JUDGMENT
P.B. Mukharji, C.J.
1. The Tribunal referred this question as in its opinion a question of law arises on the facts of this case. The question of law in the statement of the case referred to is as follows :
” Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessment proceedings under Section 34(1)(a) of the Indian Income-tax Act, 1922, were not validly initiated ? ”
The facts of the case may be stated briefly at the outset. It relates to the assessment year 1955-56 and the corresponding previous year ended on the 30th June, 1954. The only question before the Tribunal relates to the validity of reassessment under Section 34(1)(a) of the Income-tax Act of 1922 for the assessment year 1955-56. The original assessment was made by the Income-tax Officer on a total income of Rs. 83,606. This was reduced in appeal to Rs. 67,092. Subsequently the Income-tax Officer reopened the assessment and in the reassessment that followed he included the sum of Rs. 61,353 as “exchange profit”. The profit arose out of
remittance made from Pakistan in respect of two bank drafts dated 12th March, 1954, and 23rd April, 1954, drawn by the Muslim Commercial Bank Ltd., Karachi, and payable by the Allahabad Bank Ltd. at Calcutta. In the balance-sheet of the assessee-company as at 30th June, 1954, the assessee had shown the sum of Rs. 61,352-12-6 as ” Reserve for exchange–Being exchange surplus on remittance from Pakistan ” and the balance-sheet was laid before the Income-tax Officer when the original assessment was made. The Income-tax Officer, however, did not tax the exchange surplus in the original assessment. Subsequently, the Income-tax Officer in the course of the proceeding for the assessment year 1961-62 noticed that the said amount had escaped assessment and he issued a notice under Section 34(1)(a) to bring the amount to tax after obtaining the sanction of the Commissioner of Income-tax.
2. In response to the notice issued by the Income-tax Officer the assessee filed a return showing the same income as that which had been originally assessed. The assessee’s contentions before the Income-tax Officer were:
(1) that the proceeding in reassessment under Section 34(1)(a) was invalid as there was no non-disclosure of facts on the part of the assessee.
(2) that the surplus arising on exchange was receipt of a casual nature which arises in consequence of the decision of the Government of India to devalue its currency and it was, therefore, not a receipt of revenue nature assessable to tax.
The Income-tax Officer rejected both the contentions of the assessee. The Appellate Assistant Commissioner confirmed the reassessment. The Tribunal, however, accepted the contention of the assessee. The Tribunal held that the assessee cannot be said to have failed in its discharge of duty to disclose fully and truly primary facts and in doing so appears to have followed the case of Calcutta Discount Co. Ltd. v. Income-tax Officer, of the Supreme Court. The Tribunal’s reasoning on the point may be stated in their own words:
” In the present case, when the assessee had specifically referred to the existence of the exchange surplus in its balance-sheet which was laid before the Income-tax Officer, it cannot be said that there was any failure or omission on the part of the assessee in the disclosure of the primary facts. It is possible that the Income-tax Officer who made the original assessment had accepted the case of the assessee that the receipt was of a casual and non-trading nature ; it is also possible that the Income-tax Officer had just shut his eyes to the relevant entry in the balance-sheet. In any case, it is not possible to say that the assessee omitted to make a full and truthful disclosure of the relevant facts. That being the case, we are of the view that the Income-tax Officer had no jurisdiction to issue the notice under
section 34(1) of the Income-tax Act, 1922, and, therefore, the reassessment made of the total income is illegal. ”
Section 34(1)(a) of the Income-tax Act, 1922, provides as follows ;
” If the Income-tax Officer has 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 for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed,….he may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; 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. ”
The basic requirements under that sub-section are that the income, profits or gains chargeable to income-tax should have:
(a) escaped assessment for the relevant year,
(b) been under-assessed,
(c) been assessed at too low a rate,
(d) been made the subject of excessive relief, or
(e) excessive loss or depreciation allowance have been computed.
The condition is satisfied that this income or profit escaped assessment.
3. The other requisites which must be satisfied before the Income-tax Officer acts under this section are that the Income-tax Officer should have reason to believe that the income escaped assessment by reason of the omission or failure on the part of the assessee:
(a) to make a return of his income under Section 22 for that year ; or
(b) to disclose fully and truly all material facts necessary for his assessment for the year.
Now, the whole question here is that has the assessee failed to make a return or ” disclose fully and truly all material facts necessary” for his assessment for the year ?
