1966 (2) TMI 91 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee-company omitted or failed to disclose fully and truly all material facts necessary for its assessment for the assessment year 1952-53.
2. Whether the reassessment proceedings could be sustained under section 34(1)(b) of the Indian Income-tax Act, 1922, even if initiated under section 34(1)(a).

Issue-wise Detailed Analysis:

1. Omission or Failure to Disclose Material Facts:
The primary issue was whether the assessee-company failed to disclose fully and truly all material facts necessary for its assessment for the year 1952-53. The assessee-company sold its undertaking to the Amalgamated Electricity Co. Ltd. and did not disclose the profits under section 10(2)(vii) either in its return or in the correspondence with the Income-tax Officer. The Tribunal found that all primary facts regarding the sale were placed before the Income-tax Officer, but the assessee did not compute the profits under section 10(2)(vii) or show them in the return. The Tribunal held that the reopening of the assessment under section 34(1)(a) was not sustainable because there was no suppression of material information at the time of the original assessment, and the reassessment amounted to a mere change of opinion by the Income-tax Officer.

However, the High Court disagreed, stating that the assessee did not clearly disclose that the sale price of the assets exceeded the written down value, which was a material fact necessary for the assessment. The Court emphasized that the statutory duty of the assessee was to disclose all material facts fully and truly, and mere production of documents did not amount to full disclosure. The Court concluded that the assessee failed to disclose the primary fact that the sale price exceeded the written down value, justifying the reopening of the assessment under section 34(1)(a).

2. Sustainability of Reassessment under Section 34(1)(b):
The second issue was whether the reassessment proceedings could be sustained under section 34(1)(b) if initiated under section 34(1)(a). The Tribunal held that the reassessment could not be sustained under section 34(1)(b) because the Income-tax Officer initiated the proceedings under the belief that section 34(1)(a) was applicable.

The High Court reframed the question to consider whether the reassessment could be sustained under section 34(1)(b) based on the facts and circumstances of the case. The Court noted that section 34(1)(b) allows reassessment if the Income-tax Officer has information in his possession that leads him to believe that income has escaped assessment. The Court distinguished between facts clearly on the record and those that could be gathered by correlating various facts. It held that the knowledge obtained by the Income-tax Officer after correlating the facts constituted "information" under section 34(1)(b). The Court concluded that the reassessment could be sustained under section 34(1)(b) because the Income-tax Officer obtained new information after the original assessment.

Conclusion:
The High Court answered both questions in the affirmative, ruling in favor of the department. The assessee was found to have failed to disclose fully and truly all material facts necessary for its assessment, justifying the reopening of the assessment under section 34(1)(a). Additionally, the reassessment proceedings were sustainable under section 34(1)(b) based on the new information obtained by the Income-tax Officer after the original assessment. The assessee was ordered to pay the costs of the Commissioner.