The main legal point established in the judgment is that the Income Tax Officer's belief in the non-disclosure of material facts by the assessee and the applicability of the provisions of the new Act to the assessment of escaped income were valid.

Somnath Lyer, J.— An assessee under the Income Tax Act is the petitioner before us and he asks us to quash the proceedings by which the Income Tax Officer of Central Circle II, Bangalore, proposed to assessee escaped income in respect of the assessment year 1960-61. A notice for that purpose was sent to the assessee by the Income Tax Officer under section 148 of the Income Tax Act, 1961.

2. The assessee is a private company called Bedi & Co.(P.) Ltd., which engaged itself in the activity of promoting the formation of a public company called the Mandya National Paper Mills Ltd. In that context this private company arranged for the purchase of machinery required for the public company from a company in Canada called Parsons and Wittemore Company Ltd.

3. In the assessment proceedings the assesses-company stated that during the negotiations for that purchase, a sum of Rs. 32,58,500 was advanced by the Canada company to the assesses-company to purchase shares of that value in the paper mills.

4. In the record of the reason made by the Income Tax Officer under section 148 of the Income Tax Act, 1961, which he incorporates in a communication which he addressed to the commissioner of Income Tax on September 12, 1966, for the Commissioner's sanction for initiation of proceedings under section 147(a) for reassessment he stated that what was described as a loan by the assesses-company was in truth commission paid by the Canada company for having arranged the purchased of the machinery by the paper mills. In the record which he so made the Income Tax Officer what was stated to be loan was in truth commission received by the assessee. He alluded to the fact that there had been no repayment of the loan that ther was no security for such repayment that the purchase made by the paper mills was not supported by any original invoices and that no detailed specifications of the machinery were available. In the counter-affidavit produced in this writ petition the Income Tax Officer also referred to a statement made by the assessee's representative Anup Singh Bedi on the 12th September 1966, in which he stated that the machinery supplied by the Canada company was of sub-standard quality.

5. In the concluding part of the communication addressed by the Income Tax Officer to the Commissioner, he summed up the position thus :

"The close linking of the agreement, absence of any security and non-repayment so far will also indicate the bogus nature do the loan. The above amount is, therefore, assessable in the hands of the assessee as commission for the assessment year 1960-61."

6. Three submissions were made by Mr. Srinivasan on behalf of the assessee in challenge of the initiation of the impugned proceedings. The assessment of escaped income in certain circumstances had no application to the case before us. The second was that the Income Tax Officer had no reasons to believe that any income had escaped assessment. The third was that, in any event, no proceeding could be commenced under section 148 of the new At in respect of income which had escaped assessment in respect of the assessment year 1960-61.

7. In support of the first contention, it was maintained that an assessment of escaped income if possible under section 147(a) which is the relevant provision only if the assessee had failed to disclose fully and truly the material facts necessary for the assessment, and that there was no such non-disclosure by the assessee, who, it was asserted, concealed no material fact at any stage.

8. In Calcutta Discount Company Limited v. Income Tax Officer, the Supreme Court made the elucidation that the material facts to which section 147(a) refers are primary facts whose disclosure is imperative as contrasted with subsidiary facts which the assessing authority is under a duty to deduce from the stated primary facts and that if the stated primary facts are true, there could be no power for the assessment of any escaped income.

9. Mr. Srinivasan's submissi