2 S.C.R.

SUPREME COURT REPORTS 241

CALCUTTA DISCOUNT COMPANY LIMITED
v. November r.

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
 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) of the Act, the Income-tax Officer had no juris-
diction to issue the notices in question.
It is incorrect to say that the question of under-assessment
by reason of non-disclosure of a material fact was relevant only
for the purpose of applying either the longer or the shorter
period of limitation prescribed by the section and not for juris-
diction and, therefore, not a proper matter for investigation
under Art. 226 of the Constitution.
The High Courts have ample powers under Art. 226 of the
Constitution, and are in duty bound thereunder, to issue such
appropriate orders or directions as are necessary in order to
prevent persons from being subjected to lengthy proceedings
and unnecessary harassments by an executive authority acting
without jurisdiction. Alternative remedies such as are provided
by the Income-tax Act cannot always be a sufficient reason for
refusing quick relief in a fit and proper case.
Per Hidayatullah, J.-The Explanation to s. 24(1) of the
Indian Income-tax Act clearly indicates that the duty of the
assessee thereunder does not end by merely producing evidence
or disclosing the primary facts, but also extends to the disclosure
 2 S.C.R. SUPREME COURT REPORTS 243
of such other facts relating to status, agency, benami nature of i960
the transaction, the nature of the trading and the like, which
he knows but do not appear from the evidence, and which may Calcutta Discount
be necessar:• for interpreting the evideni:e.. If the evidence Company Limited
produced hides nothing and discloses everything, the assessee v.
cannot be subjected to s. 34 merely because the Income-tax Income-ta" Officer,
Officer misinterprets such evidence. But it is otherwise if the Companies
assessee raises a contention that is contrary to fact and·, requires District, I
the Income-tax Officer to discover the truth for himself for that & Another
would be to suppress a material fact that would attract the
section.
Since, in the present case, an investment company dealing
in stocks and shares, not only knowingly suppressed that fact
but contended otherwise, there was non-disclosure of a material
fact necessary for its assessment, and sufficient to attracts. 34(1)
(a) of the Act.
Per Shah, ].-The expression "has reason to believe " in
s. 34(1)(a) of the Indian Income-tax Act does not mean a purely
subjective satisfaction of the Income-tax Officer but predicates
the existence of reasons on which such belief has to be founded.
That belief, therefore, cannot be founded- on mere suspicion and
must be based on evidence and any question as to the adequacy
of such evidence is wholly immaterial at that stage.
Whether all the material facts necessary for the assessment
had or had not been fully and truly disclosed in a particular
case has to be examined, in the light of the Explanation to
s. 34(1)(a).
If there is disclosure of some facts but not all, a tax payer
cannot resist reassessment on the plea that such non-disclosure

•
was due to the negligence or inadvertence on the part of the
Income-tax Officer to scrutinise the materials before him.
Where the existence of reasonable 'belief that there had
been under-assessment due to non-disclosure by the assessee,
which is a condition precedent to exerci~ of the power under
s. 34(1)(a) is asserted by the assessing authority and the record
prima Jacie supports its existence, any enquiry as to whether
the authority could reasonably hold the belief that the under-
assessment was due to non-di5closure by the assessee of
material facts necessary for the assesment must, be barre~.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 197 of 1954.
Appeal from the Judgment and Order dated the
25th March, 1953, of the Calcutta High Court in
Appeal from Original Order No. 54 of 1953.
t Sachin Chaudhury, Sukumar Mitter, 8. N. Mukher-
• jee and D. N. Ghosh, for the appellant.
_,,'
 244 SUPREME COURT REPORTS [1961]
I96o K. N. Rajagopal Sastri and D. Gupta, for the res-
- .
Calcutta Disco1t11t
pond en ts.
Company Limited 1960. November I. The Judgment of S. K. Das,
v. K. C. Das. Gupta and N. Rajagopala Ayyangar, JJ.,
Income-tax Officer, was delivered by K. C. Das Gupta,. J. M. Hidaya-
Co111panies
District, 1 tullah, J. an d J . C. Sh a h , J ., d e)1vered
' separate J udg-
& Anotltet ments.
Das Gupta]. DAS GUPTA J.-This appeal is against an appellate
decision of a Bench of the Calcutta High Court by
which in reversal of the order made by the Trial
Judge the Bench rejected the present appellant's
application under Art. 226 of the Constitution. The
appellant is a private limited company incorporated
under the Indian Company's Act and has its registered
office in Calcutta. It 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, respec-
tively. These assessments were made under s. 23(3)
of the Indian Income-tax Act upon returns filed by it
accompanied by statements of account. The first two
assessments were made by Mr. L. D. Rozario the then
Income-tax Officer and t.he last one by Mr. K. D. Baner-
jee. The taxes assessed were duly paid up. On March
28, 1951, three notices purporting to be under s. 34 of
the Indian Income-tax Act, 1922, were issued by the
Income-tax Officer calling upon the company to sub-
mit fresh returns of its total income and the total
world income assessable for the three accounting years
relating to the three assessment years, 1942-43 1943-44
and 1944-45. The appellant company furnished re-
turns in compliance with the notices but on September
18, 1951, applied to the High Court of Calcutta for
issue under Art. 226 of the Constitution of appropriate
writs or orders directing the Income- tax Officer not to
proceed to assess it on the basis of these notices. The
first ground on which this prayer was based watt
mentioned in the petition in these terms:-" The said
pretended notice was issued without the existence of
the necessary conditions precedent which confers
jurisdiction under section 34 aforementioned, whether
2 S.O.R. SUPREME COURT REPORTS 245
before or after the amendment in 1948 ". The other 1 60
9
ground urged was• that the amendment to s. 34 .
of the c --D.
a. 1culta tscount
Income-tax Act m 1948 was not retrospective and Company Limited
that the assessment for the years 1942-43, 1943-44 v.
and 1944-45 became barred long before March 1951. Income-tax Officer,
The Trial Judge held that the first ground was not Comp~nies
made out but being of opinion that the amending Act District, r
of 1948 wa;.; not retrospective, he held that the notices & Another
issued were without jurisdiction. Accordingly be Das Gupta J.
made an order prohibiting the Income-tax Officer from
continuing the assessment proceedings on the basis of
the impugned notices.
The learned Judges who heard the appeal agreed
V'ith the Trial Judge that the first ground had not
been made out. They held however that in consequ-
ence of the amendment of s. 34 in 1948 the objection
on the ground of limitation must also fail. A point
of constitutional law which appears to have been
raised before the appeal court was also rejected. The
appeal was allowed and the company's application
under Art. 226 was dismissed with costs.
The Company has preferred the present appeal on
the strength of a certificate issued by the High Court
under Art. 133(l)(a) of the Constitution.
The only point raised before us is that the courts
below were wr9ng in holding that the first ground
that the notices were issued without the existence of
the necessary conditions precedent which confers
jurisdiction under s. 34 bad not ·been made out. As it
is no longer disputed that s. 34 as amended in 1948
applies to the present case we have to consider the
section as it stood after the amendment in 1948, in
deciding this question of jurisdiction. The relevant
portion of the section was in these words :-
" 34. Income escaping assessment.-( 1) If-
(a) the Income-tax Officer has reason to believe
that by reason of the omission or failure on the part
of an assessee to make a return of his income under
s. 22 for any year or to disclose fully and truly all
material facts necessary for bis assessment for that
year, income, profits or gain chargeable to income-tax
have escaped assessment for that year, or have been
 246 ·SUPREME COURT REPORTS [1961)
1 60
9 under-assessed, or assessed at too low a rate, or have
Colrnll;Discount been made the subject of excessive relief under the
company Limited Act, or excessive loss or depreciation allowance has
v. been computed, or
Income-tax Offiw, (b) notwithstanding that there has been no omis-
Co1npanics
District, I
sion or failure as mentioned in clause (a) on the part
& Another
of the assessee, the Income-tax Officer has in consequ-
ence of information in his possession reason to believe
Das Gupta ]. that income, profits or gains chargeable to income tax
have escaped assessment for any year, or have been
under-assessed, or assessed at too low a rate or have
been made the subject of excessive relief under this
Act, or that excessive loss or depreciation allowance
has been computed.
