RAGHUBAR DAYAL RAM KISHAN Vs. COMMISSIONER OF INCOME TAX
LAWS(ALL)-1965-12-22
HIGH COURT OF ALLAHABAD
Decided on December 22,1965

RAGHUBAR DAYAL RAM KISHAN Appellant
VERSUS
COMMISSIONER OF INCOME-TAX, U. P. Respondents


Cited Judgements :-

BAIJNATH HARI SHANKER VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1971-8-14] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. NEM KUMAR JAIN RATAN KUMAR [LAWS(ALL)-1979-9-49] [REFERRED TO]
RAJAN LAL VS. WEALTH TAX OFFICER [LAWS(ALL)-1990-7-29] [REFERRED TO]
KHORSHED SHAPOOR CHENAI MRS VS. CONTROLLER OF ESTATE DUTY ASST [LAWS(APH)-1971-11-26] [REFERRED TO]
MRIGANKA MOHAN SUR VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1973-5-9] [REFERRED TO]
R M SUBRAMANIA IYER VS. INCOME TAX OFFICER KOTTAYAM [LAWS(KER)-1967-7-3] [REFERRED TO]
SUBRAMANIA IYER R M VS. INCOME TAX OFFICER [LAWS(KER)-1967-7-39] [REFERRED TO]
RAJABALLY HIRJI MEGHANI VS. S N SAHANE [LAWS(BOM)-1987-6-37] [REFERRED TO]
COMMISSIONER OF INCOME-TAX VS. ESS ESS KAY ENGINEERING CO PVT LTD [LAWS(P&H)-1981-6-4] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. AYODHYA KUMARI [LAWS(RAJ)-1985-8-72] [REFERRED TO]
KANHAIYA LAL PRAHLADRAI VS. INCOME-TAX OFFICER [LAWS(ALL)-1984-3-59] [REFERRED]


JUDGEMENT

M.C.DESAI, C.J. - (1.)THE Income-tax Appellate Tribunal, Allahabad Bench, has, at the instance of the assessee, submitted under section 66(1) of the Income-tax Act this statement of case inviting this court to answer the following two questions :
1. Whether, on the facts and in the circumstances of the case, was the department correct in making the assessment under section 34(1)(a) ?

2. If the answer to the first question is in the negative, then was the Tribunal correct in alternating an assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b) when it was satisfied that the requisites of section 34(1)(b) were found on the record ?

(2.)THE assessee is a Hindu undivided family. In its capital account there were two credit entries, one of Rs. 12,000 and odd made on December 12, 1953, and the other of Rs. 14,000 and odd made on January 13, 1954. THE assessees explanation for the credit entries was disbelieved and the amounts were held by the Income-tax Officer to be its income from an undisclosed source. It has selected the Diwali year as its previous year. If the previous year for the undisclosed source with gave rise to the income was the financial year, the income could be assessed in the assessment year 1954-55, whereas if it was the Diwali year (on the ground that the income was from the disclosed business), it could be assessed in the assessment year 1955-56. THE income was included in the assessment for the assessment year 1955-56 by the Income-tax Officer and the Appellate Assistant Commissioner, but the Tribunal on second appeal of the assessee held that the previous year for the income, it being an income from an undisclosed source, was the financial year 1954-55 and that it could not be included in the assessment for the assessment year 1955-56 and reduced the assessed income accordingly. When the order of the Tribunal was received by the Income-tax Officer, he started proceedings under section 34 by issue in a notice on August 2, 1958. THE notice is not included in the statement of the case and it is known whether it was expressed to be under clause (a) of section 34(1) or under clause. (b). In reply to the notice the assessee filed a return under protest showing a loss. It contended before the Income-tax Officer that, once the income was included in the assessment for 1955-56, it could not be included in the assessment for another year, that including it in the assessment for 1955-56 was an error of law and not of fact, that action under section 34 can be taken only to correct an error of fact and not of law, that clause (1)(a) did not apply to the facts of the case and that, consequently, the notice was illegal. THE Income-tax Officer rejected the objection, holding that, as it did not disclose the income in its return for the assessment year 1954-55, the return was false and, in any case, incorrect, that the income came to light during the assessment for 1955-56 and that the facts came within the scope of clause (a). Accordingly, he reopened the assessee for 1954-55, included the income in the assessment, reassessed the assessee for 1954-55 and served it with a notice required by clause (c) of section 28(1). His order was maintained by the Appellate Assistant Commissioner; he held that the reassessment for 1954-55 was correctly done by the Income-tax Officer under clause (a) THE assessee carried the matter on second appeal to the Tribunal. It rejected the assessees contention that section 34 was not applicable at all, but held that clause (b), and not clause (a), was applicable. It observed that in was competent to alter the reassessment from one under clause (a) to one under clause (b) because all the necessary facts were on the record and no further investigation was necessary and the assessee could not be said to be taken by surprise by the alteration. With this alteration, it dismissed the appeal. THEn, at the assessees requisition, it submitted this statement.
Clause (a) of section 32(1) applies when the Income-tax Officer has reason to believe that by reason of the omission of failure on the part of an assessee to make a return of his income.... for any year or to disclose fully and truly all material facts necessary for his assessment for that year income, profits .......have escaped assessment for that year, whereas clause (b) applies when notwithstanding that there has been no omission or failure as mentioned in clause (a) the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits..... have escaped assessment for any year. Action is be taken under section 34 by serving on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and the notice may be served at any time if it is under clause (a) and only within four years of the end of the year if it is under clause (b). Before issuing a notice under clause (a), the Income-tax Officer is required (vide proviso (iii) to record his reasons for issuing it and to obtain the approval of the Central Board of Revenue in certain circumstances or the Commissioner in other circumstances. A notice issue under section 22(2) calls upon a person to furnish within a certain period (of not less than 30 days) a return in the prescribed form and verified in the prescribed manner setting forth his total income and total world income during the previous year along with such other particulars as may be provided for in the notice. An Appellate Assistant Commissioner, in disposing of an appeal under section 31 from an order of assessment, has the power to (a) confirm, reduce, enhance or annual the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further enquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct. An appeal lies to the Tribunal under section 33(1) by an assessee objecting to an order passed by an Appellate Assistant Commissioner under section 31. Under sub-section (4) of section 33, the Tribunal may, in disposing of it, pass such orders thereon as it thinks fir, and shall communicate any such order to the assessee and to the Commissioner.

