price received by the assessee amounts to profits under S. 10 (2) (vii). The tribunal must first decide that question and thereafter decide the other questions of law arising for decision on the basis of its decision whether there was any profit falling within S. 10 (2) (vii).

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]10. If the assessee had disclosed to the Income-tax Officer, the surplus price realised by it over and above the written down value of the assets sold or in the alternative if it had informed, the Income-tax Officer the price realised as well as the written down value of the assets sold, then it could have been said that the assessee had done its duty and it was for the Income-tax Officer to draw any inference on the facts placed before him. But the failure of the assessee to disclose to the Income-tax Officer the fact that the price realised by it by sale of its assets was more than the written down value of those assets or at least the written down value of those assets amounts, in our opinion, to a failure on its part to disclose fully and truly the material facts necessary for its assessment. From the cryptic statement of the Income-tax Officer in the original assessment order that "no adjustment is necessary" the tribunal was not justified in drawing the inference that the Income-tax Officer had considered all the relevant facts.11. In support of his contention that the disclosure made by the assessee was true and full in all material particulars and hence no proceedings could have been taken under Section 34 (1) (a), Mr. A. K. Sen, learned Counsel for the assessee relied on the decision of this Court in V. D. M. RM. M. RM. Muthiah Chattier v. Commr. of Income-tax, Madras, 74 ITR 183  = (AIR 1970 SC 10 ). In that case the question that arose for decision was whether the assessees failure to include in his return the income of his wife and his minor sons admitted to the partnership of which he was a partner assessable in his hands under Section 16 (3)(a) (ii) can be considered as a failure to disclose truly and fully all facts material for the assessment. This Court came to the conclusion that the omission in question did not come within the scope of Section 34 (1) (a). Therein this Court observed that in the form of return prescribed under Rule 19 of the Indian Income-tax Rules, 1922, framed under Section 59 of the Act, there was no clause which required disclosure of the income of the assessee, which was liable to be included in his total income. Nor was the assessee required under Section 22 (5) of the a Act, in making a return, to disclose that any income was received by his wife or minor child admitted to the benefits of partnership in a firm of which he was a partner. Hence by not showing the income of his wife and minor children, the assessee cannot be deemed to have failed to disclose fully and truly all material facts necessary for his assessment within the meaning of Section 34 (1) (a) of the Act. Therein this Court further observed that Section 16 (3) of the Act imposes an obligation upon the Income-tax Officer to compute the total income of an individual for the purposes of assessment by including the items of income set out in Clauses (i) to (iv) and (b) but thereby no obligation is imposed upon the tax payer to disclose the income liable to be included in his assessment under Section 16 (3). For failing or omitting to disclose that income proceedings for reassessment cannot therefore be commence under Section 34 (1) (a). The ratio of the above decision is inapplicable to the facts of the present case.If any part of the price with which we are concerned in this case can be considered as deemed profits under Section 10 (2) (vii), then the assessee had a duty to include it in his return. His failure to do so brings his case within the scope of Section 34 (1) (a).Mr. Sen next relied on the decision of this Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies Dist I, Calcutta 41 ITR 191  at p. 201 = (AIR 1961 SC 372  at p. 376). Therein this Court had observedall the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee - to tell the assessing authority what inferences whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences - whether of facts or law - he would draw from the primary facts.In that case the question for consideration was whether the assessee had a duty to inform the Income-tax Officer with what intention the shares concerned in that case were sold. We do not think that the decision in question is of any assistance to the assessee.13. For the reasons mentioned above, we are of the opinion, that the High Court should not have and we in our turn will not answer the questions referred under S. 66 (1) of the Act because in our opinion those questions cannot be answered without first deciding whether the part of the sale price received by the assessee amounts to profits under S. 10 (2) (vii). The tribunal must first decide that question and thereafter decide the other questions of law arising for decision on the basis of its decision whether there was any profit falling within S. 10 (2) (vii).