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TMI Blog1964 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. But before the said cancellation it was found that an interest income of Rs. 88,737 in the shape of U. P. Encumbered Estates Act Bonds received by him in discharge of the debts due from third parties had escaped assessment as the assessee failed to disclose the same. The Income-tax Officer issued a notice under section 34(1)(a) of the Act for the assessment year 1949-50 on the ground that the said sum of Rs. 88,737 had escaped assessment in the said assessment year. After the assessment of that year was set aside under section 27 of the Act, the Income-tax Officer ignoring the notice issued by him under section 34(1)(a) of the Act, included that amount in the fresh assessment made by him. The assessee preferred an appeal against that order and that was disposed of by the Appellate Assistant Commissioner on December 4, 1957. The Appellate Assistant Commissioner in his order held that the bonds were received by the assessee in the previous accounting year and, therefore, directed that the sum representing interest on the bonds should be deleted from the assessment for the year ending 1949-50 and included in the assessment for the year ending 1948-49. Pursuant to the direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be. Learned counsel for the department argues that the comprehensive phraseology used in the proviso takes in its broad sweep any finding given by the appropriate authority necessary for the disposal of the appeal or the revision, as the case may be, and to any direction given by the said authority to effectuate its finding and that the said finding or direction may be in respect of any year or any person. As the phraseology used in the proviso is not clear or unambiguous, the question raised cannot be satisfactorily resolved without having a precise appreciation of a brief history of section 34 of the Act culminating in the enactment of the proviso in the present form. Under section 3 of the Act, income-tax for any year shall be charged in respect of the total income of the previous year of every assessee. Notice under section 22 calling for return of income is the first step in the assessment proceedings. Two types of notices are mentioned in that section, namely, (1) the public notice and (ii) the individual notice. The public notice shall be issued on or before the 1st May of each year and the individual notice may be issued at any time in the course of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (1) of section 28 applies, of eight years, and in any other case, of four years from the end of the year in which the income, profits or gains were first assessable. " Section 28(1)(c) dealt with a case of an assessee concealing the particulars of his income or deliberately furnishing inaccurate particulars of his income. Act 23 of 1941 inserted a proviso in section 34(2) providing that " nothing contained in this sub-section shall apply to a reassessment made in pursuance of an order under section 31, section 33, section 66 or section 66A ", i.e., provisions relating to appeals, revisions and references : that is to say, if the assessment made by the Income-tax Officer was set aside and a reassessment was directed to be made, the said periods of limitation would not apply to such reassessment. Act 48 of 1948 introduced sub-section (3) in section 34 in substitution of sub-section (2) thereof. Under that sub-section the period of limitation prescribed by sub-section (2) was retained, and the proviso to section 34(2) before the amendment was made the second proviso, with some modifications, to the amended sub-section (3). While the scope of the previous proviso was confined on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok to the relevant terms of the proviso. The first part of the proviso released the operation of the proviso from the restrictions imposed by section 34 only in respect of the time-limit within which any action may be taken or any order of assessment or reassessment may be made. It means that the proviso continues to be subject to the other restrictions imposed under the section and it cannot override the said provisions in that regard. Under the proviso, the period of limitation will not apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33B, section 66 or section 66A of the Act. It was not contended, nor was it possible to contend, that by reason of the reference to the said provisions the powers and jurisdiction conferred on the respective authorities, tribunals or courts referred to therein were enlarged or modified by a reference in the proviso or that the proviso could be read or construed as amending those sections conferring on those bodies wider or different powers or jurisdiction. