Full Judgment Text & Judicial Ruling

1964 P T D 704

1964 P T D 704

[Supreme Court India]

Present: B. P. Sinha, C. J., K. Subba Rao, Raghubar Dayal, N. Rajagopala Ayyangar and J. R. Mudholkar, JJ

INCOME‑TAX OFFICER, A‑WARD, SITAPUR

Versus

MURLIDHAR BHAGWAN DAS HUNGERFORD INVESTMENT TRUST LTD.: (INTERVENER)

Civil Appeal No. 130 of 1962, decided on 29th January 1964.

Re‑assessment‑Limitation‑Exception‑Assessment or reassess ment made "in consequence of or to give effect to any finding or direction" in an order in appeal, reference or revision‑‑Finding in appeal in assessment for one year that income was assessable in earlier year‑Jurisdiction of Appellate Assistant Commissioner--‑ "Finding", "direction", meanings of‑Indian Income‑tax Act, 1922, Ss. 31 & 34 (3), prov. 2‑Constitution of India, Art. 14.

Certain interest income of Rs. 88,737 was brought to tax for the assessment year 1949‑50. The assessee appealed and the Appellate Assistant Commissioner held that the income was received in the previous accounting year and directed that the amount should be deleted from the assessment for the year 1949‑50 and included in the assessment for the year 1948‑49. Pursuant to this direction, the Income‑‑tax Officer initiated re‑assessment pro ceedings under section 34 (1) of the Income‑tax Act, 1922, in respect of the year 1948‑49 and served a notice on the assessee on December 5, 1957. The question was whether the second proviso to section 34 (3) applied and saved the notice which was served beyond the time prescribed by section 34 (1):

Held, by Sinha, C. J., Subba Rao and Rajagopala Ayyangar, JJ, (Raghubar Dayal and Mudholkar, .JJ. dissenting) (i) that under the Income‑tax Act, the year was the unit of assessment. The decision of an income‑tax Officer given in a particular year did not operate as res judicata in the matter of assessment of the subsequent years. The jurisdiction of the Tribunals in the hierarchy created by the Act was no higher than that of the Income‑tax Officer; it was also confined to the year of assessment.

(ii) That the jurisdiction of the Appellate Assistant Commissioner under section 31 was strictly confined to the assessment order of the particular year under appeal.

(iii) That the assessment it or re‑assessment made in con sequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33‑A, sec tion 33‑B, section 66 or section 66-A. must necessarily relate to the assessment of the year under appeal, revision or , reference, as the case might be.

(iv) That the second proviso to section 34 (3) only lifted the ban of limitation and did not enlarge the jurisdiction of the Tribunals under the relevant sections.

(v) That the expressions "finding" and "direction", in the second proviso to section 34 (3), meant respectively, a finding necessary for giving relief in respect of the assessment for the year in question, and a direction which the appellate or revisional authority, as the case may be, was empowered to give under the sections mentioned in that proviso. A "finding", therefore, could only be that which was necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner might hold, on the evidence, that the income shown by the assessee was not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context was that the income did not belong to the relevant year. He might incidentally find that the income belonged to another year, but that was not a finding necessary for the disposal of an appeal in respect of the year of assessment in question.

(vi) That the expression "any person" in the second proviso to section 34 (3) referred to one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal or revision.

(vii) That, therefore, the second proviso to section 34 (3) did not save the time‑limit prescribed under section 34 (1) in respect of an escaped assessment of a year other than that which was the subject‑matter of the appeal or revision, as the case might be, and accordingly the notice issued under section 34 (1) (a) in this case was barred by limitation and was not saved by the second proviso to section 34 (3).

Pt. Hazari Lal v. Income‑tax Officer, Kanpur (1960) 39 I T R 265 approved.

Lakshman Prakash v. Commissioner of Income‑tax (1963) 48 I T R 705; Khader Ismail v. Income‑tax Officer, Salem (1963) 47 I T R 16 and Simrathmull v. Additional Income‑tax Officer, Ootacamund (1959) 36 I T R 41 overruled on this point.

