# COMMISSIONER OF INCOME TAX, CALCUTTA v. BURJ.,OP DEALERS LTD

- **Citation:** [1971] 3 S.C.R. 410
- **Court:** Supreme Court of India
- **Decided:** 1971-01-21
- **Case number:** Civil Appeal No. 649 of 1967
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-calcutta-v-burj-op-dealers-ltd-5144
- **Pages:** 5

## Headnote

410
COMMISSIONER OF INCOME TAX, CALCUTTA
A
v.
BURJ.,OP DEALERS LTD.
January 21, 1971
[J. C. SHAH, C.l, K. S. HEGDE AND A. N. GROVER, JI.]
B
Income-tax Act, 1922, s. 34(1) (a)-Scope of-As,essee
disclosing
primary facts necessary· for assessment-Duty of Income-tax Officer to
draw necessary inferences.
For the assessment year 1949-50 the assessee submitted a profit and
Joss account disclosing a certain amount as profit in a joint venture and
claimed that half df this ptofit was paid to R under a partnership agreement. The Income-tax Officer accepted the return and included only half
of the profit in the joint venture in computing the assessee's total income.
In the next assessment year the assessee filed a return accompanied by a
profit 'and loss account and claimed that it had transferred half the profit
to R as his share.
But the Income-tax Officer on examination of the
transactions brought• the entire amount of profit in the joint venture to
c
tax, holding that the partnership agreement was got up a devise to reD>
duce the profits received from the joint venture. This order was confumcd by the Tribunal and the High Court.
Meanwhile, the Income-tax
Officer issued a notice under s. 34 of the Income-tax Act, 19'22 to reopen
the assessment for the assessment year 1949-50 .itnd to assess the amount
allowed in that assessment as paid
to R.
The Income-tax
Officer reassessed the income under s. 34(1)(a) and added that amount to the
income returned by the assessee in the assessment
year 1949-50. The·
Appellate Assistant Commissioner confirmed that order but the Tilbunal
reve·rsed.
The High Court,
on re'ference, answered
in favour of the
assessee.
Dismissing the appeal by the Revenue,
HELD : Under s. 34( 1) (a), if the assessee
has disclosed
primary
facts relevant to the assessment, he is under no obligation to instruct the
Income-tax Officer about the inference which the Income-tax Officer may
raise 'from these facts. The terms of the Explanation to S. 34(1) also do
not impose a more onerous obligation.
Mere productign. of the books of
account or other evidence from which material facts could with due dili-·
gence, have oeen discovered does not. necessarily amoullt to disclosure
within the meaning of s. 34(1);.but where on the evidence and_the materials produced the Inc~me-taii Officer could have
reached a conclusion
other than the one which he has reached, a proceeding under s. 34(1) (a)
will not lie merely on the groufi'd that the Iacolhe-tax Officer has raised an
infer~~ce ·'Which he may later regard as erroneous.
The assessee had 'disclosed his books of account and evidence from
which material facts could be discovered.
It was 'for
the Income-tax
Officer to raise the necessary inference and if he did not do so the income
which has escaped assessment cannot be brought to tax under s. 34(1)(a).
[413 CJ
.
Calcutta Discount Co. Ltd. v. Income-tax Office•·, Companies District I,
Calcutta & Anr. 41 I.T.R. 191, 200, referred to.

