S.K.MAL LODHA, J. -
(1.)THIS is a reference under s. 256(1) of the IT Act, 1961 (No. XLIII of 1961) (for short "the Act" herein), by the Tribunal, Delhi Bench "A", which for the sake of brevity hereinafter will be referred to as the "the Tribunal". The Tribunal has referred the following questions of law for decision of this Court :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the AAC was wrong is legalising the assessments for the asst. yrs. 1962-63, 1963-64 and 1964-65, respectively, by converting the provisions of s. 147(a) into those of s. 147(b) of the Act of 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in respect of the asst. yrs. 1965-66 and 1966-67, the provisions of s. 27(1) r/w s. 64(iv) of the IT Act, 1961, did not apply to the transfer of property made by the assessee ? (3) Whether, on the facts and in the circumstances of the case, the expression 'an individual' occurring in s. 64(iv) of the IT Act, 1961, would include a female ? (4) Whether the Tribunal was right in holding that the provisions of s. 64(iv) of the IT Act, 1961, are retrospective in character so as to include the income of the minors (other than house property) in respect of transfer made prior to April 1, 1961 ? (5) Whether, on the facts and in the circumstances of the case, the Tribunal was right in not giving a direction that credit be given for tax paid by the minors for the asst. yrs. 1962-63 to 1966-67 ?"
(2.)THE assessee, Mrs. Ayodhya Kumari, transferred her house property on March 31, 1956. She transferred a fixed deposit of Rs. 5,000 with the National Motors on December 29, 1956. She also transferred ten shares of City Light THEatres (P) Ltd., on August 24, 1960, to her minor son, Sunil Kumar. One the same day, i.e., August 24, 1960, she transferred seventeen shares of City Light THEatres (P) Ltd. to her minor son, Akhil Kumar. THE incomes of these minor sons were not included in the total income of the assessee in her original assessments as according to the interpretation put by the Supreme Court on s. 16(3) of the Indian IT Act, 1922 (No. XI of 1922) (for short "the old Act"), that " an individual" occurring in s. 16 of the old Act would only include male species and not female species. According to the ITO (ITO), there were changes in the provisions of s. 64 of the Act and according to s. 64(iv) of the Act, income of the minor sons was to be included in the assessee's assessment. THE ITO started proceedings against the assessee under s. 147(a) of the Act in respect of the asst. yrs. 1962-63, 1963-64 and 1964- 65, and he included the income of the minor sons in the total income of the assessee. He also included the income of the minor sons from the assets transferred by her to them in the assessment of the assessee for the asst. yrs. 1965-66 and 1966-67. THE assessee preferred appeals. THE AAC held that, on the facts of the case, he can substitute application of the provisions of s. 147(b) for s. 147(a) of the Act. He further held that though the assets had been transferred by the assessee prior to the commencement of the Act, still the provisions of s. 64 of the Act were applicable to the case, for, the Act is not concerned with the date of transfer but with the income arising out of transfer and chargeable to income-tax and that s. 64(iv) of the Act is wide enough to include income derived by transfer before the passing of the Act. THE assessee filed second appeals before the Tribunal. THE five appeals were disposed of by a common order dated June 25, 1979. THE appeals related to the asst. yrs. 1962- 63, 1963-64, 1964-65, 1965-66 and 1966-67. THE three appeals relating to 1962- 63, 1963-64 and 1964-65 arose out of the initiation of proceedings under s. 147(a) of the Act as the ITO included the income of the minor sons in the total income of the assessee. THE remaining two appeals were in respect of the asst. yrs. 1965-66 and 1966-67, in which the income of the minor sons from the assets transferred by the assessee to them were included. THE Tribunal has summarised its conclusions as follows :
"(a) Assessments for the years 1962-63, 1963-64 and 1964-65 could not be sustained because the ITO wrongly applied the provisions of s. 147(a) to the facts of the case and the AAC was not competent to invoke the provisions of s. 147(b) of the Act to legalise the assessments for these three years. (b) Though the assessee is a female, yet, in view of the charging ss. 4 and 5 r/w ss. 60 to 64 along with the Explanation thereto, income from fixed deposits and income from shares earned by the minor sons are to be included in the total income of the assessee for the assessment years 1965- 66 and 1966-67. (c) Income from property which belonged to the minor sons cannot be clubbed with the income of the assessee in view of the provisions of s. 27 r/w s. 64 of the Act."
Five applications were filed by the CIT requiring the Tribunal to refer the questions of law arising out of its orders dated June 25, 1970. It has referred the abovementioned questions for answer to this Court.