Per Raghubar Dayal and Mudholkar, JJ. (contra): When an appeal is before an appellate authority the whole matter is at large before it and, therefore, when a specific case is put before it by an assessee it has both the power as well as the duty to give its finding thereon. The ground given by the assessee for claiming a reduction or annulment of assessment may well be that the income upon which he has been assessed was not earned in the accounting period of the year to which the assess ment pertains but in respect of a specified earlier or later year. The appellate authority is entitled to go into the whole question and come to a finding one way or the other, that the income was earned in the year in which it was alleged by the assessee to have been earned, or in the year with respect to which he has been assessed by the Income‑tax Officer. To give a finding on this question would be obligatory upon the appellate authority and his duty to give a finding must necessarily be referable to the provisions of section 31 (3). The finding of a Tribunal is its conclusion on a point agitated before it, and for a conclusion to amount to a finding it is not necessary that it should be the final and ultimate conclusion. The word "finding" in the second proviso to section 34 (3) must be given a wide significance so as to include not only findings necessary for the disposal of the appeal but also findings which are incidental to it, and would include the Tribunal's conclusion as to whether the income in question in the appeal was not received during the year to which the appeal relates. If in pursuance of such a finding the Income‑tax Officer proceeds to investigate afresh as to in which year the income was received, the action of the Income‑tax Officer would still be the result of or the logical consequence of the finding arrived at for the purpose of the disposal of the appeal.

Per Raghubar Dayal and Mudholkar, JJ.: The second pro viso to section 34 (3) of the Income‑tax Act, 1922, which enables a notice to issue only to an assessee in respect of escaped income without limit of time on the ground that an appellate authority has made a finding or direction in the proceeding before it does not make a discrimination against such an assessee because it does not lift the bar of limitation with regard to other assessees similarly situate but with regard to whom no finding or direction has been given by an appellate authority. There is a real difference between assessees with respect to whose escaped income a judicial finding or direction is made by the appellate authority and those whose escaped income was not detected by the appellate authority and with respect to which no judicial finding or direction was made by such authority. The second proviso to section 34 (3) does not offend Article 14 of the Constitution of India.

Per Raghubar Dayal and Mudholkar, JJ.: The second proviso to section 34 (3) will also apply in a case where income escaping assessment is less than one lakh of rupees.

[Cases referred to].

K. N. Rajagopal Sastri Senior Advocate (R. N. Sachthey with him) for Appellant.

Bishan Narain Senior Advocate (G. C. Sharma and O. C. Mathur, J. B. Dadachanji and Ravinder Narain of J. B. Dadachanji & Co. with him) for Respondent.

A. V. Viswanatha Sastri Senior Advocate (D. N. Mukherjee and B. N. Ghosh with him for the Intervener.

JUDGMENT

SUBBA RAO, J.‑---This appeal by special leave raises the question of the construction of the proviso to subsection (3) of section 34 of the Indian Income‑tax Act, 1922, as amended by Act XXV of 1933, hereinafter called the Act.

The facts lie in a small compass and they are as follows: The respondent is a firm carrying on business in different lines. It was assessed to income‑tax under section 23 (4) of the Act for the assessment year 1949‑50 on the ground that the notice issued under subsections (2) and (4) of section 22 of the Act had not been complied with. On September 27, 1955, the said assessment was cancelled under section 27 of the Act. But before the said cancellation it was found that an interest income of Rs. 88,737 in the shape of U. P. Encumbered Estates Act Bond's received by him in discharge of the debts due from third parties had escaped assessment as the assessee failed to disclose the same. The Income‑tax Officer issued a notice under section 34 (1) (a) of the Act for the assessment year 1949‑50 on the ground that the said sum of Rs. 88,737 had escaped assessment in the said assessment year. After the assessment of that year was set aside under section 27 of the Act, the Income‑tax Officer ignoring the notice issued by him under section 34 (1) (a) of the Act, included that amount in the fresh assessment made by him. The assessee preferred an appeal against that order and that was disposed of by the Appellate Assistant Commissioner on December 4, 1957. The Appellate Assistant Commissioner in his order held that the bonds were received by the assessee in the previous accounting year and, therefore, directed that the sum representing interest on the bonds should be deleted from the assessment for the year ending 1949‑50 and included in the assessment for the year ending 1948‑49. Pursuant to the direction given by the Appellate Assistant Commissioner the Income‑tax Officer initiated proceedings under section 34 (1) of the Act in respect of the assessment year 1948‑49. The notice issued under that section was served on the respondent on December 5, 1957. The assessee filed a petition under Article 226 of the Constitution in the High Court of Judi cature at Allahabad for quashing the said proceedings. mainly on the ground that the proceedings were initiated beyond the tine prescribed by section 34 of the Act. The High Court accepted the contention, and quashed the proceedings initiated by the Income‑tax Officer. Hence the appeal.

