TMI Blog1973 (12) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient justification for reopening the assessment for the assessment years 1947-48 and 1950-51 by taking recourse to the provisions of section 34(1)(a) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"). Neither the validity of the initiation of those proceedings nor the merits of the disallowance of the interest payable to M/s. Vussonjee Munjee Co. Pvt. Ltd. were disputed by the assessee, but when the matter went up in appeal to the Tribunal, it was sought to be contended on behalf of the assessee that the said item of interest payable to M/s. Vussonjee Munjee Co. Pvt. Ltd. for the assessment years 1947-48 and 1950-51, which had been allowed as a deduction in the original assessments for those years could not be disallowed in the reassessment proceedings, because to do so would be to resort to the powers under clause (b) of section 34(1) of the Act which could not be done after the expiration of the period of four years from the end of the years in question, which period had admittedly lapsed. That contention was rejected by the Tribunal by its order dated 18th July, 1963. On the application of the assessee, the following question of law was, therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a taxing statute, imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting provisions of that kind the rule is that that construction should be preferred which makes the machinery workable. That, in my opinion, is, however, not the same thing as saying that section 34 should be liberally construed. On the contrary, in my opinion, since the reopening of an assessment is a power of an extraordinary nature, section 34 must be strictly construed. Indeed, the contention that since section 34 is a machinery section, it should be liberally construed was advanced before the Madras High Court in the case of Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116, 124, 125 (Mad), but the same was, in effect, though not in terms, not accepted by that court. I agree with that view of the Madras High Court. The third preliminary observation that I desire to make is that the following three points are matters of common ground between the parties to this reference : (1) The reopening of the assessment in the present case was valid ; (2) Four years from the end of the relevant assessment years had elapsed at the time when the notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1953-54 on 31 st August, 1954, and in the original assessment the assessee had claimed certain losses in sugar mill business which had been allowed as claimed, but the assessee had not disclosed the interest received by him from one of his debtors. In the course of the assessment of that debtor, the Income-tax Officer found that a sum of Rs. 24,165 had been credited to the assessee as having been paid to him by way of interest. The Income-tax Officer also found that the loss claimed by the assessee from the sugar mill business had been wrongly allowed to him in the assessment years in question, as the said business had already become defunct prior thereto. The Income-tax Officer, therefore, reopened the original assessments for the years 1953-54 and 1954-55 by issuing a notice under section 34(1)(a) of the Act in response to which the assessee filed revised returns for those two years. The assessee, however, objected to any interference with the original assessments in respect of the losses from the sugar mill business which assessments, he submitted, had become final and could not be reopened after the expiry of four years. After intermediate proceedings to which it is unnecess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Mr. Dastoor before us. Indeed, in my opinion, that concession has led the court to take what I, with due respect, consider to be an illogical view because, by some sort of implication, the court was driven to apply the period of limitation prescribed for clause (b) to a notice under clause (a). In my opinion, a period of limitation cannot be applied by any sort of implication, but must be express. I am, therefore, of the view that the first proposition propounded by Mr. Dastoor is the more logical proposition and I am happily supported in that view by a plain reading of the terms of section 34 and its ordinary grammatical construction. Omitting words which are inconsequential for the purpose of bringing home the point which I am now considering, the material part of section 34 would read as follows : " 34. Income escaping assessment.--(1) 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 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 (b)......the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a case, legitimately initiate proceedings for reassessment under both the clauses of section 34 simultaneously. I would have preferred to take the view that an Income-tax Officer desiring to initiate reassessment proceedings under section 34 should specify in the notice, whether he desires to proceed under clause (a) or clause (b) or under both the clauses of that section, but it is too late in the day for me to take that view, for it has been held by the Supreme Court in the case of Kantamani Venkata Narayana and Sons v. First Addl. Income-tax Officer [1967] 63 ITR 638, 640 (SC) approving the view taken by the Calcutta High Court in the case of P. R. Mukherjee v. Commissioner of Income-tax [1956] 30 ITR 535, 546 (Cal), that a proceeding under section 34 is not vitiated because it did not set out the clause under which it was issued. The position, therefore, is that an Income-tax Officer may issue a notice under section 34 simpliciter without specifying that he desires to take action under clause (a) or clause (b) of that section. The only way in which such a notice can be construed would be to read it as a notice under clause (a) and/or clause (b) of section 34, unless the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC) to which I have already referred in another context. The facts of that case were that, in the original assessment, the Income-tax Officer accepted the assessees' return as correct and complete. It may be stated that in that return the assessee had entered under the head of business, trade, commerce, etc., a loss of Rs. 8,54,385. The Income-tax Officer, however, subsequently received information that the account books of the assessees had always been manipulated and, after making inquiries, he, therefore, directed the issue of a notice under section 34 read with section 22(2) of the Act. In the revised return filed pursuant thereto, the respondents showed the same loss and the usual procedure was thereafter