TMI Blog1958 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... raja Bahadur Rama Rau Vijaya Prasad Singh, the father of the appellant, to levy income-tax for the year 1945-46. The total income assessed to income-tax by the said order was Rs. 1,60,602. This amount included the sum of Rs. 93,604 received by the assessee on account of interest on arrears of rent due to him after deduction of collection charges. It was urged before the Income-tax Officer by the assessee that this amount was not liable to be taxed in view of the decision of the Patna High Court in Kamakshya Narayan Singh v. Commissioner of Income-tax. The Income-tax Officer, however, held that, since the Department had obtained leave to appeal to the Privy Council against the said decision, the matter was sub judice and so he would not be justified in accepting the assessee's contention. In the result, he included the said amount in the total income for the purposes of assessment, but ordered that the realisation of the tax on the said amount should be stayed till the decision of the Privy Council or March 31, 1947, whichever was earlier. This order was passed under section 23(3) of the Act on December 31, 1945. Against this order the assessee preferred an appeal before the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led against this order but the appellate authority dismissed the assessee's appeal and confirmed the said order on July 26, 1949. He held that the subsequent decision of the Privy Council in the case of Kamakshya Narain Singh was information within the meaning of clauses (a) and (b) of section 34(1) and that the Income-tax Officer had reason to believe that a part of the assessee's income had escaped assessment. The assessee then moved the Income-tax Appellate Tribunal ; but on August 21, 1950, the Tribunal confirmed the order passed by the appellate authority and dismissed the assessee's appeal. It was held that the provisions of section 34 as amended in 1948 applied to the case and that the decision of the Privy Council brought it within the purview of sub-section (1)(b) of section 34. Meanwhile the assessee died and the appellant succeeded to the estate of his deceased father. He then filed an application under section 66(1) of the Act requiring the Tribunal to refer the question of law raised in the case to the Patna High Court for its opinion. The Tribunal rejected this application on February 27, 1951. Thereupon the appellant moved the Patna High Court under section 66(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requirements, which may be included in a notice under sub-section (2) of section 22, and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. " It is clear that two conditions must be satisfied before the Income-tax Officer can act under section 34(1)(b). He must have information in his possession, which, in the context, means that the relevant information must have come into his possession subsequent to the making of the assessment order in question and this information must lead to his belief that income chargeable to income-tax has escaped assessment for any year, or that it has been under-assessed or assessed at too low a rate or has been made the subject of excessive relief under the Act. Two questions are raised by Mr. Sastri under this sub-section in the present appeal. He contends that the relevant information means information as to facts and cannot include the decision of the Privy Council on a point of law ; and he argues that, where income has been duly returned for assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the fact that the said sections confer powers for revision or rectification would not be relevant and material in construing section 34(1)(b). The explanation to section 34 also does not assist the appellant. It is true that under the explanation production before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer would not necessarily amount to disclosure within the meaning of the said section ; but we do not see how this can have any bearing on the construction of clause (b) in section 34(1). On the other hand, one of the cases specifically mentioned in section 34(1)(b) necessarily postulates that the word " information " must have reference to information as to law. Where, in consequence of information in his possession, the Income-tax Officer has reason to believe that income has been assessed at too low a rate, he is empowered to revise the assessment ; and there can be no doubt that the belief of the Income-tax Officer that any given income has been assessed at too low a rate may in many cases be due to information about the true legal position in the matter of the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income as has not been assessed can well be regarded as having escaped assessment. In the present case, the rents received by the assessee from his agricultural lands were brought to the notice of the Income-tax Officer ; the question as to whether the said amount can be assessed in law was considered and it was ultimately held that the relevant decision of the Patna High Court which was binding on the department justified the assessee's claim that the said income was not liable to be assessed to tax. There is no doubt that a part of the assessee's income had not been assessed and, in that sense, it has clearly escaped assessment. Can it be said that, because the matter