- (1.) THIS application and four other applications, namely Matters Nos. 190 of 1962, 191 of 1962, 192 of 1962, and 193 of 1962, involve the same facts and the same points of law. They have been heard simultaneously and will be disposed of by this judgment. The facts are briefly as follows :
(2.) THERE is a partnership firm carried on under the name and style of MadanIal Sohanlal " at No. 207, Chittaranjan Avenue, in the town of Calcutta, the partners whereof are Madaulal Jajodia, Sohanlal Jajodia, Sampatlal Jajodia and Pannalal Jajodia. Each one of them has made a separate application and that is why these five applications have come into existence. In or about April, 1947, an Act called the Taxation on Income (Investigation Commission) Act of 1947, being Act 30 of 1947, commonly known as the IT Investigation Commission Act, was promulgated for the purpose of making suitable provisions to investigate and ascertain the actual incidence of taxation on income disclosed or undisclosed for a period covering the accounting years from 1st April, 1939, to 31st March, 1947, the corresponding assessment years being 1940-41 to 1947,48. On the 15th May, 1948, the petitioner was served with a notice by the Income-tax Investigation Commission constituted under the provisions of the IT (Investigation Commission) Act, whereby the petitioner was informed that his case has been referred to the said Commission for investigation and report under s. 5(i) of the said Act. The petitioner was asked to furnish the Commission with a statement of his total wealth and assets as they stood between the accounting years ending 15th April, 1940, and 30th March, 1947, the assessment years being 1940-41 to 1947-48. The petitioner filed a statement and the investigation and enquiry continued up to the year 1951, when a report was made some time in. November, 1951, after considering certain terms of settlement proposed by the petitioner. It is stated in the petition that the Government of India accepted the recommendation of the Investigation Commission and notice was served under s. 29 of the IT Act on or about the 9th February, 1952, demanding the payment of the. sum of Rs. 14,32,541, on account of payment of tax and a sum of Rs. 50,000 on account of penalty. This was a demand jointly payable by all the partners. On the 28th May, 1954, the Supreme Court, by its decision in Suraj Mall Mohla and Co. vs. A. V. Visvanatha Sastri (1954) 26 ITR 1 (SC), declared sub-s. (4) of s. 5 of the Taxation on Income (Investigation Commission) Act, 1947, as void and unenforceable, as being violative of Art. 14 of the Constitution. On the 17th July, 1954, s. 34 of the IT Act, 1922, was amended by the introduction of s. 34(1A). I shall presently deal with this amendment. On the 21st day of October, 1954, the Supreme Court by its decision in Shree Meenakshi Mills Lid. vs. A. V. Visvanatha Sastri (1954) 26 ITR 713 (SC) held s. 5(i) of the said IT (Investigation Commission) Act as invalid on the ground that s. 34 of the IT Act, by the introduction of sub-s. (1A); provided an alternative remedy which dealt with the same class of persons but less severely. Sec. 5(i) was, therefore, vioIative of Art. 14 of the Constitution and was invalid. This was confirmed by another decision of the Supreme Court, M. Ct. Muthiah vs. CIT (1956) 29 ITR 390 (SC). It was held that cases which were pending on January 26, 1950, for investigation before the IT Investigation Commission could no longer be proceeded with under that Act. The petitioner's case came within the mischief of this decision. These decisions led to a further amendment of s. 34 by the Finance Act, 1956, w.e.f. the 1st April, 1956. This amendment will have to be considered in greater detail presently, but it may be mentioned here that some of the important amendments were that the time-limit of 8 years imposed in respect of cases falling under cl. (a) of sub-s. (i) of s. 34 was omitted and the first proviso was added. On 2nd March, 1959, notices were served upon the petitioners under s. 34 of the IT Act for reopening the assessment for the years 1943-44 to 1947-48. On 29th March, 1962, further notices were issued under s. 34 for reopening the assessment in respect of the asst. yrs. 1940-4I to 1942-43. This application is directed against these notices under s. 34, intended to reopen the assessment for the years 1940-41 to 1947- 48. In order to appreciate the points taken in this application it is necessary to consider the provisions of s. 34 and deal with the amendments mentioned above in greater detail. The relevant provisions of sub-s. (i) of s. 34, as it stood on the dates when the impugned notices were issued, are as follows: " 34. (1) If-- (a) the ITO 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 s. 22 for any year or to disclose fully and truly an material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment 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. . . . he may in cases falling under cl. (a) at any time. . . . . serve on the assessee. . . . . a notice containing all or any of the requirements which may be included in a notice under sub-s. (2) of s. 