S.C. Agrawal, J.@mdashIn this reference made by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as ""the
Tribunal""), u/s 27 of the Wealth-tax Act, 1957 (hereinafter referred to as ""the Act""), the following question has been referred for the opinion of this
court:
Whether, on the facts and in the circumstances of these cases, the Tribunal was right in holding that action u/s 17(1)(a) was validly initiated by the
Wealth-tax Officer in respect of assessment years 1964-65 to 1967-68 and that reassessment orders passed as a result of such initiation were
valid ?
2. The facts as stated in the statement of the case sent by the Tribunal are briefly as under :
M/s. Sampatram Budhmal Dugar, the assessee herein, is a Hindu undivided family consisting of Shri Jabharmal, his adoptive mother Smt. Dhanni
Devi, and his wife and children. Originally, there was a joint Hindu undivided family constituted by Shri Budhmal Dugar and his brother Shri
Sumermal. In the year 1930, Budhmal and Sumermal had purchased silver weighing about 430 kgs. and the same was kept in the haveli belonging
to the family situated at Sardarshahar. In 1938, a partition took place between these two brothers and as a result of the said partition, the haveli
belonging to the family situated in Sardarshahar came to the share of Budhmal. Budhmal died in the year 1954 and some time after his death, his
widow, Smt. Dhanni Devi, adopted Jabharmal, who was a minor at that time. In the year 1968, Jabharmal decided to demolish a part of the haveli
facing on to the right side for the purpose of constructing shops and while the said demolition was going on, the workmen found 21 bars of silver
weighing about 430 kgs. lying buried in a kottri of the haveli on August 13, 1968. On August 16, 1968, 25 gold pieces weighing 783 1/4 tolas
were found in an ""arch"" while breaking the roof of the room adjacent to the kothari in which silver bars and pieces were discovered. On August
20, 1968, Jabharmal wrote a letter to the Gold Control Administrator, New Delhi, bringing to his notice the aforesaid finds in the house. In the said
letter he stated that neither he nor any other member of the family including his adoptive mother, had any prior knowledge whatsoever about the
existence of the aforesaid gold and silver before their discovery. The statement of Jabharmal was recorded by the Central Excise authorities on
December 20, 1968, and by the Income Tax Officer on August 28, 1972. In both these statements, Jabharmal stated that neither Shri Sumermal
nor Smt. Dhanni Devi had ever earlier told him about the hidden silver or gold and that he came to know of their existence only when they were
dug out and that when he informed Shri Sumermal and Smt. Dhanni Devi in 1968 about the discovery of gold and silver, he was told by Shri
Sumermal that the aforesaid silver fell to his father''s (Budhmal) share at the time of partition and that about the gold even Shri Sumermal had no
knowledge of its existence in the haveli and that it must have been kept there by some of his forefathers. Statements of Shri Sumermal were also
recorded on.December 15, 1968, and December 20, 1968. The statement of Smt. Dhanni Devi was also recorded on December 15, 1968. She
also filed an affidavit dated August 26, 1972, before the Income Tax Officer. By order dated June 10, 1969, the Superintendent of Central Excise
released the gold and silver which had been seized, to the assessee after recording a finding that the gold was more than 100 years old and that
neither the assessee nor any other member of the family was aware of the existence of this gold. As regards the silver bars, the Excise authorities
did not carry out any detailed investigation and the silver was released to the assessee on the short ground that it was not shown to have been
imported into India in contravention of the prohibition imposed by law.
