TMI Blog1970 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had claimed expenses towards the upkeep and maintenance of immature rubber plants, the agricultural income taxed having been derived from a rubber plantation. The Agricultural Income-tax Officer disallowed, out of such expenses claimed by the assessee, a sum of Rs. 2,500 for the year 1959-60, and a sum of Rs. 3,500 for the year 1960-61. Thereafter, on March 13, 1963 the Commissioner of Agricultural Income-tax issued a notice (appendix A to the statement of the case) under section 34 of the Agricultural Income-tax Act, 1950 (hereinafter referred to as "the Act"), proposing to revise suo motu, the assessments for the years 1959-60 and 1960-61. He stated the reason for the proposal to be that the computation of the expenses pertaining to immature rubber plants was too low and that it had resulted in income having "escaped assessment". This notice was issued to the widow of the above-said Shri Kochuvareed who had died in the meantime. The widow then moved this court by O. P. No. 877 of 1963 for quashing the notice and one of us allowed the petition by his judgment dated September 4, 1964. However, in appeal by the department, it was held that the question must first be deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that we have read. It is necessary to refer to sections 34, 35 and 36 of the Act : Section 34 : " Revision.-(1) The Commissioner may, of his own motion or on application by an assessee, call for the record of any proceeding under this Act which has been taken by any authority subordinate to him and may make such enquiry or cause such enquiry to be made and, subject to the provisions of this Act, may pass such orders thereon as he thinks fit: Provided that he shall not pass any order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being, heard: Provided further that an order passed declining to interfere shall not be deemed to be an order prejudicial to the assessee. (2) Any order passed under sub-section (1) shall be final subject to any reference that may be made to the High Court under section 60." Section 35: "Income escaping assessment.-(1) If for any reason agricultural income changeable to tax under this Act has escaped assessment in any finacial year or has been assessed at too low a rate, the Agricultural Income-tax Officer may, at any time within three years, of the end of that year serve on the person liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee: Provided that no such rectification shall be made having the effect of enhancing an assessment or reducing a refund unless the appellate or revisional authority or the Agricultural Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard. (2) Where any such rectification has the effect of reducing the assessment, the Agricultural Income-tax Officer shall make any refund which may be due to such assessee. (3) Where any such rectification has the effect of enhancing the assessment or reducing a refund, the Agricultural Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be issued under section 30 and the provisions of this Act shall apply accordingly." Before proceeding to interpret these provisions of the Act, it is necessary to dispose of two contentions raised by the department. The first of these is that income had not escaped assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a High Court has correctly pointed out that the preponderance of opinion is in favour of holding that such income can be said to have escaped assessment. The High Court in deciding that the Agricultural Income-tax Officer had jurisdiction to revise his earlier assessment referred to the opening words of section 26, namely, 'for any reason' and observed that it was not necessary to give a restricted meaning to the word 'escaped', and that if an item of income was not charged to tax due to a mistake or oversight on the part of the taxing authorities, that item could well come within the term 'escaped'. According to the High Court, the phrase 'escaped assessment' was not confined to cases where there had been an inadvertent omission, but in view of the latter part of the section 'where income ...... has been assessed at too low a rate', included a case where there was a deliberate action." Their Lordships then referred to the contentions of counsel for the assessee and the Attorney-General who appeared for the revenue and to the decisions relied on by them. Two of the decisions--one relied on by the Attorney-General in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer changing his mind. He contends that there was at least some reformation which had come to the Income-tax Officer, on which his subsequent action could be rested, The learned counsel argued that Gajendragadkar J., had expressly left the question open, where there was no information but the Income-tax Officer merely changed his mind without any information from an external source. Reference in this connection is made to the following observations in the judgment : ' It appears that, in construing the scope and effect of the provisions of section 34, the High Courts have had occasion to decide whether it would be open to the Income-tax Officer to take action under section 34 on the ground that he thinks that his original decision in making the order of assessment was wrong without any fresh information from an external source or whether the successor of the Income-tax Officer can