The proceedings would be in time, if the second proviso to section 34 (3) of the Act could be invoked. The question, therefore, is what is the true meaning of the terms of the second proviso to section 34 (3) of the Act. It reads:

"Provided further that nothing contained in this section limiting the time within which any . action may be taken, or any order, assessment or re‑assessment may be made, shall apply to a re‑assessment made under section 27 or to an assessment or re‑assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33‑A, section 33‑B, section 66 or section 66‑A."

Prima facie this proviso lifts the ban of limitation imposed by the other provisions of the section in the matter of taking an action in respect of or making an order of assessment or re‑assessment falling within the scope of the said proviso. The scope of the proviso is confined to an assessment or re‑assessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under section 31. i.e., in an appeal before the Appellate Assistant Commissioner, under section 33, i.e., in an appeal before the Tribunal, under section 33‑A, i.e., in a revision before the Commissioner, under section 33‑B, i.e., in a revision before the Commissioner against an order of the Income‑tax Officer, and under sections 66 and 66‑A, i.e., in a reference to the High Court and appeal against the High Court's order to the Supreme Court. Learned counsel for the appellant contends that the scope of the proviso is only confined to the assessment of the year that is the subject‑matter of the appeal or the revision, as the case may be. Learned counsel for the Department argues that the comprehensive phraseology used in the proviso takes in its broad sweep any finding given by the appropriate authority necessary for the disposal of the appeal or the revision, as the case may be, and to any direction given by the said authority to effectuate its finding and that the said finding or direction may be in respect of any year or any person. A s the phraseology used in the proviso is not clear or unambiguous, the question raised cannot be satisfactorily resolved without having, a precise appreciation of a brief history of section 34‑ of the Act culminating in the enactment of the proviso in the present form.

Under section 3 of the Act, income‑tax for any year shall he charged in respect of the total income of the previous year of every assessee. Notice under section 22 calling for return of income is the first step m the assessment proceedings. Two types of notices are mentioned in that section, namely, (i) the public notice and (ii! the individual notice. The public notice shall be issued on or before the 1st May of each year and the individual notice may be issued at any time in the course of the assessment year. Income‑tax proceedings, therefore, for a particular assess ment year have to be initiated in the course of that year. But there may be cases of escaped assessment or under‑assessment. Section 34 empowers the Income‑tax Officer to take proceedings tinder that section both in respect of concealed income and also in bona fide cases where, the income has escaped assessment or full assessment. Section 34 (1) (a) provides for the initiation of assessment proceedings in respect of concealed income and section 34 (1) (b) for other escaped income. Section 34 (1) has been amended from time to time. Under the said section, as it originally stood, the Income‑tax Officer was empowered to initiate proceedings at any time within one year of the end of the. year in respect whereof the income escaped assessment. By Act VII of 1939, that section was amended and "eight years" limitation from the end of the year was prescribed in respect of concealed income and a limitation of four years for other escaped income. Under Act XLVIII of 1948, the same periods of limita tion were retained, but certain conditions were imposed. By the Finance Act of 1956, it vas enacted that in the case of concealed income the proceedings could be initiated at any time within 4 years of the end of the relevant assessment year. Though no period of limitation was prescribed in respect of concealed income, three conditions were imposed, namely, (i) that an Income‑tax Officer shall not issue a notice for and year prior to the year ending on March 31. 1941, (ii) that ii the escaped income was less than rupees one lake; he shall not. issue a notice if eight years have elapsed after the expiry of the relevant assessment year, and (iii) that unless he has recorded his reasons and unless the Central Board of Revenue in any case falling under clause (ii) of the proviso and, in any other case, the Commis sioner is satisfied that for such reasons as recorded it is a fit case for the issue of a notice.

