TMI Blog1964 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ajagopala Ayyangar JJ. was delivered by Subba Rao J., and the judgment of Raghubar Dayal and Mudholkar JJ. was delivered by Mudholkar J.] SUBBA RAO J.----This appeal by special leave raises the question of the construction of the proviso to sub-section (3) of section 34 of the Indian Income-tax Act, 1922, as amended by Act 25 of 1933, hereinafter called the Act. The facts lie in a small compass and they are as follows : The respondent is a firm carrying on business in different lines. It was assessed to income-tax under section 23(4) of the Act for the assessment year 1949-50 on the ground that the notice issued under sub-sections (2) and (4) of section 22 of the Act had not been complied with. On September 27, 1955, the said assessment was cancelled under section 27 of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to an assessment or reassessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under section 31, i.e., in an appeal before the Appellate Assistant Commissioner, under section 33, i.e., in an appeal before the Tribunal, under section 33A, i.e., in a revision before the Commissioner, under section 33B, i.e., in a revision before the Commissioner against an order of the Income-tax Officer, and under sections 66 and 66A, i.e., in a reference to the High Court and appeal against the High Court's order to the Supreme Court. Learned counsel for the appellant contends that the scope of the proviso is only confined to the assessment of the year that is the subject-matter of the appeal or the revision, 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 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not issue a notice if eight years have elapsed after the expiry of the relevant assessment year, and (iii) that unless he has recorded his reasons and unless the Central Board of Revenue in any case falling under clause (ii) of the proviso and, in any other case, the Commissioner is satisfied that for such reasons as recorded it is a fit case for the issue of a notice. Before 1939, there was no period of limitation for completing the assessment once it had been initiated within the prescribed period of limitation. But Act 7 of 1939 for the first time introduced clause (2) in section 34 whereunder " no order of assessment under section 23 or of assessment or reassessment under sub-section (1) of this section shall be made after the expiry, in any case to which clause (c) of sub-section (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no time-limit for initiating proceedings under section 34(1) in respect of concealed income, but such initiation could be made only subject to the conditions laid down in the proviso to section 34(1) ; (ii) in the case of other escaped income, the proceedings could not be initiated after the expiry of four years from the end of the relevant assessment year ; (iii) the assessment proceedings once commenced shall be completed within the period of limitation prescribed under section 34(3) ; and (iv) to a case to which the proviso to section 34(3) applies, there is no period of limitation either for initiating the proceedings under section 34 or for completing the assessment commenced either under section 23 or under section 34(1). With this background let us give a closer look 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribes the mode of disposal by an Appellate Assistant Commissioner of an appeal preferred to him : the appeal before him is certainly confined to an assessment year ; after hearing the appeal, he can either confirm, reduce, enhance or annul the assessment ; he can set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The various sub-sections of that section describe in detail the orders or directions that can be made or issued by him in respect of various matters ; but no power is conferred on him to make an order or issue directions in respect of an assessment of a year which was not the subject-matter of the appeal. It may, therefore, be held, on a construction of the provisions of section 31, that the jurisdiction of the Appellate Assistant Commissioner 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings once again in which case section 34(1) will be attracted. The expression " finding or direction ", the argument proceeds, is wide enough to take in at any rate a finding that is necessary to dispose of the appeal or direction which Appellate Assistant Commissioners have in practice been issuing in respect of assessments of the years other than those before them in appeal. What does the expression " finding " in the proviso to sub-section (3) of section 34 of the Act mean ? " Finding " has not been defined in the Income-tax Act. Order XX, rule 5, of the Code of Civil Procedure reads : " In suits in which issues have been framed, the court shall state its finding or decision, with the reasons therefor, upon each separate issue, unless the finding upon any one or more of the issues 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression " direction " cannot be construed in vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give under section 31. Under that section he can give directions, inter alia, under section 31(3)(b), (c) or (e) or section 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 givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Lakshman Prakash's case overruled the decision of the Division Bench in Pt. Hazari Lal's case. A Division Bench of the Madras High Court, consisting of Rajagopalan and Balakrishna Ayyar JJ. in Simrathmull v. Additional Income-tax Officer, Ootacamund took the same view as the Full Bench of the Allahabad High Court in Lakshman Prakash's case. But a Division Bench of the Calcutta High Court, consisting of Bose C.J. and Mookerjee J. in