The conditions precedent for the issue of a notice under Section 34 of the Income-tax Act are that the Income-tax Officer must have "definite information" that income chargeable to income-tax has escaped assessment, and that he must "discover" that income has escaped assessment.

Ramaswami, J.

1. This reference is made by the Income-tax Appellate Tribunal under Sec. 66 (1), Income-tax Act.

2. The assessee Chaturam Horilram Limited of Kodarma is a private limited company which is composed of two Hindu undivided families of which Chaturam & Darshanram are the kartas. The assessee carried on the business of exporting mica for sale to foreign countries. On 22-12-1939 the Income-tax officer made assessment for the year 1939-40 & determined the total income to be Rs. 1,09,200. In appeal the Appellate Tribunal set aside the assessment on the ground that the Indian Finance Act of 1939 was not in force in Chotanagpur which was a partially excluded area. At the instance of the Commissioner of the Income-Tax reference was made to the High Court on the following question:

"whether levy of income-tax should be made on the assessee for the year 1939-40 in the absence of a notification under Section 92 (1), Govt. of India Act, by the Governor extending the Finance Act of 1939 to the excluded area?"

On 30-9-1943, the High Court answered the question in the negative.

3 After the decision of the Appellate Tribunal but before the date of the judgment of the High Court the Governor of Bihar enacted Bihar Regulation IV of 1942 to which the Governor-General gave assent on 30-6-1942. The notification was published in the Bihar Gazette on 7-7-1942. As a result, the Indian Finance Act of 1939 was brought into force in Chotanagpur Division & the Santal Parganas District with retrospective effect from 30-3-1939.

4. On 8-7-1941 the Income-tax Officer had issued notice to the assessee under Sec.34, Income Tax Act. At the instance of the assessee the proceedings were stayed for some time but on 8-2-1944 the Income-tax officer made the following order:

"Due to recent judgment of the High Court the assessment under Sec.23 (3) stands cancelled & with it the notice under Sec.34 issued in this case becomes ineffective & is withdrawn. Assessee derives income from mica mining & dealing, money-lending, mining rents & non-agricultural sources of zamindary, & this has escaped assessment in its entirety. Issue notice under Sec.22 (2) read with Sec.34 again to file a return of income in the prescribed form & within the prescribed time, & inform the assessee that the original notice under Sec.34 has been cancelled."

A fresh notice under Sec.34 was issued on 12-2-1944 after which the income of the assessee was determined to be Rs. 4,86,351. On appeal the Assistant Commissioner reduced the amount by Rs. 11,187. The assessee preferred an appeal to the Income-tax Appellate Tribunal who held that the notice under Sec.34 was validly issued. It was also before the Tribunal that the cash credits amounting to Rs. 4,04,618 in the books were satisfactory explained. The Tribunal held that the assessee had failed to discharge the onus which lay upon him to explain the cash credits & that the Income-tax Officer had rightly held that the cash credits were secret profits of the assessee.

5. At the instance of the assessee the Appellate Tribunal has propounded the following question of law for being determined by the High Court:

"Whether in the circumstances of the case, the notice issued on 12-2-1944 under Sec.34, Income-tax Act, was validly issued for the assessment of the year 1939-40?"

6. On behalf of the assessee Mr. Baldeva Sahay stressed the argument that the notice issued under Sec.34 was illegal since the Income tax officer had no "definite information", and since there was no "discovery" that income chargeable to income-tax had escaped assessment. Learned Counsel, therefore, maintained that the conditions precedent for the issue of the notice were not existent & the assessment made under Sec.34 was illegal. In my opinion this argument is wholly untenable. From the statement of the case it is plain that on 8-2-1944 the Income-tax Officer cancelled the original notice which had been issued under Sec.34 on 8-7-1941. Instead the Income-tax Officer