TMI Blog1966 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... fourth question is to the following effect: Whether, on the facts and in the circumstances of the case, the cash credits and fixed deposits in question were assessable for the assessment year 1946-47? These questions of law arose out of the order of the Appellate Tribunal dated the 15th December, 1959, in Income-tax Appeal No. 3776 of 1958-59. The facts are stated below. The assessment year under reference is the year 1946-47 and the corresponding year of account is 2001/2002, Bijoya Dashami, equivalent to the period from 27th September, 1944, to 15th October, 1945. The assessee at all material times was a firm of six partners whose names and shares are indicated below: (1) Nandalal Bhowalka ... 3 annas (2) Giridharilal Bhowalka ... 3 (3) Shyamlal Bhowalka ... 2 (4) Bajranglal Bhowalka ... 2 (5) Rautmal Nowpani ... 3 (6) Rameswarlal Nowpani ... 3 The firm had been carrying on business as dealers and commission agents in jut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of S.P. Agarwala. The reassessment was completed on the 28th February, 1956. On appeal, the Appellate Assistant Commissioner held that there was evidence to show that out of ₹ 5,00,000, deposited in the Jamnagar Branch of the Central Bank in the name of Biswanath Bhowalka alias Biswanath Gupta, a sum of ₹ 50,000 was in deposit with the Comilla Bank on or about 25th March, 1942, and that this sum of ₹ 50,000 could not, therefore, be the income of the accounting year under consideration from September 27, 1944, to October 15, 1945. The addition in this respect was, therefore, reduced by the Appellate Assistant Commissioner from ₹ 5,00,000 to ₹ 4,50,000. In the second appeal filed by the assessee the Tribunal concurred with the Appellate Assistant Commissioner that the fixed deposit of ₹ 5,00,000, in the name of Raghunath Prosad Nowpani, represented the secret profits of the assessee. As to the fixed deposit of Rs, 5,00,000, in the nine of Biswanath, the Tribunal held that out of ₹ 5,00,000, a sum of ₹ 4,50,000 was the secret profit of the assessee. As to the fixed deposit of ₹ 5,00,000, in the name of S.P. Agarwala, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication. In dealing with the contention raised against the validity of section (1A) of section 34, the Supreme Court observed as follows in Rashid's case([1964] 52 I.T.R. 355, 362-63 (S.C.)): The other contention raised against the validity of section 34(1A) is based on the fact that at the relevant time, section 34(1)(a) dealt with cases similar to those falling under section 34(1A), and yet, whereas in the former category of cases a period of limitation was prescribed as 8 years there is no such limitation in regard to the latter, and that, it is urged, means unconstitutional discrimination. We are not impressed by this argument. It is true that in a broad sense both section 34(1)(a) and section 34(1A) deal with cases of income which has escaped assessment, and, in that sense, the assessees against whom steps are taken in respect of income which has escaped assessment can be said to form a similar class; but the similarity between the two categories disappears when we remember that section 34(1A) is intended to deal with the assessees whose income has escaped assessment during a specified period between September 1, 1939, and March 31, 1946. It is well- known that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court has clearly stated in Rashid's case* that they form a distinct class and that there is a rational basis for this classification, which has an intelligible connection with the object intended to be achieved by the statute. Sub-section (1A) of section 34, as has been pointed out by the Supreme Court in Rashid's case [1964] 52 I.T.R. 355 (S.C.) , is intended to deal with the assessees belonging to this class. The assessee in the instant case undoubtedly belongs to this class and the proceeding for reassessment could have been initiated under sub-section (1A) of section 34. But the escaped income of the assessee has in fact been reassessed under clause (a) of sub-section (1) of section 34. Can it be said that the reassessment is void? Prior to the introduction of sub-section (1A) under section 34, the Income-tax Officer was competent to initiate proceedings against the assessee in respect of his income that has escaped assessment during the war period under clause (a) of sub-section (1) of section 34. The contention of the assessee is that the authority of the Income-tax Officer to take action under clause (a) of sub-section (1) of section 34 came to an end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been added to the income as per the original assessment order (reduced in appeal). The total income has been ascertained without disturbing the original assessment and the total income so found has been assessed under sections 23(3) and 55. So, strictly speaking, the original assessment has not been reopened; only the rate of tax has been readjusted as there has been an increase in the total income. According to the learned counsel for the assessee, two laws have been enacted by the legislature for assessing or reassessing an escaped income-one for assessing or reassessing the escaped income of war profiteers and the other for assessing the escaped income of persons other than the war profiteers. In other words, according to him, sub-section (1A) of section 34 is meant for war profiteers and clause (a) of sub-section (1) of section 34 is meant for the rest. He, therefore, submits that the class within the ambit of sub-section (1A) of section 34 must necessarily be different from the class within the ambit of clause (a) of sub-section (1) of section 34. Hence, it is suggested by him that if a member belonging to one class is sought to be assessed or reassessed according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39, and ending on 31st day of March, 1946; (2) that the income, profits or gains which had