MATHURADAS GOVINDDAS Vs. G N GADGIL INCOME TAX OFFICER SPECIAL INVESTIGATION OFFICER AHMEDABAD
HIGH COURT OF GUJARAT
G.N.GADGIL INCOMETAX OFFICER SPECIAL INVESTIGATION OFFICER AHMEDABAD
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P.N.BHAGWATI, J.M.SHELAT -
(1.) These petitions involve common questions of law and are founded on the same facts and it would 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 31 January 1962 under section 34(1)(a) of the Income-tax Act 1922 The reason for issuing the notices was that according to the Incometax Officer the following income of each petitioner had escaped assessment in the assessment year mentioned against the respective income by reason of his omission or failure to disclose fully and truly all material facts necessary for his assessment for such assessment year: @@@ ------------------------------------------------------------------------------------------------------------------------ Each of the petitioners in } Rs. 41 0 the assessment year 1943-44. special Civil } Rs. 91 575/-in the assessment year 1946-47. Applications Nos. 370 371 } Rs. 36 535 the assessment year 1950-51. and 372 of 1962. } The petitioner in Special } Rs. 84 520 the assessment year 1943-44. Civil Application No. 373 } Rs. 1 40 370 the assessment year 1946-47. of 1962. } Rs. 55 122 the assessment year 1950-61. The petitioner in Special } Civil Application No. 314 } Rs. 1 60 740 the assessment year 1943-44. of 1962. ------------------------------------------------------------------------------------------------------------ and the Income-tax Officer therefore proposed to reassess such escaped income by reopening the assessment of each petitioner for the respective assessment year. 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-sec. (1A) of sec. 34 the Income-tax Officer had no jurisdiction to issue notices to the petitioners under sub-sec. (1)(a) of sec. 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 far as the assessment year 1950-51 was concerned the condition precedent to the jurisdiction of the Income-tax Officer to issue notice under sub-sec. (1)(a) of sec. 34 was not satisfied and the Incometax 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-secs. (1)(a) and (1A) of sec. 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 construction it is necessary to trace briefly the history of sec. 34 and to see how it stood at different points of time. Sec. 34 prior to its amendment in 1939 provided for a period of one year for 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 that section as subsequently amended by the Indian income-tax (Amendment) Act 1953 (which came into force from 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 sec. 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 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 been 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 loss or depreciation allowance has been computed. he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the 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 made a notice under sub-sec. (2) of sec. 22 and may proceed to assess or re-assess 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:
(1) the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; .... ..... .....
(2) ..... ..... .....
(3) ..... ..... ...... Provided further that nothing in this section limiting the time within which any action may be taken or any order assessment or re-assessment may be made shall apply to a re-assessment made under sec. 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 sec. 31 sec 33 sec. 33A sec. 33B sec. 66 or sec. 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 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 1 September 1948. The Central Government could also refer to the Commission under section 5(4) cases of persons other than those whose cases had been referred to it under sec. 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 discriminatory. The validity of section 5(4) was therefore challenged in Suraj Mall Mohta v. Sri A. V. Visvanatha Sastri (1954) 26 I.T.R. 1 and the Supreme Court struck down that provision 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 Mohtas case in the Supreme Court certain defects were pointed out in the classification made under sec 5(1) The Parliament therefore tried to remedy these defects when it enacted consequent upon the decision in Suraj Mall Mohtas case Indian Incometax (Amendment) Act 1954 introducing by way of amendment the following sub-sections as sub-secs. (1A) and (1B) in sec. 34:
"(1A). If in the case of any assessee 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 or years amount or 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 four years specified in sub-sec. (1) has expired in respect thereof 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-sec. (2) of sec. 22 and may proceed to assess or reassess the income profits or gains of the assays 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-sec. (1) and in sub-secs. (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 acredance with the terms of such settlement specifying among other things the sum of money payable by the assessee. ... . .. . .. . .. . .. . .. This Act by which sub-secs. (1A) and (1B) were added in sec. 34 received the assent of the President on 5th September 1954 but it was brought into effect from 17th July 1954 and sub-secs. (1A) and (1B) therefore came into force from 17th July 1954. By this Act certain other subsections namely sub-secs. (1C) and (1D) were also added in sec. 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 upto 1st April 1956 when certain further amendments of a rather farreaching character were made in sec. 34 by the Finance Act 1956 The time limit of eight years in sub-section (1) in respect of cases falling within clause (a) was removed and the following provisos were substituted for the existing proviso in sub-sec.(1):- Provided that the Income-tax Officer shall not issue a notice under clause (a) of sub-sec. (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 any 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 day 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 a fit case for the issue of such notice: Sub-sec. (1B) was also amended by the substitution of the words to whom a notice has been issued under clause (a) of sub-sec. (1) or under sub-sec. (1A) for any of the year 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-sec. (1A) . On the section so amended the question arose whether after the deletion of the time limit of eight years is cases involving escarpment of income exceeding Rs. 1 lac a notice could issue under sub-sec. (1)(a) even though such notice was time-barred by reason of the expiration 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 Dutta v. T. Bellan A.I.R. 1959 Calcutta 567 that once the right of the Income-tax Officer to proceed under sub-sec. (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-sec. (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-sec. (4) to sec. 34 providing for issue of notice under sub-sec. (1)(a) at 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 sec. 4 in the following terms for validation of notices issued prior to the commencement of the Amending Act:
"No notice issued under clause (a) of sub-sec. (1) of sec. 34 of the principal Act at any time before the commencement of this Act and no assessment reassessment or settlement made or other proceeding 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 re-assessment was made the time within which such notice should have been issued or the assessment or re-assessment should have been made under that section as in force before its amendment by clause (a) of sec. 18 of the Finance Act 1956 had expired". These were the relevant provisions of sec. 34 as they stood from time to time after undergoing various amendments which we have set out above.
(3.) Now the impugned notices were issued by the respondent on 31st January 1962 and the question which therefore arises for consideration is whether after the amendment by the Finance Act 1956 a notice can be issued under sub-sec. (1)(a) of sec. 34 for reopening an assessment for any of the assessment years covered by sub-sec. (1A) of sec. 34 when no notice for reopening such assessment was issued under sub-sec. (1A) of sec. 34 on or before 31st March 1956. In order to arrive at a proper determination of the question it is necessary first to consider the scope and ambit of sub-sections (1)(a) and (1A) of sec. 34 as they stood immediately prior to the amendment by the Finance Act 1956 and then to examine the effect of the amendment on those sub-sections.;
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