TaxTMI 
TaxTMI 
1962 (8) TMI 73
X X X X Extracts X X X X
X X X X Extracts X X X X
....and servant had been established between the Princess Sita Devi and the assessee. Therefore, they called for a supplementary statement of case from the Appellate Tribunal to enable the High Court to determine the question as to whether action under section 34 was justified during the years 1947-48, 1948-49 and 1950-51. Obviously, the inclusion of the year 1948-49 in the years mentioned above is due to some mistake as no reference was made to the High Court in regard to the said year. 3. Now coming to the material question as to on what material and on what basis the Income-tax Officer came to the conclusion that the relationship of master and servant has been established between the assessee and Princess Sita Devi, we would respectfully refer their Lordships to the order of the Income-tax Officer in regard to the year 1946-47, which is made annexure "A" hereto forming part of the case. Even in the statement of the case originally submitted a request has been made for a reference to the statement of case submitted in regard to the assessment years 1946-47 and 1951-52 covered by Referred Case No. 11 of 1960, which their Lordships have decided against the assessee. Further it is im....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stated that Parimisetti Seetharamamma alias Manavathibai was the maid servant of the Maharani Sita Devi. (v) The estate manager of the former Vuyyur estate has informed the Income-tax Officer who enquired of him that the assessee was a servant maid attached to Sita Devi on a salary of Rs. 8 per month and that the assessee had helped the princess in her venture to dissolve the first marriage. 5. Both the Appellate Assistant Commissioner and the Tribunal have not dealt in great detail in regard to the present years as in their orders in regard to the year 1946-47 they have exhaustively dealt with the same. The reason for coming to the conclusion that the relationship of master and servant was established between Princess Sita Devi and the assessee has been brought out in the said orders where it will be found reliance has been placed on a letter from the Bombay Garage Ltd., where the assessee had been called "the Private Secretary" to Princess Sita Devi, etc. A perusal of the Income-tax Officer's proposal to the Commissioner of Income-tax for sanction together with the orders of the Income-tax Officer, Appellate Assistant Commissioner and the Tribunal in regard to the year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts made by Princess Sita Devi to her on account of love and affection was accepted. Some time later, i.e., in or about 1953, the department had information that these sums of money represented the remuneration in lieu of services rendered by the assessee to the Princess Sita Devi. Thereupon, the concerned Income-tax Officer conducted an enquiry and, on the information that, was available to him both in the shape of statements made by persons who were acquainted with the assessee and certain documents, he initiated proceedings under section 34 of the Indian Income-tax Act. Before issuing the notice under section 34, the proper Income-tax Officer called upon the assessee to give particulars about several matters contained therein and bearing upon the amounts received by her from Princess Sita Devi. The assessee sent a reply explaining in detail the circumstances under which these payments were made to her. She was examined in 1954 in support of the explanation given by her. After taking into account the sworn statement of the assessee and after holding further enquiry, a notice was issued to the assessee in March, 1954, under section 34. As required under section 22, the assessee fil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er section 34, continues the learned counsel. In order to appreciate these contentions, it is necessary to extract here section 34 of the Act: "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 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 chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or (b) notwithstanding 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, 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 allowanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. Could it be said in this case that this duty has been discharged by the assessee? Our answer has to be in the negative for the reason that she had not told the Income- tax Officer the real relationship that existed between her and Princess Sita Devi. She appears to have stated to the department that she was her loyal friend and that Sita Devi was induced to make these presents to the assessee out of love and affection. It cannot, therefore, be predicated that she had made a disclosure of all the basic facts. It is urged by learned counsel for the department that it is this non-disclosure of the most material facts bearing on the relationship between the assessee and Sita Devi that misled the department into the belief that this was not "income" that could be brought to tax. In such a situation, we do not think that Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta* or Dhanwate v. Commissioner of Income-tax [1961] 41 I.T.R. 191; [1961] 2 S.C.R. 241, has any analogy here. In the first of the cases, at the time of the original assessment, all the material facts necessary for the assessment were revealed to the Income-tax Officer. A return was filed by the assessee compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 documents, and documents and other evidence which could have been discovered by the assessing authority, from the documents and other evidence disclosed." What