Before 1939, there was no period of limitation for completing the assessment once it had been initiated within the prescribed period of limitation. But Act VII of 1939 for the first time intro duced clause (2) in section 34 whereunder "no order of assessment under section 23 or of assessment or re‑assessment under sub section (1) of this section shall be made after the expiry, in any case to which clause (c) of subsection (1) of section 28 applies, of eight years, and in any other case, of four years from the end of the year in which the income, profits or gains were first assessable." Section 28 (1) (c) dealt with a case of an assessee concealing the particulars of his income or deliberately furnishing inaccurate particulars of his income. Act XXIII of 1941 inserted a proviso ‑in section 34 (2) providing that "nothing contained in this subsection shall apply to a re‑assessment made in pursuance of an order under section 31, section 33, section 66 or sec tion 66‑A", i e., provisions relating to appeals, revisions and references: that is to say, if the assessment made by the Income tax Officer was set aside and a re‑assessment was directed to be made, the said periods of limitation would not apply to such re‑assessment. Act XLVIII of 1948 introduced subsection (3) in section 34 in substitution of subsection (2) thereof. Under that subsection the period of limitation prescribed by subsection (2) was retained, and the proviso to section 34 (2) before the amendment was made the second proviso, with some modifi cations, to the amended subsection (3). While the scope of the previous proviso was confined only to the completion of reassess ment proceedings, the scope of the amended proviso is much wider in that it exempts the subject‑matter of that proviso from the operation of the period of limitation prescribed by the section; that is to say, it gives full scope to the operation of the substantive part of the section unhampered by the periods of limitation prescribed by subsections (1), (2) and (3) of section 34 of the Act. While the previous proviso lifted the ban only in regard to the period of limitation prescribed for the completion of the assessment, the new proviso lifted the ban even in respect of the initiation of proceedings under section 34 (1) of the Act. It follows that if a matter fell within the terms of the proviso, there would be no period of limitation for initiating an action or making an assessment or re‑assessment in respect of that matter. Briefly stated, the said proviso is a proviso to the entire section 34. We shall consider the scope of the proviso at a later stage of our judgment. Then came the Finance Act of 1956. It amended section 34 (1) and introduced a proviso to the said subsection, which we have noticed earlier. That proviso, while removing the period of limitation in respect of concealed income, imposed some condition in respect thereof, but the four years period of limitation in respect of other escaped income was retained. We are not ,concerned in this appeal with the sub sequent amendments.

The history of the section gives us the following background to the proviso under consideration. Broadly stated, under section 34, as it existed in 1956, (i) there was no time‑limit for initiating proceedings under section 34 (1) in respect of concealed income, but such initiation could be made only subject to the conditions laid down in the proviso to section 34 (1): (ii) in the case of other escaped income, the proceedings could not be initiated after the expiry of four years from the end of the relevant assessment year, (iii) the assessment proceedings once commenced shall be completed within the period of limitation prescribed under section 34 (3); and (iv) to a case to which the proviso to section 34 (3) applies, there is no period of limitation either for initiating the proceedings under section 34 or for completing the assessment' commenced either under section 23 or under section 34 (1).