## Text

410
COMMISSIONER OF INCOME TAX, CALCUTTA
A
v.
BURJ.,OP DEALERS LTD.
January 21, 1971
[J. C. SHAH, C.l, K. S. HEGDE AND A. N. GROVER, JI.]
B
Income-tax Act, 1922, s. 34(1) (a)-Scope of-As,essee
disclosing
primary facts necessary· for assessment-Duty of Income-tax Officer to
draw necessary inferences.
For the assessment year 1949-50 the assessee submitted a profit and
Joss account disclosing a certain amount as profit in a joint venture and
claimed that half df this ptofit was paid to R under a partnership agreement. The Income-tax Officer accepted the return and included only half
of the profit in the joint venture in computing the assessee's total income.
In the next assessment year the assessee filed a return accompanied by a
profit 'and loss account and claimed that it had transferred half the profit
to R as his share.
But the Income-tax Officer on examination of the
transactions brought• the entire amount of profit in the joint venture to
c
tax, holding that the partnership agreement was got up a devise to reD>
duce the profits received from the joint venture. This order was confumcd by the Tribunal and the High Court.
Meanwhile, the Income-tax
Officer issued a notice under s. 34 of the Income-tax Act, 19'22 to reopen
the assessment for the assessment year 1949-50 .itnd to assess the amount
allowed in that assessment as paid
to R.
The Income-tax
Officer reassessed the income under s. 34(1)(a) and added that amount to the
income returned by the assessee in the assessment
year 1949-50. The·
Appellate Assistant Commissioner confirmed that order but the Tilbunal
reve·rsed.
The High Court,
on re'ference, answered
in favour of the
assessee.
Dismissing the appeal by the Revenue,
HELD : Under s. 34( 1) (a), if the assessee
has disclosed
primary
facts relevant to the assessment, he is under no obligation to instruct the
Income-tax Officer about the inference which the Income-tax Officer may
raise 'from these facts. The terms of the Explanation to S. 34(1) also do
not impose a more onerous obligation.
Mere productign. of the books of
account or other evidence from which material facts could with due dili-·
gence, have oeen discovered does not. necessarily amoullt to disclosure
within the meaning of s. 34(1);.but where on the evidence and_the materials produced the Inc~me-taii Officer could have
reached a conclusion
other than the one which he has reached, a proceeding under s. 34(1) (a)
will not lie merely on the groufi'd that the Iacolhe-tax Officer has raised an
infer~~ce ·'Which he may later regard as erroneous.
The assessee had 'disclosed his books of account and evidence from
which material facts could be discovered.
It was 'for
the Income-tax
Officer to raise the necessary inference and if he did not do so the income
which has escaped assessment cannot be brought to tax under s. 34(1)(a).
[413 CJ
.
Calcutta Discount Co. Ltd. v. Income-tax Office•·, Companies District I,
Calcutta & Anr. 41 I.T.R. 191, 200, referred to.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No. 649 of
1967.
E
G
H
-
ti
t
A
B
C.I.T. v. BURLOP LTD. (Shah, G.J.)
4U
Appeal by special leave from the order dated May 4, 1966 o~
the Calcutta High Court in Income-tax Reference No.
114 ot
1965.
Jagadish Swarup, Solicitor-Genera/, Ram Panjwani, R. N.
Sachthey and B. D. Sharma, for the appellant.
C. K. Daphtary, B. P. Maheshwari aind K. R. j(.haitan, for the
respondent.
The Judgment of the Court was delivered by
Shah, C.J. Burlop Dealers Ltd.-hereinafter referred to as
C
'the assessee'-is a limited company.
For the assessment year
1949-50 the assessee submitted a profit and loss
account disclosing in the relevant year of account Rs. 1,75,875/- as profit
in a joint venture from H.
M~nory Ltd. and claimed that
Rs. 87,937/- being half the profit earned from H. Manory Ltd. was
jJaid to Ratiram Tansukhrai under a partnership agreement. The
D
assessee stated that on Ju11e 5, 1948, it had e.ntered into
a11
agreement with H. Manory .Ltd. to do business in plywood chests
aind in considerat.ion oi financing the business the assessee was
to receive 50% df the profits of the
business.
The assessee
claimed that it had entered into an agreement on October 7.
1948, with Ratir"1fl Tansu.khrai for flnanding the transactions
E of H. Manary Ltd. in the joint veinture, and had agreed to pay
to Ratiram Tansukhrai 50% of the profit earned by it from the
business with H. Manary Ltd.
The Incometax Officer accepted the return filed by the assessee and included in computing the total income for the assessment year 1949-50 Rs. 87 ,937 /- qnly as the profit earned on the
F
joint venture with H. Manory Ltd. In the assessment year 195051 the assessee
field a return
also accompal!ied by a
profit
and loss
account disclosing a total profit of Rs. 1,62,155/-
in
the
relevant
account ear received from
H.
Mainory
Ltd., a11d claimed that it had transferred Rs. 81,077 /- to the
accolljllt of Ratiram Tansukhrai as his share.
The Income-tax
G Officer on examination of the transactions brought
the entire
amount of Rs. 1,62,155/- to tax holding that the alleged agreement of Octoer 1948 between the assessee and Ratiram Tansukhrai had merely been "got up as a device to reduce the profits,
received from H. Manory Ltd.".
This order was cQllfirmed by
the Appellate Assistant Commissioner and by the Income-tax
H Appellate Tribunal.
The 'Tribunal then stated a
case under
s. 66 (1) cf the Income-tax Act to t)le High Court of Calcutta.
The High Court agreed with the view of the Tribunal and a.nswered the question against the assessee,
412
SUPJ!:EME COURT REPOR'fS
[1971] 3 S.C.R.
In the meanwhile on May 13, 1955, the Income-tax Officer
A
issued a notice under s. 34 to the assessee for the assessment
year 1949-50 to re-open the assessment and to assess the amooot
of Rs. 8 7 ,93 7 / - allowed in the assessment of income-tax as paid
to Ratiram Tansukhrai. The assessee filed a return which did
not include the amount paid to
Ratiram Tansukhrai.
The
Income-tax Officer re-assessed the ~ncome under s.
34 ( 1) (a)
and added Rs. 87,937 /- to the income returned by the assessee
