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Petitioner: MAHENDRA BHAWANJI THAKAR VS Respondent: S. P. PANDEHonorable Justice KOTWALA. S. Bobde,S. V. Natu
1965 P T D 714
1965 P T D 714
[Bombay (India)]
Before S. P. Kotwal and H. R. Gokhale, JJ
MAHENDRA BHAWANJI THAKAR
Versus
S. P. PANDE AND OTHERS
Special Civil Application No. 57 of 1962, decided on 6th March 1963.
Re-assessment-Notice pursuant to order on appeal-Notice issued beyond eight years-Whether barred by limitation-Effect of amendments of S. 34-Indian Income-tax Act, 1922, Ss.34(1)(a), 34(3), proviso 1 & 34(4)-Indian Income-tax (Amendment) Act, 1959, S.4-[Brindaban Chandra Basak v. Income-tax Officer (1962) 46 I T R 14 dissented from].
A notice issued in January, 1962, under section 34(1)(a) pursuant to the order of the Appellate Assistant Commissioner was challenged by the assessee on the ground that it was time-barred. It was contended on behalf of the Department that limitation would not apply in view of the following provisions: (i) clause (ii) of the first proviso to section 34(3) ; (ii) subsection (4) of section 34; and (iii) section 4 of the Indian Income-tax (Amendment) Act, I of 1959:
Held, the second proviso to section 34(3) was declared void by the Supreme Court in Prashar v. Vasantsen Dwarkadas (1963) 49 I T R 1 (S C) and could not be invoked. Subsection (4) of section 34 applied to cases of escaped income falling under section 34(1)(a) where the income escaping assessment was or was likely to be rupees one lakh or more. In the present case the income escaping assessment was less than Rs. one lakh and consequently section 34(4) would not apply. Section 4 of the Amendment Act, I of 1959, saved from limitation only those notices issued "at any time before the commencement of this Act", i.e., March 13, 1959. As such section 4 of Act I of 1959 was also not applicable.
The notice was therefore barred by limitation.
Prashar v. Vasantsen Duarkadas (1963) 49 I T R 1 (S C) and Onkarmal Mehraj v. Commissioner of Income-tax (1960) 38 I T R 369 fol.
Brindaban Chandra Basak v. Income-tax Officer (1962) 46 I T R 14 dissented from.
Debi Dutt v. Belan A I R 1958 Cal. 398 distinguished.
Commissioner of Income-tax v. Sardar Lakhmir Singh (1963) 49 ITR 70 (SC) ref.
A. S. Bobde for Petitioner.
S. V. Natu for Respondents.
JUDGMENT
KOTWAL, J.-In this petition is challenged a notice under section 34 of the Indian Income-tax Act (Act XI of 1922) issued against the petitioner by the Income-tax Officer, Special Investigation Circle, Nagpur. Respondent No. 2 is the Appellate Assistant Commissioner of Income-tax, who passed an appellate order in consequence of which the impugned notice under section 34 of the Indian Income-tax Act came to be issued against the petitioner.
The circumstances under which the notice came to be issued against the petitioner may be briefly stated as follows. The petitioner's father, the late Bhawanji Naranji, was carrying on a mining business, principally at Nagpur. He passed away on August 25, 1956, and by a will bequeathed his movable and immovable properties to the petitioner. He originally hailed from Kutch but migrated to Nagpur for business and became a lessee from Government of manganese mines in and round about Nagpur district.
For the assessment, year 1947-48 he had made a return of his income and was duly assessed to income-tax as per Exh. I. By that order passed on December 7, 1948, he was assessed to a total income of Rs. 39,750. According to the petitioner, at the time that the assessment order was passed, he had produced all the evidence in his possession, including his account books and the Income-tax Officer was satisfied as to the genuineness of the transactions therein disclosed. It is unnecessary for the purpose of deciding this petition to refer to the several transactions which have been set forth by the petitioner in paragraphs 3 and 4 of his petition, though no doubt, they were referred to extensively in the arguments before us.
