MALEGAON ELECTRICITY CO. (P) LTD. versus THE COMMISSIONER OF INCOME-TAX, BOMBAY

Citation: [1971] 1 S.C.R. 761 · Decided: 11-08-1970 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

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761 
MALEGAON ELECTRICITY CO. (P) LTD. 
v 
THE COMMISSIONER OF INCOME-TAX, BOMBAY 
August 11, 1970 
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.] 
Indian Jncome·tax A<·t, 1922, s. 10(2) (vii) a11d s. 34-Full disclosure 
of material facts to Income-tax Officer within meaning of s. 34(1) (a), 
what amounts to-Failure to show excess of price for which assets sold in 
return and further failure to show written down value amounts to failure 
to disclose fucts--Tribunal must determine whether any profits are made 
under section l 0( 2 )( rii)-Without this being first determined the High 
Court in reference under section 66( 1) cannot decide whether there has 
heen failure to disclo.1e material facts, 
The appellant was a private limited company. The business and assets 
of the appellant 1,.vere purchased by another company 
under agreement 
dated September 9, 1951. 
l n the original proceedings for assessment to 
income-tax. for the assessment year 1952-53 the appellant brought the 
transactions of sale to the notice of the Inco1ne-tax. Officer and placed be-
fore hin1 certain relevant documents and also furnished the information 
asked for. 
Setting off the 
unabsorbed 
depreciation 
brought forward 
against tht: income as found by him the Incomi.:-tax office determined the 
income of the appellant for the said assessment year at 'NIL'. Sometime 
later the successor-in-.office of the said Income-tax Officer issued a notice 
under s. 34(1 l(a) of the Indian Income-tax Act, 1912 to the appellant 
a'fter obtaining sanction from the Commissioner of Income-tax. 
He held 
that the appellant had not disclosed its profit under s. 10(2) (vii) of the 
Act resulting from the sale of its assets and detern1ining the said profits at 
Rs. 4,88.386, he made a re-assessment. The Appellate Assistant Commis-
sioner confirn1ed the order. 
The Tribunal. ho~·ever, held that the mate-
rial facts were all disclosed to the Income-tax Officer at the time of the 
origirial assessment and a mere change of opinion did not justify proceed-
ings under s. 34(1 )(a). At the request of the Commissioner of Income-
tax the Tribunal referred to the High Court the questions (i) whether in 
the circumstances of the case it could be held that in the original assess-
ment proceedings the assessee had made a full disclosure of material parti-
culars; and (ii) whether having initiated prooeedings Wlder s. 34( I) (a) 
the Income-tax Officer could have later relied on s. 34(1) (b). 
HELD : The law casts a duty on the assessee to 'disclose fullv 
and 
truly all material facts necessary for his assessment' for the relevarlt year. 
Further t.he explanation to section 34(1) says that mere production before 
the Income-tax Officer of account books .or other evidence from 
which 
material facts with due diligence could hav'e been discovered bv the In-
come-tax Officer will not amount to disclosure within the meaning of the 
section. In the present case the price realised at the sale in excess of the 
written down value of the assets sold, had not been included as profits in 
the return submitted bv the assessee. It had also not shown the same in 
•ection 'D' of Part I of the return. The assessee had not shown either in 
its return or in any of the documents submitted to the Income-tax Officer, 
the written down value of the assets sold. This failure amounted to 
a 
failure on the part of the assessee to disclose fully and truly the materiaf 
762 
SUPREME COURT REPORTS 
[I 971] I S.C.R. 
facts necessary for its assessment. 
From the cryptic 
statement ot 
the 
Income-tax Officer in the original assessment order that 'no adjustment is 
necessary• the Tribunal was not justified in drawing the interence that the 
Income-tax Officer had considered all the facts. [766 F-G] 
V.D.M.RM.M.RM. Muthiah Chettiar v. Commissioner of Income-tax, 
Madras, 74 l.T.R. 183, held inapplicable. 
CalcuHa Discount Co. Ltd. v. lncome-t<x Officer, Companies Distt I, 
Calcutta, 41 J.T.R. 191. distinguished. 
The High Court should not have and this Court would not answer 
the questions referred under s. 66(1) of the Act because those questions 
could not be answered without first deciding whether a part of the sale 
price received by the assessee amounted to profits under s. 10(2) (vii). 
[768 C-DJ 
. [Tribunal directed to decide first whether the assessee had any pro-
fits falling within s. 10(2) (vii) and thereafter decide the appeal] 
Ci'''L APPELLATE JURISDICTION: Civil 

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