Commissioner Of Income-Tax Bombay vs Lakhiram Ramdas

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 17 January, 1962

Coram: J.C. Shah, M. Hidayatullah, S.K. Das

The case before the Supreme Court was titled Commissioner of Income‑Tax, Bombay versus Lakhiram Ramdas and was decided on 17 January 1962. The judgment was written by Justice S.K. Das, and the bench consisted of Justices J.C. Shah, M. Hidayatullah and S.K. Das. The matter comprised two separate appeals that were entertained by special leave of this Court. The first appeal challenged a judgment and order dated 7 November 1955 of the Income‑Tax Appellate Tribunal, Bombay Bench “C” (hereinafter referred to as the Tribunal). The Tribunal had held that section 34(1)(a) of the Indian Income‑Tax Act, 1922 did not apply because the assessee had neither failed to file a return under section 22 for the assessment year 1945‑46 nor omitted to disclose fully and truly all material facts required for his assessment for that year. The second appeal contested an order dated 14 December 1956 of the High Court of Bombay, which had rejected an application made by the present appellant under section 66(2) of the Income‑Tax Act. By that order the High Court declined to direct the Tribunal to state a case for its consideration on a question of law that the appellant claimed had arisen from the Tribunal’s 7 November 1955 order.

A preliminary objection concerning limitation was raised on behalf of the respondent with respect to the appeal from the Tribunal’s order. The Court found it unnecessary to entertain that objection because counsel for the appellant conceded that the appeal directly from the Tribunal’s order must be dismissed. The concession was based on the precedent set in Chandi Prasad Chokhani v. State of Bihar, which holds that, except in exceptional and special circumstances, this Court will not exercise its powers under article 136 of the Constitution to bypass the High Court by entertaining an appeal directly from a Tribunal order and thereby disregard the decision of the High Court. Accordingly, the appeal from the Tribunal’s order dated 7 November 1955 was dismissed.

The Court then turned to the appeal arising from the Bombay High Court’s order of 14 December 1956. The factual background was as follows: the respondent, who was the assessee, carried on a cloth‑manufacturing business in Ahmedabad and later opened branch establishments at Karachi and Bombay. For income‑tax purposes the assessee was assessed as a Hindu undivided family. During the account period relevant to the assessment year 1943‑44, the assessee opened a branch at Karachi, and the total income for that year was determined to be Rs 38,400. For the subsequent assessment years 1944‑45 and 1945‑46 the assessee maintained joint accounts covering the entire two‑year period. In the assessment year 1945‑46 a further branch office was opened at Bombay. The original assessment for the aforesaid two years had been completed under the provisions of section 23(3) of the Income‑Tax Act on 13 September 1946.

The Court recorded that the original assessment for the two years was completed under the provisions of section 23 (3) of the Income‑tax Act on 13 September 1946. For the assessment year 1945‑46 (Samvat year 2000) the assessee’s income was derived from his cloth business carried on at Ahmedabad, Karachi and Bombay together with certain other properties. The assessee maintained separate sets of accounts for the head office and for each of the two branches. The books of account were produced and examined by an examiner of accounts, who then submitted a report to the Income‑tax Officer concerned. On the basis of this examination the total income for the year 1945‑46 was fixed at Rs 15,294. After the completion of that assessment the Income‑tax Officer received information that the assessee had purchased a draft for Rs 1,10,000 from the Exchange Bank of India and Africa Ltd. at Bombay and that the draft had been deposited on 17 July 1944 in a branch of the same bank at Ahmedabad for realisation. Acting on that information, the Officer initiated proceedings under section 34 (1) (a) of the Income‑tax Act by issuing a notice to the assessee on 24 March 1954. The exact date on which the Officer actually became aware of the purchase of the draft is not recorded. The Officer also issued a notice under section 22 (4) requiring the assessee to produce the account books for Samvat year 2000 and the pass books of the Exchange Bank of India and Africa Ltd. The assessee explained that he was unable to produce either his own account books or the bank’s pass books. The Officer dismissed this explanation and, by a revised assessment order dated 15 October 1954, added a sum of Rs 1,10,000 as income from an undisclosed source that had escaped assessment in the original order. An appeal against that order was made to the Appellate Assistant Commissioner, who confirmed the Income‑tax Officer’s assessment.

The Tribunal subsequently examined whether any omission or failure on the part of the assessee had occurred in relation to filing a return under section 22 for the year 1945‑46 or in fully and truly disclosing all material facts necessary for his assessment. The Tribunal observed that at the time of the original assessment the assessee had produced the books of account for all three offices—Ahmedabad, Bombay and Karachi—and had filed the balance‑sheets relating to his business at those locations. Furthermore, before completing the assessments for the years 1944‑45 and 1945‑46, the Income‑tax Officer had called for all relevant account books, which had already been examined by an examiner of accounts. An officer subordinate to the Income‑tax Officer also requested the same documents, and that officer submitted a report concerning the account books of the Ahmedabad business, noting that the assessee held accounts with the Exchange Bank of India and Africa Ltd. and with certain other banks. In these circumstances the Tribunal concluded that it could not be said that the assessee had omitted or failed to make a return of his income under section 22, nor that he had failed to disclose fully and truly all material facts necessary for his assessment for the year 1945‑46.

