CALCUTTA DISCOUNT COMPANY LIMITED versus INCOME-TAX OFFICER, COMPANIES DISTRICT, I AND ANOTHER.

Citation: [1961] 2 S.C.R. 241 · Decided: 01-11-1960 · Supreme Court of India · Bench: S.K. DAS · Disposal: Appeal(s) allowed

Cited by 5 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

2 S.C.R. SUPREME COURT REPORTS 
241 
CALCUTTA DISCOUNT COMPANY LIMITED 
v. 
INCOME-TAX OFFICER, COMPANIES 
DISTRICT, I AND ANOTHER. 
(S. K. Das, M. HrnAYATULLAH, K. C. DAs GUPTA, 
J.C. SHAH and N. RAJAGOPALA AYYANGAR, JJ.) 
Income-tax-Income escaping assessment-Non-disclosure of 
material facts by assessee-" Material facts", meaning of-Indian 
Income Tax Act, z922 (II of z922), as amended in z948, s. 34(1)(a), 
Explanation-Constitution of India, Art. 226. 
The appellant, a private limited company, was assessed to 
income tax for the assessment years 1942-43, 1943-44 and 1944-45 
by three separate orders dated January 26, 1944, February 12, 
1944, and February 15, 1945, under s. 23(3) of the Indian Income 
Tax Act on returns filed by it with statements of account. On 
March 28, 1951, three notices under s. 34 of the Act were issued 
calling upon it to s.ubmit fresh returns for the said assessment 
years. The appellant filed the returns but thereafter applied to 
the High Court under Art. 226 of the Constitution for writs 
restraining the Income-tax Officer from initiating assessment 
proceedings on the basis of the said notices on the ground, inter 
alia, that he had no jurisdiction to issue the said notices. In' 
his report to the Commissioner of Income-tax for obtaining 
sanction to initiate the said proceedings the Income-tax Officer 
had stated as follows:-
"Profit of Rs. 5.46,002 on sale of shares and securities 
escaped assessment altogether. At the time of the original 
assessment the then I. T. 0. merely accepted the company's 
version that the sale of shares were casual transactions and were 
in the nature of mere change of investments. Now the results 
of the company's trading from year to year show that the com-
pany has really been systematically carrying out a trade in the 
sale of .investments. As such the company had failed to disclose 
the true in~ention behind the sale of the shares as such s. 34(1)(a) 
may be attracted". 
The question for determination was whether in the circum-
stance the Income-tax Officer was right in issuing notices on ,l;e 
assessee under s. 34(1)(a) of the Act. 
Held, (per S. K. Das, K. C. Das Gupta and N. R. Ayyan-
gar, JJ.), that before the Income-tax Officer could issue a notice 
under s. 34(!)(a) of the Indian Income-tax Act, two conditions 
precedent must co-exist, namely, that he must have reason to 
believe (1) that income, profits or gains had been under-assessed 
and (2) that such under-assessment was due to non-disclosure of 
material facts by the assessee. 
31 
November r. 
242 
SUPREME COURT REPORTS 
[1961] 
r960 
Although what facts would be necessary and material for 
the assessment in a particular case must depend on the facts of 
Calcutta Discou11t that case, there could be no doubt that the burden of disclosing 
Company Limit'd all the primary facts must invariably be on the assessee. 
v. 
The Explanation to s. 34(1) made it clear that that burden 
Income-tax Office" could not be fully discharged by simply producing the account 
Coinpanies 
books and other documents, but the assessee must also disclose 
Disfrict, I 
such specific items or portions thereof as are relevant to the 
0-- Another 
assessment. 
But once he has done so, it is for the Income-tax 
Officer to draw the proper inferences of fact and law therefrom 
and the assessee cannot further be called upon to do so for him. 
The Explanation does not enlarge the scope of the section so as 
to include "the disclosure" of such inferences. 
The question whether by the sale of shares the assessee in 
the instant case intended to change the form of investment or 
to make a business profit was one of an inferential fact and the 
failure to disclose such intention could not by itself amount to 
a failure or omission to disclose a material fact within the mean-
ing of s. 34(1)(a) of the Act. 
Where, however, the Income-tax Officer has prima facie 
reasonable grounds for believing that there has been a non-
disclosure of a primary material fact, that by itself gives him 
the jurisdiction to issue a notice under s. 34 of the Act, and the 
adequacy or otherwise of the grounds of such belief is not open 
to investigation by the Court. It is for the assessee who wants 
to challenge such jurisdiction to establish that the Income-tax 
Officer had no material for such belief. 
Since, in the instant case, there was no non-disclosure of a 
primary material fact which the assessee was bound to disclose 
under s. 34(1)(a) o

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