After the first assessment was made on December 7, 1948, the assessee, taking advantage of the voluntary disclosure scheme then announced by the Government of India, made a statement of disclosure in a petition filed by him on October 22, 1951. That disclosure was made voluntarily, and on the basis of that disclosure a revised assessment was made on March 1, 1952. By that revised assessment, the petitioner's father was assessed to a total income of Rs. 64,584. After that order was passed, a fresh notice was issued against the petitioner's father and the Income-tax Authorities purporting to act under section 34 of the Indian Income-tax Act as it then stood read with section 23(3) assessed him afresh for the same assessment year 194647. That assessment order is at Exh. 6, and according to that assessment order the total income to which the petitioner's father was assessed was Rs. 1,37,034.
When this assessment order was passed the Income-tax Officer found that certain income had been concealed and, therefore, ordered a notice to issue under section 28(3) of the Income-tax Act. Meanwhile, the petitioner's father appealed to the Appellate Assistant Commissioner of Income-tax and the Appellate Assistant Commissioner upon certain findings, to which we shall presently refer, reduced the total income by Rs. 58,400: At the same time he made observations in paragraphs 11 and 12 of his order to the effect that certain transactions in gold which the assessee had entered into had not been disclosed and required his explanation. The Appellate Assistant Commissioner, therefore, ordered that the assessee should be served with a notice in respect of that income which was from some undisclosed source.
It was pursuant to the observations made by the Appellate Assistant Commissioner of Income-tax in that order, dated September 29, 1961, that the notice impugned in the present petition came to be served. As we have already said, by that time, the petitioner's father having passed away, the notice came to be served upon the petitioner. The order of the Appellate Assistant Commissioner of Income-tax is at Exh. 8 and the notice issued pursuant to the direction therein is at Exh. 9. That notice was issued on January 5, 1962, and, as is not unusual with the notices issued by this Department, specifies nothing more than that it purports to have been issued under section 34 of the Indian Income-tax Act.
We shall presently show that section 34 is a fairly long section and it is not without some difficulty that even persons well versed in the law can understand its voluminous provisions and yet no particular clause of that section is even referred to in the notice beyond the fact that it was under section 34, and specifying only the obvious fact the officer considered that certain income had escaped assessment. 'The petitioner has challenged this notice, inter alia, on the ground that both when it was issued and served on the petitioner, the issuance of it was barred by limitation laid down in section 34 itself. That is the principal point with which we are concerned here.
Having set forth the facts resulting in the issuance of the notice impugned in this petition and in order to understand further developments in the case of the petitioner, we may here set forth the several provisions of the law and particularly the considerable number of amendments which section 34 underwent, and which have a material bearing upon the decision of this petition. In doing so we shall only quote the portions of section 34 which are relevant for the points taken in this petition. After all the amendments it had undergone, section 34, as it stood before the new Indian Income-tax Act (Act XLII of 1961) was passed, stood as follows:
"34. Income escaping assessment.-(1) If-
(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 22 and may proceed to assess or re-asses such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection:
Provided that the Income-tax Officer shall not issue a notice under clause (a) of subsection (1)-
(i) for-any year prior to the year ending on the 31st day of March 1941;
(ii) for any year, if eight years have elapsed after the expiry of that year, .unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March 1941;
(iii) for any year, unless he has recorded his reasons for doing so, and, in any case, falling under clause (ii), unless the `Central Board of Revenue, and, in any other case the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice:
Provided further that the Income-tax Officer shall not issue a notice under this subsection for any year, after the expiry of two years from that year, if the person on whom the assessment or re-assessment is to be made in pursuance of the notice is a person deemed to be the agent of a non-resident person under section 43:
Provided further that the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be.
Explanation.-Production before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section . . .
(3) No order of assessment or re-assessment, other than an order of assessment under section 23 to which clause (c) of subsection (1) of section 28 applies or an order of assessment or re-assessment in cases falling within clause (a) of subsection (1) or subsection (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable:
Provided that where a notice under clause (b) of subsection (1) has been issued within , the time therein limited, the assessment or re-assessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if at the time of the assessment or re-assessment the four years aforesaid have already elapsed:
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.
(4) A notice under clause (a) of subsection (1) may be issued at any time notwithstanding that at the time of the issue of the notice the period of eight years specified in that subsection before its amendment by clause (a) of section 18 of the Finance Act, 1956 (XVIII of 1956), had expired in respect of the year to which the notice relates."
