Bhagwati, J.
1. This reference relates to assessments made on the assessee for three assessment years, namely, 1947-48, 1948-49 and 1949-50, the corresponding account years being Samvat years 2002, 2003 and 2004. During the relevant account years the assessee carried on business in ghee at Porbandar which was at the material time an Indian State outside the taxable territories. The Income-tax Officer, C-III Ward, Bombay, initiated proceedings against the assessee as a non-resident for the assessment years 1946-47, 1947-48, 1948-49 and 1949-50. It appears that the assessee had a current account with the Bank of India Ltd., Bombay, and sale proceeds in respect of sales of large quantities of ghee made by the assessee to merchants in the taxable territories were credited in this current account and then transferred to Porbandar. The assessee had also a current account with a firm called Messrs. Shamji Kalidas & Company, Bombay, and in this account Messrs. Shamji Kalidas & Company paid interest to the assessee. The assessee being a non-resident, tax at the maximum rate was deducted by Messrs. Shamji Kalidas & Company in respect of interest paid to the assessee under section 18(3A). These facts were pointed out by the assessee to the Income-tax Officer and the assessee contended that since the assessee had no business in the taxable territories and there were certificates showing deduction of tax at the maximum rate on interest received by the assessee in the account of Messrs. Shamji Kalidas & Company, the assessment proceedings initiated by the Income-tax Officer should be discharged. The Income-tax Officer accepted this contention of the assessee and made an order dated 30th December, 1948, for the assessment years 1946-47, 1947-48 and 1948-49 observin : 'As there is no source of income taxable in British India, I drop the proceedings already started.' So far as the assessment for the assessment year 1949-50 was concerned, the order made by the Income-tax Officer was dated 16th August, 1949, and, in that order too, he made a similar observation, namel : 'Assessment proceedings in the previous years were also dropped after inquiries. I, therefore, cancel the return of income issued for the assessment year 1949-50.' Nothing transpired thereafter for several years until the Income-tax Officer, Porbandar, issued notices for reopening the assessment of the assessee for the assessment years 1947-48, 1948-49 and 1949-50 under section 34(1)(a). The respective notices were issued by the Income-tax Officer, Porbandar, on 19th March, 1956, 28th March, 1957, and 8th March, 1958. So far as notice for the assessment year 1947-48 was concerned, the assessee addressed a letter dated 18th April, 1956, to the Income-tax Officer, Porbandar, objecting to his jurisdiction and requesting him to refer the question of jurisdiction to the Commissioner of Income-tax for decision under section 64. Similar letters dated 25th April, 1957, and 12th April, 1958, raising the same objections and making the same request were also addressed by the assessee to the Income-tax Officer, Porbandar, in reply to the notices for the assessment years 1948-49 and 1949-50. The question of jurisdiction in respect of each year was accordingly referred by the Income-tax Officer, Porbandar, to the Commissioner of Income-tax. The claim of the revenue that the jurisdiction to assess the assessee under section 34(1)(a) was with the Income-tax Officer, Porbandar, was based on entry 78-C in the notification dated 1st July, 1952, issued by the Central Board of revenue under section 5(6) whereas the assessee contended that his case was governed by entry 77 and not by entry 78-C and that under entry 77, the Income-tax Officer competent to assess the assessee was the Income-tax Officer, Circle-I, Ward A, Ahmedabad. The contention of the revenue prevailed with the Commissioner of Income-tax who held that the Income-tax Officer, Porbandar, was the proper officer competent to initiate proceedings against the assessee under section 34(1)(a). The Income-tax Officer, Porbandar, thereafter, proceeded to make an assessment on the assessee and completed the assessment of the assessee for the assessment year 1947-48 on 18th March, 1957 and for the assessment year 1948-49 on 27th February, 1958. The assessment for the assessment year 1949-50 was similarly completed on 28th February, 1959. The total income in each of these assessment years was computed at a large figure and was assessed on the basis that the sale proceeds of ghee credited in the current accounts of the assessee with the Bank of India Ltd., Bombay, and Messrs. Shamji Kalidas & Company were received by the assessee in the taxable territories and the profit embedded in these sale proceeds was, therefore, liable to tax under section 4(1)(a) of the Indian Income-tax Act. The assessee was also charged penal interest under section 18A(8) in the assessment for the assessment year 1948-49, on the view that the assessee had failed to make payment of advance tax under section 18A(3). Now the assessment in respect of the assessment years 1947-48 and 1948-49 was made by the Income-tax Officer, Porbandar, under section 23(4) and the