The power to take action in respect of escaped income under section 34 vests exclusively in the Income-tax Officer and does not vest in the Appellate Commissioner or the Tribunal. Not only can the Tribunal not take action on its own under section 34 but also no appeal lies to it from the Income-tax Officers refusal (or failure) to take it. An appeal lies to in only from an order passed by the Appellate Assistant Commissioner and an appeal lies to the Appellate Assistant Commissioner only from certain orders of the Income-tax Officer specified in section 30. An order refusing to take action under section 34 is not one of the orders specified in section 30. When an Income-tax Offiicer proceeds under clause (a), it amounts to his refusing to proceed under clause (b), and since no appeal lies from the refusal, it is not possible for the Appellate Assistant Commissioner and the Tribunal to require him to proceed under clause (b). It they cannot require him to proceed under clause (b), they cannot treat his proceeding under clause (a) as his proceeding under clause (b). What cannot be done directly cannot be done indirectly. The sole jurisdiction of the Appellate Assistant Commissioner and the Tribunal is to see whether his proceeding under clause (a) is correct or not, to maintain it if it is correct and to quash it if it is not. Passing any other such as directing the Income-tax Officer to prosed under clause (b) or treating the proceeding as one under clause (b) is outside the scope of their jurisdiction.

The essential conditions for the application of clause (b) ar : (1) the Income-tax Officer has certain information in his possession, (2) he forms the belief that a certain income has escaped assessment, and (3) the belief is based on the information. I take it that having reason to believe means that not only there is a reason for the belief but also that the belief is entertained or formed. Having reason to believe means that there is a reason coupled with the belief. In the instant case, the Income-tax Officer had formed the belief that certain income had escaped assessment for the assessment year 1954-55, but that fact alone would not justify his proceeding under clause (b). He could proceed under clause (b) only if he had certain information in his possession and information furnished a reason for the belief. Even if he had certain information which could furnish a reason for the belief, it would not justify his proceeding under clause (b) unless he actually formed the belief on account of the information. If he formed the belief, but not on account of the information, the connection between the information and the formation of belief did not exist and without the connection he could not proceed under clause (b). The words in consequence of occurring in clause (b) are not redundant. Possessing an information, forming a belief and doing so on that basis of the information are all personal or subjective matters; the Income-tax Officer must personally have the information in his possession; he personally must form the belief and he must do so in consequence of the information. He cannot proceed under clause (b) if he himself does not form the belief or does not personally consider that the belief can be formed in consequence of the information. The conditions required for proceeding under clause (b) are so personal in nature that it is not possible for any authority other than the Income-tax Officer concerned to proceed under clause (b). Not only can another authority not proceed under clause (b), but also it has no power to compel him to do so because it cannot compeer him to fulfill the conditions.