act under section 34 on the ground that the order of assessment passed by his predecessor was erroneous, and divergent views have been expressed on this point. Mr. Rajagopala Sastri, for the respondent, suggested that under the provisions of section 34 as amended in 1948, it would be open to the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context in which they were made and applying them to the facts, where they cannot. The judgment of Gajendragadkar J. has dealt with the matter, if we may say so respectfully, very adequately and we do not consider it necessary to cover the same ground again. The preponderance of opinion in the High Courts is also to accept the contrary view, and we think rightly." Thereafter, reference was made to the other decision of the Supreme Court in Chatturam Horilram Ltd. v. Commissioner of Income-tax. The decision was distinguished and their Lordships quoted in extenso a passage from the judgment of Gajendragadkar in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, distinguishing the decision in Chatturam Horilram Ltd. v. Commissioner of Income-tax. Then their Lordships concluded : "For the reasons we have given, we are of opinion that the Agricultural Income-tax Officer was competent under section 26 of the Act to assess an item of income which he had omitted to tax earlier, even though in the return that income was included and the Agricultural Income-tax Officer then thought that it was exempt. The answer given by the High Court was therefore correct." This decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (f) of section 24(2). That rule enables the assessing authority within the prescribed period to determine to the best of its judgment the turnover of a 'dealer' which has escaped assessment. Section 15(1) is meant for interference when there is some illegality or impropriety or irregularity in the order of the assessing authority which has to be set right. It can hardly be said to cover those cases in which the turnover has escaped assessment." The second contention that has been raised by counsel on behalf of the revenue is that in the revision order of the Commissioner dated August 23, 1967, in Revision Cases Nos. 27 and 28 of 1963-64 which is at page 9 of the paper book, a definite finding has been entered that there is no "escape of income" and so it is urged that this is not a case of "escaped income" which can fall under section 35 of the Act and that in cases where a definite finding has been entered on a question of fact, unless a specific question has been referred, this court cannot go behind the finding of fact. Counsel relied on the ruling of the Supreme Court in India Cements Ltd. v. Commissioner of Income-tax, in support of this contention. We are unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome to attract section 35 depends on the interpretation to be placed on section 35 (and as we have seen it has to be held that the section is attracted (Maharajadhiraj Sir Kameshwer Singh v. State of Bihar)) and this is only an aspect of the question referred to us. As has been ruled by the Supreme Court "it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question" (See the ruling in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd.). Whether there is any escape of income and whether section 35 of the Act is attracted are questions arising from the order of the Commissioner and are covered by the question referred. We, therefore, negative this contention as well. The question then is whether the power of revision conferred on the Commissioner by section 34 of the Act can be utilised for the purpose of reassessment of income that escaped assessment. The question is important in view of the fact that the power of revision under section 34 of the Act can be exercised at any time by the Commissioner as there is no period within which it should be done, the Act having provided no such period; whereas, if the Agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Chief justice of the Cochin High Court in the judgment in Commissioner of Income-tax v. Hajee Ibrahim Kassam : "The principle which emerges from the case law examined above is that the rather indefinite language in section 43(2) according to which the Commissioner can pass orders..... should be understood as being limited by three conditions, viz., (1) that he cannot himself passed an order which according to the Act has to be passed by another officer though he can give directions in that behalf consistently with the provisions of the Act, (2) that in making his order under the section he cannot himself override, nor can he direct or allow subordinate officers to override any of those provisions, and (3) that subject as aforesaid, he can exercise his powers of revision by calling for the record of any proceedings which has been taken by any authority subordinate to himself and correcting errors if any committed by him, whether the result of such action be an enhancement or a reduction." The sections therein considered were sections 43 and 44 of the Cochin Income-tax Act, 1117 M.E., which are in pari material as far as the relevant aspects are concerned with the sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorised, in the exercise of his power of revision under section 43, to enhance the assessable income. The question referred to the court was: "Whether, under section 43 of the Cochin Income-tax Act, VI of 1117 M.E., the Commissioner can