assessee, therefore, applied to the Income-tax Officer, Porbandar, under section 27 to cancel the assessment and to make fresh assessments in accordance with the provisions of section 23. There were two applications, one in respect of each assessment year, and both the applications were rejected by the Income-tax Officer, Porbandar. The assessee thereupon preferred appeals to the Appellate Assistant Commissioner against the orders rejecting the applications under section 27 and also against the original orders of assessment under section 34(1)(a). There was a common order made by the Appellate Assistant Commissioner in these appeals and by that common order, the Appellate Assistant Commissioner held that the Income-tax Officer had no reason to believe that by reason of any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the income of assessee had escaped assessment and the condition precedent to the initiation of proceedings under section 4(1)(a) was, therefore, not satisfied and he accordingly allowed the appeals and set aside the orders of assessment made by the Income-tax Officer, Porbandar. The Income-tax Officer, Porbandar, being aggrieved by this decision, brought appeals before the Tribunal. The Tribunal took the view that the order of the Appellate Assistant Commissioner in so far as it allowed the appeals of the assessee against the orders of the Income-tax Officer rejecting the applications under section 27 was clearly erroneous and it accordingly set aside the whole of the order of the Appellate Assistant Commissioner and confirmed the orders of the Income-tax Officer rejecting the applications under section 27 and remanded the appeals against the original orders of assessment to the Appellate Assistant Commissioner for hearing the merits. The Appellate Assistant Commissioner thereafter heard the appeals and by a common order dated 5th October, 1962, rejected various technical objections including the objection against the validity of the initiation of proceedings under section 34(1)(a) and confirmed the orders of assessment with modification only in the quantum of the income assessed. The appeal directed against the order of assessment for the assessment year 1949-50 also met with the same fate and the order of the Appellate Assistant Commissioner on that appeal was dated 18th October, 1962. The assessee thereupon carried the matter higher in appeal to the Tribunal. There were three main grounds urged on behalf of the assessee and they were, (1) the Income-tax Officer, Porbandar, had no jurisdiction to assess the assessee under section 34(1)(a) since the case of the assessee was governed by entry 77 in the notification of the Central Board of Revenue dated 1st July, 1952, and not by entry 78 in the said notification; (2) the proceedings under section 34(1)(a) were bad since all the basic material facts necessary for its assessment had been disclosed by the assessee at the time of the original assessments and the only ground on which the assessments were really sought to be reopened was that the Income-tax Officer, Porbandar, entertained a different opinion from his predecessor as regards the inferences to be drawn from those facts; and (3) penal interest charged by the Income-tax Officer under section 18A(3) in the assessment for the assessment year 1948-49 was illegal and unjustified since the assessee had not committed a breach of section 18A(3). All the three grounds were rejected by the Tribunal. So far as the first ground was concerned, the Tribunal took the view that the objection, though styled as an objection to the jurisdiction of the Income-tax Officer, Porbandar, was in reality and substance an objection as to the place of assessment and was, therefore, covered by section 64(3) and since the question raised by the objection was referred by the Income-tax Officer to the Commissioner and was determined by the Commissioner under that section, the determination was binding and could not be called in question before the Tribunal and that, in any event, even if the Tribunal was entitled to examine the question, the determination of the Commissioner was correct inasmuch as the case of the assessee was governed by entry 78-C and not by entry 77 in the notification dated 1st July, 1952. The second ground was negatived by the Tribunal on the view that though the assessee had placed the aforesaid facts before the Income-tax Officer at the time of the original assessment in regard to the assessment years 1947-48 and 1948-49, there was not a full and true disclosure of all the material facts necessary for its assessment and this was much more true in the case of the assessment year 1949-50, where the assessee had n
ot even produced its current accounts with the Bank of India Ltd., Bombay, and Messrs. Shamji Kalidas and Company and the provisions of section 34(1)(a) were, therefore, clearly attracted. In regard to the charge of penal interest which was attacked as improper and unjustified, the Tribunal held that no appeal lay against it to the Appellate Assistant Commissioner and consequently to the Tribunal. The Tribunal in the result dismissed the appeals of the assessee and hence the present reference.
