TMI Blog1935 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... g question:- If the answer to the first question be in the negative, will there be any limitation of time (other than general reasonableness) upon an order to be duly made under Section 33 of the Act in review of the initial assessment under Section 23(3) and adding the said income thereto. The principal question with which we are really concerned is the one under Section 66 (2). The answer to this question depends on the interpretation that can be put on the words escaped assessment as used in Section 34 of the Income Tax Act. Section 34 reads as follows:- If for any reason, income, profits or gains chargeable to income tax has escaped assessment in any year or has been assessed at too low a rate, the Income Tax Officer may, at any time, within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains * * * a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22 and may proceed to assess or re-assess such income, profits or gains and the provisions of this Act shall so far as may be, apply accordingly as if the notice was a notice issued under that sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax authority and had been the subject of assessment which had, however, been set aside later. No case law has, however, been discussed by the learned Judges in arriving at this conclusion. In Commissioner of Income Tax, Burma v. U Lu Nyo the assessee was engaged in tobacco business during the accounting period and produced before the Income Tax Officer for the purpose of assessment certain accounts which were rejected. The Income Tax Officer assessed the income derived from the tobacco business under Section 23 (3). In the following year, another Income Tax Officer on going further into the matter was dissatisfied with the previous assessment and took action under Section 34 of the Income Tax Act, treating the income as having escaped assessment before. He found inter alia that his predecessor was wrong in thinking that the profit of the tobacco business was only ₹ 30 a maund and held that it should be calculated at ₹ 60 a maund. On these facts, the learned Judges of the Rangoon High Court held that the Income Tax Officer had no jurisdiction to revise the assessment for the previous year which was completed and had become final. It will be obvious that this author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. If an assessment is not made on income within the tax year, then that income, they submit, has escaped assessment within that year, and can be subsequently assessed only under Section 34 with its time limitation. This involves reading the expression 'has escaped assessment' as equivalent to 'has not been assessed.' Their Lordships cannot assent to this reading. It gives too narrow a meaning to the word 'assessment' and too wide a meaning to the word 'escaped'. That the word 'assessment' is not confined in the statute to the definite act of making an order of assessment appears from Section 66 which refers to 'the course of any assessment.' To say that the income of Burn and Company, which in January 1928 was returned for assessment and which was accepted as correctly returned, though it was erroneously included in the assessment of Martin and Company, has 'escaped assessment' in 1927-28 seems to their Lordships an inadmissible reading. The fact that Section 34 requires a notice to be served calling for a return of income which has escaped assessment strongly suggests that income, which has already been duly returned for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of non-assessment is present in every case, whether the assessment is not made on account of noninclusion of the income by the assessee in his return or is not made even if the income is returned, on account of an erroneous judgment by the Income Tax Officer or on account of his oversight. Whether we place a restricted interpretation on the term escaped or give it a much wider signification, the element of non-assessment must be present. To my mind, this judgment does not lay down such a proposition as is contended for on behalf of the assessee. In addition to the authorities cited above, counsel for the assessee has also relied on the scheme of the Act, and urged that the sequence of the sections by itself indicates that Section 34 was intended by the Legislature to apply to cases of non-inclusion only and not to cases of accidental or deliberate failure of the Income Tax Officer. He has urged that after the procedure for assessment has been provided for, the Legislature has enacted Section 30 and allowed an aggrieved assessee to appeal to the Assistant Commissioner against certain orders passed by the Income Tax Officer against him. Section 31 lays down the procedure for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term, I find that the word escape admits of more than one signification. In Murray's Oxford Dictionary, this word has been defined as follows:- Free oneself from (a person's grasp or control) to get safely out of (painful or dangerous condition); to avoid capture, punishment or any threatened evil; to elude (observation, search etc.); to elude notice (of a person); to get off safely when pursued or imperilled; to get clear away from (pursuit or a pursuer); to elude (a person's grasp); to succeed in avoiding (anything painful or unwelcome) . It is evident, therefore, that it connotes the idea of elusion as well as that of avoidance at the same time. For example, if an item of income is not charged because it is not included in the return, it would be proper to say that that income has escaped assessment. Equally proper the expression will appear