The officer who examined the books of the Ahmedabad branch reported that the assessee maintained accounts with the Exchange Bank of India and Africa Ltd. as well as with several other banks. On the basis of this report the Tribunal concluded that, under the circumstances, it could not be said that the assessee had omitted or failed to file a return of income under section 22 or to disclose fully and truly all material facts required for the assessment of the year 1945‑46.

Thereafter the appellant invoked section 66(1) of the Income‑Tax Act and requested that the Tribunal refer a question of law to the High Court of Bombay. The question presented by the appellant was: “Considering the facts and circumstances of the case, and in particular the fact that the return and the accompanying statements filed by the assessee for the assessment proceedings of 1945‑46 did not disclose a large transaction of Rs 1,10,000 by a single bank draft, was the Income‑Tax Officer justified in initiating proceedings under section 34(1)(a) upon receiving information about that transaction, and consequently making a reassessment for 1945‑46?” The Tribunal dismissed the application under section 66(1) on two grounds. First, it held that the issue raised by the appellant was a factual question, not a legal one. Second, the Tribunal observed that the appellant’s question was misconceived because the real issue before the Tribunal was not whether the assessee had failed to disclose the Rs 1,10,000 draft in his return, but whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year.

Following the Tribunal’s refusal, the appellant proceeded to file an application under section 66(2) of the Income‑Tax Act before the High Court of Bombay. As previously noted, the High Court summarily dismissed that application by order dated 14 December 1956. Counsel for the appellant then argued before this Court that the Tribunal’s finding of no omission or failure on the part of the assessee was based merely on surmise and conjecture, and that no material existed on which the Tribunal could have reached such a conclusion. Consequently, counsel contended that a question of law arose from the Tribunal’s order and that the High Court was wrong to reject the appellant’s petition under section 66(2). This Court could not accept that argument. Firstly, it is necessary to point out that the question the appellant proposed for reference to the High Court under sections 66(1) and 66(2) differs from the issue now raised by counsel, namely that the Tribunal lacked any material to support its finding.

In this case the issue that the appellant now seeks to bring before the Court differs from the issue that was originally referred to the High Court in the petitions filed under section 66(1) and section 66(2) of the Income‑Tax Act. The learned counsel for the appellant has for the first time before this Court alleged that the Tribunal reached its conclusion that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, but that the Tribunal did so without any material evidence and on the basis of mere surmise and conjecture. The Court observes that this allegation was not the matter that was urged for reference to the High Court when the petitions under section 66 were originally presented. At that earlier stage the question presented was whether, considering the facts and circumstances of the case, and giving particular attention to the return filed by the assessee and the accompanying statements, the assessee had failed to disclose that he had obtained a bank draft for a sum of Rs 1,10,000. The Court agrees with the Tribunal’s view that the question initially suggested was misguided, because the Tribunal’s real task was to determine whether the proceeding contemplated under section 34(1)(a) had been properly initiated by the income‑tax officer in the year 1954.

The Court notes that the original assessment of the assessee was completed on 13 September 1946, and that more than four years had elapsed before the matter arose. At the relevant time the statutory period within which an income‑tax officer could invoke section 34(1)(a) was eight years. Although the eight‑year period had not yet expired on 24 March 1954, the date on which the notice under section 34(1)(a) was issued, the statute imposes a prerequisite condition: the income‑tax officer must have reason to believe that, because of an omission or failure on the part of the assessee, the assessee did not disclose fully and truly all material facts necessary for the assessment of that year, and consequently income, profits or gains chargeable to tax have escaped assessment. This condition must be satisfied before action under section 34(1)(a) can be taken, as reiterated in the decision of Calcutta Discount Co. Ltd. v. Income‑Tax Officer. Accordingly, the Tribunal was required to examine whether the assessee had indeed disclosed all material facts necessary for the assessment. The Tribunal reviewed all the documents produced by the assessee at the time of the original assessment, including the account books and, in particular, the report of the Examiner of Accounts submitted to the income‑tax officer concerning the assessee’s bank account in the Exchange Bank of India and Africa Ltd. After this examination, the Tribunal concluded that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts required for his assessment.

The Court observed that, given the facts of the present case, the issue of whether the assessee had failed to disclose fully and truly all material facts required for his assessment constituted a question of fact. Consequently, the Court was unable to accept the argument presented by the learned Advocate for the appellant that the matter should be decided as a question of law. In the Court’s view, the presence of a factual dispute precluded any legal determination on that point. Accordingly, the Court held that no question of law arose for consideration. The Court further noted that the High Court of Bombay had correctly rejected the petition filed under section 66 (2) of the Income‑tax Act, as the factual dispute did not warrant a reversal of the assessment. On this basis, the Court concluded that both appeals filed against the High Court’s order failed. The Court therefore dismissed both appeals and did not grant any order as to costs, leaving the parties to bear their own expenses. The final disposition was that the appeals were dismissed, reaffirming the High Court’s earlier decision.