2. Out of the four questions which have been referred to us, the first two relate to the objection it jurisdiction based on entry 78-C in the notification dated 1st July, 1952, the third raises the point as regards the validity of the proceedings under section 34(1)(a) and the last challenges the decision of the Tribunal in regard to the maintainability of an appeal against the levy of penal interest. So far as the first question is concerned, it is obvious that having regard to our decision in Dhrangadhra Trading Company Private Ltd. v. Commissioner of Income-tax, the view taken by the Tribunal is correct and this question must be answered against the assessee and in that event the second question would not arise for consideration and Mr. Palkhivala, learned advocate, appearing on behalf of the assessee, therefore, rightly did not press these questions. The only two questions which were pressed by him and which were debated before us were the third and fourth questions, though, even in regard to the fourth question, it was clear that it would arise for consideration only if the third question was decided against the assessee. We will, therefore, first proceed to examine the third question and see how it should be answered, in favour of the assessee or against it.
3. The third question raises the point as regards the validity of the proceedings under section 34(1)(a). Now it is clear on a plain reading of section 34(1)(a) that to confer jurisdiction under that section to issue notice in respect of assessments beyond the period of four years but within a period of eight years from the end of the relevant year, two conditions have to be satisfied. The first is that the Income-tax must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment. The second is that he must have also reason to believe that such escapement has taken place by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 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 assessment or reassessment beyond the period of four years but within the period of eight years from the end of the year in question. Now, no dispute appears to have been raised at any stage in this case that the first condition was not satisfied and we must, therefore, proceed on the basis that the Income-tax Officer had reason to believe that the income of the assessee had escaped assessment for the assessment years 1947-48, 1948-49 and 1949-50. The dispute between the parties centered round the fulfillment of the second condition. The assessee contended that the second condition was not satisfied whereas the revenue contended to the contrary and, of the two grounds set out in the second condition, the revenue relied on the second ground and urged that the Income-tax Officer had reason to believe that there had been omission or failure on the part of the assessee to disclose truly and fully all material facts necessary for its assessment for these years in consequence of which there was escarpment of income from assessment. On this contention the only question which arises for consideration is whether the Income-tax Officer had reason to believe that there was some omission or failure on the part of assessee to disclose fully and truly all material facts necessary for its assessment and that by reason of such omission or failure income of the assessee escaped assessment for any of these assessment years.
4. Before we proceed to consider whether the assessee has succeeded in showing that on the material on record the Income-tax Officer could have no reason to believe that there was any omission or failure to disclose material facts necessary for its assessment resulting in income escaping assessment, it is necessary to understand what is meant by the expression 'material facts' which it is the duty of the assessee to disclose before the Income-tax Officer at the time of assessment. The Supreme Court had occasion to consider the scope and meaning of this expression in Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta, where Das Gupta J., speaking on behalf of the majority, said :
'... it is necessary to examine 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 assessment will differ from case to case. In every assessment proceeding, 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 primary 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... 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... Does the duty, however, extend beyond the full and truthful disclosure of all primary fact 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.... 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.'
5. The 'material facts' which are required to be disclosed by an assessee at the time of his assessment are, therefore, primary facts material and necessary for the purpose of his assessment. The duty of the assessee is to disclose only primary facts and it is for the assessing authority to decide what inferences of facts can be reasonably drawn from the primary facts and what legal inferences must ultimately be drawn from the primary facts and the other facts inferred from them. The assessee is not bound to tell the assessing authority what inferences, whether of fact or law, should be drawn and his failure to communicate to the assessing authority the proper and correct inferences to be drawn from the primary facts cannot be recorded as a failure to disclose 'material facts'. The effect of accepting the contrary view would be to impose an intolerable burden on the assessee and to compel him to argue against himself which would be neither just nor reasonable. The assessee is thus bound to disclose only primary facts and the primary facts to be disclosed by him must be material and necessary for his assessment or to use the words of the Supreme Court 'relevant to the decision of the question before the assessing authority'. The requirement of section 34(1)(a) being that by reason of non-disclosure of 'material facts', income of the assessee should have escaped assessment, it is manifest that the primary facts which are required to be disclosed must be material or relevant to the decision of the question before the assessing authority so that their non-disclosure could have a material bearing on the question of escapement of income from assessment. This requirement must be satisfied before the primary facts can be said to be 'material facts' within the meaning of section 34(1)(a) but what primary facts satisfy this requirement must necessarily depend upon the facts of each case. As observed by the Supreme Court in Calcutta Discount Company's cas : 'What facts are material and necessary for assessment will differ from case to case'. We must, therefore, proceed to examine what were the primary material or relevant facts in the case of the assessment of the assessee in the present case and whether there was any omission or failure on the part of the assessee to disclose any of them in consequence of which income of the assessee escaped assessment.