to be even if the non-charge follows upon the refusal of the Income Tax Officer to charge it, whether that refusal is based on legal or on illegal grounds. Similarly, income will be said to have escaped assessment if it has not been charged on account of an oversight by the income-tax authorities; and so long as these inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew must be taken of the previous words 'escaped assessment' and that it applies to cases where the Income Tax Officer has deliberately adopted an erroneous construction of the Act just as much as to a case where the officer has not considered the matter at all but simply omitted the assessable property from his view and from his assessment. This authority was followed in Anglo-Persian Oil Co., In re. Sir george rankin, C.J., observed as follows:- I see no way of holding that Section 34 is inapplicable to put right an assessment, by which a deduction has been improperly allowed. Such a case is, in my opinion, a case of income escaping assessment * * and there is nothing in Section 34 which limits it to cases of non-disclosure by the assessee or discovery of new matter by the income tax authorities or inadvertence as distinguished from erroneous deliberations on the part of these authorities. In Ganesh Das, In re, the Commissioner of Income Tax had urged that Section 34 could not be invoked in respect of income which had been assessed in the hands of an assessee to whom it was subsequently found not to belong. The learned Judges remarked that this argument did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with it, I do not propose to discuss the question at length. The assessee, Madan Mohan Lal, is also the Manager of a joint Hindu family. This reference deals with his individual assessment for the year 1931-32, for which he made a return on the 24th August, 1931, to the Income Tax Officer, dealing with his case. In the meantime another Income Tax Officer dealing with the case of the joint Hindu family, came to the conclusion that all amounts received from the Delhi Cloth and General Mills, the principal source of the family's income, in the names of individual members of the family, was the income of the family and not of the individuals, except what was paid as salary. He, therefore, included in the family income commission, amounting to ₹ 79,543, which had been included by the assessee in his individual return. Upon this, the Income Tax Officer, having jurisdiction over the individual assessment, excluded that item from it, and assessed Madan Mohan Lal in his individual capacity upon ₹ 6,096 only, this amount being made up of ₹ 6,000 salary from the Mills, and ₹ 96, from other sources. The joint Hindu family, of which the assessee is the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the appellant before their Lordships relied upon Section 34 of the Income Tax Act, they discussed those arguments and made some remarks on the section. Their remarks are at pages 290-291 of the Report and they must, in my judgment, be interpreted with reference to the arguments and the point which had then to be decided. The argument was that, if a final assessment order was not made within the tax year, the income tax authorities could not proceed to assess the income, as it had escaped assessment, except within the additional year allowed by Section 34. The principal question to be decided was, what was the meaning of the word assessment and whether it could take place after the tax year. The answer was that the final assessment order could be made at any time. In coming to this conclusion their Lordships observed as follows: This involves reading the expression 'has escaped assessment' as equivalent to 'has not been assessed.' Their Lordships cannot assent to this reading. It gives too narrow a meaning to the word assessment and too wide a meaning to the word escaped. That the word assessment is not confined in the statute to the definite act of maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this order but he appealed from the order assessing this income as a portion of the joint Hindu family income. After various delays the Assistant Commissioner accepted the appeal and excluded this item from the income of the Hindu joint family holding that it was the personal income of the assessee. On the 31st March, 1933, a notice had been served on the assessee under Section 34 for a fresh return. This was before the decision of the appeal on the 17th April, 1933. It would seem that the income tax authorities anticipating the possible result of the assessee's appeal, took the precaution of issuing a notice to him to make a fresh return so as to be within the limitation imposed by Section 34 of the Income Tax Act. The assessee replied that he had already furnished a return and he had nothing to add thereto. The Income Tax Officer dealing with the personal case decided on the 13th February 1934, that the item of ₹ 79,543 had escaped assessment and while accepting the return of the assessee he assessed him on this item. The assessee objected that Section 34 had no application and the income had not escaped assessment and the fresh assessment was made without jurisdiction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be as follows and are stated in the judgment of their Lordships at pages 286 to 288. In that case there were two firms, Burn Company and Martin Company. The partners of Martin Company acting as individuals purchased the shares of the partners of Burn Company and thus became owners of Burn Company. It appears that the partners had not purchased the business of Burn Company with funds belonging to Martin Company, but with other funds