He may in cases falling under clause (a) at any time
within eight years and in cases falling under clause (b)
at any t.ime within four years of the end of that year,
serve on the assessee, or, if the assessee is a company,
on the principal officer thereof, a notice containing all
or any of the requirements which may be included in
a notice under sub-section (2) of section 22 and may
proceed to assess or reassess such income, profits or
gains or recompute the loss or depreciation allowance;
and the provisions of this Act shall, so far as may be,
apply accordingly as if the notice were a notice issued
under that sub-section :-
Provided that-
(i) the Income-tax Officer shall not issue a notice
under this sub-section, unless he has recorded his
reasons for doing so and the Commissioner is satisfied
on such reasons recorded that it is a fit case for the
issue of such notice ;
(ii) the tax shall be chargeable at the rate at
which it would have been charged had the income,
profits or gains not escaped assessment or full assess-
ment, as the case m_ay be ; and
(iii) where the assessment made or to be made is
an assessment made or to be made on a person deemed
to be the agent of a non-resident person under sec-
tion 43, this sub-section shall have effect as if for the
periods of eight yea.rs and four yea.rs a period of one
year was substitUted.
2 S.C.R. SUPREME COURT REPORTS 24 7
Explanation-Production before the Income-tax I960
Officer of account-books or other evidence from which c 1 . - .
materia· 1 facts could wit• h d ue d I·1·1gence h ave b een Companv
a culta Discount
Limited
discovered by the Income-tax Officer will not neces- ~-
sarily amount to disclosure within the meaning of Income-tax Offim,
this section." Companies
To confer jurisdiction under this section to issue District, I
no t we . respec t of assessmen t s b eyon d t h e peno
. 111 . d of & Another
-
four years, but within a period of eight years, from Das Gupta J.
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
under-assessed. The second is that he must have
also reason to believe that such " under assessment "
has occurred by reason of either (i) omission or failure
on the part of an assessee to make a return of his
income under s. 22, or (ii) omission or failure on the
part of an assessee to disclose fully and truly all
material facts necessary for his assessment for that
year. Both these conditions are conditions precedent
to be satisfied before the Income-tax Officer could
have jurisdiction to issue a notice for the asse_ssment
or re-assessment beyond the period of four years but
within the period of eight years, from the end of the
year in question.
No dispute appears to have been raised at any
stage in this case as regards the first condition not
having been satisfied and we proceed on the basis that
the Income-tax Officer had in fact reason to believe
that there had been an under-assessment in each of
the assessment years, 1942-43, 1943-44 and 1944-45.
The appellant•s·case has all along been that the second
condition was not satisfied. As admittedly the appel-
lant had filed its return of income under s. 22, the
· Income-tax Officer could have no reason to believe
that under-assessment had resulted from the failure
to make a return of income. The only question is
whether the Income-tax Officer had reason to believe
that " there had been some omission or failure to
disclose . fully and truly all material facts necessary
 248 SUPREME COURT REPORTS [1961]
'9 60 for the assessment " for any of these years in conse-
caI cu 11 a iscount quence of which the under-assessment
-D.
.
took place.
•
company Limited Before we proceed to consider the materials on
v. record to see whether the appellant has succeeded
Income-tax Officer, in showing that the Income-tax Officer could have
Companies no reason, on the materials before him, to believe that
;iisAtricth, I there had been any omission to disclose material
~ not " -"
iacts,-as men t'10ned m
' th e sec t'10n, 1"t 1s
· necessary to ex -
Das Gupta J. amine the precise scope of disclosure which the section
demands. 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 assesment will
differ from case to case. In every assessment pro-
ceeding, the assessing authority will, for the purpose of
computing or determining the proper tax due from an (
assessee, require to know all the facts which help him
in coming to the correct conclusion. From the pri-
mary facts in his possession, whether on disclosure by
the assessee, or discovered by him on the basis of the
facts disclosed, or otherwise-the assessing authority
has to draw inferences as regards certain other facts;
and ultimately, from the primary facts and the
further facts inferred from them, the authority has to
draw the proper legal inferences, and ascertain on
a correct interpretation of the taxing enactment, the
proper tax leviable. Thus, when a question arises
whether certain income received by an assessee is
capital receipt, or revenue . receipt, the assessing
authority has to find out what primary facts have
been proved, what other facts can be inferred from
them, and taking all these together, to decide what
the legal inference should be.
There can be no doubt that the duty of disclosing
all the primary facts relevant to the decision of the
question before the assessing authority lies on the
assessee. To meet a possible contention that when
some account books or other evidence has been pro-
••
duced, there is no duty on the assessee to. disclose ......
further facts, which on due diligence, the Income- tax '·
2 s.c.R. SUPREME COURT REPORTS 249
Officer might have discovered, the Legislature has put I9 60
in the Explanation, which has been set out above. c 1 ,,-D.
, of t h e E xp lanat10n,
I n view . . Wl'll not be open to t he Company
it a cu a iscoun 1
Limited
assessee to say, for example-" I have produced the v.
account books and the documents: You, the . assess- Income.tax Officer,
ing officer examine them, and find out the facts neces- C~mp~nies
sary for your purpose : My duty is done with disclos- ~·~'":i. 1
ing these account-books and the documents". His no er
omission to bring to the assessing authority's attention Das Gupta J.
these particular items in the account books, or the
particular portions of the documents, which are rele-
vant, amount to " omission to disclose fully and truly
all material facts necessary for his assessment." Nor
will he be able t9 contend. successfully that by dis-
closing certain evidence, he should be deemed to have
disclosed other evidence, which might have been dis-
covered by the assessing authority if he had pursued
investigation on the basis of what has been disclosed..
The E,xplanation to the section, gives a quietus to all
such contentions ; and the position remains that so
far as primary facts are concerned, it is the assessee's
duty to disclose all of them-including particular
entries in account books, particular portions of docu-
ments and documents, and other evidence, which
could have been discovered by the assessing autho-
rity, from the documents and other evidence dis-
closed.
Does the duty however extend beyond the full and
truthful disclosure of all primary facts ? In our
opinion, the answer to this question must be in the
negative. Once all the primary facts are before the
assessing authority, he requires no further assistance
by way of disclosure. It is for him to decide what
inferences of facts can be reasonably drawn and what
legal inferences have ultimately to be drawn. It is not
for somebody else-far less the assessee-to tell the
assessing authority what inferences-whether of facts
or law should be drawn. Indeed, when it is remem-
bered that people often differ as regards what infer-
ences should be drawn from given facts, it will be
meaningless to demand·that the assessee must disclose
32
 250 SUPREME COURT REPORTS [1961]
'9 60 what inferences-whether of facts or law-he would
Cal"'tt~iscou"t draw from th.e primary facts.
company Limited If from primary facts more inferences than one
v. could be drawn, it would not be possible to say that
Income-tax Officer. the assessee should have drawn any particular infer-
Compa>1ies ence and communicated it to the assessing authority.
Dislricl, I
& A>1other
H ow cou Id an assessee be ch arge d wit
• h f ailure to com-
municate an inference, which he might or might not
Das G1<pta J. have drawn ?
It may be pointed out that the Explanation to the
sub-section has nothing to do with "inferences" and
deals only with the question whether primary mate-
rial facts not disclosed could still be said to be cons-
tructively disclosed on the ground that ·with due
diligence the Income-tax Officer could have discovered
them from the facts actually disclosed. The Expla-
nation has not the effect of enlarging the section, by
casting a duty on the assessee tq disclose " inferen-
ces "-to draw the proper inferences being the duty
imposed on the Income-tax Officer.
We have therefore come to the conclusion that
while the duty of the assessee is to disclose fully and
truly all primary relevant facts, it does not extend
beyond this.
The position therefore is that if there were in fact
some reasonable grounds for thinking that there had
been any non-disclosure as regards any primary fact.,
which could have a material bearing on the question
of "under assessment" that would be sufficient to give
jurisdiction to the Income-tax Officer to issue the
notices under s. 34. Whether these grounds were
adequate or not for arriving at the conclusion that
there was a non-disclosure of material facts would not
be open for the court's investigation. In other words,
all that is necessary to give this special jurisdiction
is that the Income-tax Officer had when he assumed
jurisdiction some prima facie grounds for thinking
that there had been some non-disclosure of material
facts.