(3.)THE belief has to be about the escape of income from assessment for any year. Though the words used are for any year, the belief must be specific, i.e., about the escape of income from assessment for a particular assessment year. A belief that the income has escaped assessment for some year is impossible and in any case too vague to be within the contemplation of clause (b). Assessment of an income must necessarily be for a particular assessment year and, if an Income-tax Officer believes that an income has escaped assessment, it follows that he believes that it has escaped assessment for a particular assessment year. THE words any year have been used in clause (b) in order to make it applicable for every assessment year; clause (b) applies for any assessment year in respect of which there is an escape. In assessing any person, one has to start with the assessment year; one has to first decide for what assessment year one wants to assess. Having decided upon the assessment year, one takes the income of the relevant previous year. Just as the assessment is for a particular assessment year, so also the escepe or non-assessment is for particutr assessment year. No question of escape can arise except for a particular assessment year. THErefore, the Income-tax Officer has first to find the assessment year in respect of which there is an escape. If he finds an escape for a particular assessment year, he cannot assess the escaped income for another assessment year and what he cannot be done by the Appellate Assistant Commissioner or the Tribunal on appeal.
What has happened in this case is that the Income-tax Officer thought that the assessee failed to disclose fully and truly all material facts necessary for its assessment for 1954-55; he does not claim to have in his possession certain information nor does he claim that on account of that information he had reason to believe that income for the assessment year 1954-55 had escaped assessment. He certainly formed the belief that a certain income had escaped assessment for the assessment year 1954-55 and he had certainly had reason for the belief but according to him the reason of the escape was the assessees omission or failure to disclose fully or truly all material facts necessary for its assessment for 1954-55. It had filed the return but it concealed from it the fact that the amounts of Rs. 12,000 and odd and Rs. 14,000 and odd received by it on December 12, 1953, and January 13, 1954, were its income liable to be taxed by disguising the receipts as deposits. It did not give true and full particulars of the receipts with the result that when it was assessed for 1954-55, the Income-tax Officer did not know that they constituted taxable income and, therefore, did not include them in the assessment. Clause (a) thus clearly applied to the facts of the case. THE Income-tax Officers failure to include the receipts in the nature assessment for 1954-55 was not in spite of the fact that he knew their real nature and source. THE assessee had never stated that the receipts were its income liable to be taxed; on the country, its statement was that it was not taxable income at all and even that statement was made after the assessment for 1954-55. THE real nature and source of the receipts came to the knowledge of the Income-tax Officer for the first time when he assessed it for 1955-56, but he committed the mistake of treating them as its income liable to be assessed for 1955-56, whereas it could be assessed only for 1954-55. It was this mistake that can be said to have been brought to his notice by the earlier order of the Tribunal whereupon he proceeded to issue a notice under section 34. Clause (b) cannot be said to be applicable just because he could be said to have received information about the assessment year for which the receipts could be correctly taxed. As there was a failure on the assessees part to disclose fully and truly all materials facts, clause (a) applied and, when it applied, clause (b) did not apply.

The Tribunal has not recorded the finding that the Income-tax Officer had in the possession any information in consequence of which he formed the belief about the escape. In its earlier order it had only found that the previous year for the income from an undisclosed source is a financial year and that the income in question was not liable to be assessed for 1955-56 as it was not earned in the relevant previous year. It had not said that was liable to be assessed for 1954-55; it had not said a word about that assessment year. Therefore, it could not be said that its order itself amounted to information to the Income-tax Officer that the income had escaped assessment for 1954-55. The information required for the purpose of clause (b) is an information other that that given by the return which discloses fully and truly all material facts necessary for the assessment. Clause (b) applies when there is no omission or failure mentioned in clause (a), i.e., the return disclosed fully and truly all material facts necessary and, in addition, there is information. The case in which the return does not disclose fully and truly all material facts is not governed by clause (b) nor does information that a return believed to disclose fully and truly all material facts really did to disclose fully and truly all material facts which come within its scope. Since the assessee has disclosed fully and truly all material facts in respect of the escaped income, the information contemplated by clause (b) is normally in respect of the law applicable to the facts unless the Income-tax Officer made a mistake in disbelieving or ignoring some of the facts of assuming some facts which did not exist at all. When an income is liable to be assessed, the facts relating to it are disclosed fully and truly and yet it is not assessed, it is obviously a case of a mistake and the information required by clause (b) is about the mistake. In the instant case there is no question of any mistake; when assessing the assessee for 1954-55, the Income-tax Officer did not erroneously disbelieve any statement made in the return, even though it was correct or did not assume any fact even though it did not exist and did not apply any law wrongly to the facts found by him; yet the income escaped assessment. The escape was due to the fact that all the facts relating to the income were not disclosed fully and truly. He knew of the escape for the first time when the Tribunal by its earlier order excluded the income from the assessment year 1955-56. Till then there was no escape even (because the income had been assessed for 1955-56). Since he did not know till then that the income was assessable for 1954-55, as far as he was concerned, no income had escaped for that year when the Tribunal passed its earlier order, from which he learnt that it should have been assessed for 1954-55 and he knew that it had not been assessed. Though he had some information in his possession, clause (b) did not apply because it was not in addition to a full and true disclosure of all material facts in the return. The Tribunal committed a double mistake in thinking that clause (b) applied; it erroneously held that clause (a) was not applicable and erroneously ignored the words notwithstanding that there has been no omission....... of the assessee and proceeded merely because the Income-tax Officer had acted on some information. It did not realise that when an escape can be attributed to omission or failure to disclose fully and truly all material facts clause (a) applies and that clause (b) applies when information is received by the Income-tax Officer about a mistake committed by him wrongly disbelieving a fact that exists or assuming a fact that does not exist or of applying the law wrongly. For the assessment year 1954-55 the Income-tax Officer had not committed any mistake of this nature and consequently there was no question of receiving the information about it and hence he could not act under clause (b).