6. Let us first of all see what facts were disclosed by the assessee at the time of the original assessment. We will for the time being confine our attention to the assessment years 1947-48 and 1948-49, for the position in regard to the assessment year 1949-50 is factually slightly different and merits separate consideration. It is clear from the statement of the case that the only facts disclosed by the assessee in the assessment for the years 1947-48 and 1948-49 were those set out in the assessment orders for those assessment years. The assessment orders show that the facts disclosed were thes : the assessee had no business in British India nor any office or agency in British India; the assessee sold ghee to British Indian merchants but the sales were made in Porbandar and delivery was also made in Porbandar; the assessee had a current account with the Bank of India Ltd., Bombay, which was maintained only for the purpose of recovering from British Indian merchants dues in respect of ghee sold and delivered to them in Porbandar; cheques received from British Indian merchants were credited in this account and then subsequently transferred to Porbandar; the assessee had also a current account with Messrs. Shamji Kalidas & Company and received interest on the amounts deposited in that account; tax was deducted at the maximum rate by Messrs. Shamji Kalidas & Company on the interest due to the assessee under section 18(3A). The bank pass-book in respect of the account with the Bank of India Ltd. was produced by the assessee and according to the statement of the case the account with Messrs. Shamji Kalidas & Company must also be held to have been produced by the assessee. The question i : Was the disclosure of these facts sufficient to constitute full and true disclosure of 'material facts' within the meaning of section 34(1)(a The determination of this question must, as will be clear from the discussion in the preceding paragraph, depend on the answer to the inquiry whether the facts disclosed were all the primary facts relevant to the decision of the question before the assessing authority or whether any of those primary facts were not disclosed in consequence of which there was escapement of income from assessment.
7. Mr. Palkhivala, learned advocate appearing on behalf of the assessee, contended that all the primary relevant facts were disclosed by the assessee and the Income-tax Officer, therefore, could not have reason to believe that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts resulting in escapement of income from assessment. He attacked the decision of the Tribunal as erroneous on the ground that the Tribunal had misdirected itself in law in taking the view that the material facts had not been fully and truly disclosed by the assessee. The view taken by the Tribunal, he submitted, was erroneous inasmuch as it failed to give due effect to the decision of the Supreme Court in Calcutta Discount Company's case. Before we deal with the positive aspect of the argument of the assessee it would be convenient to dispose of what may be termed the negative aspect of the argument concerning the validity of the decision of the Tribunal. We are describing the latter as the negative aspect of the argument, for, even if that aspect of the argument is well-founded and the reasoning behind the decision of the Tribunal is erroneous, the assessee would still have to make good the positive aspect of the argument and show that on the facts the Income-tax Officer could have no reason to believe that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts. The negative aspect of the argument calls for an examination of the basis of the decision of the Tribunal. The first thing that strikes immediately on a mere reading of the order is that in holding that there was omission or failure on the part of the assessee to make a full and true disclosure of material facts the Tribunal did not make any distinction between the account of the assessee with the assessee with the Bank of India Ltd., and the account of the assessee with Messrs. Shamji Kalidas and Company. The Tribunal found that in respect of both accounts there was omission or failure to disclose truly and fully material facts and the common fault which the Tribunal found with the assessee in regard to both accounts was, to quote the words of the Tribunal :
'... the sequence of the several statements is such that the assessee wishes to show thereby that there was no accrual in British India, because there was no office or agency in British India and whatever was done was done at Porbandar. The question of receipt of sale proceeds in British India was thus bypassed. The bank pass-books are no doubt produced, but then the question is whether, in view of the Explanation to section 34(1), that would be enough to save the assessee. All the earlier statements in the assessment order are calculated to show that nothing much depends upon the bank pass-books... As in the case of the bank pass-books the Income-tax Officer may have been aware of the deposits with Shamji Kalidas and Company. But here again, he is concerned with the interest paid to the assessee and no question was raised of any possible liability of the assessee to tax on any other account.'
