Case: Commissioner of Income Tax, Gujarat Vs. M/s. Bhanji Lavji Porbandar

The respondent who will hereinafter be called the assessee carried on the business in ghee at Porbandar, which was at all material times relevant to the assessments in question outside the taxable territories. TheII Ward, Bombay, initiated proceedings against the assessee as afor the assessment years, amongst others,0. The assessee had in the relevant years of accounts a current account with the Bank of India Ltd., in Bombay and sale proceeds in respect of large quantities of ghee supplied outside taxable territories were credited in that account and were then transferred to Porbandar. The assessee had also a current account with the firm Shamji Kalidas and Company at Bombay and in this accounts Messrs. Shamji Kalidas and Company had paid interest to the assessee The assessee being a nonresident, tax at the maximum rate was deducted by Messrs. Shamji Kalidas and Company, in respect of the interest paid to the assessee under Section 18tax Act, 1922. The assessee disclosed those facts to theOfficer and contended that since the assessee had no business in the taxable territories nor any income taxable in the taxable territories (other than the income from Messrs. Shamji Kalidas and Company in respect of which certificates showing deduction at the maximum rate), the assessment proceedings initiated by theOfficer be discharged. TheOfficer upheld the contention and made an order on December 30 1948, for the assessment years49 observing that there was no source of income taxable in British India and that the proceedings started should be dropped. In the assessment yearthe Income Tax Officer also Passed an order that the proceeding be discharged.2. In 1956 theOfficer, Porbandar, initiated proceedings under Section 34 (1) (a) of theAct, 1922, forthe assessment of the assessee for the assessment years9 and 194950, and served the requisite notices. The assessee challenged the jurisdiction of theOfficer to assess him on various grounds one of which alone survives for consideration The assessee submitted that it had disclosed fully and truly all the primary facts necessary for the purpose of assessment and on that account theOfficer had no jurisdiction to initiateproceedings. The assessee contended that theOfficer could not commenceproceedings merely because he entertained a view different from the view of his predecessor. TheOfficer rejected the plea raised by the assessee and brought the income which in his view had escaped assessment to tax. Appeals filed by the assessee to the Appellate Assistant Commissioner and to theAppellate Tribunal were dismissed.3. At the instance of the assessee, four questions were referred to the High Court of Gujarat as arising out of the order of the Tribunal. We are concerned with the third question:"(3) Whether on the facts and circumstances of the case, the Tribunal was justified in upholding the action under Section 34 (1) (a) as valid in all the three assessment years?"The High Court recorded on that question an answer in the negative. With certificate granted by the High Court, the Commissioner ofhas appealed to this Court.4. The High Court held that all primary facts relevant to the assessment of the income of the assessee were disclosed by the assesses In respect of the notice for the first two years, viz49 theOfficer had by his order dropped the proceedings of assessment observing:"In response to notice issued under Section 23 (2) of the Act Mr. A. V. Deshpande x x x attends on behalf of the assessee states that the assessee is aand has absolutely no business in British India. The assessee is doing ghee business at Porbandar and delivers goods at Porbandar to, merchants who buy ghee from Indian Union. There is no office nor any agency of thein British India. The nonresidentassessee has maintained a Bank account in British India but this is only for recovering from the merchants dues in respect of goods delivered at Porbandar. Bank Pass Books are produced. It appears that the cheques that are received from the merchants are credited in this account and subsequently transferred to Porbandar. The assessee has, however, got a current account with Shamji Kalidas and Co., and receives interest on the amounts deposited in this firm. Mr. Deshpande, however, produces certificates of the taxes deducted at the maximum rate under Section 18 (3A) on interest received by theThe tax is regularly paid uptoassessment years. As there is no source of income taxable in British India, I drop the proceedings already started." In the proceeding for assessment of income for the assessment yearthe assessee submitted a blank return stating:"With reference to your above, we have to return herewith the forms sent by you and have to inform that theis always paid by us at maximum scale in British India and that we have no other income therefore and hence the forms sent by you are returned herewith with a request to cancel the same."After considering the representation theOfficer passed the following order:"Return of income for assessment yearwas served on the assessee direct at Porbandar, The assessee is aand has absolutely no business in British India. TheThe assessee had in the course of the assessment proceedings shown his hankof his account with the Bank of India Ltd. He also disclosed the account with Messrs. Shamji Kalidas and Company. The Tribunal in dealing with the appeals relating to the assessment years49 observed: "The duty of the assessee is to disclose all the primers, facts in his possession. In the present case, a considerable portion of the sale proceeds of ghee was received in Bombay. There is difference between accrual and receipt x x x and x x it depended upon the opinion of theOfficer as to whether any profit had accrued in British India. Receipt of sale proceeds of ghee in British India, however, stands on a different footing, and the question of full and true disclosure on the part of the assessee of all material facts should he examined with regard to the sale proceeds of ghee only. If the assessee could satisfy us that there was no concealment with regard to the said question. that should be enough for our purposes, and it would not be necessary further to examine the position with regard to the profits which are deemed