3. The wealth-tax returns for the assessment years 1964-65, 1965-66, 1966-67 and 1967-68 had been filed prior to the aforesaid discovery of
silver and gold and the assessment for these years had been completed prior to the said discovery. The assessee included the value of the silver in
the wealth-tax returns for the assessment year 1968-69 and for the subsequent years. On March 27, 1973, the Wealth-tax Officer, Chum
(hereinafter referred to as ""the Wealth-tax Officer"") issued a notice u/s 17(3) of the Act for reopening the wealth-tax assessment of the assessee
for the years 1964-65, 1965-66, 1966-67 and 1967-68 on the view that he was of the opinion that the version which was given by Sumermal and
Jabharmal was not correct and that Jabharmal all along knew of the existence of silver and that the above wealth which was admittedly of the
assessee family had escaped assessment due to omission or failure on the part of Jabharmal to disclose the material particulars of his family''s
wealth. The assessee pleaded before the Wealth-tax Officer that whatever wealth belonged to the family as known to him at the time of the filing of
the original return was disclosed by him in the said returns and the wealth consisting of silver bars came to his knowledge only in August, 1968,
when part of the haveli belonging to the family was demolished and that what the assessee did not know at the time of the filing of the returns could
not have been admitted by him when he filed the original returns and it could not, therefore, be said of the assessee that he did not disclose fully
and truly all the material facts as known to him till then, when he filed the returns and, therefore, action could not be initiated against the assessee
u/s 17(1) of the Act in respect of the aforesaid alleged omission or failure of the assessee to declare the silver in the wealth-tax returns. In
pursuance of the said notices, the assessee filed the returns for the assessment years 1964-65, 1965-66, 1966-67 and 1967-68 and in the said
returns, the assessee declared the value of the silver discovered in the residential house but did not declare the value of the gold so discovered on
the ground that it belonged to the bigger Hindu undivided family. The Wealth-tax Officer passed assessment orders on January 10, 1974, wherein
he included the value of gold and silver for assessing the total wealth of the assessee. The assessee filed appeals against the aforesaid assessment
orders passed by the Wealth-tax Officer. The said appeals were disposed of by the Appellate Assistant Commissioner of Income Tax, Bikaner
Range, Bikaner (hereinafter referred to as the Appellate Assistant Commissioner) by his order dated March 31, 1975. The Appellate Assistant
Commissioner found that the possession of gold was neither in the knowledge of Jabharmal nor of his mother but the existence of silver was within
the knowledge of Smt. Dhanni Devi and Sumermal and that Budhmal had informed Smt. Dhanni Devi about the existence of the silver and the
place where it had been kept and since Smt. Dhanni Devi happens to be the adoptive mother of Jabharmal, the karta of the Hindu undivided
family, she must have passed on the necessary information about the silver bars to her son and that since the assessee is assessed in the status of a
Hindu undivided family and Smt. Dhanni Devi is a member of the joint Hindu undivided family, her knowledge is enough to bring the appellant''s
case within the provisions of Section 17(1) of the Act. The Appellate Assistant Commissioner, however, excluded the value of the gold from the
wealth of the assessee, as assessed by the Wealth-tax Officer. The assessee filed appeals before the Tribunal.
4. In the Tribunal, a difference of opinion arose between the two members who heard the appeals of the assessee. The learned Accountant
Member held that the probabilities of the case and of the ordinary human conduct would justify the inference that Budhmal should have told his
wife, if not at the time of partition but at the time of his death, that apart from the wealth of the family which was above the ground and within her
knowledge, silver weighing about 430 legs, which had been buried in 1930 in the said haveli and about which Smt. Dhanni Devi had the
knowledge, had also come to his share and that it constituted the wealth of the family and in the normal course, Smt. Dhanni Devi should have
informed Jabharmal, her adopted son, about the wealth of the family including the buried wealth. The learned Accountant Member was, therefore,
of the opinion that the family had knowledge about the wealth in the form of the buried silver and had yet not furnished the information about it in
the original returns and due to this omission it had escaped assessment and as such action u/s 17(1)(a) of the Act was rightly initiated. The learned
Judicial Member, on the other hand, took the view that the probabilities of the case suggested that Jabharmal did not have any knowledge about
the buried silver and that, therefore, he could not have shown it in the original returns filed by him and as such it could not be said that
underassessment had taken place on account of the failure or omission on the part of the assessee to furnish the material information at the time of
the original assessment.
5. In view of the aforesaid difference of opinion amongst the two members of the Tribunal who had heard the appeals, the President of the Tribunal
referred to a third Member of the Tribunal, the following three questions representing the points of difference of opinion between the two learned
Members of the Tribunal :
1. Whether, on the facts and in the circumstances of the case, there was material before the learned Wealth-tax Officer to initiate proceedings u/s
of the Wealth-tax Act, 1957, in respect of assessment years 1964-65, 1965-66, 1966-67 and 1967-68 ?