in the assessment year 1949-50. The Appellate Assistant Commissioner held that the Income-tax Officer was entitled to take
action under s. 34(1) (a) of the Income-tax Act 1922 after the
amendmeint in 1948, and to re-open the assessment if income
had been under-assessed owing to the failure of the assessee to
disclose fully and truly all material facts necessary for the assessment.
He confirmed the order observing that the assessee had
misled the Income-tax Officer ipto believin!:i that there was a
genui1ne arrangement with Ratiram Tansukhrai and had stated
in the profit anu loss account that the amount paid to Ratiram
Tansukhrai was the share of the latter in the partnership, whereas no much share was payable to Ratiram Tansukhrai.
In appeal against the order of the Appellate Assistant Commissioner the Income-tax Appellate Tribunal held that the assessee had produced all the relevant
accounts
and
documents
necessary for completing the assessment, and the assessee was
under no obligation to inform the Income-tax .Officer about the
true nature of the transactions.
The tribunal on that view revers-
·ed the order of the Appellate Assistant Commisisoner and
directed that the amount of Rs. 87,937 /- be excluded from the
total income of the assessee for the year 1949-50.
B
c
D
E
An application under s. 66 (1) of the InC:ian Income-tax Act
F
for stating a case to the High Court was rejected by the Tribunal.
A petition to the High Court of Calcuttta under s. 66(2) for
·directing the Tribunal to submit a statement of the case was also
rejected.
The Commissioner has appealed to this Court.
Section 34(1) of the Indian Income-tax Act, 1922, as it
G
·stood in the assessment year 1949-50 provided :
"If-
( a) the Income-tax Officer has reason to elieve that
by reason of the omissi~n or failure on the part
of an assessee to make a return of income under
section 22 for any year or to disclose fully and
truly all material facts necessary for his assessment for that year, income, profits
or gains
H
A
B
c
D
C.I.T. v. BURLOP LTD. (Shah, C.J.)
chargeable to income-tax have escaped assessment for that year, or have been under-assessed.
or
413
(b) notwithstainding that there has been no omission or failure as mentioned in clause (a) on
the part of the assessee, the income-tax Officer
has in consequence of information in his possession reason to believe that income,
profits
or
gains
chargeable
to
Income-tax
have
escaped assessment for any year, or have been
under-assessed.
he may in cases falling under clause (a) at any time
within eight years and in cases falling under
clause
(b) at any time within four years of the end of that
year, serve on the assessee, .
.
.
.
a notice
containing all or any of the requirements which may
be included in a notice under sub-secti0\11(2) of section 22, and may proceed to assess or re-assess such
income, profits or gains
"
The Income-tax Officer had in consequence of information in
his possessioin that the agreement with Ratiram Tansukhrai was
a sham transaction reason to believe, that income chargeable to
E tax had escaped assessment.
Such a case would appropriately
fall under s. 34 (1 )(b). But the period pres¢ribed for serving
a notice uinder s. 34 (1 )(b) had elapsed. Under s. 34 (1 )(a) the
Income-tax Officer had authority to serve a notice when he had
reason to believe that by reason of omission or failure oin the
part of the assessee to disclose fully and truly al! material facts
ne~essary for his assessment for the year, ir.come chargeable to
F tax had escaped assessment.
As observed by this Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calc:utta and another(').
G
H
"The words used are "omission or failure to disclose fully and truly all material facts necessary for
his assessment for that year". It postulates a duty on
every assessee to disclose fully and truly all material
facts necessary for his assessment.
What facts
are
material and necessary for assessment will differ from
case to case.
In every assessment proceeding,
~he
assessing authority will, for the purpose of computmg
or determining the proper tax d.ue from ~ ~ssessee,
require to know all the facts which help hi!11 1n coming to the correct conclusion. From the pnmary facts
(!) 41 I.T.R.191. 200.
414
SUPREME COURT REPORTs
[1971 ]3 S.C.R.
in his possession whether on disclosure by the assessee, or discovered by him on the basis of the facts
disclose, or otherwise, the assessilllg authority has to
draw inferences as regards certain other facts; and ultimately, fr9m the primary facts and the further facts
inferred from them, the authority has to draw the proj)er legal inferences, and ascertain. on a correct mterp~etation of th<: taxing enactmeint,
the proper tax
Jeviable".
A
B
c
We are of the view that under s. 34(1)(a) if the assessee has dis-
.closed primary facts relevant to the assessment, he is under no
obligation to instruct the Income-tax Officer about the inference
which the Income-tax Officer may raise from those facts.
The
terms of the Explanation to s. 34(1) also do not impose a more
onerous obligation.
Mere production· of the books of ac'(_ount
or oth'er evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the' meaning of s. 34 (1), but where on the evicteince and the materials p_roduced the Income-tax Officer could
D
have reached a conclusion other than one which he has reached,
a proceeding under s. 34(1) (a) will not lie merely on the ground
that the klcome-tax Officer has raised an inference which he may
later regard as erroneous.
The. assessee had disclosed his books of account and eviE
dence from which material facts could be discovered :
it was
under no obligation to inform the Income-tax Officer about the
possible inferences which may be raised against him. It was for
the Income-tax Officer to raise such ain inference and if he did
not do so the income which has escaped assessment ;:annot be
brought to lay under section 34(1)(a).
F
The appeal fails and is dismissed with . costs.
K.B.N.
Appeal dismissed.
iy
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