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is strictly confined to the assessment orders of a particular year under appeal. Section 33, inter alia, deals with an appeal to the Tribunal against the order of the Appellate Assistant Commissioner under section 31 ; and section 33B confers power of revision on the Commissioner against an order of the Income-tax Officer. The jurisdiction of the Appellate Tribunal or the revisional tribunal, as the provisions indicate, is confined only to the subject-matter which is under appeal or revision. The jurisdiction of the High Court or the Supreme Court under section 66 or section 66B, as the case may be, is far more limited and it is confined only to the questions referred to them. Obviously the questions referred by the Tribunal cannot exceed its jurisdiction. It is, therefore, manifest that assessment or reassessment made under the said sections or pursuant to the orders or directions made thereunder must necessarily relate to the assessment of the year under review, revision or appeal, as the case may be. It is important to remember that the proviso does not confer any fresh power upon the Income-tax Officer to make assessments in respect of escaped incomes without any time-limit. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sues is sufficient for the decision of the suit. " Under this Order, a " finding " is, therefore, a decision on an issue framed in a suit. The second part of the rule shows that such a finding shall be one which by its own force or in combination with findings on other issues should lead to the decision of the suit itself. That is to say, the finding shall be one which is necessary for the disposal of the suit. The scope of the meaning of the expression " finding " is considered by a Division Bench of the Allahabad High Court in Pt. Hazari Lal v. Income-tax Officer, Kanpur. There, the learned judges pointed out : " The word ' finding', interpreted in the sense indicated by us above, will only cover material questions which arise in a particular case for decision by the authority hearing the case or the appeal which, being necessary for passing the final order or giving the final decision in the appeal, has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing. " We agree with this definition of " finding ". But a Full Bench of the same High Court in Lakshman Prakash v. Commissioner of Income-tax construed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31(4). The expression " direction " in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression " finding " as well as the expression " direction " can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein. The words " in consequence of or to give effect to " do not create any difficulty, for they have to be collated with, and cannot enlarge, the scope of the finding or direction under the proviso. If the scope is limited as aforesaid, the said words also must be related to the scope of the findings and directions. The words " any person ", it is said, conclude the matter in favour of the department. The expression " any person " in its widest connotation may take in any person, whether connected or not with the assessee, whose income for any year has escaped assessment ; but this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in Pt. Hazari Lal's case on the interpretation of the proviso to sub-section (3) of section 34 of the Act. In the result, we hold that the said proviso would not save the time-limit prescribed under sub-section (1) of section 34 of the Act in respect of an escaped assessment of a year other than that which is the subject-matter of the appeal or the revision, as the case may be. It follows that the notice under section 34(1)(a) of the Act issued in the present case was clearly barred by limitation. In this view no other question arises for our consideration. In the result, the appeal fails and is dismissed with costs. MUDHOLKAR J.----This is an appeal by special leave from the judgment of the Allahabad High Court in the writ petition under article 226 of the Constitution quashing a notice under section 34(1) of the Indian Income-tax Act, 1922, issued by the appellant, Income-tax Officer, A-Ward, Sitapur, on December 5, 1957, against respondent No. 4. The relevant facts are briefly these : For the assessment year 1949-50, corresponding to Samvat year 2005, the appellant made an ex parte assessment under section 23(4) of the Act on November 13, 1953, which be la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt further held that if the direction be treated as based on a finding recorded by the Appellate Assistant Commissioner, that finding will have to be disregarded when applying the proviso. The correctness of the view taken by the High Court is challenged before us on behalf of the appellant. The relevant part of section 34(3) and the second proviso thereto run thus : " No order of assessment or reassessment, other than an order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies or an order of assessment or reassessment in cases falling within clause (a) of sub-section (1) or sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable : . . . . Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to " any person " in certain circumstances. No doubt, this court has recently held in S. C. Prashar v. Vasantsen Dwarkadas that the proviso, in so far as it removes the bar of limitation with respect to persons other than the assessee, is invalid as it infringes the provisions of article 14 of the Constitution. That, however, is a question apart, what we have to consider is the legislative intent, and for ascertaining it, it is legitimate to look also at that part of the enactment which has been held to be invalid. By permitting the appellate authority to make a finding or give a direction with respect to a person other than the assessee the legislature has made it abundantly clear that for bringing escaped income to assessment the bar of limitation would not apply provided there is a finding