If a return is filed, clause (a) applies if there is still a failure to disclose fully and truly all material facts; and clause (b) applies if there is no such failure but the Income-tax Officer has in his possession information in consequence of which he has reason to believe that income has escaped assessment. If a return is not filed, only clause (a) can apply. Clause (a) applies either when no return is filed or when a return is filed but there is a failure to disclose fully and truly all material facts; clause (b) applies where a return has been filed and there is no failure. The word or occurring first in clause (b) has the meaning of and. Clause (b) is alternative to clause (a), i.e. it governs what is not governed by clause. (a). Omission to file a return is governed by clause (a) as well as failure to disclose all material facts fully and truly; therefore, clause (b) applies when there is neither the omission nor the failure. Thus the two clauses are mutually exclusive; in a given set of circumstances, one or the other can apply but both can never apply. When an Income-tax Officer applies clause (a), it follows that the circumstances in which clause (b) can apply are non-existent and neither the Appellate Assistant Commissioner nor the Tribunal can apply it. If he states the facts found by him and they attract clause (b) and not clause (a), his saying that clause (a) is applicable will not make clause (b) not applicable by the Appellate Assistant Commissioner or the Tribunal because then it would be a simple case of applying a wrong law to the facts found. But if the facts expressly found by him are those referred to in clause (a), it is not open to the Appellate Assistant Commissioner of the Tribunal to find the facts to which clause (b) applies merely because they consider that from the material on the record they should have been found to be proved. They have no original jurisdiction in this respect at all. It is not for them to proceed under section 34, the Income-tax Officer having the exclusive jurisdiction to do so. The facts mentioned in clause (b) (as also those mentioned in clause (a)) are jurisdictional facts, i.e., the Income-tax Officer derives his jurisdiction over the escaped income from the existence of those facts. If any of the facts does not exist, he has no jurisdiction over the escaped income at all. He must find their existence before assuming jurisdiction over the escaped income. Since only he has jurisdiction, it follows that the facts must be found by him; they cannot be found for him by the Appellate Assistant Commissioner or the Tribunal acting as has benamidar or proxy. If he does not find them, the income cannot be assessed at all under section 34. Here he did not find that there was no failure on the assessees part to disclose fully and truly all material facts necessary for its assessment for 1954-55; on the contrary, he found such failure. He certainly had some information but it was not the information required by clause (b), e.g., information in addition to that given by a return disclosing fully and truly all material facts. He did not claim to have to have in his possession any information required by clause (b); he only claimed to have the information that the return for 1954-55 did not disclose fully and truly all material facts. Therefore, clause (b) did not apply to the facts of the case and, even if it applied, the Tribunal could not apply it when it was not applied by the Income-tax Officer. The Tribunal could apply it only if it found that the conditions for its application existed, i.e., that there was no omission or failure, the Income-tax Officer had information about his applying the law wrongly or disbelieving facts or assuming facts or assuming facts wrongly during the assessment year 1954-55 and his belief about the escape of income was based on it. These facts do not exist and the Tribunal could not apply clause (b).

Sri Das referred us to Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, where the Supreme Court observes that the word information in section 34(1)(b) includes information as to the true and correct state of the law. It was argued that the Tribunals finding in the earlier order stating that the escaped income was assessable in the assessment year 1954-55 was information in the Income-tax Officers possession. It was for the Income-tax Officer to treat it as information and to say that he was informed about the correct the state of the law. He could not be said to have been informed of the Tribunals finding did not register any impression in his mind. Every statement made to a person is not information to him; it is not if he does not understand it or does not give any thought to it or does not believe it.

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