so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more; (3) that the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied with such reasons recorded that it is a fit case to issue such notice; (4) that no such notice shall be issued after 31st day of March, 1956. It is, therefore, suggested that if an assessee falling within the ambit of sub-section (1A) of section 34 is assessed or reassessed without satisfying all the four conditions set out above, the assessment or reassessment must be held to be without jurisdiction and hence void and inoperative in law. In the instant case, though the assessee is a member of the class contemplated by sub-section (1A) of section 34, all the four conditions quoted above have not been satisfied. Moreover, the assessment has not been made with the sanction of the Central Board of Revenue. The learned counsel for the assessee, therefore, concludes that the assessment under clause (a) of sub- s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the scope of sub-section (1A) of section 34. Hence the question before the Gujarat High Court was not the same as the question before us. The Gujarat High Court, however, considered the legal position prior to the amendment of section 34 by the Finance Act, 1956. It is for these reasons that the decision of the Gujarat High Court calls for careful consideration. The learned judges of that High Court considered the effect of the amendment of 17th July, 1954. Their Lordships pointed out that the effect of the amendment of 17th July, 1954, was that with effect from that date there were two sub-sections in section 34 empowering the Income-tax Officer to reopen assessments in certain cases, one being sub-section (1) with two clauses (a) and (b), the other being sub-section (1A). Their Lordships, however, were not concerned with clause (b) of sub-section (1). It was argued on behalf of the assessee that sub-section (1)(a) was a general provision applicable to all assessment years while sub-section (1A) was a special provision applicable only to those assessment years in respect of which the relevant previous years fell wholly or partly within the period, 1st September, 1939, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f under the Act, or excessive loss or depreciation allowance had been computed, action under sub-section (1A) could be taken only in cases where income had escaped assessment. The assessee, however, agreed that a case of under-assessment resulting from escapement of a part of the income from assessment was covered by sub-section (1A) because what was escapement of a part of the income from assessment was also underassessment from the point of view of the total income. The assessee, however, urged that the other cases of under-assessment which did not involve escapement of a part of the income from assessment and the cases where income was assessed at too low a rate or had been made the subject of excessive relief under the Act or where excessive loss or depreciation allowance had been paid, were not within the compass of sub-section (1A), and sub-section (1A), inasmuch as it operated on a field more limited than that occupied by sub-section (1)(a), was a special provision. Their Lordships of the Gujarat High Court also referred to the preamble of the Income-tax (Amendment) Act, 1954, by which sub-section (1A) was inserted in section 34 for the purpose of showing that sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1A) after the introduction of that sub-section in section 34 with this modification that defects of classification which were alleged to exist in section 5(1) were cured by the basis of classification being made more definite and if that be so, the conclusion is irresistible that sub-section (1A) was enacted as a special provision and must be construed as such. The learned counsel for the assessee in that case, in support of his theory that sub-section (1A) contained a special provision as against the general provision contained in clauses (a) and (b) of sub-section (1) of section 34, referred to the following observations of the Full Bench of the Allahabad High Court in Jai Kishan Srivastava v. Income-tax Officer [1960] 40 I.T.R. 222, 239 (F.B.): It is to be noticed that, even though there is a common class of assessees who can be proceeded against under both section 34(1) as well as section 34(1A) of the Act, the latter provision is applicable to a limited class of persons. That class of persons are those whose income, profits or gains had escaped assessment for any year in respect of which the relevant previous year fell wholly or partly within the period be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years including the assessment years dealt with by sub-section (1A) irrespective of the question whether the income that had escaped assessment was less than ₹ 1,00,000 or more. The general intention expressed in sub- section (1)(a) being that no assessment in respect of an assessment year should be reopened unless the conditions therein specified were fulfilled and notice was issued within the period of eight years if sub-section (1)(a) applied to escaped income of assessment years, dealt with by sub-section (1A) when such escaped income amounted to ₹ 1,00,000 or more, the consequence would be that assessment in respect of those assessment years could not be reopened if the conditions specified in sub-section (1)(a) were not fulfilled or the period of eight years had expired before issue of a notice. But sub- section (1A) declared that such consequence should not ensue and that though the conditions specified in sub-section (1)(a) were not fulfilled and though the period of eight years had expired before issue of notice, assessment in respect of those assessment years should be liable to be reopened if certain other conditions were fulfilled and notice was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the said Act also reveal the real object of the Act. This section was introduced because section 5(4) of the