Subba Rao, J. - (1.) This appeal by special leave is directed against the order of a Division Bench of the High Court of Judicature at Allahabad holding that the Income-tax Officer, in the circumstances of the case, went wrong in initiating proceedings under S. 34(1) of the Indian Income tax Act, 1922, hereinafter called the Act, in respect of the assessment year 1942-43.
(2.) The facts may briefly be stated. The assessee was a holder of an impartible estate in the district of Ajmer. On March 25, 1944, the Income-tax Officer assessed him to income-tax for the year 1942-43. On April 5, 1945, on the ground that two items of the assessee's income namely, syar (forest) income and interest income, were not included in the original assessment, a notice under S. 34 of the Act was issued to him. In response to the said notice, the assessee filed a return wherein he disclosed fully and completely the particulars of his interest income, but raised the plea that his forest income was not taxable. The Income-tax Officer, by his order dated July 12, 1945, made a revised assessment including both the incomes. The respondent eventually took the matter on appeal to the Income-tax Appellate Tribunal, which, by its order dated April 25, 1949, held that the Income-tax Officer had no jurisdiction to initiate proceedings under S. 34 of the Act in respect of the forest income on the ground that the Income-tax Officer had knowledge that the assessee had such income when he made the original assessment. Though the Tribunal only dealt with the question of forest income, by inadvertence or by mistake, it set aside the entire order of reassessment dated July 12, 1945, made by the Income-tax Officer and restored the original order passed by him. The Income-tax Department did not take any steps to rectify the mistake under S. 35 of the Act or make any attempt to have the question of the illegality referred to the High Court. Having allowed the order to become final, on January 3, 1950, the Income-tax Officer after obtaining the sanction of the Commissioner initiated proceedings under S. 34 of the Act with respect to the interest income. On January 19, 1950, the Income-tax Officer issued to the assessee a fresh notice under the said section. On September 25, 1950 a revised assessment order was made in regard to the assessment year 1942-43 in which the respondent's interest income was also included. On appeal, the Appellate Assistant Commissioner confirmed the said order. On further appeal, the Income-tax Appellate Tribunal held that since the assessee had failed to disclose his interest income in the return filed by him under S. 22(2) of the Act in connection with the original assessment the said income had escaped assessment and, therefore, the provisions of Section 34(1)(a) of the Act were attracted. On application filed by the assessee, the Tribunal referred the following question to the High Court under S. 66(1) of the Act: "Whether on the facts and in the circumstances of this case the provisions of S. 34(1) were applicable in respect of the assessment year 1942-43 on 19th January, 1950, when the notice under that provision was issued for the purpose of assessing the escaped interest income." The High Court came to the conclusion that the Tribunal in its order dated April 25, 1949, committed a clear error in setting aside the assessment of tax on the interest income without going into the correctness of the imposition of tax thereon, but that order had become final, it further held that the said order did not invalidate the entire proceedings taken under S. 34 of the Act and, therefore, the Income-tax Officer could not take proceedings afresh under Section 34 of the Act. In the result the High Court answered the question in the negative. Hence the appeal.
(3.) Mr. Rajagopala Sastri, learned counsel for the Revenue, contended that the interest income had escaped assessment and, therefore, the Income-tax Officer was competent to initiate proceedings under S. 34(1)(a) of the Act for assessing the same.;