TMI Blog1971 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer called upon the assessee by a notice under section 23(3) to explain the nature and source of the income of Rs. 20,000. The explanation of the assessee was that the notes were out of the closing balance of Rs. 23,916 on the evening of January 11, 1946. This explanation was not accepted by the Income-tax Officer who held that the amount represented the secreted profit of the assessee and was liable to income-tax. The amount was added to the income for that year as undisclosed income. Corresponding assessment was made for purposes of excess profits tax also. The two assessments made by the Income-tax Officer were, on appeals by the assessee, confirmed by the Appellate Assistant Commissioner and by the Appellate Tribunal. At the instance of the assessee, certain questions of law were referred by the Appellate Tribunal to this court (Income-tax Reference No. 33 of 1957). In this reference, it was held by a Division Bench on December 14, 1960 : (i) That the income of Rs. 20,000 was not from business but from an undisclosed source and, therefore, it could not be subjected to excess profits tax ; and (ii) that the income would fall to be assessed in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the coming into force of the Amending Act of 1956. Oa the third point, he held that the conditions precedent had been satisfied as there was a failure on the part of the assessee to disclose the primary facts in the return for the assessment year 1946-47. He, accordingly, dismissed the writ petition with costs. The assessee has now preferred this special appeal against the judgment of Manchanda J. Sri Ashok Gupta, learned counsel for the appellant, has challenged the impugned notice before us also on the same two grounds on which it was assailed before Manchanda J. The decision of the question whether the notice is time-barred or is saved from limitation depends on a proper understanding of the various amendments made in section 34(1)(a) of the Income-tax Act. We are, concerned, with amendments made in 1948, and thereafter. The relevant portion of this section, as it stood after the amendment of 1948, reads as follows : "34.-(1)(a) If 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 hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Act of 1959 provided : '4. Saving of notices, assessments, etc., in certain cases.--No notice issued under clause (a) of sub-section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment 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 of at the time the assessment or reassessment was made, the time within which such notice should have been issued or the assessment or reassessment should have been made under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired." The escaped income in this case is Rs. 20,000, i.e., less than Rs. 1 lakh. The question which arises for determination in this appeal is whether sub-section (4) of section 34 saves the impugned notice which has admittedly been issued more than eight years after the relevant year. It will be noticed that sub-section (4) permits a notice to be, issued after the Amendment Act of 1959 and saves such notice from the bar of limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es issued under section 34(1)(a) from the same bar of limitation. Section 4 seeks to save a notice from this bar when the notice has been issued before the Amendment Act of 1959 came into force and section 34(4) seeks to save the notice from the same bar when the notice is issued after the Amendment Act of 1959 has come into force. If a notice under section 34(1)(a) in respect of a particular year issued before the Amendment Act of 1959 is not saved by section 4 of the Amendment Act of 1959, then, if the notice in respect of the same assessment year is issued after the Amendment Act of 1959 it will not be saved by section 34(4). Therefore, in order to determine as to which bar of limitation applies to a particular case, the fact whether the notice has been been issued before or after the Amendment Act of 1959, is not of any consequence. The decision of the Supreme Court, though given in respect of section 4 of the Amendment Act of 1959, is equally applicable to section 34(4). In the case before the Supreme Court, the notice under section 34(1)(a) was in respect of the assessment year 1948-49 and was issued on July 9, 1958. The notice was thus issued beyond eight years. It was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court. In this subsequent part, the Supreme Court has approved of certain observations made by Sarkar J. (as he then was) in S. C. Prashar v. Vasantsen Dwarkadas. The observations, which have been approved, are as follows : " 'So, though section 4 of the 1959 Act freed a notice from the bar of limitation in respect of it imposed by the 1948 amendment, it did not altogether do away with all prescriptions of time. In spite of section 4, a notice contemplated by it would be subject to the prescription of time as its issue under the 1939 Act and may be, under section 34 as it stood before the 1939 amendment. If the notice was issued after the 1956 amendment, it would also be subject to the prescription as to time provided by that amendment. (Emphasis supplied) Then it was said that if section 4 applied to a notice issued more than eight years after the year in which the income escaped assessment but before the 1956 amendment came into force in a case where the escaped income of the year was less than Rs. 1,00,000, the position would be curious. A notice issued in a similar case after the 1956 amendment would be bad under section 34 as it then stood and section 4 could not sav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r J. observed that, in such a case, if the notice was issued before the 1956 amendment, it would be saved by section 4 of the Amendment Act of 1959 but, if it was issued after the 1956 amendment, then it would not be so saved. If the notice issued after the 1956 amendment but before the 1959 amendment was not saved by section 4 of the Amendment Act of 1959, then a notice in such a case issued after the 1959 amendment would not be saved by sub-section (4) of section 34, for both the provisions save the notice from the same prescription as to time. Following the decision of the Supreme Court in Hussain Bhai's case and the observations of Sarkar J. in Prashar's case, which have been approved in Hussain Bhai's case, we have come to the conclusion that the impugned notice is barred by the rule of prescription of time laid down by the 1956 amendment and is not saved by sub-section (4) of section 34. The notice being time-barred, the Income-tax Officer had no jurisdiction to issue it or to take any proceedings for assessment on the basis of this notice. Since the notice is time-barred and is illegal for that reason, it is not necessary to consider the second point whether the conditio ..... 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