1979 (8) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 34(1)(a) of the Indian Income-tax Act, 1922.
2. Whether the dividend income of Rs. 25,952 should be assessed in the assessment year 1955-56 or 1956-57.
3. Whether there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

Detailed Analysis:

1. Applicability of Section 34(1)(a) of the Indian Income-tax Act, 1922:
The primary issue is whether the provisions of Section 34(1)(a) of the Indian Income-tax Act, 1922, are applicable to the case. The court examined whether the Income Tax Officer (ITO) had reason to believe that there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal concluded that although the income in question escaped assessment during the relevant year, it was not due to any omission or failure by the assessee but due to the system of accounting adopted by the assessee, which was known to the ITO. The court agreed with this conclusion, stating that the ITO was aware of the assessee's method of accounting for dividend income and that the primary facts were fully disclosed by the assessee.

2. Assessment Year for Dividend Income:
The court addressed whether the dividend income of Rs. 25,952 should be assessed in the assessment year 1955-56 or 1956-57. The Tribunal found that the dividend was declared in the previous year relevant to the assessment year 1955-56 and should have been assessed in that year. However, the assessee included it in the return for the assessment year 1956-57, following its system of accounting, which treated dividend income as income only when the dividend warrants were encashed. The court noted that the assessee's method of accounting had been consistently followed and accepted by the department in previous years. Since no question was referred to the High Court regarding the correctness of the year of assessment, the court refrained from addressing this issue in detail.

3. Omission or Failure to Disclose Material Facts:
The court examined whether there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal found that the ITO was fully aware of the assessee's method of accounting for dividend income and that the assessee had disclosed all primary facts. The Tribunal referred to the Supreme Court's decision in Calcutta Discount Co. Ltd. v. ITO, which stated that once all primary facts are before the assessing authority, it is for the authority to draw inferences and conclusions. The court agreed with the Tribunal's finding that the assessee had not failed to disclose material facts and that the escapement of income was due to the system of accounting adopted by the assessee, which was known to the ITO.

Conclusion:
The court concluded that the provisions of Section 34(1)(a) of the Indian Income-tax Act, 1922, were not attracted to the case. The escapement of income was not due to any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The question was answered in the affirmative, and there was no order as to costs.