8. The Tribunal did not complain that the assessee had omitted or failed to disclose the receipt of sale proceeds in either of these accounts. No such non-disclosure could in fact be alleged against the assessee in regard to the account with the Bank of India Ltd., for it was specifically stated by the assessee that the account with the Bank of India Ltd. was maintained only for the purpose of recovering from British Indian merchants dues in respect of ghee sold and delivered to them and cheques received from them in respect of the sale proceeds were credited in this account and, so far as the account with Messrs. Shamji Kalidas and Company is concerned, the Tribunal actually proceeded on the basis that the Income-tax Officer might have been aware that sale proceeds were credited in that accoun : vide the observation of the Tribuna : 'As in the case of bank pass-books the Income-tax Officer may have been aware of the deposits with Shamji Kalidas & Company'. The Tribunal thus did not find in respect of either these accounts that there was non-disclosure of the fact that sale proceeds were credited in it and proceeding on the basis that the Income-tax Officer was aware that sale proceeds were credited in these accounts, the Tribunal took the view that there was omission or failure on the part of the assessee to disclose truly and fully all material facts in respect of both accounts, since the assessee had omitted or failed to draw the pointed attention of the Income-tax Officer to the fact that sale proceeds received by the assessee in these accounts were received in British India and the assessee was, therefore, liable to be taxed in respect of profits embedded in such sale proceeds and had bypassed or side-tracked the question of receipt of sale proceeds in British India by an over-emphasis on facts showing that there was no accrual in British India and, so far as the account with Messrs. Shamji Kalidas & Company was concerned, interest at the maximum rate was paid by the assessee. The Tribunal then referring to the argument of the assessee that no primary relevant facts had been suppressed, observed :
'The argument for the appellant was that nothing was suppressed. The proper view, however, would be that nothing much was stated, and that whatever was stated was calculated to side-track the main issue. In any case, all the statements taken together contain such a meagre presentation of the facts, that it is difficult to consider that there was a full and true disclosure of material facts. Rather, the material facts are not disclosed; whatever is disclosed is not fully disclosed and in that sense there is no true disclosure also. This is not a case where the Income-tax Officer drew a wrong legal inference from facts. This is a case where facts must be regarded as not fully or truly disclosed..... The words 'full' and 'true' and 'material facts' and the Explanation to section 34(1)(a) would lose all their meaning if the meagre statements by the assessee were to pass muster...'
9. Now it is obvious that whether the presentation of facts by the assessee before the Income-tax Officer is meager so elaborate is entirely irrelevant. What is necessary is that there should be a full and true disclosure of all primary relevant facts and, so long as that is done, no grievance can be made against the assessee on the ground that he did so in few or meagre words. The Tribunal in its order could not pinpoint any primary relevant fact which according to it was not disclosed by the assessee, nor could it point out any primary relevant fact which according to it was not disclosed by the assessee nor could it point out any primary relevant fact disclosed by the assessee, which, in its view, was incorrect. The Tribunal merely indulged in vague generalizations and the only basis on which the Tribunal appeared to have proceeded in coming to the conclusion that there was no full and true disclosure of all material facts was that according to the Tribunal the duty of the assessee extended to pointing out specifically to the Income-tax Officer that the assessee had received sale proceeds in British India and the assessee was, therefore, assessable to tax in respect of profits embedded in such sale proceeds by reason of section 4(1)(a). But according to the decision of the Supreme Court in Calcutta Discount Company's case no such duty lay on the assessee. The only duty of the assessee was to point out the primary relevant facts and, so long as the assessee pointed out the primary relevant facts, no fault could be found with the assessee on the ground that the assessee did not point out the correct principle of chargeability to the Income-tax Officer or presented facts in such a manner that the main issue was bypassed or side-tracked and the attention of the Income-tax Officer was diverted from the correct principle of chargeability so that he failed to apply it in assessing the income of the assessee. The decision of the Tribunal cannot, therefore, be sustained on the ground on which it is based but the question would still remain whether the assessee is right in the positive aspect of his argument, namely, that all the primary relevant facts were disclosed by the assessee and the Income-tax Officer could, therefore, have no reason to believe that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts, for it is only if this positive aspect of the argument is made good by the assessee that we can answer the present question in favour of the assessee.
