MATHURDAS GOVINDDAS Vs. G N GADGIL ITO
LAWS(GJH)-1963-12-11
HIGH COURT OF GUJARAT
Decided on December 18,1963

MATHURDAS GOVINDDAS Appellant
VERSUS
G N Gadgil Ito Respondents

JUDGEMENT

BHAGWATI, J. - (1.) THESE petitions involve common questions of law and are founded on the same facts and it could, therefore, be convenient to dispose them of by a single judgment. Certain notices were issued against the petitioners by the Income -tax Officer, Special Circle, Ahmedabad, on 31st January, 1962, under section 34(1)(a) of the Income -tax Act, 1922. The reason for issuing the notices was that, according to Income -tax Officer, the following income of each petitioner had escaped assessment in the assessment year mentioned against the respective incomes by reason of the omission or failure to disclose fully and truly all material facts necessary for his assessment for such assessment year : Rs. 41,000 in the assessmentyear 1943 -44.)Each of the petitioners in )Special Civil Applications ) Rs. 91,575 in the assessmentNos. 370, 371 and 372 1962. ) year 1946 -47.Rs. 36,535 in the assessmentyear 1950 -51) Rs. 84,520 in the assessmentThe petitioner in Special ) year 1943 -44.Civil Application No. 373 )of 1962. ) Rs. 1,40,370 in the assessmentyear 1946 -47.Rs. 55,122 in the assessmentyear 1950 -51.The petitioner in Special )Civil Application No. 374 )of 1962. ) Rs. 1,60,740 in the assessmentyear 1943 -44. and the Income -tax Officer, therefore, proposed to reassess such escaped income by reopening the assessment of each petitioner for the respective assessment years. There were separate notices to each petitioner in respect of each assessment year and it was stated in each of the notices that it was issued after obtaining the necessary satisfaction of the Commissioner of Income -tax, Gujarat, or the Central Board, of Revenue, New Delhi, as the case may be. The petitioners were of the view that the notices were illegal and void and they, therefore, preferred the present petitions challenging the validity of the respective notices issued against them.
(2.) THE notices were admittedly issued under sub -section (1)(a) of section 34 and the main ground on which the validity of the notices was challenged was that, having regard to the provisions of sub -section (1A) of the section 34, the Income -tax Officer, had no jurisdiction to issue notices to the petitioners under sub -section (1)(a) of section 34 in respect of the assessment years 1943 -44 and 1946 -47 for which the corresponding previous years fell wholly within the period 1st September, 1939, to 31st March, 1946, and that so fare as the assessment year 1950 -51 was concerned, the condition precedent to the jurisdiction of the Income -tax Officer to issue notice under sub -section (1)(a) of the section 34 was not satisfied and the Income -tax Officer had, therefore, no jurisdiction to issue notices to the petitioners in respect of that assessment year. Now this ground depended primarily on the determination of the true scope and ambit of sub -sections (1)(a) and (1A) of section 34 as they stood at the material time but in order to appreciate the implications and consequences of various arguments which have been addressed to us on this question of the construction, it is necessary to trace briefly the history of section 34 and to see how it stood at different points of time. Section 34, prior to its amendment in 1939, provided for a period of one year of bringing to tax income, profits or gains escaping assessment in any year. In 1939 the whole section was substituted by another section which provided for the first time the limits of eight years and four years but it is not necessary to refer to the same since the section with which we are concerned is the section after its amendment by the Income -tax and Business Profits tax (Amendment) Act, 1948. This Act was passed on 8th September, 1948, and it substituted a new section in place of the old and the material part of the material part of that section as subsequently amended by the Income -tax (Amendment) Act, 1953 (which came in force 1st April, 1952), was as follows : '34. (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 make a return of his income under section 22 for any year or 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 have been under -assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has beeen no omission or failure as mentioned in clause (a) on the part of the assessee, the Income -tax Officer has in consequence of information in his possession reason to believe that income profits or gains chargeable to income -tax have escaped assessment for any year, or have been under -assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time within eight years in cases falling under clause (b) at any time within four years end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the 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 : Provided that - (i) the Income -tax Officer shall not issue a notice this sub -section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is fit case for the issue of such notice;... 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, section 33, section 33A, section 33B, section 66 or section 66A.' Now simultaneous with section 34 there was in operation taxation on income (Investigation Commission) Act, 1947, being Act XXX of 1947, passed by the Central Legislature in April, 1947. Section 5(1) of the Act empowered the Central Government to refer to the Commission established under the Act for the investigation and report any cases in which it had prima facie reason for believing that a person had to a substantial extent evaded payment of taxation on income. The date for making the reference was originally 30th June, 1948, but it was subsequently extended to 1st September, 1948. The Central Government could also refer to the Commission under section 5(1), if after investigation, the commission made a report to that effect. The procedure prescribed by the Act for making investigation under its provisions was of a summary and drastic nature. It constituted a departure from the ordinary law of procedure and in certain important aspects was detrimental to the persons subjected to it and as such was dicriminatory. The