in the light of fresh evidence which comes to his notice, enhance an assessment made under section 41 by the appellate authority? " and the conclusion reached is as follows: "In the present case the Commissioner has made an order under section 43 which can only be made under section 44 and only by the Deputy Commissioner who under section 8(2) had been empowered to exercise the powers of the Income-tax Officer. I am of opinion that that order is one which he is not entitled to pass. I would, therefore, answer the question referred in the negative. The Kerala High Court has taken the same view after an elaborate discussion of the case law on the subject in Suppan Chettiar v. Commmissioner of Agricultural Income-tax. The facts of the case which gave rise to the decision are these. One Suppan Chettiar had donated some of his properties to his minor sons. For the assessment of Suppan Chettiar for the years 1951-52 and 1952-53 the income from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to exercise his revisional power for giving a direction to the Agricultural Income-tax Officer to reopen an assessment and make a reassessment after the lapse of the period prescribed for issuing the notice under that section." A Full Bench of the Madras High Court consisting of CouttsTrotter C.J. and Beasley and Srinivasa Aiyangar JJ. has also come to the same conclusion in the decision in Commissioner of Income-tax v. Sheik Abdul Kadir Maracayar, on the following facts. A portion of the income of the assessee had escaped assessment for 1923-24 and the proceedings taken by the Income-tax Officer under section 34 of the Indian Income-tax Act, 1922, to reassess were set aside in appeal on the ground that there was no proper service of notice as required by section 34. Thereafter, the Commissioner purported to take action under section 33 (the revision section) stating that :.... "as the Income-tax Officer really commenced proceedings, I shall, under section 33, take up those proceedings at the stage at which it was left and proceed to reassess the parties by virtue of the powers vested in me of revision under section 33 of the Act." It is observed in the judgment of the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o whether, in the absence of the service of notice within the year as indicated in section 34, it is open to the Commissioner to serve another notice after the lapse of the year and seek to reassess the parties. It seems to me, having regard to the scheme of the Act, that the condition precedent for reassessment being the service of the notice as indicated in section 34, and such service of notice not having been effected according to the findings, the Commissioner has no right to initiate further or fresh proceedings for reassessment. The power of revision given in section 33 is a power merely of revision and such powers cannot be regarded as being larger than the powers of a court of appeal. It, therefore, follows that so long as the Commissioner did not in revision seek to set aside the finding of the order of the Assistant Commissioner with reference to the service of notice, it follows that we must proceed on the footing that there had been no valid service of notice within the time under section 34 of the Act and that, therefore, the condition precedent for reassessment has not been satisfied or complied with." It was held that the Commissioner could not act in the above ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that under section 33 he can call for the papers before the Income-tax Officer, at any rate within the time limited by section 34, and he can then of his own motion enhance the assessment on the ground that income has escaped assessment, or been assessed at too low a rate ...... At the time when the Commissioner took action under section 33 the assessment was that which had been arrived at as a result of the Appellate Assistant Commissioner's order, and, in my judgment, the Commissioner had no power to increase that amount on the ground that income had escaped assessment, or been assessed at too low a figure, except by directing the Income-tax Officer to proceed under section 34. That view is in accordance with the views expressed by two High Courts, the Madras High Court in Sheik Abdul Kadir v. Commissioner of Income-tax and by the Rangoon High Court in Commissioner of Income-tax v. Ved Nath Singh ... Section 33 only enables the Commissioner to make an order subject to the provisions of the Act, and I think the decision of the Privy Council to which we have been referred, in Commissioner of Income-tax v. Khemchand Ramdas, supports the view that those words prevent the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 33 to prevent such an order being made. The Commissioner is doing something which the Assistant Commissioner might do in appeal within the time limited under section 31. But, to my mind, one cannot ignore the effect of the Commissioner's order. As I have already pointed out, it is obvious that the order is intended to result in the assessment as passed by the Assistant Commissioner being enhanced. If that is done, then the Commissioner has done exactly what the Privy Council, and this court in the cases I have referred to, decided that he could not do, and he has in fact caused the assessment to be enhanced without regard, and contrary to the provisions of section 34. In my opinion, he cannot do that." All these High Courts