10. The learned Advocate-General on behalf of the revenue contended that all the primary relevant facts had not been disclosed by the assessee at the time of the original assessment. He urged that the primary relevant facts were that the sale proceeds were received by the assessee in the accounts with the Bank of India Ltd. and Messrs. Shamji Kalidas & Company and, though out of these primary relevant facts the fact that a large part of the sale proceeds were credited in the account with the Bank of India Ltd. was disclosed by the assessee, the other fact, namely, that some sale proceeds were also credited in the account with Messrs. Shamji Kalidas and Company was not disclosed and this constituted omission or failure on the part of the assessee to disclose material facts by reason of which the profits embedded in the sale proceeds credited in the account with Messrs. Shamji Kalidas and Company had escaped assessment. The Income-tax Officer, he submitted, was, therefore, entitled to reopen the assessment of the assessee by issuing notices under section 34(1)(a). This contention of the revenue, though, at first blush, attractive, is, in our opinion, unsustainable and is, not only legally unsound but is also factually not well-founded. In the first place, there is no finding of the Tribunal that the fact that sale proceeds were credited in the account with Messrs. Shamji Kalidas and Company was not disclosed by the assessee. As a matter of fact, as already pointed out above, the Tribunal actually observe : 'As in the case of bank pass-books the Income-tax Officer may have been aware of the deposits with Shamji Kalidas and Company' and proceeded on the basis that the Income-tax Officer might have been aware that sale proceeds were credited in this account. There is, therefore, no factual basis for the argument urged on behalf of the revenue and it would not be correct to say that the assessee omitted or failed to disclose the fact that sale proceeds were credited in the account with Messrs. Shamji Kalidas and Company. But even if it be held that this fact was not disclosed by the assessee, that would not justify the Income-tax Officer to reopen the assessments of the assessee.. It is clear from what is stated above that two conditions must co-exist before the Income-tax Officer can have jurisdiction to issue a notice reopening the assessment of an assessee under section 34(1)(a). Firstly, there must be non-disclosure by the assessee of a material fact and by material fact is meant primary fact material and necessary for the assessment of the assessee or, in other words, relevant to the decision of the question before the Income-tax Officer and, secondly, the income of the assessee should have escaped assessment by reason of non-disclosure of such material fact. If either of these conditions is not satisfied, the Income-tax Officer would not be entitled to reopen the assessment of the assessee under section 34(1)(a) and in the present case both these conditions were not satisfied. In the first place, the fact that sale proceeds were received in the account with Messrs. Shamji Kalidas and Company was not a primary fact relevant to the decision of the question before the Income-tax Officer and was, therefore, not a material fact and, secondly, in any event, it could not be said that the profits embedded in the sale proceeds credited in the account with Messrs. Shamji Kalidas and Company had escaped assessment by reason of non-disclosure of this fact.
11. It was common ground between the parties that it was disclosed by the assessee at the time of the original assessment that sale proceeds were received by the assessee in the account with the Bank of India Ltd. But, it is clear from the order of the Income-tax Officer that he took the view that the receipt of sale proceeds in British India did not attract chargeability and he, therefore, held that the assessee had no income taxable in British India. The Income-tax Officer did not go into the question as to how much sale proceeds were received by the assessee in British India in the account with the Bank of India Limited or in any other account in British India since, on the view taken by him, there was neither occasion nor necessity for him to do so. It is in the context of this background that it has to be determined whether the fact that sale proceeds were also received in the account with Messrs. Shamji Kalidas and Company was a primary relevant fact material or necessary for the assessment of the assessee, the non-disclosure of which was responsible for the profit embedded in these sale proceeds escaping assessment. We may point out straightway that, even if the fact of receipt of sale proceeds in the account with Messrs. Shamji Kalidas and Company was not disclosed by the assessee, such non-disclosure was not wilful or with intention to conceal, for admittedly a large bulk of the sale proceeds were received in the account with the Bank of India Ltd. and that account was disclosed by the assessee stating frankly that it was maintained only for the purpose of recovering sale proceeds. But this circumstance is immaterial, for even if the non-disclosure is not wilful or with intention to conceal, it would still attract the applicability of section 34(1)(a) if it is in respect of a material fact and has caused any part of the income of the assessee to escape assessment. Now, turning to the facts, the position may be summarized by saying that at the time of the original assessment it was disclosed by the assessee that sale proceeds were received in British India but only one account in which sale proceeds were received was disclosed and the other account in which sale proceeds were received was not disclosed. There was thus non-disclosure of the particulars or quantum of sale proceeds received in British India. The Income-tax Officer took the view, albeit wrongly, that the receipt of sale proceeds in British India did not attract chargeability and the question of quantum of sale proceeds received in British India, therefore, did not arise before the Income-tax Officer. If the Income-tax Officer had held that the receipt of sale proceeds in British India attracted chargeability, the Income-tax Officer would have been concerned to inquire what was the quantum of such sale proceeds and in that event the disclosure of the sale proceeds in the account with Messrs. Shamji Kalidas and Company would have been material and necessary for the assessment of the assessee. But on the view taken by the Income-tax Officer that the receipt of sale proceeds in British India was not sufficient to attract chargeability, it was immaterial to know how much sale proceeds were received in British India - whether in one account or in several accounts. It was immaterial whether the sale proceeds received in British India were A or A plus B when the view taken was that they did not attract chargeability. The fact that there were sale proceeds received in British India in the account with Messrs. Shamji Kalidas and Company had, therefore, no bearing on the assessment in the view taken by the Income-tax Officer and it was not a primary fact material or necessary for the assessment or relevant to the decision of the question before the Income-tax Officer. This fact would have become material or relevant if the Income-tax Officer had taken the view that the receipt of sale proceeds in British India attracted chargeability, for, then, it would have become material to know, for the purpose of quantification of the liability, how many accounts were there in which sale proceeds were received in British India and whether any sale proceeds were received in the account with Messrs. Shamji Kalidas and Company. This fact was relevant only on the question of quantification of liability, if liability was held to be attracted by the receipt of sale proceeds in British India but on the view taken by the Income-tax Officer the question of quantification did not arise and this fact did not, therefore, become material or relevant in the assessment. The conclusion must, therefore, irresistibly follow that the fact of receipt of sale proceeds in the account with Messrs. Shamji Kalidas and Company was not a material fact within the meaning of that expression as explained in the Calcutta Discount Company's case, and non-disclosure of that fact did not attract the applicability of section 34(1)(a).