As the section originally stood in the Indian Income-tax Act of 1922, before the process of amending that section commenced, it was a simple section and dealt with escaped assessment in any year or with the case where the income, profits or gains chargeable to income-tax had been assessed at too low a rate. By that section, the Income-tax Authorities were given powers within one year of the end of the assessment year, to issue a notice with a view to assessing or reassessing such income, profits or gains and to such proceedings all the other provisions of the Act applied. It may, be noticed that the period of limitation was one year and there was no distinction between the class of persons whose income, profits or gains had escaped assessment or the amount thereof.
It was by the Amending Act of 1939 that for the first time the distinction was introduced into section 34 between an assessee who had concealed the particulars of his income or deliberately furnished inaccurate particulars thereof and cases of other assessees. By the Amending Act of 1939, in the case of the former class, the period of limitation prescribed was eight years and in other cases, four years from the end of the assessment year. Moreover, a condition was laid down to the exercise of the power, namely, that "definite information" should have come into the possession of the Income-tax Officer who in consequence thereof discovered that income, profits or gains chargeable to income-tax had escaped assessment. There were other conditions laid down in the provisos with which we are here not concerned.
The third major change that the section underwent was when it was amended by virtue of section 8 of the Income-tax and Business Profits Tax Amendment Act, 1948 (Act XLVIII of 1948), which came into force from March 20, 1948. In the section as amended also a distinction was made between the assessees who had omitted or failed to make a return or to disclose fully and truly all material facts necessary for the assessment for that year and the assessees in whose cases no omission or failure had taken place. In the case of the first class of assessees, the Income-tax Officer could proceed against them, if he had "reason to believe", whereas in the case of the second class, .the jurisdiction of the Income-tax Officer was subject to a further condition, viz., if "the Income-tax Officer has in consequence of information in his possession reason to believe" that income, profits or gains had escaped assessment. In other words, there was an added requirement that the Income-tax Officer ought to have some information in his possession before he could proceed against the latter category.
The limitation for taking proceedings against the two categories remained the same as before, namely, that in the case of the first category the proceedings had to be taken within eight years and in the case of the second category within four years from the end of the assessment year. Three provisos to the section laid down further conditions for the exercise of the power to reopen assessment. These provisos to section 34, subsection (1), were completely removed and substituted by new provisos which we have reproduced above. The old provisos, as they stood in 1948, are material for our purposes. They ran as follows:
"Provided that-
(i) the Income-tax Officer shall not issue a notice under this subsection, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice;
(ii) the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be; and
(iii) where the assessment made or to be made is an assessment made or to be on a person deemed to be the agent of a non-resident person under section 43, this subsection shall have effect as if for the periods of eight years and four years a period of one year was substituted.
Further changes came to be incorporated by the Amending Act VIII of 1954, with effect from July 17, 1954. The principal change effected was that subsections (I-A) to (1-D) were added, but we are not concerned with these particular amendments.
What is more important for our purposes are the further amendments in 1956, by the Finance Act of 1956, which took effect from April 1, 1956. It was by that Finance Act that the three provisos to section 34, subsection (1) were added.
The second proviso is what applies in this case. Another change made was that Act I of 1959 added to section 34 the fourth subsection by virtue of section 2 of the Indian Income-tax (Amendment) Act, 1959. That is the subsection which we have already quoted.
At the same time, Act I of 1959 itself made a provision upon which reliance was placed in the present case on behalf of the Department. That provision is section 4 of the Amending Act I of 1959, which runs as follows:
"Saving of notices, assessments, etc., in certain cases.-No notice issued under clause (a) of subsection (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, re-assessment or settlement made or other proceedings taken in consequence of such notice shall be called in question in any Court, Tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or re-assessment was made, the time within which such notice should have been issued or the assessment or re-assessment should have been made under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (XVIII of 1956), had expired."
These are the material provisions of the law which fall to be considered in this case. We have already recounted the facts 'is to how the notice, dated January 5, 1962, came to be served upon the petitioner. Soon after the notice was served, the petitioner filed a return. on February 9, 1962, in which he took an objection that the notice was illegal as the issuance of that notice was barred by time under the provisions of section 34 (1)(a). The petitioner relies upon the provision of section 34(1) read with proviso (ii) thereof; whereas, on., behalf of the Department, the issuance of the notice under section 34 (1) (a) is sought to be justified upon several other provisions of law. Upon the arguments of counsel for the Department, the provisions relied upon to show that the notice was not time-barred are as follows:
(A) Clause (ii) of the first proviso to subsection (3) of section 34,
(B) subsection (4) of section 34, and (C) section 4 of the Amending Act, I of 1959.