Taxation on Income (Investigation Commission) Act (30 of 1947) was struck down as unconstitutional on May 28, 1954, in Suraj Mall Mohta Co. v. A.V. Visvanatha Sastri*. In that case, while examining the validity of section 5(4) of the Investigation Commission Act, the Supreme Court held that the persons brought within the mischief of the said section belonged to the same class of persons who fell within the ambit of section 34 of the Act and were dealt with by section 34(1), and in view of the fact that the procedure prescribed under section 5(4) of the Investigation Commission Act was very much less favourable to the assessee than the one available to them if action was taken against them under section 34(1), the conclusion reached was that the impugned section 5(4) was unconstitutional. After this judgment had been pronounced, the legislature intervened and enacted section 34(1A). That, however, was not the end of the matter. When section 34(1A) was introduced in the Act, there remained two statutory provisions dealing with substantially the same subject-matter, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion Act under section 34(1) of the Indian Income-tax Act as it stood at the date when the Supreme Court declared section 5(1) of the Investigation Commission Act as invalid. In section 34, before the insertion of sub-section (1A) on 17th July, 1954, a time-limit was prescribed for the exercise of the power of assessment or reassessment by the Income-tax Officer either under clause (a) or under clause (b) of sub-section (1) of section 34. The period of limitation prescribed for issuing notice under clause (a) was eight years and that under clause (b) was four years. This was the position when sub-section (1A) was inserted in section 34 on 17th July, 1954. It is needless to point out that on 17th July, 1954, it was no longer possible for the Income-tax Officer to issue a notice under clause (a) of sub-section (1) of section 34 in respect of any assessment year prior to 1945-46, the period of eight years having expired by that date. War profits were mostly earned between 1st September, 1939, and 31st March, 1946. The Taxation on Income (Investigation Commission) Act (XXX of 1947) was passed to deal with the war profiteers who had evaded income-tax in respect of income earned duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant case we are concerned with an escaped income which could be assessed or reassessed under clause (a) of sub-section (1) of section 34 and, therefore, the relevant period of limitation was eight years. Sub-section (1A) was inserted in order to confer additional power to the Income-tax Officer and not to take away some of the powers the Income-tax Officer already enjoyed under clause (a) of sub-section (1). The intention of the legislature is clear not only from the language of sub-section (1A), but also from the history behind it. The special jurisdiction given by sub-section (1A) was not certainly intended to affect the jurisdiction of the Income-tax Officer under clause (a) of sub-section (1). It could not be said that an assessee within the ambit of sub-section (1A) could not be dealt with under clause (a) of sub-section (1) even though the period of eight years had not expired till after the insertion of sub-section (1A). It is argued on behalf of the assessee that after the insertion of sub- section (1A) the Income-tax Officer was not competent to assess or reassess any assessee within the ambit of sub-section (1A) in accordance with the procedure laid down in clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) if the period of limitation had not expired. Sub-section (1A) itself makes that position clear. It says that the Income-tax Officer may, notwithstanding that the period of eight years or, as the case may be, four years specified in sub-section (1) has expired in respect of an escaped income, serve on the assessee a notice and proceed to assess or reassess the escaped income. It is clear that all the assessees within the ambit of sub-section (1A) could have been assessed either under clause (a) or under clause (b) of sub-section (1) if the period of eight years or, as the case may be, four years specified in sub-section (1) had not expired. Next, the condition precedent to taking action under sub-section (1A) was quite distinct from the condition precedent to taking action under clause (a) of sub-section (1). In the case of assessment under clause (a) of sub- section (1) the requisite notice could not be issued by the Income-tax Officer unless the Commissioner was satisfied with the reasons recorded by the Income-tax Officer that the case was a fit one for the issue of such notice. But in the case of an assessment under sub-section (1A), the authority to be satisfied was the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot pursuade ourselves to accept this opinion of the Gujarat High Court. Immediately before the insertion of sub-section (1A), most of the big evaders of the war period were outside the ambit of clause (a) of sub-section (1) of section 34; it is for this reason that necessity was felt for inserting sub-section (1A). Notice under sub-section (1A) for initiating proceedings for assessment or reassessment could be given from 17th July, 1954, to 31st March, 1956. The persons to whom notice could be given during this period under sub-section (1A) were mostly persons to whom no notice could be given under clause (a) of sub-section (1) of section 34 by reason of lapse of time. Therefore, during the said period from 17th July, 1954, to 31st March, 1956, most of the persons within the contemplation or within the ambit of sub-section (1A) were not included in the bigger group contemplated by clause (a) of sub-section (1). The words general and special are relative. There is no sense in saying that a particular provision is special when there is no corresponding general provision at the relevant time. At the date of the insertion of sub-section (1A), clause (a) of sub-section (1) was not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rule which has thus been explained in Craies on Statute Law, 5th edition, as follows: The rule is, that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply. This rule too is not applicable in the facts and circumstances of the present case. If it is assumed that sub-section (1A) of section 34 is a particular enactment and clause (a) of sub-section (1) of section 34 is a general enactment, even then, it cannot be said that clause (a) of sub-section (1), taken in its most comprehensive sense, would overrule sub-section (1A) of section 34. We, therefore, conclude that neither the maxim generalia specialibus non derogant as explained by Maxwell, nor the analogous rule enunciated by Craies has any application to the instant case. The effect of sub-section (1A) of section 34 on the other parts of section 34 is to be ascertained by applying the general presumption against an intention to alter the law bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned in the calendar years 1945 and 1946 escaped assessment in the relevant assessment years and the amount of the escaped income was ₹ 1,00,000 or more, proceedings for assessment or reassessment could be initiated between 17th July, 1954, and the 31st March, 1956, either under clause (a) of sub-section (1) or under sub-section (1A). So far as the assessees were concerned, it was immaterial under which of these two provisions proceedings were initiated, because once the notice was served either under clause (a) of sub-section (1) or under sub-section (1A), the rest of the procedure was just the same and all the remedies available to the assessees were also just the same. In the case of K.S. Rashid [1964] 52 I.T.R. 355, 362 (S.C.), the Supreme Court has indicated what was the position in respect of a year covered by clause (a) of sub-section (1) as well as by sub-section (1A). In that case the validity of notices served under sub-section (1A) of section 34 in respect of the income of the petitioners for the years 1941-42 to 1946-47, was challenged on the ground that, though section 34(1) and section 34(1A) dealt with assessees similarly placed, the remedy by way of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period, namely, between September, 1939, and March 31, 1946, and the amount of the escaped income was ₹ 1,00,000 or more, whereas section 34(1)(a) was meant for the rest of the tax evaders whose income, whatever might be the amount, escaped assessment within a period of eight years prior to the initiation of proceedings for assessment or reassessment. Hence, there was an intelligible differentia which distinguished persons or cases that were grouped together for the purpose of section 34(1A) from others left out of the group and the differentia had a rational relation to the objective sought to be achieved by section 34(1A), namely assessment of persons who had to a substantial extent evaded payment of tax during the war period. The Supreme Court, therefore, concluded that the discrimination on the score of limitation between persons grouped together for the purpose of section 34(1A) and those not included in the said group was not unconstitutional, that is to say, was not hit by article 14 of the Constitution. Certain assessees whose income escaped assessment during the war period no doubt were grouped together for the purpose of assessment under section 34(1A) but from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive. We now propose to consider the fourth question in so far as it relates to fixed deposits. The question to be decided is whether the fixed deposits in question were assessable for the assessment year 1946-47. It is contended by the learned counsel for the assessee that the fixed deposits were not assessable for the assessment year 1946-47. The fixed deposits were made in the financial year 1944-45. The argument on behalf of the assessee is that, if the fixed deposits are treated as the assessee's income from some undisclosed source, the corresponding assessment year would be 1945-46. In that event, it is urged, the fixed deposits were not assessable for the assessment year 1946-47. If the fixed deposits represented income from business, then certainly, they were assessable for the assessment year 1946-47. If, however, the fixed deposits represented income from some undisclosed source, then they were assessable not for the assessment year 1946-47, but for the assessment year 1945-46. It was held by our High Court in Jethmal Lakhani v. Commissioner of Income-tax [1963] 49 I.T.R. 633 cited by the learned counsel for the assessee that the Income-tax Officer is bound to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not available. The total quantity procured by the assessee during the year amounted to 81 lakhs of maunds, including 46 lakhs of maunds of rice and 35 lakhs of maunds of paddy. There was no detailed account for all expenses claimed to have been incurred by the assessee to establish that the expenses were genuine and, even though the assessee was doing the business of speculation, the assessee did not maintain any Sauda Bahi for the said business. The Income-tax Officer noticed similar facts in respect of the assessee's business in jute and oil. The Income-tax Officer, therefore, came to the conclusion that the account books of the assessee with regard to the business were not verifiable. The Accountant Member of the Tribunal inferred from the facts noted above that the fixed deposits represented income from business. The inference itself is one of fact. It cannot be said that the inference is based on no evidence. Therefore, we must accept the finding of the Tribunal as to the nature of the income represented by the fixed deposits. Concealed income is not necessarily an income from sources not disclosed, that is to say, from other sources. In the case of Lakhmichand Baij ..... X X X X Extracts X X X X X X X X Extracts X X X X
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