2. Whether, on the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner of Wealth-tax was justified in holding
that the assessee had knowledge about the existence and his ownership of silver bars in the assessment years under consideration ?
3. Whether, on the facts and in the circumstances of the case, the authorities below were justified in including the value of the silver bars in question
in the net wealth of the assessee pertaining to the assessment years 1964-65 to 1967-68?
6. The appeals were thereafter heard by the Vice President of the Tribunal as the third Member. The learned third Member agreed with the
Judicial Member and held that as Jabharmal was not aware of the existence of the silver, he had not omitted or failed to disclose these assets and,
therefore, he answered the second question in the negative. The learned third Member was of the view that notwithstanding the aforesaid
conclusion in favour of the assessee on merits, the assumption of jurisdiction by the Wealth-tax Officer u/s 17(1)(a) of the Act could not be
challenged inasmuch as in the set of circumstances that confronted the Wealth-tax Officer, it was possible for him to draw an inference that
Jabharmal had been aware much earlier about the existence of the silver also and that it was, therefore, possible for the Wealth-tax Officer to have
drawn in good faith an inference that the escapement of net wealth was attributable to the non-disclosure by the assessee of material facts. In view
of the aforesaid findings, the learned third Member answered the first and the third questions referred to him in the affirmative and upheld the
initiation of the reassessment proceedings and the inclusion of the value of silver bars.
7. The assessee thereupon moved the Tribunal u/s 27(1) of the Act for referring for the opinion of this court the questions of law arising out of the
order of the Tribunal and on that application of the assessee, the Tribunal has referred the question mentioned above for the opinion of this court.
8. Before we deal with the submissions of Shri Balia, learned counsel for the assessee, and Shri Arora, learned counsel for the Revenue, we may
take note of the provisions contained u/s 17 of the Act which reads as under :
17. (1) If the Wealth-tax Officer-
(a) has reason to believe that by reason of the omission or failure on the part of any person to make a return u/s 14 of his net wealth or the net
wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts
necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped
assessment for that year, whether by reason of underassessment or assessment at too low a rate or otherwise; or
(b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is
referred to in Clause (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of underassessment or
assessment at too low a rate or otherwise ;
he may, in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end
of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under subsection
(2) of Section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the
notice had issued under that Sub-section.
(2) Nothing contained in this Section limiting the time within which any proceeding for assessment or reassessment may be commenced, shall apply
to an assessment or reassessment to be made on such person in consequence of or to give effect to any finding or direction contained in an order
under Sections 23, 24, 25, 27 or 29 :
Provided that the provisions of this sub-section shall not apply in any case where any such assessment or reassessment relates to an assessment
year in respect of which an assessment or reassessment could not have been made at the time the order which was the subject-matter of the
appeal, reference or revision, as the case may be, was made by reason of any provision limiting the time within which any action for assessment or
reassessment may be taken.
9. The aforesaid provisions contained in Section 17 of the Act are similar to those that were contained in Section 34 of the Indian Income Tax Act,
1922, and those contained in Sections 147, 148 and 149 of the Income Tax Act, 1961. In the Income Tax Act, 1961, there is a further
requirement that the Income Tax Officer, before issuing a notice for reassessment, shall record his reasons for doing so and in cases where the
notice is issued after the expiry of 4 years from the end of the relevant assessment year the Commissioner must also be satisfied on the reasons
recorded by the Income Tax Officer that it is a fit case for the issuance of such notice. The provisions contained in Clauses (a) and (b) of Sub-
section (1) of Section 17 of the Act and Clauses (a) and (b) of Sub-section (1) of Section 34 of the Indian Income Tax Act, 1922, and Clauses
(a) and (b) of Section 147 of the Income Tax Act, 1961, are, however, substantially the same.
10. The provisions contained in Clause (a) of Sub-section (1) of Section 34 of the Indian Income Tax Act, 1922 and Clause (a) of Section 147 of
the Income Tax Act, 1961, have come up for consideration before the Supreme Court in a number of cases in appeals arising out of petitions filed
under article 226 of the Constitution as well as in references made under the provisions of the Income Tax Act.