or direction of the appellate authority that a particular item of income had escaped assessment and may, therefore, be brought to assessment. Under the operative portion of section 34(1), the Income-tax Officer is empowered to give notice to an assessee in respect of escaped assessment. He can issue such notice under clause (a) thereof where income has escaped assessment due to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on appeal, and in our judgment it has no power under this section to pass an order or give directions with reference to the proceedings of an earlier year which are concluded. " We may point out that section 33(4) only refers to a finding or direction made by an appellate authority and does not itself confer any power on an appellate authority to make a finding or direction. Indeed, section 34 deals with entirely a different aspect, that of empowering an Income-tax Officer to bring to assessment escaped income, and has no concern with the powers of an appellate authority. The provision which deals with the powers of an appellate authority is section 31 and it is with that provision that we must concern ourselves primarily. The next case is not strictly relevant to this point. But the third one which is again a decision of the Allahabad High Court has proceeded to construe section 31 of the Act and we, therefore, have to consider it. After observing that the scope of the orders which can be passed by the appellate authority under section 31 the learned judges have observed : " The very fact that the Appellate Assistant Commissioner of Income-tax, when making an order under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to them before it can reduce or annul the assessment. It would follow, therefore, that the power to confirm, reduce, enhance or annul an assessment is implicit in the power of giving findings on the grounds on which a claim is made for one or the other of these results by the department or the assessee. No express mention of such power was required in section 31(3). When an appeal is before an appellate authority the whole matter is at large before it and, therefore, when a specific case is put before it by an assessee it has both the power as well as the duty to give its finding thereon. The ground given by the assessee for claiming a reduction or annulment of assessment may well be that the income upon which he has been assessed was not earned in the accounting period of the year to which the assessment pertains but in respect of a specified earlier or later year. The appellate authority is entitled to go into the whole question and come to a finding one way or the other, whether the income was earned in the year in which it was alleged by the assessee to have been earned or in the year with respect to which he has been assessed by the Income-tax Officer. To give a fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s necessary for the disposal of the appeal but also findings which are incidental to it and would include its conclusion as to whether the income in question in the appeal was not received during the year to which the appeal relates. Upon this view the High Court held that if in pursuance of such a finding, the Income-tax Officer proceeds to investigate afresh as to in which year the income was received, the action of the Income-tax Officer would still be the result of or the logical consequence of the finding arrived at for the purpose of the disposal of the appeal and the proviso to section 34(3) would apply to such a case. The view taken by the High Court is in our judgment correct. Thus in our view upon a construction of the relevant provisions we have no doubt that the notice was not in contravention of the provisions of section 34 of the Income-tax Act and could not be quashed on that ground. The question then remains whether the second proviso below section 34(3) is bad as offending article 14 of the Constitution. In support of this contention reliance is placed by Mr. Bishan Narain for the respondent on the decisions of this court in Suraj Mall Mohta and Co. v. A. V. Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l relationship with the object which was intended to be achieved by the law, that is, to detect and bring to assessment the escaped income. (See, for example, A. Thangal Kunju Musaliar v. M. Venkatachalam Potti where a further classification of war profiteers into those who had evaded substantial amount of income-tax and those whose evasion was not of a substantial amount was upheld). We can find nothing in the decision upon which reliance is placed which runs counter to our view. On the other hand we find ample support from the decision in Balaji v. Income-tax Officer, Special Investigation Circle where it has been pointed out that the two tests of permissible classification under article 14 are (a) that the classification must be founded on an intelligible differentia and (b) that the differentia must be reasonably connected with the object of the legislation, and that where they are satisfied by a statute, it does not violate article 14 of the Constitution. As regards the other decision relied upon, it is sufficient to point out that the majority of the learned judges have only struck down that part of the proviso which enables a notice to issue " to any person" on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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