Clearly it is the duty of the assessee who wants the
court to hold that jurisdiction was lacking, to estab-
lish that the Income-tax Officer had no material at
11oll before him for believing that there had been suoh
 2 S.C.R. SUPREME COURT REPORTS 251
non-disclosure. To establish this the company has r96o
relied on the statements in the assessment orders fore 1 -D.
. . d h f a cutta iscou1tl
the three years m quest.ion an on t e statement o Company Li 'tetl
Kanakendra Narayan Banerjee in the report made v. mi
by him to the Commissioner of Income-tax for theincome-tax Officer,
purpose of obtaining sanction to initiate proceedings Companies
under s. 34 and also on his statement in the affidavit District, I
' rep1y t o th e wri't pe t't'
on oa th m I ion. The report is
• & Another
in these words :- Das Gupta].
" Profit of Rs. 5,48,002 on sale of shares and
securities escaped assessment altogether.
At the time of the original assessment the then
I.T.O. 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 company has really been systematic-
ally carrying out a trade in the sale of investments.
As such the company had failed to disclose the true
intention behind the sale of the shares and as such
s. 34(l)(a) may be attracted."
The only non-discbsure mentioned in the report is
that the company had failed to disclose "the true
intention behind the sale of the shares". Mr. Chou-
dhury contends that this is not an omission to
disclose a material fact within the meaning of s. 34.
The question whether sales of certain shares were by
way of changing the investments or by way of trad-
ing in shares has to be decided on a consideration of
different circumstances, including- the frequency of
the sales, the nature of the shares sold, the price
received as compared with the cost price, and several
other relevant facts. It is the duty of the assessee
to disclose all the facts which 'have a bearing on the
question; but whether the assessee had the intention
to make a business profit as distinguished from the
intention to change the form of the investments is
really an inference to be drawn by the assessing autho-
rity from the material facts taken in conjunction with
the surrounding circumstances. The law does not
require the assessee to state the conclusion that could
reasonably be drawn from the primary facts. The
 252 SUPREME COURT REPORTS [1961]
r96o question of the assessee's intention is an inferential
- . fact and so the assessee's omission to state his " trne
Calculta Discount • • b h. d h l f h ,
Companv Limited mtent1~nds ed rn bt e sa e o s ares " cannot by itself
~. be cons1 ere to e a failure or omission to disclose
Incomt-tax Officer, any material fact within the meaning of s. 34. Indeed,
Companies an assessee whose contention is that the shares were
District, 1 sold to change the form of investment and not with
& Another · t en t'ion of ma k'mg a b usmess
th e m ' pro fi t cannot be
D~s Gupta 1 . expected to say that his true intention was other than
what he contended it to be. Dealing with this ques-
tion the learned Chief Justice has said :-
" The expression that the Respondent had failed
to disclose " the true intention behind the sale of
shares " may lack directness, but that deficiency of
language is not sufficient to enable the Respondent to
contend, in view of the circumstances alleged, that no
failure to disclose facts was being complained of. On
the facts as stated by the Income-tax Officer, it is
clear that there had been a failure to disclose the fact
that the Respondent was a dealer in shares and what
the Income-tax Officer meant by the language used
by him was that the Respondent had not disclosed
that the sale of shares had been of the nature of a
trading sale, made in pursuance of an intention to
make a business profit, and not of the nature of a
change of investment, made in pursuance of an inten-
tion to put certain capital assets into another form.
If that be so, it is equally clear that the Income-tax
Officer who, by the way, was a sucoessorto the officers
who had made the original assessments, was not
merely changing his opinion as to facts previously
known, but was taking notice of a new fact."
The learned Chief Justice seems to have proceeded
on the basis that when from certain facts inferences
are to be drawn there is a duty on the assessee to
state what the correct inference should be and if he
has made a wrong statement as regards the inferences
to be drawn that also is an "omission or failure to
disclose a material fact ". For the reasons given
earlier we do not think that this is the correct position
in law.
It is clear therefore that if one looked at this report
2 S.C.R. SUPREME COURT REPORTS 253
ouly it would not be possible to sa.y that the Income- 196°
tax Officer bad. any non-disclosure of material facts by .
. . d b b d .
the assessee m mm w en e assume JUns IC 10n.. d. t' It Calcutta Discount
campanv Limited
bas to be remembered however that in sending a ~.
report to the Commissioner the Income-tax Officer Income-tax Officer,
might not fully set out what he thought amounted to Comp~nies
a non-disclosure, because it is conceivable that the District,· 1
'f & A not her
report may not oe drawn up ca'16fully and may not
contain a reference to all the non-disclosures that Das Gupta J.
operated on his mind. We have however on the
record an affidavit sworn by the same Income-tax
Officer who started the s. 34 proceedings. It is
reasonable to expect that in this affidavit which was
his opportunity to tell the court. what non-disclosure
he took into consideration he would state as clearly
as possible the material facts in respect of which there
had not been in his view a. full and true disclosure.
Mr. Banerjee's statements in this matter are contained
in paras. 5, 6 and 7 of his affidavit. They are in
these words :-
" 5. With reference to paragraphs 2 and 3 of the
said petition, I crave reference to the assessment
orders therein mentioned. The assessment order dated
the 15th February 1945, was made by Sri Kali Das
Banerjee now Income-tax Officer Companies District
II and the other two assessment orders were made by
L. D. Rozario who is now in the employmen~ of M/s.
Lovelock & Lewes. I find from the notes ma.de by
me in the order sheet'of the assessment year 1944-45
and my order dated the 7th July 1944 that Mr. Smith
of M/s. Lovelock & Lewes attended before me and
stated that the profits of th& company arising out of
dealings in shares were not taxable as the company
was not a dealer in shares and securities. Subsequently
on the 18th August 1944, M/s. Lovelock & Lewes wrote
a letter to me setting out the contentions of their
clients and inter alia stated that throughout the
whole history the company bought no shares whatso-
ever. Sri K. D. Banerjee was accordingly led to
believe that the dealings in shares were casual trans.
actions and were in the nature of mere change in
investments and the profits resulting therefrom were
 254 SUPREME COURT REPORTS [1961]
I960 not taxable. The assessment orders were made on I
- . the basis that the petitioner did not carry on any
Ccalcutta DMcount business dealings in shares. A copy of the said letter
ompany v Lim>ted d a t ed t he 18th August, 1944, as a I so t h e reI evant por-
Income-ta~ Officer. tion of the note sheet are included in the schedule
Companies hereto annexed and marked "A ".
District. I 6. In the assessments for 1945.~6 and 1946-47,
o. Another which were completed in April 1950, the profits on
Das Gupta J.
sale of shares. were included in the total assessable
income of the company it having been then discovered
that the petitioner was in fact carrying on business in
shares contrary to its representation that it was not.
The company filed appeals before the Appellate Assis-
tant Commissioner, which were rejected in September
1950, and the assessments were confirmed. The com-
pany thereafter filed a second appeal before the In-
come-tax Tribunal which appeals are now pending.
7. With reference to para. 5 of the said petition,
I deny that I pretended to act under s. 34 of the In-
come-tax Act as alleged. I have· reasons to believe
that by reason of the omission or failure of the
company to disclose fully and truly all material
facts necessary for its assessments, the income, pro-
fits and gains chargeable to income-tax had been
under assessed. I recorded my reasons and made
three reports (one for each year) in the prescribed
form and submitted them before the Commissioner of
Income-tax and the latter was satisfied that it was a
fit case for issue of a notice under s. 34 of the Income- j
tax Act. Thereafter I issued the prescribed notices '
under s. 34 of the Income-tax Act. The said reports
were made and notices issued in respect of all the
three years mentioned in the petition and copies of
the report and notice for one of such years are includ-
ed in the schedule hereto annexed and marked "A".
The report and notices for the two other years are
exactly similar."
