BERI, J. - (1.) THESE three petitions under Art. 226 of the Constitution of India have been submitted by three different assessees in regard to notices served on them under s. 34 of the Indian Income-tax Act by the Income-tax Officer, Bikaner. The petitioners have prayed for the issuance of a writ of certiorari or prohibition for quashing the notices in question and for prohibiting the Income-tax Officers concerned from taking proceedings thereunder. Since these petitions raise a common question of law, about the interpretation of sec. 34 of the Act, we propose to dispose them of by one judgment.
(2.) WE may state the material facts relating to each of the writ petitions. In the case of Chhaganlal the Income-tax Officer, 'b' Ward, Bikaner, issued a notice to him under S. 34 of the Income-tax Act on 14th March, 1959 stating that he had reason to believe that the income of the petitioner for the assessment year 1950-51 had escaped assessment and he proposed to assess the said income and that within 35 days of the receipt of the notice the petitioner was required to deliver a return in the form which was attached to the notice. The notice indicates that it was issued after obtaining the necessary sanction of the Commissioner of Income-tax, New Delhi. This notice was received by the petitioner on 18th March 1959. On 18th April, 1959 the assessee wrote to the Income-tax Officer that the notice was not lawful and valid; that it was beyond the jurisdiction of the Officer and that it was barred by time and requested the Officer to drop the proceedings. Later, the petitioner presented the above application before this Court contending that the notice was illegal as it was issued after eight years of the year of account and that in the absence of any reasons being mentioned therein as to how and what income had escaped assessment, the vague notice could not be the foundation of the officer's jurisdiction to take proceedings under sec. 34 of the Act. A reply has been filed by the Income-tax Officer in which he states that the notice in ques-tion was one under sec. 34 (1) (a) and not under sec. 34 (1) (b) of the Act, since the prior satisfaction of the Commissioner had been obtained. He further submits that the petitioner's application is premature since he could obtain the relevant relief, if at all, from the office of the Department and that the period of limitation starts from the end of the assessment year and not from the end of the accounting year as alleged by assessee. Ram Gopal petitioner in writ Petition No. 155/1959 says that he was duly assessed for the accounting year ending on 31st March, 1950 and he paid the Income-tax in respect of that period. On 28th March, 1959, however, he received a notice under sec. 34 of the Income-tax Act dated 27th March, 1959, from the Income-tax Officer 'a' Ward, Bikaner, in which it was alleged that the officer had reason to believe that the petitioner's income for the assessment year 1950-51 had escaped assessment and he was required to deliver to the said officer a return in the attached form of the petitioner's total world income for the assessment year ending on 31st March, 1951. This notice further mentioned the fact, as in the earlier case, that it was issued after the necessary sanction of the Commissioner of Income-tax New Delhi had been obtained. The petitioner challenges the notice in question subsatanti-ally on identical grounds viz. , that the Income-tax Officer had no right to issue the notice eight years after the accounting year ending on 31st March, 1950 and that the notice was otherwise vague and illegal. In the reply submitted on behalf of the Income-tax Officer the facts are not disputed. It is submitted that the notice was within time ; that the petitioner had adequate legal remedies available before the Department and that the notice under sec. (1) (a) of the Act had been validly issued. The petitioner has also submitted a rejoinder wherein apart from the question of limitation, he has assailed the notice specially on the ground of vagueness. It was stated that the assessment of his income for assessment year 1950-51 was made on 30th April, 1953. The petitioner preferred an appeal which was accepted on 31. 12. 1953 and the case was remanded. In the light of the appellate order the Income-tax Officer again concluded the petitioner's assessment. An appeal was again preferred by the petitioner which was accepted by the Assistant Commissioner on 31. 12. 1959 and now the department has taken an appeal before the Income-tax Tribunal which is still pending. At no stage it was ever alleged that any income of the petitioner during the relevant assessment year had escaped assessment and therefore, the present notice under sec. 34 has been issued merely to harass the petitioner. On 13th March, 1960, practically at the close of the arguments an application was further submitted 01 behalf of the Income-tax Officer alleging that subsequent to the presentation of the above petition before this Court the petitioner moved an application for transfer of the case from the Income-tax Officer 'a' Ward, Bikaner, and on his application the Commissioner of Income-tax by his order dated 8. 11. 1960 directed that the petitioner's case be transferred to the Income-tax Officer, Wealth Tax Circle No. 4, New Delhi. The respondent No. 1 in compliance with that order has, therefore, sent all the papers to the Income-tax Officer, New Delhi, who is now seized of the matter. Consequently no effective relief could be granted to the petitioner as the said officer is outside the jurisdiction of this Court. Smt. Kamla Bai Mohta's Civil Writ Petition No. 224 of 1959 arises in these circumstances. The Income-tax Officer, 'a' Ward, Bikaner, issued a notice to her under Sec. 34 of the Income-tax Act on 19. 3. 