11. In Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , the Supreme Court has considered the
provisions of Section 34(1)(a) of the Indian Income Tax Act, 1922, in an appeal arising out of a petition filed under article 226 of the Constitution.
In that case, Das Gupta J., speaking for the majority, has held as under (at page 199):
To confer jurisdiction under this 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, 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 underassessed. The second is that he must have also reason to believe
that such ''underassessment'' has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income u/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 assessment
or reassessment beyond the period of four years, but within the period of eight years, from the end of the year in question.
12. After examining the precise scope of disclosure which the section demands, the hon''ble Judges have observed (at pages 201 and 202):
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 ''underassessment'', that would be sufficient to give jurisdiction to the Income
Tax Officer to issue the notices u/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.
13. In that case, the learned judges found that the assessee had disclosed all the material facts and that the Income Tax Officer who issued the
notice had not before him any non-disclosure of a material fact and so he could have no material before him for believing that there had been any
material non-disclosure by reason of which an underassessment had taken place and, therefore, the conditions precedent to the exercise of
jurisdiction u/s 34 of the Income Tax Act did not exist and the Income Tax Officer had, therefore, no jurisdiction to issue the impugned notice u/s
34. The learned judges, rejected the contention urged on behalf of the Revenue that the question whether the Income Tax Officer had reason to
believe that underassessment had occurred by reason of nondisclosure of material facts should not be investigated by the courts in an application
under article 226 and have observed that (at page 207):
Both the conditions, (i) the Income Tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe
that such underassessment has resulted from non-disclosure of material facts, must co-exist before the Income Tax Officer has jurisdiction to start
proceedings after the expiry of 4 years.
14. In S. Narayanappa and Others Vs. Commissioner of Income Tax, Bangalore, the Supreme Court, while dealing with the provisions contained
in Section 34(1)(a) of the Income Tax Act, 1922, has observed (at pages 221 and 222):
It is true that two conditions must be satisfied in order to confer jurisdiction on the Income Tax Officer to issue the notice u/s 34 in respect of
assessments beyond the period of four years, but within a period of eight years from the end of the relevant year. The first condition is that the
Income Tax Officer must have reason to believe that the income, profits or gains chargeable to Income Tax had been underassessed. The second
condition is that he must have reason to believe that such ''underassessment'' had occurred by reason of either (i) omission or failure on the part of
an assessee to make a return of his income u/s 22 or (ii) omission or failure on the part of the assessee to disclose fully and truly all the material
facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income Tax Officer
acquires jurisdiction to issue a notice under the section. But the legal position is that if there are in fact some reasonable grounds for the Income-tux
Officer to believe that there had been any nondisclosure as regards any fact, which could have a material bearing on the question of
underassessment, that would be sufficient to give jurisdiction to the Income Tax Officer to issue the notice u/s 34.
15. It was further observed fat page 222):
It is of course open for the assessee to contend that the Income Tax Officer did not hold the belief that there had been such non-disclosure. In
other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression
''reason to believe '' in Section 34 of the Income Tax Act does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The
belief must be held in good faith ; it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the
reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the
purpose of the section. To this limited extent, the action of the Income Tax Officer starting proceedings u/s 34 of the Act is open to challenge in a
court of law.
16. This was a case arising out of a reference made by the Income Tax Appellate Tribunal to the High Court.
17. The same view was reiterated by the Supreme Court in Kantamani Venkata Narayana and Sons Vs. First Additional Income Tax Officer,
Rajahmundry,
18. In Sheo Nath Singh Vs. Appellate Assistant Commissioner of Income Tax, Calcutta, the Supreme Court has observed : (at page 153):
There can be no manner of doubt that the words ''reason to believe'' suggest that the belief must be that of an honest and reasonable person based
upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or
rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is
not material or relevant to, the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the
reasons for the belief cannot be investigated by the court.
19. In Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, the Supreme Court, in an appeal arising out of a petition under article
226 of the Constitution, has reiterated the principles laid down in its earlier decisions in Calcutta Discount Company Limited Vs. Income Tax
Officer, Companies District, I and Another, and S. Narayanappa and Others Vs. Commissioner of Income Tax, Bangalore, and has further
observed (at page 448):
As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief.
Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer
and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his
failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and
substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the
same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which
would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.....The powers of the Income Tax
Officer to reopen assessment, though wide, are not plenary. The words of the statute are ''reason to believe'' and not ''reason to suspect''. The
reopening of the assessment after the lapse of many years is a serious matter.
20. In that case the Supreme Court found that the link or close nexus which should be there between the material before the Income Tax Officer
and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter''s failure or
omission to disclose fully and truly material facts, was missing and that in any event the link was too tenuous to provide a legally sound basis for
reopening the assessment and, therefore, the said material could not have led to the formation of the belief that the income of the assessee
respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts.
21. In Ganga Saran and Sons P. Ltd. Vs. Income Tax Officer and Others, in an appeal arising out of a reference made by the Income Tax
Appellate Tribunal, the Supreme Court has considered the provisions of Section 147(a) of the Income Tax Act, 1961, and has observed as under
(at page 11):
It is well settled as a result of several decisions of this court that two distinct conditions must be satisfied before the Income Tax Officer can
assume jurisdiction to issue notice u/s 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and,
secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully
and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer
would be without jurisdiction. The important words u/s 147(a) are ''has reason to believe'' and these words are stronger than the words ''is
satisfied''. The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be
based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which
have weighed with the Income Tax Officer in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a
bearing on the matters in regard to which he is required to entertain the belief before he can issue notice u/s 147(a). If there is no rational and
intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably
entertain the belief, the conclusion would be inescapable that the Income Tax Officer could not have reason to believe that any part of the income
of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully
and truly all material facts and the notice issued by him would be liable to be struck down as invalid.
22. In that case, the Supreme Court held that it was not possible to sustain the conclusion arrived at by the Income Tax Officer that the assessee
had omitted or failed to disclose fully and truly material facts relating to its assessment and the court, therefore, held that neither of the two
conditions necessary for attracting the applicability of Section 147(a) was satisfied and the notice issued by the Income Tax Officer was, therefore,
held to be without jurisdiction.
23. In view of the decisions of the Supreme Court referred to above, it must be held that for a valid exercise of the jurisdiction conferred upon him
u/s 17(1)(a) of the Act, it is necessary that the Wealth-tax Officer must have (i) reason to believe that net wealth chargeable to tax has escaped
assessment, and (ii) reason to believe that such escapement of the wealth of the assessee from assessment has occurred by reason of either (a)
omission or failure on the part of the assessee to make a return, or (b) omission or failure on the part of the assessee to disclose frilly and truly all
material facts necessary for assessment for that year. The action of the Wealth-tax Officer would be invalid if the reason for his belief that the
conditions are satisfied does not exist or is not material or relevant to the belief required by the Section. Rational connection postulates that there
must be a direct nexus or live link between the material coming to the notice of the Wealth-tax Officer and the formation of his belief that there has
been escapement of the wealth of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material
facts. In other words, if, on the basis of the material coming to the notice of the Wealth-tax Officer till the date he issued the notice u/s 17(1)(a) of
the Act, it can be said that the reasons for his belief that the conditions are satisfied were non-existent or were arbitrary or irrational, the action
taken by the Wealth-tax Officer must be held to be invalid.
24. In the present case, we have to determine as to whether the action of the Wealth-tax Officer in issuing notices to the assessee u/s 17(3) of the
Act can be upheld on the basis of the principles referred to above.
25. Shri Balia, learned counsel for the assessee, has urged that in view of the findings recorded by the learned third Member of the Tribunal that
Jabharmal was not aware of the existence of the silver at the time he filed the returns for the assessment years 1964-65, 1965-66, 1966-67 and
1967-68, it could not be said that the assessee had omitted or failed to disclose a material fact and thus one of the conditions precedent for the
exercise of jurisdiction under s. 17(1)(a) of the Act was absent in the present case and that the proceedings had not been validly initiated under s.