It appears from this that the statements made by
or on behalf of the company which the assessing
authority considered to amount to non-disclosure of
material facts were these :-(i) the company was not
a dealer in shares and securities and (ii) throught the
2 S.C.R. SUPREME COURT REPORTS 255
1 60
whole of its history the company bought no s1'ares 9
whatsoever. It. has not been suggebted before us that Calcutt;-;iscount
in fact a.t any time up to the conclusion of the assess- company Limited
ment proceedings for the years 1942-43, 1943-44 and "·
1944-45 the company did in fact make a single Income-tax Officer,
purchase of shares. Clearly therefore the Income-tax Companies
1
Officer had no reasonable ground for thinking that &Dist<ict, Anotl"r
anything as regards the purchase of shares had not
been disclosed. The company does not dispute that Da• Gupta J.
the statement was ma.de on its behalf tha.' it was not
a " dealer" in shares and securities. It appears clear
that the Income-tax Officers who made the assess-
ments for the years 1942-43, 1943-44 and 1944-45
proceeded on the basis that this was an investment
company and considered the question whether in spite
of its being an investment company certain sales of
shares wherefrom the company made a profit were by
way of trading in shares and not by way of changing
the form of investment. Whether t.hese sales by an
investment company should in law be treated as trad-
ing transactions, and the profits made from the sales
trading profits liable to tax, was the matter which it
was the Income-tax Officer's task to decide. No duty
lay on the company to admit that these transactions
were by way of trade. The fact that on behalf of the
company Mr. Smith of Lovelock & Lewes stated that
the company was not a dealer in shares and securities
does not therefore amount to an omission to disclose
fully and truly any material fact.
To ascertain whether the Income-tax Officer could
have had in mind any non-disclosure a.s a. ground for
thinking that by reason of such non-disclosure an
under assessment had occurred-apart from what was
mentioned in the affidavit-we enquired from respon-
dent's counsel whether he could suggest any other
non-disclosure that might have taken place. Mr. Sa.stri
suggested two. One is that the sales had not been
disclosed; the other that the memorandum and arti-
cles of association of the company had not been
shown. This suggestion is against the record and we
have no hesitation in repelling it. Not only is it not
the ground set out by the Income-tax Officer at any
 256 SUPREME COURT REPORTS [1961]
1 60
9 stage-not even in the affidavit in court, but the
Calcutta Discount matters mentioned by the officer that the assessee had
Company Limited claimed that the profits realised were of a casual
v. nature obviously indicate that the assessee disclosed
Jucome-tax Officer, that a surplus resulted from the sales which were
Coinpauies also disclosed.
District, I
c;. Another Th e assessmen t ord ers 1•t 1s· t rue d o no t ment10n
· t ha
details of the sales. They state however that the
Das Gupta J. audited accounts of the company were furnished. The
sales of shares were expressly mentioned in the
report. In these circumstances it is reasonable to
believe that a.s regards sale of shares full details were
in fact disclosed.
Nor can we believe tha.t the two Income-tax Officers
L. D. Roza.rio a.nd K. D. Banerjee concluded the pro-
ceedings without referring to the memorandum a.nd
articles of association of the company. These officers
known well tha.t the company was claiming to be an
investment company only. They ha.d to consider the
question whether sales were of the nature of trade or
of the nature of change of investment. It is unthink-
able that they would not examine the memorandum
of association. Besides, it is pertinent to note that in
para.. 4 of his affidavit Ka.na.kendra Narayan Banerjee
refers to the Memorandum and articles of Association
and states that " by its memorandum of association
the company has been authorised to carry on the
various kinds of business which have been specified in
sub-section (1) a.n(j (2) of cl. 3 of the sa.id memorandum
of a.ssocia.tion." He does not say that the articles or
the memorandum of association were not shown dur-
ing the assessment proceedings for the yea.rs 1942-43,
1943-44 a.nd 1944-45. If he ha.d a.ny reason to believe
that these were not shown he would have certainly
mentioned that fa.ct. For that would undoubtedly
a.mount to non.disclosure of a. ma.teria.l fact.
It must tnerefore be held that the Income-tax Offi-
cer who issued the notices ha.d not before him any
non-disclosure of a. material fa.ct and so he could have
no material before him for believing that there ha.d
been any material non-disclosure by reason of which
an under-assessment had ta.ken place.
2 S.C.R. SUPREME COURT REPORTS. 257
We a.re therefore bound to hold tha.t the conditions z96o

P recedent to the exercise

•
of jurisdiction
•
under s. 34 ofc -D.
a1cu 11 a SSCOUtl 1
the Income-tax Act did not exist a.nd the Income-tax Company Limited
Officer had therefore no jurisdiction to issue the im- v.
pugned notices under s. 34 in respect of the years Income-tax Officer,
1942-43, 1943-44 and 1944-45 a.fter the expiry of four Companies
rs District, I
yea. • . . . & A not her
Mr. Sastn argued that the question whether the
Income-tax Officer ha.d reason to believe tha.t under Das Gupta J.
assessment ha.d occurred" by reason of non-disclosure
of material facts" should not be investigated by the
courts in a.n application under Art. 226. Learned
Counsel seems to suggest that as soon as the Income-
tax Officer has reason to believe that there has been
under assessment in any yea.r he ha.a jurisdiction to
start proceedings under s. 34 by issuing a notice
provided 8 years ha.ve not elapsed from the end of the
yea.r in question, but whether the notices should have
been issued within a period of 4 years or not is only a.
question of limitation which could and should properly
be raised in assessment proceedings. It is wholly
incorrect however to suppose thitt this is a question of
limitation only not touching the question of jurisdic-
tion. The scheme of the law clearly is that where the
Income-tax Officer has reason to believe that an under
assessment has .resulted from non-disclosure he shall
have jurisdiction to start proceedings for re-assessment
within a. period of 8 yea.rs; and where he has reason
to believe tha.t an under assessment has resulted from
other causes he shall have jurisdiction to start pro-
ceedings for re-assessment within 4 years. Both the
conditions, (i)•the Income-tax Officer having reason to
believe that there ha.a been under assessment a.nd
(ii) his having reason to believe that such under-
assessment ha.a resulted from non-disclosure of
ma.teria.l facts, must co-exist before the Income-tax
Officer ha.s jurisdiction to eta.rt proceedings after the
expiry of 4 yea.rs. The argument that. the Court
ought .not to investigate the existence of one of these
conditions, viz., that the Income-tax Officer has reason
to believe that under assessment has resulted from
33
 .?58 SUPREME COURT REPORTS [1961]
r96o non-disclosure of material facts cannot therefore be
- . a Jcepted.
Cal. ·1tta Discount M S . .
Company Limited r. astn next pomted out that at the stage when
v. the Income-tax Officer issued the notices he was not
Income-tax Offioer, acting judiciall:,- or quasi- judicially and so a writ of
Companies certiorari or p.·ohibition can not issue. It is well settl-
Dishict, 1 ed however that tho;mgh the writ of prohibition or oer-
c;. Another •
tiorary w1 11 not issue against an executive authority,
Das Gupta J. the High Courts have power to issue in a fit case an
order prohibiting an executive authority from acting
without jurisdiction. Where such action of an execu-
tive authority acting witheut jurisdiction subjects or
is likely to subje~t a person to lengthy proceedings
11nd unnecessary harassment, the High Courts, it is
well settled, will issue appropriate orders or directions
to prevent such consequences.
Mr. Sastri mentioned mere than once the fact that
the company would have sufficient opportunity to
raise this question, viz., whether the Income-tax Offi.
cer had reason to believe that under assessment had
resulted from non-disclosure of material facts, before
the Income-tax Officer himself in the assessment pro-
ceedings and, if unsuccessful there, before the appel-
late officer or the appellate tribunal or in the High
Court under section 66(2) of the Indian Income-tax
Act. The existence of such alternative remedy is not
however always a sufficient reason for refusing a party
quick relief by a writ or order prohibiting an autho-
rity acting without jurisdiction from continuing such
action.
In the present case the company contends that the
conditions precedent for the assumption of jurisdiction
under s. 34 were not satisfied and come to the court at
the earliest op;iortunity. There is nothing in its con-
duct which would justify the refusal of proper relief
under Art. 226. When the Constitution confers on
the High Courts the power to give relief it becomes·
the duty of the courts to give such relief in fit oases
and the courts would be failing to perform their duty
if relief is refused without adequate reasons. In the
present case we can find no reason for which relief
should be refused.
 2 S.C.R. SUPREME COURT REPORTS 259

We have therefore come to the conclusion that the 1 60

9
company was entitled to an order. directing thee -D.
h b st a 1cu 11 a iscoun 1
Income-tax Officer not to take any action on t e a s Company Limited
of the three impugned notices. v.