Brindaban Chandra Basak v. Income-tax Officer, though it had not finally expressed any opinion on that, was inclined to accept the view expressed by the Division Bench of the Allahabad High Court in Pt. Hazari Lal's case. We have gone through the decision carefully. For the reasons given by us, we agree with the view expressed by the Division Bench of the Allahabad 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid notice. The High Court quashed the notice on the ground that it was issued by the appellant beyond the ordinary period of limitation, overruling the appellant's contention that no period of limitation governed the notice inasmuch as the second proviso to section 34(3) of the Act was attracted to the facts of the case. The High Court in doing so purported to follow its own decision in Pt. Hazari Lal v. Income-tax Officer, Dist.II, Kanpur. Briefly stated, the view taken by the High Court is that the only direction which the Appellate Assistant Commissioner can competently give is one which is covered by section 31 of the Act and that since the appeal before him was confined to a particular assessment year, the direction must also be necessarily limited to a matter falling within that year. The High Court 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caped assessment, he has no power to bring it to assessment along with the income of a subsequent year. The only power which he has for bringing such income to assessment is to resort to the provisions of section 34(1) and issue a separate notice with respect to it to the assessee and the Appellate Assistant Commissioner of Income-tax hearing an appeal from an order of assessment made by the Income-tax Officer is in no better position in this matter than the Income-tax Officer. All that is perfectly true. But the question which we have to consider is whether the wide language employed by the legislature in enacting the second proviso should not be given its natural meaning. This proviso removes the bar of limitation, enacted by section 34(1) and its first two provisos not only with respect to the assessee but 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to matters specified in section 31 and that upon a proper construction of that provision, a direction or finding with respect to income of any particular year, other than the one with respect to which there is an appeal before it, cannot be competently made by the appellate authority. In support of this contention reliance is placed upon the decisions in Kamlapat Motilal v. Income-tax Officer, Hiralal Amritlal Shah v. K. C. Thomas, 1st Income-tax Officer, Bombay, Pt. Hazarilal v. Income-tax Officer, Dist. II, Kanpur and Brindaban Chandra Basak v. Income-tax Officer. In the first of these cases the learned judges have observed : " In our opinion the powers of the Appellate Tribunal under section 33(4) are limited to the passing of such order as it thinks fit to make in the proceedings which are then before it 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 direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the word " finding " must be given the same meaning as that in the Code of Civil Procedure, that is, a decision of the court. In other words, they seem to hold that a finding means only the final conclusion in the case. In support of this conclusion they placed reliance upon S. C. Prashar v. Vasantsen Dwarkadas. Section 31(3) of the Act confers certain express powers upon the appellate authority, one of which is to " confirm, reduce, enhance or annul the assessment ". This power can be exercised only after the appellate authority arrives at some conclusions on facts. Thus, if an assessee wants to be exonerated from tax with respect to a particular item of income and sets out the grounds on which he bases his claim for exoneration the appellate authority has to consider them and arrive at its findings with 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision like the one contained in section 34(3) by saying that it was necessary to have such provision so as to enable the Income-tax Officer to take action in pursuance of a finding recorded or direction given by an appellate authority. Finally they observed : " To construe the proviso in the manner in which Mr. Subbaraya Aiyar invited us to do would be to make that proviso otiose. " With these observations we concur. This decision has been followed by the Bombay High Court in General Construction and Supply Co. v. Income-tax Officer, (8th) C-Ward, Bombay. The same High Court has reaffirmed the view taken in Simrathmull's case in A. S. Khader Ismail v. Income-tax Officer, Salem and held that the word " finding " in the proviso to section 34(3) must be given a wide significance so as to include not only findings 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature in enacting the particular provision has made a further or a sub-classification by putting under one head those whose assessments have come up for scrutiny before an appellate authority and with respect to whose escaped assessment a judicial finding or direction is made by the appellate authority and under another head other assessees whose escaped income was not detected by the appellate authority and with respect to which no judicial finding or direction was, therefore, made by such authority. There is a real difference between the two categories of assessees. Prima facie there is reasonable basis for the sub-classification and the grounds on which it is made, that is, discovery by a higher income-tax authority and a judicial finding or direction made with respect to the fact by it. These grounds have a rational 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 substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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