TMI Blog1972 (8) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. In those original assessments the interest received by the assessee from one of the debtors, Sri RM. AR. AR. RM. Ramanathan Chettiar, had not been disclosed and the assessments were completed without including these interest receipts. Subsequently, in the course of the assessment for the year 1955-56, it was found that one of the debtors, the said Ramanathan Chettiar, had credited the assessee with Rs. 24,165 as interest for a number of years. When that interest receipt was included in the income of the assessee for that year, the assessee went on appeal, and the Appellate Assistant Commissioner held that the said sum represented interest income for various years and that only Rs. 4,126 should be considered in the assessment for 1955-56. He also held that regarding the earlier years the amounts credited in the books of the debtor as interest due to the assessee should be related to the respective years. On this basis Rs. 4,037 related to 1954-55 and Rs. 4,412 related to 1953-54. Similarly, in the course of the assessment proceedings for the assessment year 1957-58, the Income-tax Officer found that the loss claimed by the assessee from the sugar mill business cannot be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of disallowing the loss from the sugar mill business which was originally allowed cannot be sustained. The Appellate Assistant Commissioner, therefore, without going into the question of the disallowance of the loss on merits, cancelled the additions made by the Income-tax Officer in respect of the losses from the sugar mill business, purporting to follow the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calcutta. Aggrieved against the order of the Appellate Assistant Commissioner the revenue preferred appeals before the Appellate Tribunal. The Tribunal, however, took the view that the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies Dist. , Calcutta relied upon by the Appellate Assistant Commissioner was not applicable to the facts of the assessee's case and that, on the other hand, the decision of the Andhra Pradesh High Court in Pulavarthi Viswanadham v. Commissioner of Income-tax was applicable, and in that view held that, since the original assessments had been validly reopened under section 34(1)(a) on the ground of non-diclosure of interest received, the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) and (b) of section 34(1). Section 34(1), so far as it is relevant for the purpose of the present discussion, is set out below : 34. Income escaping assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This proposition has clearly been laid down in the following decisions. In Commissioner of Income-tax v. Jagan Nath Maheshwary a notice had been issued under section 34 based on a certain item of income that had escaped income-tax. The question was whether it is permissible for the Income-tax Officer to include other items of escaped income in the assessment in addition to the item which was the basis for the issue of a notice. under section 34. The Punjab High Court held that it is permissible for the Income-tax Officer to include other items of escaped income in the assessment in addition to the item referred to in the notice under section 34, that it is not necessary that a notice under section 34 should specify the item of income or the source of that income which has escaped assessment and that it is no less a discovery when the actual omission is of some different kind to the supposed omission contemplated in the notice. According to the learned judges in that case the word "such" occurring in the expression "assess or reassess such income, profits, gains, etc.", in section 34, has to be attributed to the last antecedent, namely, the escaped or under-assessed income, prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result of the enquiry and that such reassessment will not be vitiated on the ground that the original ground on which the proceedings were intitiated did not survive, and that the statutory requirement of reasonable belief rooted in information in the possession of the officer is only to safeguard the assessee from vexatious proceedings and is not a mantle of protection against taxation of income found to have escaped assessment. In K. E. M. Mohammad Ibrahim Maracair v. Commissioner of Income-tax this court held that the fact that the Income-tax Officer has reassessed the assessee's income once under section 34 does not prevent him from taking proceedings again under section 34 if he finds that another item of income has escaped assessment or has been under-assessed. Once the assessing officer has the power to invoke section 34 whenever he finds an item of income had escaped assessment, there is no reason as to why the Income-tax Officer should be disabled from including the items of income which have escaped assessment and which came to light in the reassessment proceedings which have been validly initiated by the issue of a notice under section 34. In V. Jaganmohan Rao v. Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a), the items of income falling under clause (b) could also be brought to charge without any time limit, overlooks the said object. We are inclined to agree with the contention of the learned counsel for the assessee in this regard. The statutory provision in section 34(1) makes a distinction between cases falling under clauses (a) and (b). That provision, as it stood at the relevant time, did not provide any time limit as regards cases falling under clause (a), but it provided a time limit for cases falling under clause (b). The contention of the learned counsel for the, revenue that once the reassessment proceedings have been validly initiated under clause (a), the time limit of four years provided for cases coming under clause (b) will not apply clearly overlooks the statutory distinction between cases falling under clauses (a) and (b). If that contention were to be accepted, the Income-tax Officer can always bring to charge items falling under clause (b) after the period of four years by initiating proceedings in respect of an alleged item of income falling under clause (a) and proceed with the reassessment of items falling under clause (b) in those reassessment proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s having expired. The learned counsel for the revenue could not but concede that in cases falling under clause (b), a notice of reassessment cannot be issued after the period of four years. But, what is contended by the revenue is that if proceedings are initiated under clause (a) of section 34(1), the items falling under clause (b) can be brought to charge in such reassessment proceedings without any limitation as to time. This contention involves a fallacy and has no merit. The acceptance of such a contention would mean that what the revenue cannot do directly, it can do indirectly. The Income-tax Officer cannot directly issue a notice for reassessment in cases falling under clause (b) after the four year period. But those cases can be brought in indirectly by issuing a notice purporting to be under clause (a). Mr. Balasubrahmanyan, for the revenue, further contends that it is imperative on the part of the Income-tax Officer to include all items of escaped income falling either under clause (a) or (b) at the stage of the re-assessment proceedings without issuing separate notices, one for items falling under clause (a) and another for items failing under clause (b), that the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction with the proceedings validly initiated by the issuance of a notice under clause (a). The object of a time limit for the issuance of a notice under clause (b) is in effect to take away the power of the Income-tax Officer to deal with items falling under clause (b) after the said period of four years. The further contention of the revenue is that the period of four years mentioned in respect of cases falling under section 34(1)(b) cannot be considered to be a period of limitation so as to create a vested right in the assessee. Even if this contention were to be accepted, the object of providing a time limit before which the proceedings are to be initiated cannot be overlooked. As pointed out by the Supreme Court in S. S. Gadgil v. Lal Co. at page 238, the period prescribed by section 34 for assessment may not be a period of limitation. However, the section in terms imposes a fetter upon the power of the Income-tax Officer to bring to tax escaped income. It prescribes different periods in different classes of cases for enforcement of the right of the State to recover tax. The learned counsel for the revenue cited various decisions to show how the machinery sections in a taxing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment for any year or has been under-assessed or assessed at too low a rate. That fact is common to both the clauses. The difference between the two clauses is that clause (a) contemplates a case where the assessment or under-assessment was caused by an omission or failure on the part of the assessee to do certain things and clause (b) contemplates a case where such escape from assessment or under-assessment occurred in spite of there having been no such omission or failure. The practical consequence of the presence of such omission or failure in one case, and the absence thereof in the other is that, in the first case, the period within which the notice contemplated by the section can be issued is longer. I do not see how that difference makes it necessary or imperative that the notice itself must specify under which of the two clauses of the section it is being issued.... It is true that when answering a notice issued under the section, the assessee may take a plea of limitation and for the purpose of such a plea, it may be necessary for him to know whether his case is being treated as one under clause (a) or as one under clause (b). It appears to me, however, that whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Their Lordships of the Supreme Court in Calcutta Discount Co. Ltd. v. Commissioner of Income-tax had also specifically laid down that if the Income-tax Officer who issued a notice under section 34 did not have any material before him for believing that there had been any material non-disclosure by reason of which an under-assessment has taken place, he had no jurisdiction to issue a notice after the expiry of four years from the end of the assessment year and that the Income-tax Officer cannot take any action on the basis of the said notice. This is clearly an authority for the proposition that in relation to items falling under clause (b) of section 34(1), the Income-tax Officer cannot initiate reassessment proceedings after the expiry of four years from the end of the assessment year. We, therefore, hold that the reassessment made by the Income-tax Offier under section 34(1)(b) cancelling the allowance for losses in the sugar mill business cannot be sustained, as it infringes the bar of four years period prescribed by section 34(1)(b). As already stated, the Tribunal has relied on the decision of the Andhra Pradesh High Court in Pulavarthi Viswanadham v. Commissiner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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