JUDGMENT

1. This is a reference under Section 66(3) of the Indian Income-tax Act. By an order of a Bench of this Court dated the 19th November, 1940, the Commissioner of Income-tax was required to state the case and to refer it to this Court and he has accordingly done so.

2. The case relates to two assessees, Seth Gurmukh Singh and Seth Dyal Singh, and the years of assessment in dispute are 1934-35, 1935-36 and 1936-37.

"The questions formulated by this Court read as follows :-

"(1) Was the finding of fact by the Assistant Commissioner on the question of income brought in to British India during the years in dispute in an assessment made under Section 23(3) in the case of Seth Gurmukh Singh vitiated by the fact that in arriving at his conclusion the Income-tax Officer based that conclusion partly on circumstantial evidence and partly on material derived from inquiries made behind the back of the assessee which were never disclosed to the assessee.

(2) Whether the Income-tax Officer in the case of Seth Dyal Singh in an assessment made under Section 23(3) was entitled to base his conclusion solely on inquiries made behind the back of the assessee and not revealed to him."

3. The history of these assessments is given at pages 9 to 12 of the printed paperback and need not be recapitulated. Suffice it to say that after the assessment of 1934-35, the Income-tax Officer received information that the assessees had received large remittances from Siam (where they owned extensive business as well as considerable house property) which had escaped assessment. He consequently served a notice upon them under Section 34, of the Income-tax Act. In the return made by the assessees in pursuance of this notice, it was claimed that the information received by the Income-tax Officer was untrue and that they had received no remittances from Siam. Thereupon, notices under Sections 22(4) and 23(2) were issued to them. Holding that the explanations rendered by the assessees were unreliable and that they were deliberately withholding the accounts from the Department, a sum of Rs. 40,000 was added to the income returned by the assesses and a similar course was followed in the two subsequent years. Against this order the assessees appealed to the Assistant Commissioner, who remanded the case with the following remarks :

"In the interest of justice it is absolutely necessary that there should be some data and definite material on record for the finding that some profits were received into British India during the accounting period."

After remand, however, he upheld the action taken by the Income-tax Officer and dismissed the appeal. The only alteration that was introduced was in the status of the assessees. Instead of individuals, they were treated as a Hindu undivided family.

The assessees then made an application to the Commissioner under Section 66(2) and 33 of the Income-tax Act. On the 28th April, 1939, however, the Commissioner dismissed the application observing "that the assessees had failed to discharge the onus that lay on them, while on the other hand there was abundant circumstantial evidence to prove the existence of productive source of income in Bangkok and influx of money from there." Similar orders followed in the case of the assessments relating to 1935-36 and 1936-37.

The assessees then came to this Court for a mandamus to the Commissioner to state the case and refer it to this Court. Four questions were argued before the Bench that heard their applications. The Bench issued a mandamus to the Commissioner on the two questions extracted above, but decided the other two in Siam and that their annual income there amounted to Rs. 1,20,000.

As would appear from the questions formulated by this Court, it is assumed that the inquiries made behind the back of the assessees were never disclosed to them. In the statement drawn up by the Commissioner this assumption, however, is denied in so far as it is stated that the substance of the information gathered