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: Provided that the ITO shall not issue a notice under cl. (a) of sub-s. (1)-- (i) for any year prior to the year ending on the 3ist 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 cl. (ii) unless the Central Board of Revenue, and, in any other case, the CIT, is satisfied on such reasons recorded that it is a fit case for the issue of such notice. " Upon an analysis of the above provisions we find as follows : 1. Action may be taken under s. 34(I)(a) at any time if the income, profits, etc., which have escaped assessment amount to, or are likely to amount to, one lakh of rupees or more in the aggregate. In such a case, however, the ITO must not only record his reason for doing so, but must obtain the approval of the Board of Revenue. 2. But such action must be taken within 8 years only, after the expiry of the year in question, if the income, profits or gains, etc., which have escaped assessment, amount to or are likely to amount to less than one lakh of rupees in the aggregate. In such cases the ITO must have his recorded reasons approved by the CIT. 3. No notice for reopening under cl. (a) of sub-s. (i) can be issued prior to the year ending the 31st day of March, 1941. In this particular case, it is not disputed that the income, profits or gains, etc., which is stated to have escaped assessment, amount to more than a lakh of rupees in the aggregate. Therefore, prima facie here exists no time-limit for reopening the assessment save and except that no notice can be issued for a period prior to the year ending the 31st day of March, 1941. Notices have been served for the asst. yrs. 1940-41 to 1947-48 which would then be in compliance with the provisions of law above-mentioned. What is argued however is that, notwithstanding the omission of the timelimit for reopening the assessments as mentioned above in cl. (a) of sub-s. (i) of s. 34, the petitioner's case ought to have been treated as one arising, not under s. 34(1)(a) but under s. 34 (1A). As will presently appear, there is a time-limit imposed under s. 34 (1A) and no notice. for reopening the assessment can be issued after the 31st day of March, 1956. If this contention is correct, then the impugned notices are invalid as having been issued beyond the period of limitation. It will, therefore, be necessary to set out the relevant provisions of s. 34(1A) which run as follows : " 34. (1A) If, in the case of any assessee, the ITO 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 are likely to amount, to one Iakh of rupees or more; he may, notwithstanding that the period of eight years or, as the case may be, four years specified in sub-s. (i) 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-s. (2) of s. 22, and may proceed to assess or reassess the income, profits or gains of the assessee for all or any of the years referred to in cl. (i), and thereupon the provisions of this Act (excepting those contained in cls. (i) And (iii) of the proviso to sub-s. (1) and in sub-ss. (2) and (3) of this section) shall, so far as may be, apply accordingly : Provided that the ITO 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
(3.) PROVIDED further that no such notice shall be issued after the 3ist day of March., 1956. " It is necessary to make a passing mention of sub-s. (1B) of s. 34. It provides that an assessee, upon whom a notice has been issued under cl. (a) of sub-s. (1) or under sub-s. (1A) for any of the years ending on the 31st day of March of the years 1941 to 1948 inclusive, may apply 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 matter relating to his assessment settled, and the Central Board of Revenue may with the approval of the Central Government accept such settlement. It will now be necessary to go a little into the history of these various amendments. Sub-s. (1A) was introduced by the IT (Amendment) Act (XXX of 1954), w.e.f. the 17th July, 1954. Sec. 34. as it then stood, laid a bar of limitation of eight years in respect of a notice issued by the ITO under s. 34(1)(a). The reason why sub-s. (1A) was introduced is as follows: In 1947, an Act was promulgated known as the Taxation on Income (Investigation Commission) Act, 1947. This statute was brought into force for investigation of the cases of certain assessees who were suspected of having concealed vast income made during the " war years", namely, the period commencing from 1st September, 1939, to 31st March, 1946. As I have stated above, a very important procedural section in that Act was declared ultra vires by the Supreme Court some time in May, 1954, and the position thus created was that neither could notice be issued under s. 34(1)(a) in respect of the assessment years prior to 1945-46 as the bar of eight years was already operative, nor could the cases be dealt with under the Taxation on Income (Investigation Commission) Act, 1947. That is why sub-s. (1A) was inserted in s. 34 by s. 2 of the Indian IT (Amendment) Act, 1954. Under s. 34 (1A), notice could be issued in respect of the war years, notwithstanding the fact that they were barred under sub-s. (i)(a). There were, however, three safeguards provided against any arbitrary action being taken. The first safeguard was that no action could be taken unless the amount which had escaped assessment was more than a lakh of rupees. The second safeguard was that, even in such a case, it was necessary to obtain the sanction of the Board of Revenue, and the third and a very important safeguard was that no action could be taken beyond the 31st day of March, 1956.;