17(1)(a) of the Act. According to Shri Balia, the present case falls within the ambit of Clause (b) of Sub-section (1) of s. 17 (and since the period
of four years) had expired on March 27, 1973, the date of the issuance of the notices, no proceedings for reassessment of the wealth could be
validly initiated against the assessee u/s 17 of the Act. In this connection, Shri Balia had urged that the omission or failure by an assessee to
disclose a material fact postulates the knowledge on his part of the said fact at the time of the alleged omission or failure and in case where the
assessee is not aware of the fact at the time of making the return, it cannot be said that he had omitted or failed to disclose the said fact in the
return. Shri Balia has also submitted that the learned third Member has found that there was no failure or omission on the part of the assessee to
disclose a material fact and that in view of the said finding, he was not right in holding that the proceedings had been validly initiated by the Wealth-
tax Officer u/s 17 of the Act against the assessee. In this connection, Shri Balia has contended that all the material on the basis of which the
Wealth-tax Officer formed the belief that the assessee had knowledge about the existence of silver in the haveli at the time of filing of the return for
the relevant assessment years and had thereby omitted and failed to disclose this material fact has been considered by the Judicial Member and the
third Member of the Tribunal and on the basis of the said material, they have come to the conclusion that the assessee was not aware of the fact
that silver was lying in the haveli. In view of the aforesaid finding recorded by the Judicial Member and the third Member on the basis of the
material which was taken into consideration by the Wealth-tax Officer for issuing the notices u/s 17(3) of the Act, it must be said that it was not
possible for the Wealth-tax Officer to come to the conclusion that the assessee was aware of the existence of the silver at the time of the filing of
the returns and, therefore, the said reason given by the Wealth-tax Officer, namely, omission or failure to disclose the material fact in the return
must be held to be non-existent and in that event the action of the Wealth-tax Officer in issuing notices u/s 17(3) of the Act was without
jurisdiction.
26. Shri Arora, learned counsel for the Revenue, has supported the line of reasoning of the learned third Member of the Tribunal and has submitted
that in spite of the finding of the Judicial Member and the third Member that the assessee was not aware of the presence of the silver in the haveli at
the time when he filed the returns for the relevant assessment years, the action of the Wealth-tax Officer in issuing the notices u/s 17(3) of the Act
could not be assailed for the reason that on the basis of the materials before him at the time when he issued the said notices, the Wealth-tax Officer
could reasonably believe that the assessee had such a knowledge.
27. Having given our thoughtful consideration to the aforesaid submissions we are of the view that the submissions urged by Shri Balia on behalf of
the assessee must be accepted. It is well settled that the omission or failure to disclose fully or truly a material fact postulates the knowledge of the
said fact at the relevant time and a person cannot be held guilty of omission or failure to disclose a fact of which he had no knowledge. In this
connection reference may be made to the decision of the Division Bench of the Calcutta High Court in P.R. Mukherjee Vs. Commissioner of
Income Tax, West Bengal, wherein the learned Judges have construed the words ""omission or failure.....to disclose fully and truly all material facts
contained in Clause (a) of Sub-section (1) of Section 34 of the Income Tax Act, 1922. The learned Judges have observed as under (at p. 544):
The words I have just quoted may, in one view, cover a bare omission or failure to mention all material facts and, in another view, they may be
said to cover only the case where the assessee, knowing all the material facts, does not mention them fully or truly or, in other words, deliberately
withholds information or full information. Support for the second view would seem to be afforded by the grammatical meaning of the words
''omission'', ''failure'' and ''disclose.'' It may well be said, and I should think, said correctly, that a person cannot be said to have omitted or failed to
disclose something when, of such thing, he had no knowledge. A similar implication is carried by the word ''disclose'', because one cannot be
expected to disclose a thing or said to have failed to disclose it, unless it is a matter which he knows or knows of. Of the two meanings of the
relevant words in Clause (a), I, as at present advised, should think that the second is the correct view.
28. In E. M. Muthappa Chettiar Vs. Commissioner of Income Tax, Madras, decided by a Division Bench of the Madras High Court, with
reference to the provisions contained in Section 34(1)(a) of the Indian Income Tax Act, 1922, it has been held that (at p. 649) :
The foundation of a proceeding under this clause is the suppression by the assessee of material facts necessary for assessment. In the collocation
of the words of the statute, it seems to us that the omission or failure must have been deliberate and wilful.