With this background let us give a closer look to the relevant terms of the proviso. The first part of the proviso released the operation of the proviso from the restrictions imposed by section 34 only in respect of the time‑limit within which any action may be taken or any order of assessment or re‑assessment may be made. It means that the proviso continues to be subject to the other restrictions imposed under the section and it cannot override the said provisions in that regard. Under the proviso, the period of limitation will not apply to a re‑assessment made under section 27 or to an assessment or re‑assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33‑B, section 66 or section 66‑A of the Act. It was not contended, nor was it possible to contend, that by reason of the reference to the said provisions the powers and jurisdiction conferred on the respective authorities, tribunals or Courts referred to therein were enlarged or modified by a reference in the proviso or that the proviso could be read or construed as amending those sections conferring on those bodies wider or different powers or jurisdiction. Learned counsel for the department expressly disclaimed any such submission. There fore, the scope of the proviso cannot ordinarily exceed the scope of the jurisdiction conferred on an authority under the said provi sions. It is not, and cannot be, disputed that under the Income‑tax Act, year is the unit of assessment. The Judicial Committee in Commissioner of Income‑tax v. S. M. Chitnavis ((1932) L R 59 I A 290, 297) pointed out:

"For the purpose of computing the yearly profits and gains, each year is a separate self‑contained period of time, in regard to which profits earned or losses sustained before its commence ment are irrelevant."

This Court in Kikabhai Premchand v. Commissioner of Income‑tax ((1953) 24 I T R 506, 508) accepted this legal position when it said:

". . . for income‑tax purposes, each year is a self contained accounting period and we can only take into consideration income, profits and gains made in that year and are not concerned with potential profits which may be made in another year any more than we are with losses which may occur in the future."

Indeed, the decision of an Income‑tax Officer given in a particular year does not operate as res judicata in the matter of assessment of the subsequent years. The jurisdiction of the Tribunals in the hierarchy created by the Act is no higher than that of the Income‑tax Officer. It is also confined to the year of assessment. Under section 27 of the Act, the Income‑tax Officer cancels the best judgment assessments made by him if the assessee shows that he was prevented by sufficient cause from making the return under section 22 of the Act. Section 31 prescribes the mode of disposal by an Appellate Assistant Commissioner of an appeal preferred to him: the appeal before him is certainly confined to an assessment year; after hearing the appeal, he can either confirm, reduce, enhance or annul the assessment; he can set aside the assessment and direct the Income‑tax Officer to make a fresh assessment. The various sub sections of that section describe in detail the orders or directions that can be made or issued by him in respect of various matters; but no power is conferred on him to make an order or issue directions in respect of an assessment of a year which was not the subject‑matter of the appeal. It may, therefore, be held, on a construction of the provisions of section 31, that the jurisdiction of the Appellate Assistant Commissioner is strictly confined to the assessment orders of a particular year under appeal. Section 33, inter alia, deals with an appeal to the Tribunal against the order of the Appellate Assistant Commis sioner under section 31, and section 33‑B confers power of revision on the Commissioner against an order of the Income‑tax Officer. The jurisdiction of the Appellate Tribunal or the Revisional Tribunal, as the provisions indicate, is confined only to the subject‑matter which is under appeal or revision. The jurisdiction of the High Court or the Supreme Court under section 66 or section 66‑B, as the case may be, is far more limited and it is confined only to the questions referred to them. Obviously the questions referred by the Tribunal cannot exceed its jurisdiction. It is, therefore, manifest that assessment or re‑assessment made under the said sections or pursuant to the orders or directions made thereunder must necessarily relate to the assessment of the year under review, revision or appeal, as the case may be. It is important to remember that the proviso does not confer any fresh power upon the Income‑tax Officer to make assessments in respect of escaped incomes without any time‑limit. It only lifts the ban of limitation in respect of certain assessments made under certain provisions of the Act and the lifting of the ban cannot be so construed as to increase the jurisdiction of the Tribunals under the relevant section. The lifting of the ban was only to give effect to the' orders that may be made by the appellate, revisional or reviewing Tribunal within the scope of its jurisdiction. If the intention was to remove the period of limitation in respect of any assessment against any person, the proviso would not have been added as a proviso to subsection (3) of section 34, which deals…

Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.

Related Legal Research & Directories

• Browse all judgments from Supreme Court of Pakistan
• Search Pakistani statutes: Constitution of Pakistan 1973, PPC, CrPC, CPC & Family Laws
• Analyze this case with Al Wakeelo AI Legal Assistant