to have accrued in British India under Ss. 42 (1) and 42 (3)".The Tribunal proceeded to observe that the statements made by the assessees representative only disclosed that the assessee was athat it had no business in British India, that it had delivered ghee at Porbandar, and that it had no office or agency in British India. They also observed that the Bank Account and the Bank Pass Books of the assessee were produced and theOfficer was informed that the cheques received were "subsequently transferred to Porbandar", and the current account with Messrs. Shamji Kalidas and Company and the amounts deposited therein were also disclosed. In the view of the Tribunal, by these disclosures, the "assessee did not furnish any particulars about how the delivery was given" and "thequestion about the price of the goods was not mentioned", that on that account the statement must be regarded as incomplete: that it was the duty of the assessees representative to disclose "the profits embedded in the price, but the sequence of the several statements was such that the assessee wished to show thereby that there was no office or agency in British India and whatever was done was done at Porbandar"that the question of receipt of sale proceeds in British India was "thus bypassed"; that theOfficer was informed about the interest paid to the assessee but "no question was raised of any possible liability of the assessee to tax on other account"; that "all the statements taken together contained such a meagre presentation of the facts, that it was difficult to consider that there was a full and true disclosure of material facts"; and that "the material facts were not disclosed, whatever was disclosed was not fully disclosed, and in that sense there was no true disclosure",. The Tribunal then observed:This is not a case where theOfficer drew a wrong legal inference from facts. This is a case where facts must be regarded as not fully or truly disclosed. xxx Even so, in this case, it is mainly the assessee who failed to carry out the obligation under the law, with the result that the income escaped assessment. The words "full" and "true" and "material facts" and the Explanation to S. 34 (l) (a) would lose all their meaning it the meagre statements by the assessee were to pass muster. Under those circumstances, we must hold that the initiation of action under S. 34 (l) (a) was valid ".

Court's reasoning:
6. In our judgment, the High Court was right in holding that the Tribunal misconceived the nature of the proceedings and the duty imposed upon the assessee by S. 34 (l) (a).It is not for the assessee to satisfy theOfficer that there was no concealment with regard to any question; it is for theOfficer, if that issue is raised, to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment.Failure to disclose how the delivery of ghee was given at Porbandar was wholly irrelevant, and failure to furnish particulars in that behalf cannot assist the case of the Department. Observation relating to the failure to disclose the price of ghee supplied is not strictly accurate, for, it was disclosed by the assessees representative that the cheques were delivered for payment of the dues for ghee supplied at Porbandar and that "they were subsequently transferred to Porbandar". It was again no duty of the assessee to disclose to or instruct theOfficer thatthere were "profits embedded in the receipt" of the money at Bombay. Section 34 (l) (a) does not cast any duty upon the assessee to instruct theOfficer on questions of law. The assessee had disclosed that ghee was delivered at Porbandar by him and the price in respect of those supplied was received in Bombay which was subsequently transferred to PorbandarWe are unable to accept the view of the Tribunal that the "question of receipt of sale proceeds m British India was thusThe assessees representative had expressly stated that the assessee had maintained a Bank account in British India in which "for recovering from merchants dues in respect of the goods delivered at Porbandar" were credited. The assessee also produced the Bank Pass Books. The finding that "the question of receipt of sale proceeds wascannot be accepted as correct. The statement that the cheques were "subsequently transferred to Porbandar" only means that the amounts realized by encashment of the cheques were sent to Porbandar, and not thatthe cheques were sent to Porbandar. We do not think that any more detailed disclosure was necessary to comply with the requirements that the assessee had fully and truly disclosed all the material facts necessary for the purpose of assessment.7. TheOfficer may, if he is satisfied, that on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, income has escaped assessment, he may assess orthe income. But when the primary facts necessary for assessment are fully and truly disclosed, he is not entitled on change of opinion to commence proceedings forax Officer was apprised of all the primary facts necessary for assessment, and he proceeded to "drop the assessment proceedings". He may have raised a wrong legal inference from the facts, disclosed but on that account he was not competent to commenceproceedings under Section 34 (1) (a) for the two assessment yearsre is no substance in this contention. The assessee had invited the attention of theOfficer to the previous assessment proceedings and also had invited his attention to the fact that on the interest received tax at maximum rate was charged. In the Bank account there was no express reference. But we agree with the High Court that since the factual position having remained unaltered in the assessment yearthere was noof material facts necessary for assessment of the income. TheOfficer was fully aware of the assessment proceedings for the years9, and in his order he expressly referred to those proceedings. Being aware of the earlier proceedings and the reasons for passing the previous order, if theOfficer passed an order in effect holding thatthere was noincome of the assessee chargeable to tax, theOfficer cannot seek to reassess the income on the ground of failure to disclose fully and truly the facts necessary for assessment. We do not think that any ground is made out for disagreeing with the High Court in respect of the validity of the order offor the Year