Learned counsel for the respondents filed typed copies of the notice dated May 1, 1965, in respect of the asst. yrs. 1962-63, 1963-64 and 1964-65, and also typed copies of replies to the notice dated May 1, 1965. Learned counsel for the Revenue stated that he has no objection if typed copies of notice dated May 1, 1965, relating to the aforesaid three assessment years are taken into consideration, for, it is clear from the statement of the case that the proceedings were initiated under s. 147(a) of the Act. He, however, objected regarding replies being taken into consideration while answering the questions referred to above.
We heard Mr. J. P. Joshi for the Revenue and Mr. H. P. Gupta and Mr. S, K. Gupta for the assessee-respondent. We proceed to answer the questions at seriatim. Question No. 1 : The AAC in his order dated September 18, 1968, passed in the appeals relating to the asst. yrs. 1962-63, 1963-64 and 1964-65, came to the conclusion that s. 147(a) did not apply and that the initiation of the proceedings against the assessee could be under s. 147(b) of the Act. The Tribunal was, however, of the view that the AAC was not right in legalising the assessments by resorting to the provisions of s. 147(b). In other words, according to the Tribunal, the proceedings initiated under s. 147(a) could not be legalised by converting them into that of s. 147(b) of the Act.
Two pre-requisite conditions are necessary for exercising jurisdiction under cl. (a) of s. 147 of the Act : (i) the ITO must have reason to believe that income has escaped assessment, and (ii) that he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee or to disclose fully and truly all material facts necessary for his assessment for the relevant year. Two conditions precedent which are to be satisfied before the ITO can take action under cl. (b) of s. 147 are :
(i) he should have reason to believe that income has escaped assessment, and (ii) it should be in consequence of information received after the original assessment that he should have reason so to believe.
If either condition is not satisfied, the ITO's action would be without jurisdiction. Sec. 143 of the Act merely provides for issue of notice where income has escaped assessment. Issue of notice under s. 148 is a condition precedent to the validity of assessment under s. 147. Sec. 149 of the Act provides four periods of limitation from the end of the relevant assessment year within which a notice under s. 148 should be issued. It is not necessary that the notice under s. 148 calling for a return should specify the item of income which has escaped assessment or source of such income or indicate whether it issued under cl. (a) or cl. (b) of s. 147. In this connection, reference may be made to Kantamani Venkata Narayana & Sons vs. First Addl. ITO (1967) 63 ITR 638 (SC). Sec. 34 and its first proviso of the old Act has been replaced by s. 147, s. 148, s. 149(1) and s. 151 of the Act. So also s. 34(1), second proviso, s. 34(1), third proviso, and s. 34(i), Explanation, have now been replaced by s. 149(3), s. 152(1) and s. 147, Expl. 2, of the Act respectively. Having noticed the relevant provisions of the Act, we proceed to notice the case law bearing on this question.
(3.)LEARNED counsel for the Revenue as well as of the assessee have referred to various decisions mentioned hereinbelow in support of their respective submissions. While considering s. 34(1) of the old Act, it was observed in Mukherjee vs. CIT (1956) 30 ITR 535 (Cal) as follows :
"The statute does not prescribe any form in which the notice contemplated by s. 34 should be issued. The principal fact in both cl. (a) and cl. (b) of s. 34(1) is that income has escaped assessment for any year or has been under-assessed or assessed at too low a rate. That fact is common to both the clauses. The difference between the two clauses is that cl. (a) contemplates a case where the assessment or under-assessment was caused by an omission or failure on the part of the assessee to do certain things and cl. (b) contemplates a case where such escape from assessment or under-assessment occurred in spite of there having been no such omission or failure. The practical consequence of the presence of such omission or failure in one case and the absence thereof in the other is that, in the first case, the period within which the notice contemplated by the section can be issued is longer. I do not see how that difference makes it necessary or imperative that the notice itself must specify under which of the two clauses of the section it is being issued. All that the section itself says is that the ITO may I serve on the assessee ...... a notice under sub-s. (2) of s. 22. 'The main notice to be issued is, therefore, a notice under s. 22(2) of the Act and s. 34 only authorises the issue of such a notice in spite of there having been a previous assessment or in spite of the time for the issue of a notice in the normal way having expired. It is true that when answering a notice issued under the section, the assessee may take a plea of limitation and for the purposes of such a plea, it may be necessary for him to know whether his case is being treated as one under cl. (a) or as one under cl. (b). It appears to me, however, that whether the case is treated as coming under one clause or the, other will transpire in the course of the assessment proceedings and it is neither required of the ITO, nor is it necessary, that he should specify the clause in the notice itself. Even when a clause is specified, it is conceivable that when making the actual assessment, the ITO may come to hold that it comes under the other clause. Suppose a notice issued under the section specifies cl. (a) on the basis of a belief of the ITO that the assessee has omitted or failed to disclose fully and truly all material facts. To recall an illustration, I gave in the course of the argument, an assessee may have a relative living in a distant country who may die leaving to the assessee under his will a house property situated within the taxable territories. The ITO may come to know of the legacy and if he finds that the income from that property was not included in the return, he may issue a notice under s. 34 and let me assume that he specifies in the notice cl. (a) as the clause under which it is being issued. It is quite possible that, when appearing before him in compliance with such a notice, the assessee may satisfy the ITO that he was totally unaware that any legacy had been left to him by his relative and he could not possibly have disclosed an income accruing to him of which he did not know. The ITO may well accept that explanation. Can it be said that in such a case as that, if the explanation is accepted, the ITO will be prevented from making an assessment on the basis that the case comes under cl. (b) of s. 34(1) provided he is within time for the purposes of that clause ? Whether or not there had been an omission or failure to disclose the income, the fact that the income had escaped assessment will remain and if income which ought to have been assessed is discovered as having remained unassessed, that will be a sufficient ground for proceeding to its assessment, provided, however, the period of limitation has not already expired. I am giving that illustration only for the purpose of pointing out that the ITO cannot possibly be tied down to the section or the clause which he mentioned in the notice and if he be free to make an assessment, provided there is some escaped or under-assessed income and provided that the time for making an assessment has not run out, it cannot be essential for the validity of a notice that a particular clause of s. 34(1) should be specified."