1959 calling upon her to deliver him a return of her total income for the assessment year ending on 31st March, 1951. From the notice also it appears that it was issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, New Delhi. She filed a reply stating that the notice was neither lawful nor valid and that it was barred by time. In her petition under Article 226 of the Constitution she has re-iterated her challenge on the above grounds of vagueness, illegality and limitation. She further says that she had already submitted her return and was duly assessed for the relevant period and there was nothing in the notice to show what income had escaped assessment and how. The reply of the Income-tax Officer is mutatis mutandis in identical terms as in the other cases. The common question, therefore, which arises primarily in all these writ petitions is whether the period of eight years envisaged in sec. 34 first proviso clause (2) is to be computed from the last date of the accounting year or the last date of the assessment year. In other words whether the words that year" employed in the aforesaid proviso refer to the accounting year or the assessment year. The petitioners contend that the words refer to the accounting year whereat the department pleads that they refer to the assessment year. It is not disputed that if the expression "that year" refers to the accounting year all the notices issued to the different petitioners would appear to be barred by time and thus the vary foundation of the officer's jurisdiction to proceed under sec. 34 of the Act would be taken away. The material provisions of sec. 34 read: - "34 - Income escaping assessment - (1) (a) If the Income-tax Officer 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 sec. 22 of any year or to disclose fully and truly all 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 (b) Notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, 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 that excessive loss or depreciation allowance has been computed, he may, in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, 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-sec. (2) of sec, 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance, and the provisions of this Act shall, so far as maybe, apply accordingly as if the notice were a notice issued under that sub-section: Provided that the Income-tax Officer shall not issue a notice under cl. (a) of sub-sec. (1) - (i) for any year prior to the year ending on the 31st 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 incometax 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 Match, 1941;. . . . . . . . . " In order to appreciate the true import and meaning of the words "that year" employed in this proviso a brief resume of the material provisions of the Act may be necessary. The most important of them is the charging section, sec. 3 of the Act, which provides that "where any Central Act enacts that income tax shall be charged for any year at any rate or rates tax at that rate or that rates shall be charged for that years in accordance with and subject to the provisions of the Act in respect of the total income of the previous year. . . . . . . " It is obvious from the language of the section that the tax is charged for the assessment year in accordance with the rules prescribed for that year in the Central Act, though it is in respect of the income of the previous year. The words "that year" in the section which are under-lined have reference to the assessment year. The year in which this income is taxed is the year of assessment and the rates at which this tax is levied are prescribed by the annual Finance Act for that year. Do the words 'that year" relate to the year for which a return of assessee's income has to be forwarded under sec. 22 of the Indian Income-tax Act called the "accounting year" or the year in which the tax is levied for the income of the previous or accounting year and which is compendiously called the "assessment year"? The purpose of sec. 34 of the Income-tax Act is to provide a machinery for assessing that income of an assessee which has escaped assessment. The reason for such an escape may be concealment of income or application of too low a rate or grant of excessive relief or otherwise. The legislature imposes several restrictions before this power can be exercised. The period of eight years is one of these limitations. Escape from assessment and consequent taxing of income of a given year is only possible if the return has been called for either by general or special notice. Assessment and computation of tax are dependent on the annual Finance Act which prescribes the rates. The question of "too low" a rate does not arise unless the rate is laid down by the annual Finance Act. It is the financial year or the year of assessment with reference to which escapement of income or applicability of too low rates therefore obviously relate. An assessee is not called upon to disclose his income during the currency of the "previous year" technically so called. No question of its concealment from the taxing authorities, therefore, can arise during that year. It is after the commencement of the assessment year that he is expected "to make a return of his income or to disclose fully and truly all material facts necessary for his assessment for that year. " The income shown in the return under sec. 22 of the Act must be with reference to the year previous but the return itself is presented during the assessment year and all the other contingencies referred to in sec. 34, namely "concealment of income", escaped assessment", under assess-ment" or "excessive relief" etc. , must of necessity refer to the year of assessment in respect of which the tax is levied. In our opinion, therefore, "that year" in the proviso evidently means the assessment year and not the "previous year" or "accounting year. " In many sections of the Income-tax Act the word year has been qualified by the word "previous" where the legislature so intended. Reference may be made for instance to sec. 4 (1), 16 (1) (b) and 22 of the Act, where the words "previous year' occur. The proviso before us does not qualify the word year. We see no adequate reason to import it by implication. On the contrary the context in which the word year has been used and the purpose which sec. 34 aims to achieve are clearly indicative of its being the assessment year. Reliance was placed by the petitioners on H. N. S. Iyengar Vs. First Addl I. T. Officer (1 ). The argument which appealed to the learned Judges in this case largely rested on the notice issued under sec. 22 of the Income-tax Act and the reference made to in sec. 34 (1) (a ). Because the return is to be filed in respect of the previous year and failure to do so attracted the applicability of sec. 34 (1) (a), the learned