TMI Blog1955 (4) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee by name Chatturam Horilram Ltd., who is the appellant before us, is a private limited company carrying on in Chota Nagpur the business of exporting mica for sale to foreign countries. The assessment in question is for the year 1939-40 and the accounting year is the calendar year 1938. These proceedings were initiated on a notice issued to the assessee under section 34 of the Indian Income-tax Act, 1922 (Act XI of 1922) (hereinafter referred to as the Act). It is the applicability of this section to the facts of this case that is the sole matter for consideration in this appeal. The circumstances under which the above mentioned notice under section 34 was issued are as follows. The appellant had previously been assessed to tax on an income of Rs. 1,09,200 for the same year 1939-40 by an order dated the 22nd December, 1939, which was reduced on appeal by Rs. 31,315. That assessment was set aside by the Income-tax Appellate Tribunal on the 28th March, 1942, on the ground that the Indian Finance Act of 1939 was not in force during the assessment year 1939-40 in Chota Nagpur, which was a partially excluded area. On a reference by the Tribunal at the instance of the Income-tax autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act was issued to the appellant on the 12th February, 1944. The income of the assessee company was thereupon determined at a sum of Rs. 4,86,351, which, on appeal to the Assistant Commissioner, was reduced by Rs. 11,187. Out of this amount a sum of Rs. 4,04,618 related to two items of cash credits appearing in the name of the partners of the company which, in the absence of any satisfactory explanation, was treated by the Income-tax authorities as secreted profits of the company. Before the Income-tax Appellate Tribunal two points were raised. (1) Whether the notice dated the 12th February, 1944, under section 34 of the Act was validly issued. (2) Whether the Income-tax authorities were right in holding that the cash credit items were secret profits. Both the points were decided against the assessee. On the assessee's application to refer both the points for the decision of the High Court, the Tribunal declined to make a reference as regards the second point but referred the first for the opinion of the Court in the following terms : " Whether in the circumstances of the case, the notice issued on 12th February, 1944, under section 34 of the Indian Income-tax Act was vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case--marked out within brackets--it may be seen that the facts which require to be established for the validity of the notice under this sub-section are (1) the income, profits or gains sought to be assessed should be chargeable to income-tax and have escaped assessment in any year, and (2) the Income-tax Officer should have discovered it in consequence of definite information which has come into his possession. The contention of the learned counsel for the appellant is that, with reference to the facts of this case, none of these conditions can be said to have been satisfied. It is urged that the income sought to be assessed under these proceedings was not, as a fact, chargeable to income-tax during the assessment year 1939-40. It is said that in any case there can be no question of the income having escaped assessment because, as a fact, the Income-tax authorities did proceed to assess the income and that what happened is that the proceedings became infructuous by reason of the High Court having pronounced them to be void. It is also contended that there is no question of discovery of any relevant factor information, because the non-assessment of the income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court on the 30th September, 1943. As already stated, the notice under section 34(1), whose validity is in question, was based on the order of the Income-tax Officer dated the 8th February, 1944, after the judgment of the High Court was pronounced. That order, which has been extracted above, shows clearly that it was in consequence of the judgment of the High Court in the background of the promulgation of Regulation IV of 1942 that fresh action under section 34(1) was being initiated. A number of cases (Commissioner of Income-tax, Bombay v. Sir Mohomed Yusuf Ismail ; Fazal Dhala v. Commissioner of Income-tax, Bihar and Orissa ; Raghavalu Naidu Sons v. Commissioner of Income-tax, Madras ; and Raja Benoy Kumar Sahas Roy v. Commissioner of Income-tax, West Bengal) have been cited before us to show how the phrase "definite information" and the word "discovery" used in this section have been interpreted, by the various High Courts. It is unnecessary to deal with these cases at any length. There is here no question as to any new subjective facts such as change of opinion consequent on a correct appreciation of law by the very same, or another, or higher officer that is pressed int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viable under section 3 and is in respect of the total income of an assessee in the previous year. The total income is defined in section 2, sub-section (15). The application of the Act to the total income in the hands of an assessee is governed by sections 4, 4-A and 4-B and is determined with reference to concepts relating to residence, receipt and accrual, as indicated therein. Section 3, under which the actual charge of income-tax arises, is as follows : " Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority, and of every firm and other association of persons or the partners of the firm or the members of the association individually. " It is by virtue of this section that the actual levy of the tax and the rates at which the tax has to be computed is determined each year by the annual Finance Acts. Thus, under the scheme of the Income-tax Act, the income of an assessee attracts the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper and valid steps are taken for quantification of the tax. The contention, therefore, of the appellant that the income was not chargeable to tax in the year 1939-40 cannot be accepted. The next question that arises is whether the income, though chargeable to tax in the year, can be said to have escaped assessment in the relevant year. The argument of the learned counsel for the appellant is that since assessment proceedings had in fact been taken during the year 1939-40 by an order of assessment dated the 22nd December, 1939, it cannot be said that the income " escaped " assessment. He urges that what happened was that, in spite of assessment having been made, the assessment proceedings became infructuous on account of the decision of the Income-tax Appellate Tribunal setting aside the same and the High Court agreeing with it. He contends that, in the circumstances, this is no more than a failure of the assessment proceedings but that it is not an escapement from assessment. He relied upon the Privy Council case in Sir Rajendranath Mukherjee v. Commissioner of Income-tax, Bengal, where their Lordships say that " the expression 'has escaped assessment' cannot be read as equiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent legislation and answered a different question. Learned counsel for the appellant also urged that in any case the deeming provision enacted in Regulation IV of 1942 may be taken to have validated the assessment proceedings previously taken in the year 1939 and at best to have restored the assessment order passed by the Income-tax Officer on the 22nd December, 1939, and confirmed by the Assistant Commissioner. But this overlooks the fact that the order had in fact been set aside by the Income-tax Appellate Tribunal and that the setting aside was confirmed by the High Court on the reference made to it. Admittedly the Regulation was passed after the decision of the Income-tax Appellate Tribunal. Notwithstanding that the Regulation IV of 1942 purported to be retrospective, it cannot have the effect of effacing the result brought about by the decision of the Income-tax Appellate Tribunal and the High Court on reference, unless there are clear and express words to that effect. It might have been quite a different matter, if by the date of the Regulation the assessment proceedings themselves were still pending, as in fact happened with reference to assessment proceedings in this area ..... X X X X Extracts X X X X X X X X Extracts X X X X
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