We are informed that assessment orders were in Income-tax Officer,
fact made on ~arch 25, 1952, by the Incom3-tax Companies
Officer in the proceedings started on the basis of these District, 1
& Another
impugned notices. This was done with the permission
of the learned Judge before whom the petition under Das Gupta J.
Art. 226 was pending, on the distinct understanding
t~M thes~ orders would be without prejudice to the
contentions of the parties on the several questions
raised in the petition and without prejudice to the
orders that may ultimately be pas!led by the Court.
The fact that the assessment orders have already been
made does not therefore affect the company's right to
obtain relief under Art. 226. In view however of the
fact that the assessment orders have already been
made we think it proper that m addition to an order
directing the Income-tax Officer not to take any action
on the basis of the impugned notices a further order
quashing the assessment made be also issued.
In the result, we allow the appeal, set aside the
order made by the appellate Bench of the Calcutta
High Court and restore the order made by the Trial
Judge, Bose, J. The assessment orders made in the ·
proceedings started under s. 34 of the Income Tax Act
are also quashed. The appellant will get its costs here
and below.
HIDAYATULLAH J.-I have had the advantage of Hidayatullah J.
reading the judgments prepared by my brethren, Das
Gupta and Shah, JJ. The point involved in the case
is a very short one, and the answer, as it appears to
me, equally so. The appellant Company's income,
profits and gains for the assessment years, 1942-43,
••.
'
1943-44 and 1944-45, were duly assessed and taxed .
The orders were respectively passed on January 26,
1944, February 12, 1944, and February 15, 1945.
On March 28, 1951, three notices under s. 34 of the
Indian Income-tax Act were issued calling upon the
appellant Company to submit fresh returns in respect
 260 SUPREME COURT REPORTS (1961]
r96o of the previous years relative to each of the assess-
ca I rufta 1scott11t ment years
-D.
f
above hmentioned. Since this action was
Compa"v Limit'd taken a ter more t an four years, the matter fell to be
;;. gov!lrned bys. 34(l)(a) of the Indian Income-tax Act,
Income-tax Officer, as amended in 1948. The clause provided an extend-
Companics ed period for sending a notice calling for a return for
District, 1 the purpose of assessing or reassessing income, profits
6- Another and gains wh ic h h a d escaped assessment or had been
Hidayatullah ;. under-assessed for any year within eight years, if the
Income-tax Officer "has reason to believe that by
reason of the omission or failure on the part of an
assessee to make a return of his income under section
22 for any year or to disclose fully and truly all mate-
rial facts necessary for his assessment for that year ",
the income, profits or gains chargeable to income-tax
have escaped assessment etc.
In the present case, the appellant Company, which
iR an investment Company, had produced in the back
years a list of the shares sold by it, the statements of
profit and loss account, and, I am prepared to assume,
also the Memorandum and Articles of Association.
But the appellant Company gave out that the sales of
shares .. were casual transactions of change of invest-
ments. This statement was accepted, though it was
found that in later years the Company was dealing in
stocks and shares as a business venture, and its state-
ment which was accepted, was not perhaps true.
The Income-tax Officer reported the matter to the
Commissioner, and stated as follows:
"Profits of Rs. 5,48,002/- on sale of shares and
securities escaped assessment altogether.
At the time of the original assessment the then
I.T.O. merely accepted the company's version that the
sales of shares were casual transactions and were in
t.he nature of mere change of investments. Now the
results of the company's trading from year to year
show that the company has really been systematically
carrying out a trade in tho sale of investments. As
such, the company has failed to disclose the true
intention behind the sale of the shares and as such
section 34(l)(a) may be attracted."
The appellant Company applied to the Calcutta
 2 S.C.R. SUPREME COURT REPORTS 261
1 60
High Court for a writ under Art. 226 which was 9
grnnt,ed by a learne? single.~ udg,e; but the order was Calcutt~-;iscount
reYersed on appeal m the High Co11rt. The appellant companv Limited
Compan:, has now appealed on a certificate under ~.
Art. 133(l)(c} of the Constitution. Income-tax Office,.,
The contention of the appellant Company is that C~mp~nies
1
all the facts necessary to be disclosed were, in fact, &·District,Another
disclosed, that it was not required further to concede _
that it was trading in shares, which was a matter of Hidayatullah J.
inference, from the proved facts, for the Income-tax
Officer to draw, and that there was thus no question
of any non-disclosure. This e,rgument overlooks the
addition of the Explanation to the section, which
explains cl. (a.) of the first sub-section. It reads:
"Explanation.-Production before the Income-tax
Officer of account-books or other evidence from which
material facts could with due diligence ha.Ye been
discovered by the Income-tax.Officer will not neces-
sarily amount to disclosure within the meaning of this
section."
This means quite clearly that the mere production
of evidence is not enough, and tha.t there may be an
omission or failure to make a. full and true disclosure,
if some material fact necessary for the assessment lies
embedded in that evidence which the assessee can
uncover but does not. If there is such a fact, it is the
duty of the assessee to disclose it. The eYidence which
is produced by the assessee discloses only primary
facts, but to interpret the eYidence, certain other facts
may be necessary. Thus, questions of status, agency,
benami nature of transactions, the nature of trading
and like matters may not appear from the evidence
produced, unless disclosed. If it be merely a question
of interpretation of eYidence by an Income-tax Officer
from whom nothing has been hidden and to whom
everything has been fully disclosed, then the assessec
cannot be subjected to s. 34, merely because the
Income-tax Officer miscarried in his interpretation of
evidence. But it is otherwise, if a conteution which
is contrai·y to fact, is raised and the Income-tax Officer
is set to discover the hidden truth for himself. In the
~ latter case, there is suppression of material fact, or, in
'
 262 SUPREME COURT REPORTS [1961]
i96o other words, that lack of full and true disclosure
-D.
C a I cutfa iscount
which
T woulJ
f ]] .entitle action
] under
, . s. 34 of the. Act.
Company Limited • he o owmg examp e exp1ams the meanmg. Tak.
v. mg the present case, I set below two statements, one
Income-ta., Officer. involving full disclosure and a contention, and the
Companies other, only a contention with a material fact suppres.
District, I sed :
& Anoth" " (l) . \"
·ve are a tra d'mg company and our bus1-.
Hidayatullah J. ness is according to our memorandum of association
'to acquire, hold, exchange, sell and deal in shares,
stocks, etc.' These sales, however, were not business
sales but only change of investments into trustee
securities as decided by the trustees.
(2) We changed industrial shareB into trustee
securities because' in or about 1934, the trustees deci.
ded to convert the Indian Industrial Shares held by
the appellant into trustee securities'."
If the first is decided in favour of the assessee, there
is an inference or decision by the Income-tax Officer
from a full and true disclosure. If the second is deci-
ded in favour of the assessee, the question would
arise if there was full and true disclosure.
In the present case, the question whether the tran.
sactions were casual transactions of changing invest-
ments or regular trading in stocks and shares involv-
es not merely an inference, because the inference
depends upon the fact that the appellant Company
was formed to trade in stocks and shares. It was
open to the appellant Company to contend that in
spite of its business, a particular transaction was this
and not that. Bnt, if the appellant Company was an
investment Company dealing in stocks and shares,
and knowing this for a fact, <lid not disclose the fact,
I
the statement was neither full nor true, as it involved
a suppression of a material fact necessary for the
assessment. The Explanation is quite obviously
meant to reach an identical situation. The appellant
Company might have placed the evidence before the
Income-tax Officer, but the Income-tax Officer had
reason to believe that the disclosure was neither full
nor true, because the fact that the Company was an
investment Company trading in stocks and shares
2 S.C.R. SUPREME COURT REPORTS 263
was not disclosed. The Income-tax Officer in his 1
96o
report meant
. no. more than this. He, therefore, felt c tt_D_
f a1cu a iscount
that, prima facie, there was not on.ly ?o~cealment o Company Limited
a fact but, on the contrary, mamtammg of a false- v.
hood, and this was sufficient to bring this matter Income-tax Officer,
within the extended period. Every contention cont- Comp~nies
rary to the Income-tax Officer's opinion is not neces- District, 1
. l f . I i: b
sanly concea ment o a mater1a 1act, ut some con- & Another

tentions made with a mental reservation as to the Hid ayatullah J.

