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TMI Blog1973 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in Income-tax Reference No. 42 of 1963 the question No. 1 has to be answered in the affirmative and in favour of the revenue. For the assessment years 1954-55 and 1955-56 another question being question No. 2 has been referred to this court in the instant reference. The said question is as follows: "Whether, on the facts and, in the circumstances of the case, the Tribunal could in law uphold the assessments for the assessment years 1954-55 and 1955-56 on the notices under section 34(1)(a) with reference to the powers under section 34(1)(b) of the Indian Income-tax Act, 1922 ?" In order to appreciate this question it would be necessary to refer to certain facts. The assessee is an individual and has income from salaries, properties and other sources. For the assessment years 1950-51 to 1955-56 the Income-tax Officer issued notices under section 34(1)(a) on the 10th July, 1958, in order to include "income from property at 53A and 53B, Gariahata Road, Calcutta, standing in the name of his wife" on the footing that section 16(3) was applicable. These assessments were completed on 25th August, 1958. The assessment proceedings for 1957-58 and 1958-59 were initiated under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments under section 23(3) the Tribunal held that the Income-tax Officer had correctly applied the provisions of section 16(3) of the Indian Income-tax Act, 1922, and the inclusion of property income in the assessee's total income was proper. As regards the assessment years 1954-55 and 1955-56 the Tribunal observed that the proceedings under section 34 were commenced and completed within four years from the end of the relevant assessment year. Though the Income-tax Officer had acted under section 34(1)(a) the Tribunal supported the assessment as having been made with reference to the powers available under section 34(1)(b) of the Act. The revenue did not go up in appeal in respect of the assessment years 1950-51 to 1953-54 where the reassessments had been vacated. Thereafter, on application being made, the two questions as mentioned hereinbefore have been referred to this court under section 66(1) of the Indian Income-tax Act, 1922. The Tribunal in its appellate order had noted that it was submitted that section 34(1)(a) was not applicable on the ground that there was no suppression of any material fact by the assessee; action under section 34(1)(b) might have been possible bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t where the Income-tax Officer himself had proceeded on the basis of section 34(1)(b) of the Indian Income-tax Act, 1922, and not on the basis of section 34(1)(a), in the absence of material on record to show that the Income-tax Officer had formed the requisite belief, recorded his reasons for taking action under section 34(1)(a) and had obtained the sanction of the Central Board or the Commissioner, as the case might be, it was not open to the Appellate Tribunal to justify the proceedings taken by the Income-tax Officer under section 34(1)(a). It was further observed that the formation of the required belief by the Income-tax Officer before proceedings could be validly initiated under section 34(1)(a) was a condition precedent: the fulfilment of this condition was not a mere formality, it was mandatory, and failure to fulfil that condition would vitiate the entire proceedings. Further, the formation of the required belief was not the only requirement: the officer was further required to record his reasons for taking action under section 34(1)(a) and to obtain the sanction of the Central Board or the Commissioner, as the case might be. Relying upon the aforesaid decision of the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 the reassessment under clause (b) of section 34(1) has to be completed within four years from the end of the year in which the income, profits or gains were assessable. The said conditions of the proviso to section 34(1) do not apply to the notice under clause (b) of section 34(1). An examination of different ingredients of clause (a) and clause (b) of section 34(1) indicates that under clause (a) it is essential for the Income-tax Officer to have reason to believe: (i) that there was omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for assessment; (ii) that due to that omission income chargeable to tax has either escaped assessment or has been under-assessed. It is further necessary that there must be material for the Income-tax Officer to form the aforesaid belief, viz., that there was omission, as mentioned hereinbefore, and that as a result of such omission income has escaped assessment. It is further necessary that the Income-tax Officer should record his reasons and obtain the sanction either of the Commissioner or of the Central Board of Revenue, as the case may be. Under clause (b) of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice under section 22(2). Section 34 merely authorised the issue of such a notice. In that case it was held that the words with which clause (b) of section 34(1) opened should be taken as contemplating both a case where there was no actual omission or failure to mention all material facts and also the case where there was an omission or failure in fact but such an omission or failure was not in respect of facts known to the assessee at the time and, therefore, was not deliberate. It was observed by the court that action which was purported to be taken under section 34(1)(a) of the Indian Income-tax Act, 1922, could be justified under section 34(1)(b) of the Act also. It appears that so far as the said decision held that it was not necessary to indicate in the notice under section 34 under which of the clauses it was issued, that part of the decision has been upheld by the Supreme Court in the case of Kantamani Venkata Narayana & Sons v. First Additional Income-tax Officer, Rajahmundry. It was observed there that it was not necessary or imperative that notice under section 34(1) of the Indian Income-tax Act, 1922, should specify under which of the clauses, clause (a) or clause (b), i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer might have chosen to make the assessment under the more stringent and onerous provisions of section 34(1)(a), there was nothing to prevent the appellate court from invoking section 34(1)(b) provided the pre-requisite conditions were satisfied and these were found on record. The learned judge further observed that section 34 was not a charging section. It merely provided a machinery whereby an income which had escaped assessment or had been under-assessed in the relevant assessment years could be brought into the network of taxation. With respect, we are in agreement with the aforesaid view expressed by Manchanda J. As mentioned hereinbefore, strong reliance was placed by counsel for the assessee on the decision of the Supreme Court in the case of Johri Lai v. Commissioner of Income-tax. That case, however, dealt with a different situation. That was a case where notice under section 34(1)(b) had been issued and it was sought to be justified by the Tribunal under clause (a) of sub-section (1) of section 34. There are obvious difficulties in that matter. Firstly, in order to be an action under clause (a) there must be formation of a belief that there was failure or omission on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is taken within four years from the end of the relevant year. It is true that action taken under section 34(1)(b) by the Income-tax Officer could not be justified by the appellate authority if these essential conditions are not fulfilled. But the situation is different where action is taken under clause (b), then the Income-tax Officer has to fulfil the conditions of clause (a) in order later to sustain action under that clause and if these are not fulfilled the Tribunal cannot validate the assessment in such a case. If, however, these conditions for action under clause (b) had been fulfilled, as it appears from the record in this case that these were sufficient, action can be justified under clause (b) of section 34(1), though purported to be taken under clause (a) of section 34(1). There is, further, another aspect of the matter. It appears that there was information that the income had escaped assessment. It appears further that the information came subsequent to the original assessment and the notice for reassessment had been issued within the period of four years from the end of the relevant assessment year. If this is the position there, even if the Income-tax Officer had pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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