belonging to themselves as individuals and the intention of the purchasers was to embark on a separate venture unconnected with Martin Company. The Income Tax Officer issued a notice to Burn Company, calling for a return of their total income. On coming to know the fact of the purchase the Income Tax Officer combined the income of Burn Company and Martin Company and assessed them as one on the return made by Martin Company. The return made by Burn Company was not made the subject of any assessment order. Finally the High Court held that this was illegal. Accordingly the assessment order passed on Martin Company was revised by the income tax authority excluding the income of Burn Company. The income tax authorities then proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has already been duly returned for assessment cannot be said to have escaped assessment within the statutory meaning. Their Lordships find themselves in agreement with the view expressed in In re Lachhiram Basantal (I.L.R. 58 Cal. 909) by the learned Chief Justice: 'Income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessee's income which have not yet terminated in a final assessment thereof. It may be that if no notice calling for a return under Section 22 is issued within the tax year then Section 34 provides the only means available to the Crown of remedying the omission but that is a different matter . The question is, what did their Lordships of the Privy Council intend to hold by these words? It appears to me that the argument of the assessees which their Lordships repelled necessarily involved for its repulsion the two reasons given by their Lordships. The word assessment , according to their Lordships of the Privy Council, may be taken as equivalent to the course of assessment and not equivalent to the order of assessment. If their Lordships had merely stopped with that remark then the argument of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected from assessment not because the attention of the Income Tax Officer was not directed to it but because he held that it had been, and presumably rightly, assessed elsewhere. The only sense, therefore, in which it can be said to have escaped assessment is in the sense that it has not been assessed but this is the very meaning that their Lordships said was not the correct meaning of the words 'escaped assessment'. If this is so, then the case is concluded by the judgment of their Lordships of the Privy Council and that being binding on this Court, the income cannot be said to have escaped assessment in this case. I would, however, for completeness point out that in lachiram Basantlal, In re, to which ruling their Lordships referred with approval this very point which now arises was noticed as a possible way of disposing of that case but was expressly not decided. The argument for the Income Tax Commissioner appears to be something like this : an income has not escaped assessment while it is still in the process of assessment but it may be said to have escaped assessment when for any reason whatsoever it has not been assessed in the final order of assessment. This arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n would then have run: If for any reason income etc., chargeable to income tax has not been assessed in any year owing to any mistake of fact or law by the income tax authorities or by any omission or default on the part of assessee or has been assessed at too low a rate, the Income Tax Officer may in the first case review his decision after giving notice to the assessee and in the second case may serve on the person liable to pay tax on such income etc., a notice etc.' I may notice here one argument which offers in a ruling reported as Commissioner of Income Tax, Madras v. Krishna Chandra (I.L.R. 49 Mad. 23). In that ruling it was held that a certain construction of Section 34 proposed by the assessee was not correct because of the words 'has been assessed as too low a rate' which according to their Lordships could not be matter of inadvertence but only of a deliberate assessment made by the Income Tax Officer with knowledge of the facts and circumstances. This does not appear to me to be correct for there is one obvious case to which the reasoning does not apply in which the assessment may have been made at too low a rate, that is the case in which certain income has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction allowed should not have been allowed. Now, while Section 125 of the English Act appears to expressly provide for that case, for the reason I have given, I do not think that the words escaped assessment cover that kind of case at all. It seems to me, further that the case was wrongly decided because 'assessment' means 'the course of assessment'. The course of assessment involves both the calculation of the income and the charging of the income. In order to 'escape assessment' an income must avoid both calculation and charging. In the case where the deduction has being wrongly allowed, the income has possibly escaped being charged, but has not escaped calculation. It is true that the arithmetical result is the same, but that is not the same thing as holding that the calculation never took place. I can see no distinction arising between a mistake of fact and a mistake of law on the part of the Income Tax Officer on the words of the Statute. If therefore this ruling were correct, it would be open to the Income Tax Officer to revise his decision on the ground of any mistake of fact or law. This appears to me to go beyond even the provision of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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