Judgment

HEGDE, J.: The first of these two appeals (both by certificates) viz. that filed by the Commissioner of Income Tax succeeds and the second, that filed by the legal representatives of the assessee fails. The facts as found by the Tribunal and set out in the statement of the case, relevant for the purpose of these appeals are as follows:

2. The relevant assesment year is 1944-45, corresponding to the accounting year ended on April 12, 1944. The assessee is one Chidambaram Chettiar (since deceased). The father of the assessee Palaniappa Chettiar was a money lender. He had made various advances to one Nallathambi Sakkarai Manradiar, who will hereinafter be referred to as the Pattayagar, a prominent landlord in Coimbatore District, on promissory notes. The total principal advanced by the father of the assessee upto July 6, 1932 amounted to Rs. 1,38,535/-. The interest on the same came to Rs. 1,34,965,/-. On July 6, 1932, a further advance of Rs. 2500/- was made to the Pattayagar and for the amounts due from him, the Pattayagar executed a mortgage of some of his properties in favour of the assessee s father for a sum of Rupees 2,76,000/-. Till 1938, only a sum of Rs. 13,620/- was paid by the mortgagor in part payment of the debt due from him. On December 14, 1940 the mortgagee instituted a suit on the foot of the mortgage bond claiming a sum of Rs. 5,50,573/- inclusive of principal and interest. On September 19,1943, the claim was compromised and on October 5, 1943, a compromise decree was passed for a sum of Rs. 3,50,500/- in full satisfaction of the mortgagee s claim. The decree amount was made payable on cr before October 1, 1944. The debt under the compromise decree was subsequently discharged.

3. For the assessment year 1944-45, the assessee Chidambaram Chettiar, as karta of his Undivided Hindu Family was assessed under Section 23 (3) of the Income Tax Act, 1922 (to be hereinafter referred to as the Act), on February 12, 1946, on a total income of Rs. 78,556/- which, on appeal was reduced to Rs. 53,153/-. When the assessment proceedings of the assessee were pending before the Income-tax Officer, Trichy, that Income-tax Officer received information from the Income-tax Officer, Erode that the mortgagor had paid secretly to the mortgagee a sum of Rupees 1,50,000/- during the year ended on April 1, 1944 and that the same was not included in the compromise decree. When the Income-tax Officer asked the assessee about the same, he denied having received any amounts secretly. Apart from the information conveyed by the Income-tax Officer, Erode, the Assessing Officer had no other material before him to show that any amount had been paid secretly by the mortgagor to the mortgagee. Hence on May 27, 1945, the Income-tax Officer made the following note in the order sheet:

"It is denied that there was any secret understanding not to show the payment of Rs. 1,50,000/-. The receipt of this amount is entirely denied...... The Income-tax Officer, Erode should be asked to give further details and to ask the Pattayagar to produce evidence of the payment. In any event, this should come up for consideration only in the assessment year 1944-45 as only the excess over Rs. 2,76,000/- plus legal expenses can be treated as interest income in the hands of the assessee and so, the assessment for 1944-45 should not be held up pending further investigation."

4. After sometime the Assessing Officer made further enquiry into the information given by the Incometax Officer, Erode and thereafter he came to believe that a sum of Rupees 1,50,000/- had escaped assessment by reason of the omission of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1944-45. He accordingly issued a notice under Section 34 (1) (a) on March 9, 1953. In reply to that notice, the assessee filed a return similar to the one filed by him earlier. He denied having received Rs. 1,50,000/- secretly from the mortgagor. The Incom