true state of affairs may amount to such concealment,
if they involve non-disclosure of facts related to other
facts and known to the assessee.
The Company still persists that the sales of shares
were casual transactions, and this contention will, no
doubt, be decided hereafter. But the question will be
decided after taking into consideration the nature of
the business of the Company, and till that is done, the
Income-tax Officer believes that the contention raised
before and persisted in is not a mere contention but
maintenance of a falsehood about the nature of the
transactions and the business of the Company. The
existence of such a belief is sufficiently established by
the report of the Income-tax Officer and the satisfac-
tion of the Commissioner, and this has not been gain-
said.
In my opinion, the Divisional Bench of the High
Court rightly refused a writ in the circumstances, and
I would dismiss this appeal with costs.
SHAH J.-I regret inability to agree with the judg. Shii<h f.
ment delivered by my learned brother Mr. Justice
Das Gupta.
The facts which give rise to this appeal have been
fully 'set out by my learned brother and it is not
necessary to reiterate the same.
Sub-section (1) of s. 34 of the Indian Income Tax
Act, 1922 (in so far it is material) stood at the relevant
date when the proceedings were commenced, as
follows:
s. 34 :-(1) If-
(a) the Income-tax Officer has reason to believe that
by reason of the omission or failure on the part of an
assessee to make a return of his income under 8. 22
 264 SUPREME COURT REPORTS [1961]
'9 60 for any year or to disclose fully and truly all material
-D.
Ca I cutta
facts necessary for his
iscount . .
assessment for · .that year,
Compimy Limited mcome, profits or gams chargeable to mcome- tax
v. have escaped assessment for that year, or have been
Income-ta• Offim, under-assessed or assessed at too low a rate, or have
c~mp~nies been made the subject of excessive relief under the
Distnct. 1 Act, or excessive loss or depreciation allowance has
& Anoth" b. d
een compute , or
Shah J. (b) notwithstanding that there has been no omis-
sion or failure as mentioned in cl. (a) on the part
of the assessee, the Income- tax Officer has in con-
sequence 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, or assessed at too low a
rate, or have been made the subject of excessive relief
under this Act, or that excessive loss or depreciation
allowance has been computed,
he may in cases falling under cl. (a) at any time
within eight years and in oases falling under cl. (b)
at any time within four years of the end of that year,
serve on the assessee, or, if \he assessee is a company,
on the principal officer thereof, a notice containing
all or any of the requirements which may be included
in a notice under sub-s. (2) of s. 22 and may proceed
to assess or re.assess such income, profits ur gains
or re-compute the loss or depreciation allowance; and
the provisions of this Act shall, so far as may be,
apply accordingly as if the notice were a notice issued
under that sub-section :
I
Provided that-
(i) the Income-tax Officer shall not issue a notice
under this sub-section, unless he has recorded his
reasons for doing so and the Commissioner is satisfied
on such reasons recorded 'that it is a tit case for the
issue of such notice ;
(ii) the tax shall be chargeable at the rate at
which it would h~ve been charged had the income,
profits or gains not escaped assessment or full assess-
ment, as the case may be; and
(iii) where the assessment made or to be made is '
2 s.c.R. SUPREME COURT REPORTS 265
an assessment made or to be made on a person deem- i96o
ed to b~ the ha.gent. of ha nohn-resid~t pers?fn .... undher Calcutta Discount
s. 43, this su -section s a11 ave euect as 1 ior t e Company Limited
periods of eight years and four years a period of one v.
year was substituted. Income-tax Officer,
Explanation :-Production before the Income-tax Companies
Officer of account books or other evidence from which District, I
& Another
material facts could with due diligence have been dis-
covered by the Income-tax Officer will not necessarily Shah J.
amount to disclosure within the meaning of this
section.
This section provides machinery for assessment or
reassessment if it be found that income, profits or
gains "have escaped assessment or have been under.
assessed.or assessed at too low a rate or have been
made subject to excessive relief under the Act or
excessive loss or depreciation allowance has been
computed", which expression may for convenience of
reference be compendiously referred to as are or have
been under-assessed. Notice under s. 34(l)(a) may be
issued if the Income Tax Officer has reason to believe
that income in any year has been underassessed by
reason of the failure on the part of the assessee to
make a return of his income, or to disclose fully and
truly all material facts necessary for assessment for
the year in question. The authority of the Income
Tax Officer is manifestly circumscribed by certain
conditions, and may be exercised only if those condi-
tions exist and not otherwise.
In the case in hand, we are concerned with the
operation of cl. (l)(a) of s. 34. If that clause does not
apply, notices of reassessment having been served more
than four years after the end of the relevant year
of assessment, must fail. On an analysis of the relev-
ant provisions, the material conditions prescribed for
the exercise of the power to commence proceedings
for reassessment under s. 34(l)(a) are these:
(1) The Income Tax Officer has reason to belieye,
(a) that income, profits or gains have been under-
assessed,
(b} that this under-assessment is by reason of
34
 266 SUPREME COURT REPORTS [1961]
r96o omission or failure to make a return under s. 22 or
-n·
Cal cu t' a iscoun
,by reason
, l s:
of failure to disclose fully and truly all
company Limit'd materia 1acts necessary for assessment for any year;
v. (2) that a notice containing all or any of the re-
Income-tax Officer. quirements of s. 22(2) is served on the assessee within
Companies eight years from the end of the year of assessment·
~i~ricth
0
1
(3) that the Income Tax Officer has recorded his
" ' " reasons for issuing the notice and the Commissioner is
Shah J. satisfied on such reasons recorded that it is a fit case
for issue of such notice.
The notices issued by the Income Tax Officer in the
case before us undoubtedly fulfil conditions (2) and (3).
Notices of reassessment were served before the expiry
of eight years of the end of the relevant years of
assessment. The Income Tax Officer also recorded
his reasons in the reports submitted by him to the
Commissioner and the Commissioner was satisfied that
they were fit cases for the issue of such notices. The
dispute in the appeal relates merely to the fulfilment
of the two branches of the first condition and that
immediately raises the question about the true import
of the expression "has reason to believe" in s. 34(l)(a).
The expression " reason to believe " postulates belief
and the existence of reasons for that belief. The belief
must be held in good faith : it cannot be merely a
pretence. The expression does not mean a purely
subjective satisfaction of the Income Tax Officer: the
forum of decision as to the existence of reasons and
the belief is not in the mind of the Income Tax Officer. l I
If it be asserted that the Income Tax Officer had
reason to believe that income had been underassessed
by reason of failure to disclose fully and truly the
facts material for assessment, the existence of the
belief and the reasons for the belief, but not the
sufficiency of the reasons, will be justiciable. The
expression therefore predicates that the Income Tax
Officer holds the belief induced by the existence of
reasons for holding such belief. It contemplates exist-
ence of reasons on which the belief is founded, and not
merely a belief in the existence of reasons inducing
the belief; in other words, the Income Tax Officer
must on information at his disposal believe that
2 S.C.R. SUPREME COURT REPORTS 267
income has been underassessed by reason of failure 1
<>6°
fully and truly to disclose all material facts necessary c 1 11 - D.
. f b . 'd b a cu a tscoun1
f or assessment. Suc h a beIJe , e it sa1 , may not e Company Limited
based on mere suspicion : it must be founded upon v.
information. Income-tax Officer,
That the Income Tax Officer has reason to believe Companies
that there was underassessment in the material ·years District, 1
& A not her
was not challenged by the appellant and in our
opinion rightly. There are on the record the reports Shah 1 .
of the Income Tax Officer in which the belief is ex-
pressly set out. It also appears from the assessment
orders for the years 1945-46 and 1946-47 that tax has
been assessed on the profits made by sale of shares by
the company in those years.
Had the Income Tax Officer reason to believe that
by reason of failure to disclose fully and truly all
material facts necessary for assessment for the three
years in question, there had resulted underassessment?
~he learned Trial judge, after setting out the evidence,
held that the Income Tax Officer had materials before
him showing that the company's trading from year to
year disclosed that it had been systematically carry-
ing on a trade in the sale of shares and securities. He
observed:
" Whether the materials were sufficient or not or
whether the belief or opinion is erroneous or not,
cannot ......... be enquired into by the court ...... If the
Income Tax Officer has ma.de a wrong decision as to
the existence of the conditions precedent, the remedy
is by way of appeals as provided by the Income Tax
Act and by stating a case under s. 66 of the Act."