12. Now if the fact that sale proceeds were received in the account with Messrs. Shamji Kalidas and Company was not a material fact, it must inevitably follow that non-disclosure of that fact had no effect on the assessment and was not responsible for the income of the assessee escaping assessment. But quite apart from the question whether this was a material fact or not, we are satisfied that no part of the income of the assessee escaped assessment in consequence of non-disclosure of this fact. The income which was alleged to have escaped assessment was profit embedded in the sale proceeds received in the account with Messrs. Shamji Kalidas and Company and this income undoubtedly escaped assessment but the escapement was not by reason of non-disclosure of the sale proceeds received in the account with Messrs. Shamji Kalidas and Company but by reason of the erroneous view taken by the Income-tax Officer that sale proceeds received in British India did not attract chargeability. The fact that sale proceeds were received in the account with the Bank of India Ltd. was disclosed by the assessee and the Income-tax Officer was, therefore, aware that there were sale proceeds received by the assessee in British India and yet the Income-tax Officer, on an erroneous view that sale proceeds received in British India did not attract chargeability, held that the assessee had no taxable income. The disclosure of the fact that sale proceeds were also received in the similar account with Messrs. Shamji Kalidas and Company would not, therefore, have made any difference so far as the assessment made by the Income-tax Officer was concerned. On the view taken by the Income-tax Officer it was entirely immaterial whether any sale proceeds were received in the account with Messrs. Shamji Kalidas and Company. It is, therefore, not possible to say that the profit embedded in the sale proceeds received in the account with Messrs. Shamji Kalidas and Company escaped assessment by reason of non-disclosure of the fact that there were sale proceeds received in that account. The revenue, however, contended that there was non- disclosure of the sale proceeds received in the account with Messrs. Shamji Kalidas and Company and it must, therefore, follow as a necessary corollary that the escarpment of the profit embedded in the sale proceeds from assessment was by reason of such non-disclosure. The argument was stressed in the form of an interrogatio : how could the Income-tax Officer assess the profit embedded in the sale proceeds when the sale proceeds were not disclosed by the assessment and 'no assessment', it was argued, must, therefore, be held to be the direct consequence of non-disclosure. It was urged that when the sale proceeds received in the account with Messrs. Shamji Kalidas and Company were not disclosed, the Income-tax Officer had no occasion to apply his mind to the case of those sale proceeds and if the Income-tax Officer had no opportunity to apply his mind, it could not be said that the profit embedded in the sale proceeds escaped assessment by reason of an erroneous view taken by the Income-tax Officer and it must be held that the escapement was by reason of non-disclosure. This contention, though plausible, is clearly fallacious, for it proceeds on the assumption that the Income-tax Officer would be required to apply his mind to each and every item of sale proceeds received in British India for the purpose of coming to a determination whether it attracts chargeability. The Income-tax Officer would apply his mind only to the category of sale proceeds and if he comes to the conclusion that that particular category does not attract chargeability, it would be totally necessary for him to inquire as to what are the items falling within that category. In the present case the Income-tax Officer took the view, erroneous though it was, that sale proceeds received in British India did not attract chargeability and in that view of the matter, he did not even consider what were the items of sale proceeds in the account with the Bank of India Limited which was admittedly disclosed. If the Income-tax Officer had come to the conclusion that the sale proceeds received in British India were chargeable to tax, he would have had to go into the question of details or particulars of the sale proceeds received in British India and in that event he would have had to consider as to what were the items of sale proceeds received in the account with the Bank of India Ltd. or in any other account in British India and, in such a case, if the profit embedded in the sale proceeds received in the account with Messrs. Shamji Kalidas and Company had escaped assessment, that would have been directly due to the non-disclosure of the fact of receipt of sale proceeds in that account. But in the view taken by the Income-tax Officer, the disclosure of the fact of receipt of sale proceeds in the account with Messrs. Shamji Kalidas and Company would have made no difference to the assessment, for the receipt of sale proceeds in both the accounts, one disclosed and the other undisclosed stood on the same footing so far as the question of chargeability to tax was concerned. It is, therefore, not possible to accede to the argument of the revenue that the profit embedded in the sale proceeds received in the account with Messrs.Shamji Kalidas & Company escaped assessment by reason of non-disclosure of the fact that there were sale proceeds received in that account. In this view of the matter it must he held that section 34(1)(a) was not attracted and the Income-tax Officer had no jurisdiction to reopen the assessments of the assessee by issuing notices under that section.