have referred to the Privy Council decision in Khemchand's case and it will be useful to extract another passage from that decision : "The Commissioner's power under section 33 can only be exercised subject to the provisions of the Act of which the provisions in sections 34 and 35 are in this respect of the greatest importance. Those sections are or were at the material time as follows: '34. If for any reason income, profits or gains chargeable to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The sections of the Indian Income-tax Act extracted in the passage just quoted, it will be seen, are, in material respects, identically worded as sections 35 and 36 of the Act. The effect of the additions to section 35 of the Act in the form of the second proviso to sub-section (1) of section 35 and the whole of sub-section (2) of that section corresponding to which there are no provisions in section 34 of the Indian Income-tax Act, 1922, when the above decisions were rendered, has now to be considered. The second proviso to sub-section (1) does not affect the question arising for decision. It is only an additional restriction to that provided by sub-section (1) and provides that the Income-tax Officer shall not issue the notice contemplated by the sub-section unless he has recorded his reasons for doing so. Sub-section (2) provides that no assessment under section 18 or assessment or reassessment under sub-section (1) of section 35 shall be made after the expiry of three years from the end of the year in which the agricultural income was first assessable. The first proviso to sub-section (2) is an exception to this restriction and enables an assessment order being made even b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer is concerned, if the Commissioner had, acting under section 34 subject to the provisions of the Act, given a proper and valid direction. The action of the Commissioner must be subject to the provisions of the Act; any direction he gives must be before the expiry of the time within which a notice can be issued by the Agricultural Income-tax Officer under section 35 of the Act. Only such a direction will be a valid direction and it has been emphasised in the decisions already referred to that the Commissioner cannot give any valid direction after the expiry of the period. This is clear from all the decisions and there are specific statements in the Full Bench decision of the Cochin High Court and the decisions of the Rangoon and Bombay High Courts to the effect that the direction by the Commissioner must be within the period within which notice should be issued by the assessing authority. The passage in the Cochin decision is in these terms: "That he (Commissioner) cannot himself pass an order which according to the Act has to be passed by another officer, though he can give directions in that behalf consistently with the provisions of the Act, that in making his o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to the second, before March 31, 1964. Though the order dated August 23, 1967, purports to set aside the assessment also and directs a fresh disposal, it has to be understood as containing a direction to take action under section 35 to assess or reassess income that had escaped assessment. This should have been done if at all within the dates mentioned above. The Commissioner has, therefore, acted without jurisdiction and the question referred to us has to be answered in the negative, that is, in favour of the assessee and against the department. We do so. In the circumstances of the case, we direct the parties to bear their costs. RAMAN NAIR C.J.- Left to my own resources, uninfluenced by the authorities, I would have been disposed to say this. Every case of income escaping assessment--and in the light of the decision of the Supreme Court in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar, I concede that the present case is such a case--is necessarily a case of error in the original assessment, whether this be due to the assessing authority, namely, the Income-tax Officer, not having all the materials before him or to his reaching a wrong conclusion on the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is none in section 35 or elsewhere. But the commissioner can act only subject to the provisions of the Act; he cannot direct the Income-tax Officer to act in disregard of the provisions of section 35. Therefore, if his direction is to be effective, it must be given well within the time allowed to the Income-tax Officer by section 35; if the direction requires the Income-tax Officer to do what he cannot do under section 35, then the direction would be bad and liable to be quashed; and that is what the authorities mean when they say that the Commissioner must act within the time allowed by section 35. It is here that the second proviso to sub-section (2) of section 35 (newly introduced by way of amendment) comes in. It says that the limitations of time imposed by the section for action by the Income-tax Officer shall not apply to an assessment or reassessment made in compliance with the direction under section 35 (sic 34). (Thus the proviso in terms contemplates a direction under section 34 that action be taken under section 35; and that concludes any argument based on the Supreme Court decisions under the sales tax statutes, which contain no such provision, that such a direction ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