being followed. The assessees then applied for stay of the proceedings under section 34 till the question which they raised, viz., that section 34 could not be put into operation without giving the assessees an opportunity of being heard, was decided on the reference made to the High Court. The Privy Council, whilst allowing the appeal, held that it was not necessary for the Income-tax Officer to have given any such opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings had been properly and validly initiated under section 34(1)(a). As already stated above, that is a view which I am not prepared to take. In the case of Modern Theatres Ltd. v. Commissioner of Income-tax [1965] 55 ITR 683 (Mad), one of the questions referred was whether the additions made in the reassessment in respect of agreements other than two particular agreements in respect of which the notice of reassessment was issued were legal. It was held by the Madras High Court , that when the assessment of an assessee is reopened under section 34(1)(a), the Income-tax Officer was not limited to the specific allegations of suppression mentioned in the notice but the entire assessment was liable to be reopened, and if on such re-examination, it was found that " by reason of the failure of the assessee to disclose fully and truly all material facts ", any other sums had also escaped assessment, it was within the jurisdiction of the Income-tax Officer to include them as well. The words quoted by me, however, clearly show that those observations were made in reference to items which fell within the same clause of section 34(1), viz., clause (a). That is a proposition which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the decision of the Privy Council, the Income-tax Officer issued, on 2nd March, 1948, a notice under section 34 of the Act in respect of the said sum of Rs. 1,09,613 received by the assessee as lease income of the mill. In those proceedings, the assessee raised two contentions, viz., (a) that the proceedings intiated under section 34 for the year 1944-45, were invalid as there was no new information leading to the discovery that income had escaped assessment ; and (b) that, in any event, the assessee was entitled to set off the sum of Rs. 1,15,000 paid to the vendor's sons under the compromise arrived at between them for releasing their rights, if any, in the mill, against the assessee's income, from the mill. One of the questions which was referred to the High Court in respect of the assessment for each of the years in question was, whether the assessee was not entitled to set off Rs. 1,15,000, being the amount paid to the vendor's sons for releasing their rights in the property from out of the amount received from the mill. Following its own earlier decision in another case, the Supreme Court held ([1970] 75 ITR 373, 379-80), that the decision of the Privy Council constituted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to levy tax on "the entire income that had escaped assessment", and not on the entire income of the assessee as such. I am, therefore, not prepared to read the judgment of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) as holding, as Mr. Joshi strongly urged at the beginning of his argument, that once reassessment proceedings are initiated under either of the clauses of section 34, the Income-tax Officer is entitled to reassess the assessee in respect of all income that is found to have escaped assessment, whether it be under clause (a) or clause (b) of section 34(1), for that was not the point which arose before the Supreme Court and has not been dealt with by it in its judgment. The expressions, "whole assessment" and "entire income" as used in the passage from the judgment of the Supreme Court quoted above, can only mean one of the two things. They can mean the entire subject-matter of the original assessment, or they can mean the entire income that had escaped assessment. In my opinion, it is in the latter sense that those expressions have been used by the Supreme Court in the said case. There is, however, no third sense in which those expressions can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in regard to that item. As already stated above, in view of the decision of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) that the entire assessment in regard to the income which had escaped assessment must be deemed to be reopened, in my opinion, the decision in Kevaldas Ranchhodas's case [1968] 68 ITR 842 (Bom) is no longer good law. To give to section 34 the meaning that was given to it in Kevaldas Ranchhodas's case [1968] 68 ITR 842 (Bom) would, in my opinion, amount to construing the expressions "whole assessment" and "entire income" used by the Supreme Court in its judgment in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) as meaning, not the whole item which had escaped assessment, but only the part of the item the revision of which would be in favour of the department. There is no warrant for placing such a construction on the decision of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC). The propositions that emerge from a consideration of the above authorities are as follows : (1) If a notice under section 34(1) expressly specifies that it is under clause (a) thereof, no reassessment in respect of any item can be made un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice would have to be construed as a notice under sub-clause (a) and/or sub-clause (b) of section 34(1), and the period of limitation of four years would, therefore, be applicable in regard to the items which are sought to be reassessed under clause (b), pursuant to that notice. This would be the position unless the facts of the case show that, though the notice was stated to be given under section 34 or under section 34(1) simpliciter, action was contemplated only under clause (a) or clause (b) of section 34(1), as the case may be, as was the position in the case of Commissioner of Income-tax v. Onkarmal Meghraj [1974] 93 ITR 233 (SC) already cited above. It was, lastly, urged by Mr. Joshi that if I am not prepared to accept his proposition that once proceedings under section 34(1) are validly initiated, the Income-tax Officer has jurisdiction to reassess de novo in respect of all items of escaped income, whether they be under clause (a) or under clause (b), regardless of the period of limitation provided in that section for cases falling under clause (b), I should, in conformity with the view, which, according to him, was taken by the Madras High Court in Veerappa Chettiar's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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