4. For that purpose the Explanation to the section is material. The Explanation to Section 34(1) provides as follows:
” Explanation.–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.”
What are the facts of this case? The record is clear. In the course of the original assessment proceeding there was no disclosure by the assessee of this receipt of the sum of Rs. 61,353 either in the return or in the statement filed. The return of the statement has got to be full and true. Again, this amount was not passed through the profit and loss account. Hence, there was no occasion to consider it as profit. The assessee cannot take shelter under the plea that there was an item in the balance-sheet as ” reserve for exchange ” and had the Income-tax Officer made enquiry regarding this item, he would have found for himself the real nature of the receipt. But, it is precisely this that the Explanation to Section 34 is intended to cover where it says that mere production of account books and other evidence from which materials could, with due diligence, have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of that section. Disclosure within the meaning of that section is quite clear. He has to disclose fully and truly all material facts necessary for assessment for that year. Full and true disclosure requirement has not been made, in our opinion, by the facts of this case.
5. We do not think that the Tribunal read Calcutta Discount Co’s. case correctly. It is no doubt true that the duty of the assessee does not extend beyond a full and true disclosure of the material facts and it was not the duty of the assessee to decide what inferences of facts and law would reasonably be drawn therefrom. But, it is not so much a question of primary fact. The language used in Section 34(1)(a) is not “primary” but “material “. The language is ” to disclose fully and truly all material facts necessary for the assessment for the year “. In the decision of the Supreme Court in Calcutta Discount Co. v. Income-tax Officer there was a difference of opinion with three learned judges against two. What the majority judgment in the Supreme Court in the Calcutta Discount Company’s case held was :
” Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion the answer to this question must be in the negative. 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. ”
The Supreme Court, however, in a later case, has qualified the law and in construing Section 34 of the Indian Income-tax Act of 1922, which lays down the following principles. In Kantamani Venkata Narayana and Sons v. First Addl. Income-tax Officer, Rajahmundry, , the Supreme Court says that the assessee does not discharge his duty to disclose fully and truly material facts necessary for the assessment of the relevant year by merely producing the books of account and other evidence. He has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment.
6. It is necessary for the assessee to make a return or the statement. Making of a return is not a mechanical job. The statement should be clear and intelligible. It must highlight the necessary features in the income and expenditure in the profit and loss. That is what is called making a return or a statement. The obligation to make a return is not satisfied by handing over to the Income-tax Officer the books of account as such or statement of account as such.
7. The assessee is a company. It is M/s. Hoosen Kasam Dada (India) Ltd., Calcutta. It is governed by the Indian Companies Act. The Companies Act provides in Section 210 that at every annual general meeting of the company the board of directors shall lay before the company,–
(a) a balance-sheet as at the end of the period;
(b) a profit and loss account for that period.
What a profit and loss account shall contain is provided for in Part II of Schedule VI of that Companies Act. In paragraph 2 it is said that the profit and loss account,–
(a) shall be made out so clearly as to disclose the result of the working of the company during the period covered by the account; and
(b) shall disclose every material feature including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature.
It shows clearly that the profit and loss account should disclose ” clearly ” the result of the working and disclose ” every material feature including credits or receipts in respect of non-recurring transaction or transactions of an exceptional nature “. If it was the case that it was an exceptional item of exceptional nature and casual in character, then it should have been shown as such and not lumped up in the manner that it was done in the balance-sheet: ” Being exchange surplus on remittance from Pakistan ” in the balance-sheet.
8. When this reference was argued out by the counsel for the income-tax department, the attorney for the respondents said that his counsel was Mr. Sukumar Mitra, who happens to be out of Calcutta. His junior was un-named. We even wanted to give the attorney liberty, who was making his submission before us, to argue the matter on behalf of M/s. Mukherjee and Biswas, who were the attorneys for the respondents. Then he
revealed that he was not the person in charge. On our asking him as to who was in charge, the reply was Mr. Sunil Mitra. On our enquiring again from him whether Mr. Sunil Mitra would be available he said that he was not in the office. This is a very irresponsible way of conducting a reference. This matter has been on the list for many days. This matter was put on the top of the list yesterday in order to give notice to all the parties to be ready. This reference is of 1967 ; four years have already passed and it is the fifth year that this is pending. We have considered the records of this case as fully as we could.
9. In the circumstances, the answer to the question asked in this referrence is in the negative. No order as to costs. The order of the Tribunal is set aside.
B.C. Mitra, J.
10. I agree.
