- (1.) This appeal by special leave raises the question of the construction of the proviso to sub-sec. (3) of S. 34 of the Indian Income-tax Act, 1922, as amended by Act 25 of 1933 hereinafter called the Act.
(2.) The facts lie in a small compass and they are as follows : The respondent is a firm carrying on business in different lines. It was assessed to income-tax under S. 23 (4) of the Act for the assessment year 1949-50 on the ground that the notice issued under sub-ss (2) and (4) of S. 22 of the Act had not been complied with. On September 27, 1955, the said assessment was cancelled under S. 27 of the Act. But before the said cancellation it was found that an interest income of Rs. 88,737/- in the shape of U. P. Encumbered Estates Act Bonds revived by him in discharge of the debts due from third parties had escaped assessment as the assessee failed to disclose the same. The Income-tax Officer issued a notice under S. 34(1) (a) of the Act for the assessment year 1949-50 on the ground that the said sum of Rs. 88,737/- had escaped assessment in the said assessment year. After the assessment of that year was set aside under S. 27 of the Act, the Income-tax Officer, ignoring the notice issued by him under S. 34 (1) (a) of the Act, included that amount in the fresh assessment made by him. The assessee preferred an appeal against that order and that was disposed by the Appeallate Assistant Commissioner on December 4, 1957. The Appellant Assistant Commissioner in his order held that the bonds were reveived by the assessee in the previous accounting year and therefore, directed that the sum representing interest on the bonds should be deleted from the assessment for the year ending 1949-50 and included in the assessment for the year ending 1948-49. Pursuant to the direction given by the Appellate Assistant Commissioner the Income-tax Officer initiated proceedings under S. 34 (1) of the Act in respect of the assessment year 1948-49. The notice issued under that section was served on the respondent on December 5, 1957. The assessee filed a petition under Art. 226 of the Constitution in the High Court of judicature at Allahabad for quashing the said proceedings, mainly on the ground that the proceedings were initialed beyond the time prescribed by S. 34 of the Act. The High Court accepted the contention and quashed the proceedings initiated by the Income-tax Officer. Hence the appeal.
(3.) The proceedings would be in time, if the second priviso to S. 34 (3) of the Act could be invoked. The question, therefore, is what is the true meaning of the terms of the second proviso to S. 34 (3) of the Act. It reads: "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 S. 27 or to an assessment or re-assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under S. 31, S. 33, S. 33A, S. 33B, S. 66 or S. 66A." Prima facie this proviso lifts the ban of limitation imposed by the other provisions of the section in the matter of taking an action in respect of or making an order of assessment or re-assessment falling within the scope of the said proviso. The scope of the proviso is confined to an assessment or re-assessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under S. 31 i. e., in an appeal before the Assistant Appellate Commissioner, under S. 33 i. e., in an appeal before the Tribunal, under S. 33A i. e., in a revision before the Commissioner under S. 33B i. e., in a revision before the Commissioner against an order of the Income-tax Officer, and under Ss. 66 and 66A i.e., in a reference to the High Court and appeal against the High Court's order to the Supreme Court. Learned Counsel for the appellant contends that the scope of the proviso is only confined to the assessment of the year that is the subject-matter of the appeal or the revision, as the case may be. Learned Counsel for the Department argues that the comprehensive phraseology used in the proviso takes in its broad sweep and finding given by the appropriate authority necessary for the disposal of the appeal or the revision, as the case may be, and to any direction given by the said authority to effectuate its finding and that the said finding or direction may be in respect of any year or any person. As the phraseology used in the proviso is not clear or unambiguous, the question noised cannot be satisfactorily resolved without having a precise appreciation of a brief history of S. 34 of the Act culminating in the enactment of the proviso in the present form.;