It was held in Pulavarthi Viswanadham vs. CIt (1963) 50 ItR 463 (AP) that once an assessment is validly reopened under s. 34(1), no distinction can be made between the items falling under cl. (a) of that sub-section and those falling within the pale of cl. (b) and that the position obtaining after invoking s. 34(1)(a) is the same and as it was prior to the completion of the original assessment and the ItO would have jurisdiction to assess items falling under s. 34(1) (b) of the old Act. In Raghubar Dayal Ram Kishan vs. CIt (1967) 63 ItR 572 (All), there was a difference of opinion between Desai C.J. and Manchanda J. on the question that if an ItO assesses an income under s. 34(1)(a) and the Tribunal on appeal comes to the conclusion that it should have been assessed under s. 34(1)(b) and maintains it as such ? R. S. Pathak J., as he then was, while agreeing with Desai C.J., opined that where an ItO assessed an income under s. 34(1)(a) and the Tribunal on appeal comes to the conclusion that it should have been assessed under s. 34 (1)(b), the Tribunal has no jurisdiction to convert or alter the assessment made by the ItO under s. 34(1)(a) to an assessment under s. 34(1)(b) and maintain it as such. The principle laid down therein was that cls. (a) and (b) of s. 34(1) of the old Act contemplate two distinct and mutually independent jurisdictions. Before the Supreme Court in Johri Lal (HUF) vs. CIt (1973) 88 ItR 439, a question arose where the ItO himself proceeds on the basis of s. 34(1)(b) and not on the basis of s. 34(l)(a) of the old Act, in the absence of material on record to show that the ItO had formed the requisite belief, recorded his reasons for taking action under s. 34(1)(a) and obtained the sanction of the Central Board or the CIt, as the case may be, it is not open to the Tribunal to justify the proceedings taken by the ItO under s. 34(1)(a). In that case, the ItO proceeded on the basis of s. 34(1)(b) and the question was whether he can justify proceedings under s. 34(1)(a) of the Act. In Mriganka Mohan Sur vs. CIt (1974) 95 ItR 503 (Cal) reassessment was made under s. 34(1)(a) of the old Act. It was set aside by the Tribunal. The question arose whether the Tribunal could treat it as one made under s. 34(1)(b) of the old Act. Sabyasachi Mukharji J., as he then was, with whom Hazra J. agreed, ruled that where a reassessment has been made under s. 34(1) (a) of the old Act and is set aside by the Tribunal, it is open to the Tribunal to treat the reassessment as one properly made under s. 34(1)(b) provided that on the material on record all the necessary conditions under s. 34(1)(b) are satisfied. In that case, Mukherjee's case (supra), Raghubar Dayal's case (supra) and Johrilal's case (supra) were noticed.
The learned judges agreed with the view taken by Manchanda J., in Raghubar Dayal's case (supra). A Division Bench of the Calcutta High Court consisting of A. N. Sen J., as he then was, and R. N. Pyne J. in Bhupatrai Hirachand vs. CIt (1977) 109 ItR 97 (Cal) held that the jurisdiction and power of the ItO to reopen the assessment already made can be exercised by him only if the necessary conditions laid down in cl. (a) or cl. (b) of s. 34(1) of the old Act were satisfied and if the necessary conditions laid down in either of the sub-sections are satisfied, the exercise of jurisdiction and power by the ItO will be valid and lawful. It was observed as under :
"........ we hold that the Tribunal was competent to deal with the point and was justified in upholding the assessment under s. 34(1)(b) of the Indian It Act, 1922."