In appeal, the High Court confirmed the order. The
High Court observed that "the use of the expression
" the true intention behind the sale of shares" used
in the report ma.de by the Income Tax Officer under
s. 34 to the Commissioner may la.ck directness, but
that deficiency of language was not sufficient to enable
the company to contend in view of the circumstances
alleged that there was no failure t;o disclose facts
being complained of". The High Court also observed:
" On the facts as stated by the Income Tax
Officer, it is clear that there had been a. failure to
 268 SUPREME COURT REPORTS [1961]
1 60
9 disclose the fact that the respondent was a dealer in
Cl
--D.
a cu t ta tstoioit
shares and what the •
Income Tax Officer meant by the
t;ompa"v Limited langnage used by him was that the respondent had not
;,. disclosed that the sale of shares had been of the
Income-tax Officer, nature of a trading sale, made in pnrsuance of an
c~mp~nies intention to put certain capital assets into another
D"tnct, 1 form. If that be so, it is equally clear that the
& Anoth" I ncome T ax Offi cer who, b y t he way, was a successor
Shah 1 . to the officers who had made the original assessments,
was not merely changing his opinion as to facts pre-
viously known, but was taking notice of a new fact."
Prima facie, the finding recorded by the Court of
First Instance and confirmed by the Court of Appeal
is one on a question of fact and this court would not
be justified in entering upon a reappraisal of the
evidence. .Out it is contended on behalf of the com-
pany that the finding is based on no materials, and to
that plea I may advert. By s. 22 of the Income Tax
Act, a duty is imposed upon every tax payer whose
total income exceeds the maximum which is not
chargeable to income-tax to make a return in the
prescribed form and verified in the prescribed manner,
setting forth his total income during that year. If the
tax payer making the return fails to disclose fully and
truly all material facts necessary for the assessment
of the year in question, the jurisdiction of the Income
Tax Officer to reassess is invited. The company in its
petition for the issue of a writ contended by parag-
raph 7 that the notices were ultra vires and illegal and
that the Income Tax Officer was not invested with
jurisdiction to proceed thereunder, inter alia, for the
'
II

reason that the "pretended notice was issued without

the existence of the necessary conditions precedent
which confers jurisdiction un_der s. 34 aforementioned,
whether before or after amendment in 1948."
The Income Tax Officer,. by his affidavit, submitted:
Para 4:-" The statements made in paragraph 1 of
the said petition are substantially correct. By its
Memorandum of Association, the company has been
authorised to carry on the various kinds of business
which have been specified in sub.els. (I) to (32) of cl.
(3) of the said Memorandum of Association.
2 S.C.R. SUPREME COURT REPORTS 269
Para 5 :-"With reference to paragraphs 2 and 3 of i96o
the said petition, I era ve reference to the assessment c 1 - .
orders t herem . d . Th e assessment ~r der d ate d Company
. mentione a culta Discount
Limited
the 15th February, 1945, was made by Shr1 Kali Das v.
Banerjee now Income Tax Officer Companies District Income-tax Officer,
II and the other two assessment orders were made by c~mp~nies
Mr. L. D. Razario who is now in the employment of District, 1
M/s. Lovelock & Lewis. I find from the notes made &- Another
by me in the order sheet of the assessment year Shah. J.
1944-45 and my order dated the 7th July, 1944, that
Mr. Smith of Messrs. Lovelock & Lewis attended
before me and stated that the profits of the company
arising out of dealings in shares were not taxable 11.s
the company was not a dealer in shares and securities.
Subsequently on the 18th August, 1944, Messrs. Love-
lock & Lewis wrote a letter to me setting out the con-
tentions of their clients and inter alia stated that
throughout the whole of its history the company
bought no shares whatsoever. Shri K. D. Banerjee
was accordingly led to believe that the dealings in
shares were casual transactions and were in the nature
of mere change in investments and the profits result.
ing therefrom were not taxable. The assessment
orders were made on the basis that the petitioner did
not carry on any business dealing in shares. A copy
of the said letter dated the 18th August, 1944, as also
the relevant portion of the note sheet are included in
the schedule hereto annexed and marked "A"."
Para 6 :- "In the assessments for 1945-46, and
1946-47 which were completed in April, 1950; the pro-
fits on sale of shares were included in the total assess-
able income of the company it having been then
discovered that the petitioner was in fact carrying on
business in shares contrary to its representation that
it was not. The company filed appeals before the
Appellate Assistant Commissioner which were rejected
in September, 1950, and the assessments were confirm-
ed. The company thereafter filed a second appeal
before this Income-tax Tribunal which appeals are
now pending."
Para 7 :- " With reference to paragraph 5 of the
said petition, I deny that I pretended to act under
 270 SUPREME COURT REPORTS [1961]
60
'9 s. 34 of the Income Tax Act as alleged. I have reasons
coZcutt;Discount to believe that by reason of the omission or failure of
Company Limited the company to disclose fully and truly all material
v. facts necessary for its assessments, the income, profits
Income-tax Officer. and gains chargeable to income-tax had been under-
Companies
District, I
assessed. I recorded my reasons and made 3 reports
& Another (one for each year) in the prescribed form and sub-
mitted them before the Commissioner of Income Tax
Shah J. and the latter was satisfied that it was a fit case for
issue of a notice under s. 34 of the Income Tax Act.
Thereafter I issued prescribed notices under s. 34 of
the Income Tax Act. The said reports were made and
notices issued in respect of all the three years mention-
ed in the petition and copies of the report and notice
for one of such years are included in the schedule
hereto annexed and marked "A". The report and
notices for the two other years are exactly similar.
By these averments, the Income Tax Officer assert-
ed (a) that he had reasons to believe that by reason
of the omission or failure of the company to disclose
fully and truly all material facts necessary for the
assessment, income chargeable to income tax has been
underassessed and that he had recorded his reasons in
that behalf in the three reports submitted hy him to
the Commissioner; (b) that in the course of the assess- ,
ment proceeding for the year 1944-45, it was repre-
sented on behalf of the company that the sales of
shares in that year were casual transactions and were
in the nature of "mere change in investments"; (c)
that in the orders of assessment for the years 1945-46
and 1946-47 passed in April, 1950, profits earned by
sale of shares held by the company were included in
the total assessable income of the company, it having
been discovered that the company was in fact carry-
ing on the business of selling shares contrary to its
earlier representations; and (d) that by its Memoran-
dum and Articles of Association, the company was
authorised to carry on the business of diverse kinds
specified in sub-els. (1) to (32) of cl. (3) thereof.
Whereas by a mere bald assertion made by the
company in its petition it was averred that the con-
ditions precedent to the exercise of jurisdiction to
2 S.C.R. SUPREME COURT REPORTS 271
reassess did not exist, the Income Tax Officer stated r960
in his rejoinder that he had reasons to believe that - .
.
mcome had been un derassessed an d h e a l so set out Calcutta Discount
Company Limited
the grounds on which that belief was founded. The v.
existence of the reasons to believe that income was Income-tax Offic-er,
underassessed has, as already observed, not been Companies
challenged; nor is the\ court concerned with the District, I
& Another
question whet h er t h e materia 1s may b e regard ed b y a
court before which a dispute is raised, sufficient to Shah f.
sustain the belief entertained by the Income Tax
Officer. It is clear that the Income Tax Officer assert-
ed on oath that when he issued the notice for reassess-
ment, he had reasons to believe that income of the
company had been underassessed and he set out the
reasons in support of the belief.
Counsel for the company submitted that all the ·
material facts necessary for the assessment were fully
and truly disclosed in the course of the assessment for
the years in question, and if the Income Tax Officer
did not draw the correct inference, the jurisdiction to
reassess could not be invoked. He urged that it was
for the Income Tax Officer, on the preliminary facts
disclosed to him, to raise his inference of faot and to
base his conclusions on the preliminary as well as the
inferential facts, and if, in arriving at his conclusion
on the preliminary and the inferential facts, the
Income Tax Officer committed an error, he could not
seek to commence proceedings for reassessment on
being apprised of the error. It was said that the In-
come Tax Officer knew that the company was an
investment corporation_, that the shares held by the
company were sold from time to time, and that profits
were earneu by the sale of those shares, and that on
these md.terials the Income Tax Officer might have
held that the company was a dealer in shares,
but if he did not draw that inference, the underassess-
ment, if any, was not by reason of failure to disclose
fully and truly all material facts. Counsel submitted
that the condition of the exercise of jurisdiction under
s. 34 is failure to disclose fully and truly all material
facts necessary for assessment and not failure to
 272 SUPREME COURT REPORTS [1961]
r96o instruct the Income Tax Officer about the legal infer-
cal cu I ta-n·1scount ence to be drawn
.
from the facts disclosed.