validity of section 5(4) was, therefore, challenged in Suraj Mall Mohta v. A. V. Visvanatha Sastri and the Supreme Court struck down that providing as infringing the guarantee of the equal protection of the laws contained in article 14 of the Constitution. During the course of the discussion in Suraj Mall Mohta's case in the Supreme Court certain defects were pointed out in the classification made under section 5(1). Parliament, therefore, tried to remedy these defects when it enacted, consequent upon the decision in Suraj Mall Mohta's case, the Indian Income -tax (Amendment) Act, 1954, introducing by way of amendment the following sub -sections as sub -section (1A) and (1B) in section 34 : '(1A). If, in the case of any asseessee, the Income -tax Officer has reason to believe - (i) that income, profits or gains chargeable to income -tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1946; and (ii) that the income, profits or gains which have so escaped assessment for any such year amount, or are likely to amount to one lakh of rupees or more; he may notwithstanding that the period of eight years or, as the case may be for years specified in sub -section (1) has expired in respect thereof, serve on the assessee, or, if the assessee is a company, on the principal office thereof, a notice containing all or any of the requirements which may be included in notice under sub -section (2) of section 22, and may proceed to assessee or reassess the income, profits or gains of the assessee for all or any of the years referred to in clause (i) and thereupon the provisions of this Act excepting those contained in clauses (i) and (iii) of the proviso to sub -section (1) and in sub -sections (2) and (3) of this section shall, so far as may be, apply accordingly : Provided that the Income -tax Officer shall not issue a notice under this sub -section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issue of such notice : Provided further that no such notice shall be issued after the 31st day of March, 1956. (1B). Where any assessee to whom a notice has been issued under sub -section (1A) applies to the Central Board of Revenue at any time within six months from the receipt of such notice or before the assessment or reassessment is made, whichever is earlier, to have the matters relating to his assessment settled, the Central Board of Revenue may, after considering the terms of settlement proposed and subject to the previous approval of the Central Government, accept the terms of such settlement, and, if it does so, shall make an order in accordance with the terms of such settlement specifying among other things the sum of money payable by the assessee...' This Act by which sub -section (1A) and (1B) were added in section 34 received the assent of the President on 5th September, 1954, but it was brought into effect from, 17th July, 1954. and sub -section (1A) and (1B), therefore, came into force from 17th July, 1954. By this Act certain other sub -sections, namely, sub -sections (1C) and (1D), were also added in section 34, but it is not necessary to refer to them since they have no bearing on the determination of the problem before us. This state of affairs continued up to 1st April, 1956, when certain further amendments of a rather far -reaching character were made in section 34 by the Finance Act, 1956. The time -limit of eight years in sub -section (1) in respect of the cases falling within clause (a) was removed and the following provisions were substituted for the existing proviso in sub -section (1) : 'Provided that the Income -tax Officer shall not issue a notice under clause (a) and sub -section (1) - (i) for any year prior to the year ending on the 31st day of March, 1941; (ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income -tax which have escaped assessment or have been under -assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st days of March, 1941; (iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under clause (ii), unless the Central Board of Revenue, and in any other case, the Commissioner, is satisfied on such reasons recorded that it is fit case for the issue of such notice;...'
(3.) SUB -section (1B) was also amended by the substitution of the words 'to whom a notice has been issued under clause (a) of sub -section (1) or under sub -section (1A) for any of the years ending on the 31st day of March of the years 1941 to 1948, inclusive' for the existing words 'to whom a notice has been issued under sub -section (1A)'. On the section so amended the question arose whether after the deletion of he time -limit of eight years in cases involving escapment of income exceedings Rs. 1 lakh, a notice could issue under sub -section (1)(a) even though such notice was time -barred by reason of the period of eight years at the date when the amendment made by the Finance Act, 1956, came into force. The High Court of Calcutta held in Debi Dutt v. Belan, that once the right of the Income -tax Officer to proceed under sub -section (1)(a) as it stood prior to its amendment by the Finance Act, 1956, was barred by reason of the expiration of the period of eight years, it was not revived by the deletion of the time -limit of eight years from sub -section (1)(a). This decision led to the passing of an ordinance and later the Indian Income -tax (Amendment) Act, 1959. This Amending Act added sub -section (4) to section 34, providing for issue of notice under sub -section (1)(a) at the any time notwithstanding the expiration of the period of eight years provided under the section as it stood prior to its amendment by the Finance Act, 1956, and also enacted section 4 in the following terms for validation of notices issued prior to the commencement of the Amending Act : 'No notice issued under clause (a) and sub -section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceedings taken in consequence of such notice shall be called in question in any court, tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or reassessment was made, the time within which such notice should have been issued or the assessment or reassessment should have been made under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired.' ;


Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.