29. In M. O. THOMAKUTTY Vs. COMMISSIONER OF Income Tax, KERALA., the Kerala High Court has taken the same view and has
observed (at p. 882):
There is nothing to indicate that at the time the assessee filed his return his accounts relating to his Cochin business had been completed and that
he knew exactly what his income was from that business. In the return he had only estimated that income to the best of his belief. The fact that
when the accounts were finally closed it was seen that the income was actually much more, is not sufficient to hold that the assessee had not truly
and fully disclosed his income unless there is material to show that the assessee knew at the time he submitted his return that his income was not
that which was estimated by him.
30. In Commissioner of Income Tax, Bombay Vs. Balvantrai S. Jain, the Bombay High Court has taken the same view following the decisions of
the Calcutta, Kerala and Madras High Courts referred and has observed (at p. 71):
A person cannot be said to have omitted or failed to disclose a fact if he had no knowledge of that fact. The words ''omission or failure to disclose
fully and truly all material facts'' in Clause (a) of Section 34(1) of the Income Tax Act cover only the case where the assessee knowing all the
material facts does not mention them fully and truly, in other words, where he deliberately withholds information.
31. The same view has been taken in Ganesh Chandra Khan Vs. Income Tax Officer, ""A"" Ward and Another, and Income Tax Officer, ''G'' Ward
and Others Vs. Selected Dalurband Coal Co. P. Ltd.,
32. Thus it can be said that the assessee cannot be said to have omitted or failed to disclose the fact about the possession of the silver at the time
of filing of the returns and completion of the assessment for the relevant assessment years because till August 13, 1968, the assessee had no
knowledge of the presence of the silver in the haveli as found by the Judicial Member and the learned third Member of the Tribunal.
33. The question which next arises is whether in spite of the finding that the assessee has not omitted or failed to disclose the material fact about his
being in possession of the silver, the action of the Wealth-tax Officer in issuing notices u/s 17(3) of the Act can be upheld. We find ourselves
unable to agree with the reasoning given by the learned third Member of the Tribunal that the action of the Wealth-tax Officer in assuming
jurisdiction u/s 17(1)(a) of the Act could not be challenged because it was possible for the Wealth-tax Officer to have drawn in good faith an
inference that the escapement of net wealth was attributable to the non-disclosure by the assessee of the material facts. In our opinion, the
existence of the belief of the Wealth-tax Officer that the net wealth chargeable to tax had escaped assessment by reason of the omission or failure
on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the net wealth, which is a condition
precedent for taking action u/s 17(1) of the Act, is open to challenge and in the present case in view of the finding recorded by the Judicial
Member and the learned third Member, it must be held that there was no omission or failure on the part of the assessee to disclose the fact with
regard to the possession of silver by the assessee at the time of filing of the returns. This finding has been recorded by the Judicial Member and the
learned third Member on the basis of the material which was before the Wealth-tax Officer at the time when he issued the notices u/s 17(3) of the
Act. This would mean that on the basis of the material that was before him at the time when he issued the notices it was not possible to form the
belief that the assessee had knowledge about the presence of silver in the haveli and he had omitted or failed to das-close this material fact in
return. In other words, the aforesaid condition, namely, omission or failure on the part of the assessee to disclose a material fact was non-existent
and in the absence of the aforesaid condition, it was not possible for the Wealth-tax Officer to arrive at a reasonable belief that the net wealth
chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material
facts necessary for assessment of the net wealth. For the reasons aforesaid, we are of the opinion that the proceedings that were initiated against
the assessee by the Wealth--tax Officer u/s 17(1)(a) of the Act by issuing notices u/s 17(3) of the Act were invalid. It must, therefore, be held that,
in the facts and circumstances of the case, the Tribunal was not right in holding that the action u/s 17(1)(a) was validly initiated by the Wealth-tax
Officer in respect of the assessment years 1964-65 to 1967-68 and that the reassessment orders passed as a result of such initiation were valid.
34. The question referred is, therefore, answered in the negative, i.e., in favour of the assessee and against the Revenue. In the facts and
circumstances of the case, the parties are left to bear their own costs.