Judges came to the conclusion that the expression "that year" in the proviso to sec. 34 meant the previous year. It probably escaped notice that the return under sec. 22 is itself presented and called for in the year of assessment and all that happens in the assessment proceedings relate to the assessment year. We have carefully perused this decision and we regret our inability to agree with the view taken by the learned Judges. Sec 34 aims to make a comprehensive provision for realisation of tax which although payable in law escaped levy or collection in due time. It embraces within its scope, escape of assessment due to so many reasons. The legislature did not confine the purpose of sec. 34 merely to the circumstance in which the assessee failed to file his return. To spell out the period of limitation prescribed in this section with reference to the year for which the return of income is presented under sec. 22 in our opinion is not giving full effect to the context in which the material expressions occur. Our attention was also invited to M. Mathurdas Vs. Chunilal, I. T. Officer (2) and C. W. Spencer & others Vs. Income-tax Officer, Madras (3 ). Both these cases have taken the view which we have preferred. It was next contended that sec. 34 being a provision in a fiscal statute even assuming that it was capable of two meanings, in so far as the question of limitation was concerned the one which was favourable to the citizen must be preferred. In our opinion the argument is not sound. Sec. 34 merely provides a machinery for collecting that part of Exchequer's dues which for some reason has escaped its hands. In Commissioner of Income tax Vs. M/s. Mahaliram Ramjidas (4), referring to sec. 34 it has been held: - "the section although it is a part of a taxing Act, imposes no charge on subject, and deals merely with the machinery of assessement. interpreting provisions of this kind the rule is that construction should be preferred which makes the machinery workable, ret reas valeat In potius quam pereat.
(3.) THE petitioners Chhagan Lal and Smt. Kamla Bai have assailed the validity of the notices served on them. THE Income-tax Officer has to serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-sec. (2) of sec. 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance. THE statute further provides that the provisions of this Act shall, so far as may be, apply to this notice as they apply to a notice under sec. 22 (2 ). A question, therefore, arises as to the nature of the provisions regarding notice under sec. 34 of the Indian Income-tax Act. THE law on this point appears to be well-settled. In a recent Supreme Court case, Calcutta Discount Co. Ltd. , Vs. Income tax Officer, Companies District I, Calcutta, and another (5) it has been held that: - "to confer jurisdiction under this section to issue notice in respect of assessment beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. THE first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been underassessed. THE second is that he must have also reason to believe that such "under-assessment" has occurred by reason of either (1) omission or failure on the part of an assessee to make a return of his income under sec. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years, but within the period of eight years, from the end of the year in question. " THE plea of the department that the question could be examined in the course of reassessment proceedings themselves and this Court should not investigate into the validity of these notices has also been considered and answered by the aforesaid Supreme Court decision. "both the conditions, (i) the Income-tax of Officer having reason to believe that there has been under-assessment and (ii) his having reason to believe that such under-assessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry 4 years. THE argument that court ought not to investigate the existence of one of these conditions, viz. , that the Income-tax Officer has reason to believe that under assessment has resulted for non-disclosure of material facts, cannot therefore be accepted. " In Naryanna Chetty Vs. I. T. Officer (6), it has been laid down that a notice under sec. 34 is not a mere procedural requirement but affects the validity of the proceedings taken pursuant to this notice. A recent decision of Assam High Court, Messrs. Tansukhrai Vs. I. T. Officer (7) has expressed the opinion that want of a valid notice raises a question of jurisdiction which does not admit of any waiver on the part of an assessee. Such is the sanctity attached to a notice before proceedings under sec. 34 are to be taken. Since on the fulfilment of this condition depends the jurisdiction of the Income-tax Officer to proceed under sec. 34, a close examination of the notices before us becomes the duty of this Court. The service of the notice under sec. 34 is not disputed in any of the three cases. Different objections have been raised as to their validity. In order to satisfy ourselves regarding the reasons which actuated the issue of these notices, we directed the Department to place before us the relevant material. The Department has produced before us the reasons recorded by the Income Tax Officer concerned before they issued notices to the three petitioners. We propose to consider this material at appropriates places. In Chhagan Lal's case (Petition No. 153 of 1959), the grievance made by the the petitioner is that the notice does not disclose whether it is due to the failure on the part of the assessee to submit a return or due to an omission to disclose material facts fully or truly or the assessee has been under-assessed at too low a rate etc. Subsequent to the placing of the material by the Department before us the petitioner has further submitted that the notice is invalid on the ground that in his report the income tax officer has left Col. 7 blank which required him to state the item that had escaped assessment and thus the notice is bad; it is also invalid because the sanction of the Income Tax Commissioner had not been obtained prior to the issue of the notice but subsequent thereto; and also because notwithstanding the fact that the escaped income has been estimated to be at Rs. 1,30,000/- the sanction of the Commissioner and not of the Central Board of Revenue has been obtained. ;