We will presently consider each one of these grounds and whether the notice impugned in the present petition can be saved under any one or more of these grounds.
Before we proceed to discuss the applicability of the said provisions, however, we must state here certain admitted positions. It is not disputed by the Department in this case that the income, profits or gains escaping, so far as the petitioner is concerned, were not a lakh of rupees or more. They amount or are likely to amount to less than one lakh of rupees. This affects the applicability of the second proviso to section 34, subsection (1), Secondly, it is admitted that the sanction of the Central Board of Revenue was not obtained as required by proviso, (iii) to section 34 (1). Thirdly, that the impugned notice was issued under section 34 (1A) and no other subsection.
So far as applicability of section 34 (1) (a) before the Amending Act of 1959 is concerned, it was held in Debi Dutt v. Belan (A I R 1958 Cal. 398), that under section 34, as it was before the amendment by section 18 of the Finance Act of 1956, it was incumbent on the Income-tax Officer that in the cases falling under clause (a) subsection (1) of section 34, the notice should be issued within eight years from the end of the assessment year and that if once that period of eight years had elapsed then the assessee acquired a valuable right and the provisions of section 34 would not enable the Department to get over that right in favour of the assessee. It is said that it was expressly in consequence of this decision of the Calcutta High Court that the amendment of section 3 4 by Act I of 1959 was brought into effect. So far as the other requirements of section 34 (1) (a) are concerned, it is not in dispute before us that the notice impugned in the present petition was a notice issued under clause (a) It is also not in dispute that the notice pertains to escaped income which is not above one lakh of rupees nor is the Department's case that it was likely to be one lakh of rupees or more.
Upon these facts, therefore, it is clear that the provision of the second clause of the first proviso to the amended section 34 would be attracted in the instant case unless the Department is in a position to show that any other provision of the law saves the notice.
Now, as we have said, in justification of the notice issued under section 34 (1) (a) reference was made to three separate provisions of law and, therefore, we turn to examine each one of the provisions invoked. The first is the second proviso to subsection (3) of section 34, which says:
"Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment 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."
It is conceded on behalf of the petitioner that the order of the appellate officer, dated September 29, 1961, pursuant to which the impugned notice was issued was an order under section 31. Therefore, the proviso would be attracted.
But it has been argued on behalf of the petitioner that the proviso has recently been declared ultra vires of Article 14 of the Constitution by the Supreme Court of India and that the Department cannot any longer take advantage thereof.
No doubt, this is not a point upon which the petition was in terms founded. But the petitioner had taken an objection to the notice and when the second proviso was invoked by the Department, the petitioner had pleaded that the second proviso was not attracted in the instant case. That plea of course did not expressly raise any constitutional ground, but the question which has been raised is so fundamental and, in our opinion, the decision of the Supreme Court to which we shall presently refer is so clear that we cannot, on the mere technical ground that the point was not taken, decline to take notice of the judgment, nor ignore the point really decided by the Supreme Court. On the other hand, it seems to us that it is now merely a question of applying the law as declared by the Supreme Court.
The decision of the Supreme Court referred to is a recent decision in Prashar v. Vasantsen Dwarkadas ((1963) 49 I T R 1 (S C)). That was a decision which was given in an appeal upon a certificate of fitness granted by this Court against the-decision of a Division Bench of this Court in a Letters Patent Appeal in S. C. Prashar v. Vasantsen Dwarkadas ((1956) 29 I T R 857, 883, 886). The point upon which the Division Bench decided the case in this Court was undoubtedly a different point-not the constitutional point-but the question of the second proviso to subsection (3) of section 34 being ultra vires of Article 14 had been raised in the case before the learned Single Judge, against whose decision the Division Bench heard a Letters Patent Appeal. The learned Single Judge, Mr. Justice S. T. Desai, upheld that objection and himself held that the second proviso to section 34 (3) did infringe Article 14. What the learned 'Single Judge held will be found at page 200 of 58 Bombay Law Reporter:
"In my judgment the classification is based on real and substantial distinction. It is not arbitrary but rests on a…
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