9911796707
TMI Blog1986 (4) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... Originally, there was joint Hindu undivided family constituted by Shri Budbmal Dugar and his brother Shri Sumermal. In the year 1930, Budhmal and Sumermal had purchased silver weighing about 430 kgs. and the same was kept in the haveli belonging to the family situated at Sardarshahar. In 1938, partition took place between these two brothers and as a result of the said partition, the haveli belonging to the family situated in Sardarshahar came to the share of Budhmal. Budhmal died in the year 1954 and some time after his death, his widow, Smt. Dhanni Devi, adopted Jabharmal, who was L minor at that time. In the year 1968, Jabharmal decided to demolish a part of the haveli facing on to the right side for the purpose of constructing shops and while the said demolition was going on, the workmen found 21 bars of silver weighing about 430 kgs. lying buried in a kottri of the haveli on August 13, 1968. On August 16, 1968, 25 gold pieces weighing 7831 tolas were found in an " arch " while breaking the roof of the room adjacent to the kothari in which silver bars and pieces were discovered. On August 20, 1968, Jabharmal wrote a letter to the Gold Control Administrator, New Delhi, bringing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment of the assessee for the years 1964-65, 1965-66, 1966-67 and 1967-68 on the view that he was of the opinion that the version which was given by Sumermal and Jabharmal was not correct and that Jabharmal all along knew of the existence of silver and that the above wealth which was admittedly of the assessee family had escaped assessment due to omission or failure on the part of Jabharmal to disclose the material particulars of his family's wealth. The assessee pleaded before the Wealth-tax Officer that whatever wealth belonged to the family as known to him at the time of the filing of the original return was disclosed by him in the said returns and the wealth consisting of silver bars came to his knowledge only in August, 1968, when part of the haveli belonging to the family was demolished and that what the assessee did not know at the time of the filing of the returns could not have been admitted by him when he filed the original returns and it could not, therefore, be said of the assessee that he did not disclose fully and truly all the material facts as known to him till then, when he filed the returns and, therefore, action could not be initiated against the assessee unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n her knowledge, silver weighing about 430 kgs. which had been buried in 1930 in the said haveli and about which Smt. Dhanni Devi had the knowledge, had also come to his share and that it constituted the wealth of the family and in the normal course, Smt. Dhanni Devi should have informed Jabharmal, her adopted son, about the wealth of the family including the buried wealth. The learned Accountant Member was, therefore, of the opinion that the family had knowledge about the wealth in the form of the buried silver and had yet not furnished the information about it in the original returns and due to this omission it had escaped assessment and as such action under section 17(1)(a) of the Act was rightly initiated. The learned judicial Member, on the other hand, took the view that the probabilities of the case suggested that Jabharmal did not have any knowledge about the buried silver and that, therefore, he could not have shown it in the original returns filed by him and as such it could not be said that under-assessment had taken place on account of the failure or omission on the part of the assessee to furnish the material information at the time of the original assessment. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal under section 27(1) of the Act for referring for the opinion of this court the questions of law arising out of the order of the Tribunal and on that application of the assessee, the Tribunal has referred the question mentioned above for the opinion of this court. Before we deal with the submissions of Shri Balia, learned counsel for the assessee, and Shri Arora, learned counsel for the Revenue, we may take note of the provisions contained under section 17 of the Act which reads as under: " 17. (1) If the Wealth-tax Officer (a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of underassessment or assessment at too low a rate or otherwise ; or (b) has, in consequence of any information in his possession, reason to believe, notwithstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 147 of the Income-tax Act, 1961, are, however, substantially the same. The provisions contained in clause (a) of sub-section (1) of section 34 of the Indian Income-tax Act, 1922 and clause (a) of section 147 of the Income-tax Act, 1961, have come up for consideration before the Supreme Court in a number of cases in appeals arising out of petitions filed under article 226 of the Constitution as well as in references made under the provisions of the Income-tax Act. In Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, the Supreme Court has considered the provisions of section 34(1)(a) of the Indian Income-tax Act, 1922, in an appeal arising out of a petition filed under article 226 of the Constitution. In that case, Das Gupta J., speaking for the majority, has held as under (at page 199) : " To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year, two conditions have, therefore, to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been underassessed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application