Judgment

SHAH, C.J.I.: - These appeals are filed with certificate granted by the High Court of Gujarat. They arise out of proceedings for re-assessment of income of the respondent relating to assessment years 1947-48, 1948-49 and 1949-50. The respondent who will hereinafter be called the assessee carried on the business in ghee at Porbandar, which was at all material times relevant to the assessments in question 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, amongst others, 1947-48, 1948-49 and 1949-50. The assessee had in the relevant years of accounts a current account with the Bank of India Ltd., in Bombay and sale proceeds in respect of large quantities of ghee supplied outside taxable territories were credited in that account and were then transferred to Porbandar. The assessee had also a current account with the firm Shamji Kalidas and Company at Bombay and in this accounts Messrs. Shamji Kalidas and Company had paid interest to the assessee The assessee being a nonresident, tax at the maximum rate was deducted by Messrs. Shamji Kalidas and Company, in respect of the interest paid to the assessee under Section 18 (3-A) of the Income-tax Act, 1922. The assessee disclosed those facts to the Income-tax Officer and contended that since the assessee had no business in the taxable territories nor any income taxable in the taxable territories (other than the income from Messrs. Shamji Kalidas and Company in respect of which certificates showing deduction at the maximum rate), the assessment proceedings initiated by the Income-tax Officer be discharged. The Income-tax Officer upheld the contention and made an order on December 30 1948, for the assessment years 1947-48 and 1948-49 observing that there was no source of income taxable in British India and that the proceedings started should be dropped. In the assessment year 1949-50 the Income Tax Officer also Passed an order that the proceeding be discharged.

2. In 1956 the Income-tax Officer, Porbandar, initiated proceedings under Section 34 (1) (a) of the Income-tax Act, 1922, for re-opening the assessment of the assessee for the assessment years 1947-48, 1948-49 and 194950, and served the requisite notices. The assessee challenged the jurisdiction of the Income-tax Officer to assess him on various grounds one of which alone survives for consideration The assessee submitted that it had disclosed fully and truly all the primary facts necessary for the purpose of assessment and on that account the Income-tax Officer had no jurisdiction to initiate re-assessment proceedings. The assessee contended that the Income-tax Officer could not commence re-assessment proceedings merely because he entertained a view different from the view of his predecessor. The Income-tax Officer rejected the plea raised by the assessee and brought the income which in his view had escaped assessment to tax. Appeals filed by the assessee to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal were dismissed.

3. At the instance of the assessee, four questions were referred to the High Court of Gujarat as arising out of the order of the Tribunal. We are concerned with the third question :

"(3) Whether on the facts and circumstances of the case, the Tribunal was justified in upholding the action under Section 34 (1) (a) as valid in all the three assessment years?"

The High Court recorded on that question an answer in the negative. With certificate granted by the High Court, the Commissioner of Income-tax has appealed to this Court.

4. The High Court held that all primary facts relevant to the assessment of the income of the assessee were disclosed by the assesses In respect of the notice for the first two years, viz 1947-48 and 1948-49 the Income-tax Officer had by his order dropped the proceedings of assessment observing:

"In response to notice issued under Section 23 (2) of