the learned judges meant by these remarks is that all the facts which have a bearing on the assessment must be placed before the department for the purpose of assessment. In this case, as we have already stated, the real relationship between the assessee and her benefactress, i.e., of master and servant, has not been disclosed to the department. It is altogether a different matter to say that, in fact, no such relationship existed between her and Sita Devi. Whether there was material for the Income-tax Officer to believe that there was a true disclosure of all the facts or not will be dealt with in the appropriate context. Dhanwate v. Commissioner of Income-tax* is of similar character, and it does not carry the assessee very far, the principle enunciated in that case being in consonance with that underlyi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted by section 1(a) of section 34 must be of a reasonable person based upon good grounds and it cannot be based on mere suspicion. There should be some material which could furnish a basis for forming that belief. In other words, it is not the subjective satisfaction of the Income-tax Officer that is envisaged by that section. But that test is not in any way destructive of the decision reached by the Income-tax Officer to put into operation section 34. We have already referred to the various circumstances which led the Income-tax Officer to believe that there was non-disclosure of the primary facts by the assessee at the time of the original assessment. The sufficiency of the reasons is not justiciable and as such it is not open to this court in the exercise of its jurisdiction under section 66 of the Income-tax Act to consider whether the material was sufficient to warrant the belief entertained by the Income-tax Officer. We are supported in this opinion of ours by the observations of this court in Parimisetti Seetharamamma v. Commissioner of Income-tax [1961] 41 I.T.R. 175. Even assuming that the question as to adequacy of reasons could be gone into by this court, we are satisfie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he applicability of section 34 of the Income-tax Act. It is well-established that where admittedly an assessee was in receipt of monies, it is for him to show that they were outside the pale of taxable income. Before exemption could be claimed, he has to place before the taxing authority such facts as would entitle him to claim the exemption. As pointed out by their Lordships of the Privy Council in Maharajkumar Gopal Saran Narain Singh v. Commissioner of Income-tax [1935] 3 I.T.R. 237, 242 (P.C.), the word "income" is not limited by the words "profits and gains" and "anything which can properly be described as income is taxable under the Act, unless expressly exempted." Having regard to this principle, learned counsel sought to distinguish an original assessment from a reassessment made under section 34 of the Income-tax Act. In support of his submission he cited to us Commissioner of Income-tax v. Manohar [1935] 3 I.T.R. 372 and Lakshman Shenoy v. Income-tax Officer. We do not think that neither of these two decisions comes to the rescue of the assessee. In the first of the cases cited above, the Division Bench of the Bombay High Court consisting of Beaumont C.J. and Rangnekar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st be deemed to relate to proceedings which commence with publication of notice under section 22(1). This principle is also illustrated by Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 I.T.R. 442, 449 (P.C.) The rule as stated by their Lordships of the Judicial Committee is in these words: "The operative part of section 34 empowers the Income-tax Officer to proceed de novo under sub-section (2) of section 22, and that in turn leads, if there should still be a question of the accuracy of the return, to an enquiry under section 23(2) and (3) and in that enquiry the assessee has a statutory right to appear and to produce evidence." In the same trend of thought is Govindarajulu Iyer v. Commissioner of Income-tax*. It is unnecessary to labour this point any further. Suffice it to say that there is no real distinction between the two kinds of assessments and the same considerations govern both the cases. If so, the doctrine regarding burden of proof stated above is applicable even to proceedings initiated under section 34. It is not disputed in this case that the assessee had not discharged t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen the several payments were made to her. It is seen from the relevant records that she was still acting at that time as the agent of the Princess in regard to disbursement of salaries to the staff of the Maharaja. In such a situation, the principle enunciated by the Supreme Court in Mahesh Anantrai Pattani v. Commissioner of Income-tax [1961] 41 I.T.R. 481; [1961] 2 S.C.R. 742 is inapplicable to this case. In that case, the assessee was the Chief Dewan of the native State of Bhavnagar from 1937, till January, 1948, when responsible Government was introduced by the Maharaja. On January 22, 1948, the Maharaja passed an order to the effect that the assessee should be paid a monthly pension of Rs. 2,000. Shortly thereafter, the Bhavnagar State merged in the United State of Saurashtra with the result that the Maharaja ceased to be the ruler of the State. This led the Maharaja to direct his bankers to pay by cheque to the assessee a sum of Rs. 5,00,000 (rupees five lakhs). In accordance with these instructions, this amount was paid to the assessee on 12th June, 1950. Six months later, when the accountant of the Maharaja asked for instructions as to how the amount of Rs. 5,00,000 was....