under article 226 and have observed that (at page 207): " Both the conditions, (i) the Income-tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. " In S. Narayanappa v. CIT [1967] 63 ITR 219, the Supreme Court, while dealing with the provisions contained in section 34(1)(a) of the Income-tax Act, 1922, has observed (at pages 221 and 222): " It is true that two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under section 34 in respect of assessments beyond the period of four years, but within period of eight years from the end of the relevant year. The first condition is that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income-tax had been underassessed. The second condition is that he must have reason to believe that such underassessment' had occurred by reason of either (i) omission or failure on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the conditions are satisfied does not exist or is not material or relevant to, the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. " In ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, the Supreme Court, in an appeal arising out of a petition under article 226 of the Constitution, has reiterated the principles laid down in its earlier decisions in Calcutta Discount Company Ltd.'s case [1961] 41 ITR 191 and S. Narayanappa's case [1967] 63 ITR 219 and has further observed (at page 448) : " As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the words 'is satisfied'. The belief entertained by the Income-tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the Income-tax Officer in coming to the belief, but the court can certainly examine whether the reasons a re relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid. " In that case, the Supreme Court held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the existence of the silver at the time he filed the returns for the assessment years 1964-65, 1965-66, 1966-67 and 1967-68, it could not be said that the assessee had omitted or failed to disclose a material fact and thus one of the conditions precedent for the exercise of jurisdiction under s. 17(1)(a) of the Act was absent in the present case and that the proceedings had not been validly initiated under s. 17(1)(a) of the Act. According to Shri Balia, the present case falls within the ambit of clause (b) of sub-s. (1) of s. 17 (and since the period of four years) had expired on March 27, 1973, the date of the issuance of the notices, no proceedings for reassessment of the wealth could be validly initiated against the assessee under section 17 of the Act. In this connection, Shri Balia had urged that the omission or failure by an assessee to disclose a material fact postulates the knowledge on his part of the said fact at the time of the alleged omission or failure and in case where the assessee is not aware of the fact at the time of making the return, it cannot be said that he had omitted or failed to disclose the said fact in the return. Shri Balia has also submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions urged by Shri Balia on behalf of the assessee must be accepted. It is well settled that the omission or failure to disclose fully or truly a material fact postulates the knowledge of the said fact at the relevant time and a person cannot be held, guilty of omission or failure to disclose a fact of which he had no knowledge. In this connection reference may be made to the decision of the Division Bench of the Calcutta High Court in P. R. Mukherjee v. CIT[1956] 30 ITR 535 wherein the learned Judges have construed the words " omission or failure ...... to disclose fully and truly all material facts " contained in clause (a) of sub-section (1) of section 34 of the Income-tax Act, 1922. The learned Judges have observed as under (at p. 544) : " The words I have just quoted may, in one view, cover a bare omission or failure to mention all material facts and, in another view, they may be said to cover only the case where the assessee, knowing all the material facts, does not mention them fully or truly or, in other words, deliberately withholds information or full information. Support for the second view would seem to be afforded by the grammatical meaning of the words 'omission', ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same view has been taken in Ganesh Chandra Khan v. ITO [1978] 111 ITR 934 (Cal) and ITO v. Selected Dalurband, Coal Co. (P.) Ltd. [1978] 113 ITR 489 (Cal). Thus it can be said that the assessee cannot be said to have omitted or failed to disclose the fact about the possession of the silver at the time of filing of the returns and completion of the assessment for the relevant assessment years because till August 13, 1968, the assessee had no knowledge of the presence of the silver in the haveli as found by the judicial Member and the learned third Member of the Tribunal. The question which next arises is whether in spite of the finding that the assessee has not omitted or failed to disclose the material fact about his being in possession of the silver, the action of the Wealth-tax Officer in issuing notices under section 17(3) of the Act can be upheld. We find ourselves unable to agree with the reasoning given by the learned third Member of the Tribunal that the action of the Wealth-tax Officer in assuming jurisdiction under section 17(1)(a) of the Act could not be challenged because it was possible for the Wealth-tax Officer to have drawn in good faith an inference that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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