13. This disposes of the question of validity of the notices in so far as the assessment years 1947-48 and 1948-49 are concerned. That leaves only the question of validity of the notice in regard to the assessment year 1949-50. The position in regard to the assessment year 1949-50 is, as pointed out above, slightly different from that in regard to the assessment years 1947-48 and 1948-49, but this difference is not relevant to the determination of the main question in controversy between the parties and the ultimate conclusion would have to be the same in the case of this assessment year too. When notice for the assessment year 1949-50 was issued by the Income-tax Officer, the assessee submitted a blank return with a covering letter dated 9th June, 1949, stating as under :
'With reference to your above, we have to return herewith the forms sent by you and have to inform you that the income-tax is always paid by us at the maximum scale in British India and that we have no other income therefrom and hence the forms sent by you are returned herewith a request to cancel the same.'
14. It is clear from this letter that according to the assessee the case for the assessment year 1949-50 was similar to the cases for the assessment years 1947-48 and 1948-49 and he submitted that just as those cases were dropped the case for the assessment year 1949-50 should also be dropped for the same reasons. This letter was a clear intimation to the Income-tax Officer that the factual position in regard to the assessment year 1949-50 was similar to that in the assessment years 1947-48 and 1948-49 and the Income-tax Officer also understood the communication of the assessee in the same sense, for, on receiving this communication, he made an order as follows :
'Return of income for assessment year 1949-50 was served on the assessee direct at Porbandar. The assessee is a non-resident and has absolutely no business in British India. The non-resident has interest income in British India on which tax is recovered at the maximum rate. Assessment proceedings in the previous year were also dropped after enquiries. I, therefore, cancel the return of income issued for assessment year 1949-50.'
15. It is, therefore, evident that in regard to the assessment year 1949-50 the same disclosure was made as was made in respect of the assessment years 1947-48 and 1948-49 and the factual position being the same in regard to all these assessment years, it must follow that in the case of the assessment year 1949-50 also, there was no non-disclosure of any material fact in consequence of which income of the assessee could be said to have escaped assessment and the Income-tax Officer had, therefore, no jurisdiction to reopen the assessment of the assessee for this assessment year by issuing notice under section 34(1)(a).
16. In this view of the matter it becomes unnecessary to consider the alternative contention on behalf of the assessee that even if the conditions precedent to the exercise of jurisdiction under section 34(1)(a) were satisfied and the Income-tax Officer had jurisdiction to reopen the assessments of the assessee for the three assessment years 1947-48, 1948-49 and 1949-50, the Income-tax Officer was not entitled to bring to tax in the course of the reassessment proceedings the profit embedded in the sale proceeds received in the account with the Bank of India Ltd. in all the three assessment years, since that item of income was already processed at the time of the original assessment and was held to be not taxable. We may, however, point out that this particular contention would not be included within the question referred to us since it relates not to the validity of the action taken by the Income-tax Officer under section 34(1)(a) but to the provenance of the assessment which can be made under a validity initiated action under section 34(1)(a). Question No. 4 also becomes unnecessary to consider since the levy of penal interest must fall along with the reassessment if, as held by us, action of the Income-tax Officer in initiating proceedings for reassessment under section 34(1)(a) was invalid.
17. We would, therefore, answer the questions referred by the Tribunal as follow : Questions Nos. 1 and 2 not pressed; Question No. 3 in the negative; Question No. 4 not necessary. The Commissioner will pay the costs of the reference to the assessee.