Company Limited The duty imposed by the Act upon the tax payer
v. is to make a full and true disclosure of all material
Income-tax Officer, facts necessary for the assessment; he is not required
Companies to inform the Income Tax Officer as to what legal
District, 1 inference should be drawn from the facts disclosed by
&- Another h'1m nor t o a d vise
. h'1m on quest10ns
. of 1aw. Wh'eth er
Shah ;. on the facts found or disclosed, the company was a
dealer in shares, may be regarded as a conclusion on
a mixed question of law and fact and from the failure
on the part of the company to disclose to the Income
Tax Officer this legal inference, no fault may be found
with the company. But on the evidence in the case,
the plea raised by the company that all material facts
were disclosed cannot be accepted. The Income Tax
Officer has in para. 6 of his affidavit referred to the
assessment of the years 1945-46 and 1946-47: he has
also referred to the Memorandum and Articles of Asso-
ciation of the company therein. In the assessment
order for the year 1945-46, the Income Tax Officer
has set out els. (1) and (2) of the Memorandum and
Articles of Association of the company. They are :
(1) " To acquire, hold, exchange, sell and deal in
shares, stocks, debenture-stock, bonds, obligations and
securities issued or guaranteed by any company,
Government or public body constituted or carrying 011
busiuess iu British India or elsewhere;"
(2) " Geuerally to carry 011 busiuess as fiuanciers
aud to uudertake aud carry out all such operations
and transactions (except the issuing of policies of as-
surances on human life) as an individual capitalist
may lawfully undertake or carry out; ".
The Income Tax Officer in his order of assessment
for that year observed that those clauses indicated
the purposes for which the company was formed, and
also that " whenever the shares were first acquired,
these became the commodities which could either be
held or sold according to the best interests of the
company, that whenever such a commodity is sold, it
comes within the activities or properly speaking the
profit making scheme as enumerated in the object
2 S.C.R. SUPREME COURT REPORTS 273
clauses stated above. These shares sold in course of i96o
ten or twelve years whenever op.portunities occurred . ca1cu ,,-D.
a iscoun 1
for earning profits on making the sales. · · · ·. · · ·. This company Limited
company was not an ordinary trader investing its v.
surplus funds in shares and securities quite uncon- Income-tax Officer,
nected with its regular course of business so that the Companies
. · District, I
profit or loss a lso on sale of sue h s h ares or secur1t1es & Another
may be treated as not arising out of its regular busi-
ness ,earried on. On the other hand,· it is an Invest- Shah J.
ment company of which the very first object clause is
to hold and deal in shares. Profit on sale of such
shares therefore arises out of its regular course of
business and it must be taxable."
From that order of assessment, it is manifest that
the Assessing Officer held that the company was form-
ed with the object of acquiring, holding, exchanging,
selling and dealing in shares, that the shares acquired
became the trading assets of the company to be dispos-
ed of when opportunities occurred for earning profits;
and that the activities of selling shares in which sur-
plus.assets of the company were invested were a part
of the regular business carried on by the company.
There is no evidence that the Memorandum and
Articles of Association referred to in para 4 of the
affidavit were produced in the course of the assess-
ment of the relevant years; nor is there evidence to
show that it was disclosed that the acquisition of
shares was incidental to the business activities and
out of the surplus assets of the company and that the
same were sold at profit as opportunities arose. There
is also no ground for assuming that these facts must
have been known to the Income Tax Officer. Counsel
for the company suggested somewhat casually that
under the Income Tax Rules and the practice prevail-
ing with the Income Tax Officer, the Memorandum
and Articles of Association of every company which
was being assessed to tax are to be filed with the
Income Tax Officer. But our attention has not been
invited to any rule or any material to support the
existence of a practice requiring a private limited
company to file with the Income Tax Officer the
Memorandum and Articles of Association.
a.5
 274 SUPREME COURT REPORTS (1961]
r96o The plea raised by counsel for the company must
CI
-D. be examined in the light of the Explanation to sub-
iscount s. (1) Of s. 34. The E xp 1ana t•10n provi"d es th a t "pro-
• cutta Limited
company
v. duction before the Income Tax Officer of account-
I~come-tax Officer, books or other evidence from which material facts
Compani" could with due diligence have been discovered by the
District, I Income Tax Officer will not necessarily amount to
& Another disclosure within the meaning of the section." If pro-
Sf,ah J. duction of documents or other evidence from which
material facts could with due diligence have been dis-
covered does not necessarily amount to disclosure, it
would be difficult to hold that a presumption about
the production of a document at sometime in the past
and its possible existence in tho files of the Income
Tax .Officer relating to earlier years may be regarded
as sufficient disclosure. Disclosure of some facts, but
not all, though the facts not disclosed may have come
to the knowledge of the Income Tax Officer, if he had
carefully prosecuted an enquiry on the facts aild
materials disclosed, will not amount to a full and true
disclosure of all material facts necessary for the p_ur-
pose of assessment. A tax payer cannot resist reassess-
ment on the plea that non-disclosure of the true state
of affairs was due to the negligence or inadvertence
on the part of the Income Tax Officer, and but for
such negligence or inadvertence, a full and true dis-
closure of all material facts necessary for the assess-
ment would have been resulted.
There is no evidence on the record that the Memo-
randum and Articles of Association were ever produc-
ed before the Income Tax Officer in the course of
proceedings for assessment. Again, the report of the
Income Tax Officer discloses that his predecessor in
office was told that the sales of shares effected by the
company were casual transactions and were in the
nature of a mere " change of investments". This was
not strictly accurate. The record therefore clearly
shows that the company had failed to disclose fully
and truly all material facts in relation to assess-
ment in two respects, (1) that it failed to produce the
Memorandum and Articles of Association showing the
purposes for which the company was incorporated, and
 2 S.C.R. SUPREME COURT REPORTS 275

(2) that the shares were acquired as part of the busi- 1 60

9
ness of financiers. The company also made a state- c 1 -D.
ment wh IC . h IS
. par t'ia11y un t rue w h en 1't sta t ed th a t Companv
a wtta tscount
Limited
sales were mere casual transactions. There were ;..
materials before the Income Tax Officer on which he Inco•ne-tax Officer,
had reason to believe that by reason of the failure of Companies
the company to fully and truly disclose material facts, District, 1
its income was underassessed. Whether on these & Another
facts, a conclusion that in fact the company was Shah
1.
carrying on the business of trading in shares could be
founded, is at this stage entirely immaterial. If there
was reason to believe, the alleged inadequacy of the
materials on which the belief could be founded is of
no moment. The Income Tax Officer has commenced
proceedings for reassessment by issuing notices against
the company and he has placed all the materials
before the court on which it could be said that he had
reason to believe that income of the company had
been underassessed by reason of failure on the part of
the company to disclose fully and truly all material
facts relating to the assessment and if, ·on those
materials, the Income Tax Officer could hold the belief
which he says he did, the court in seeking to hold an
enquiry into the question whether the Income Tax
Officer, notwithstanding his affidavit and materials
placed in support thereof, had reason to hold the
requisite belief, would be arrogating to itself jurisdic-
tion which it does not possess. If the conditions
precedent do not exist, the jurisdiction of the High
,• Court to issue high prerogative writs under Art.. 226 of
the Constitution to prohibit action under the notice
may be exercised. But if the existence of the condi-
tions is asserted by the authority entrusted with the
power and the materials on the record prima facie
support the existence of such conditions, an enquiry
whether the authority could not have reasonably held
the belief which he says he had reason to hold and he
did hold, is, in my judgment, barred.
In that view, the proper order to pass in this appeal
would be one of dismissal with costs.
BY COURT.-In view of the majority opinion, the
appeal is allowed with costs here and below.