was considered and decided on the merits in the light of the binding authority of the decision of the Patna High Court, no income has escaped assessment when the said Patna High Court decision has been subsequently reversed by the Privy Council ? We see no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted. In our opinion, even in a case where a return ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Subsequently, this transaction was brought to the knowledge of the Income-tax authorities whereupon Burn Co.'s file was transferred by the Officer dealing with District II, and in February 1928, an assessment order was made on Martin Co. in respect of the combined incomes returned by Martin Co. and Burn Co., on the footing that the business of Burn Co. had become a branch of Martin Co. Martin Co. appealed against this assessment and their appeal was allowed by the High Court in May 1930. It was held that an income of a registered firm cannot, for the purpose of the Act, be aggregated with the income of an unregistered firm but that the income of each must be separately assessed irrespective of the fact that the persons interested in the profits of both concerns are the same. In consequence of this decision, the assessment made on Martin Co. was amended by the elimination therefrom of the income returned by Burn Co., and in November 1930, an assessment was made on Burn Co. on their income as returned by them in January 1928. It was this assessment which was the subject-matter of the appeal before the Privy Council. It would thus be noticed that the principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Privy Council by the appellants, it would be difficult to accept the contention that according to the Privy Council, section 34 would be inapplicable wherever notice under section 22(2) has been issued against an assessee, a return has been submitted by him and a final order has been passed by the Income-tax Officer in the said assessment proceedings. To say that, so long as assessment proceedings are pending, it is impossible to assume that any income has escaped assessment is very much different from saying that income cannot be said to have escaped assessment wherever assessment proceedings have been taken and a final order has been passed on them. We must, therefore, hold that this decision does not support Mr. Sastri's contention about the inapplicability of section 34 in the present case. In this connection it may be relevant to refer to the decision of the Calcutta High Court in In re Lachhiram Basantlal because, as we have already pointed out, the statement of the law made by Chief Justice Rankin in regard to the effect of section 34 of the Act in this case has been expressly approved by the Privy Council in the case of Rajendranath Mukerjee. While dealing with the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion was that though earlier assessment proceedings had been taken they had failed to result in a valid assessment owing to some lacuna other than that attributable to the assessing authorities notwithstanding the chargeability of income to the tax. Mr. Sastri says that it is only in cases where income can be shown to have escaped assessment owing to some lacuna other than that attributable to the assessing authorities that section 34 can be invoked. We do not think that a fair reading of the judgment can lead to this conclusion. The observations on which reliance is placed by Mr. Sastri have naturally been made in reference to the facts with which the court was dealing and they must obviously be read in the context of those facts. It would be unreasonable to suggest that these observations were intended to confine the application of section 34 only to cases where income escapes assessment owing to reasons other than those attributable to the assessing authorities. Indeed Jagannadhadas, J., has taken the precaution of adding that it was unnecessary to lay down what exactly constitutes escapement from assessment and that it would be sufficient to place their decision on the narrow g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be pointed out that in coming to this conclusion the learned Judge appears to have relied on the observations of Mr. Justice Rowlatt in Anderton and Halstead Ltd. v. Birrell that "the word 'discover' in section 125 of the English Act does not include a mere change of opinion on the same facts and figures upon the same question of accountancy, being a question of opinion". Incidentally, we may observe that this statement of the law by Mr. Justice Rowlatt appears to have been overruled by the Court of Appeal in Commercial Structures Ltd. v. R.A. Briggs. Soon after the decision of the Bombay High Court was reported, the same question was raised before the Madras High Court in Raghavalu Naidu Sons v. Commissioner of Income-tax. Leach, C. J., who delivered the judgment of the court agreed with the construction which had been put on the expression "definite information" by the Bombay High Court on the ground that "it is very desirable to avoid conflict on such a question". He, however, added that in view of the opening words of the amended section as it was amended in 1939, the word "discovers" means something more than "has reason to believe" or "satisfies himself" and that cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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