CHATTURAM HORILRAM LIMITED Vs. COMMR OF INCOME TAX B AND O

JUDGEMENT

(1.) This is an appeal by the assessee on leave granted under S. 66-A, Income-tax Act. The assessee by name Chatturam Horilram Ltd., who is the appellant before us, is a private limited company carrying on in Chota Nagpur the business of exporting mica for sale to foreign countries. The assessment in question is for the year 1939-40 and the accounting year is the calendar year 1938. These proceedings were initiated on a notice issued to the assessee under S. 34, Income-tax Act 1922 (Act 11 of 1922) (hereinafter referred to as the Act). It is the applicability of this section to the fact of this case that is the sole matter for consideration in this appeal. The circumstances under which the above mentioned notice under S. 34 was issued are as follows. The appellant had previously been assessed to tax on an income of Rs. 1,09,200 for the same year 1939-40 by an order dated 22-12-1939 which was reduced on appeal by Rs. 31,315. That assessment was set aside by the Income-tax Appellate. Tribunal on 28-3-1942, on the ground that the Indian Finance Act of 1939 was not in force during the assessment year 1939-40 in Chota Nagpur, which was a partially-excluded area. On a reference by the Tribunal at the instance of the Income-tax authorities the High Court of Patna agreed with this view and pronounced on 30-9-1943, its judgment confirming the setting aside of the assessment. Meanwhile, the Governor of Bihar promulgated Bihar Regulation 4 of 1942, which was assented to by the Governor-General on 30-6-1942. By this Regulation, the Indian Finance Act of 1939 (along with Finance Acts of other years with which we are not concerned) was brought into force in Chota Nagpur retrospectively as from 30-3-1939. The relevant portion of the Regulation was in the following terms:

(2.) The answer to the question which arises for consideration in this appeal depends on a correct appreciation of the requirements of S. 34 of the Act. Now, it has to be mentioned that S. 34 of the Act, as it originally stood in the Act of 1922, was amended by Act 7 of 1939 and this was in turn amended by Act 48 of 1948. At the relevant date, i.e, for the assessment year 1939-40, S. 34(1) as amended by Act 7 of 1939 (and before its amendment in 1948) was in force. It was as follows:

(3.) It may be true that all the information relating to the relevant income of the assessee which is now sought to be taxed was in the possession of the Income-tax Officer in the year 1939 itself when the return was submitted in compliance with the notice under S. 22 (2) of the Act then issued. But what was required under S. 34(1) was not merely fresh information as to the income that escaped assessment but information as to the fact of escapement from assessment of the chargeable income. In the present case the income-tax authorities proceeded to assess the appellant in the normal way during the assessment year 1939-40 itself. Those proceedings became infructuous, by virtue of the decision of the Income-tax Appellate Tribunal and the decision of the High Court confirming it, which disclosed that the Indian Finance Act of 1939 was not in operation in the relevant area at the relevant period and that in the absence thereof no valid assessment could be made. The fact, therefore, that the income of the appellant for the relevant year remained without any valid assessment emerged only on the High Court finally giving its decision that the assessment proceedings previously taken were invalid. If, in the circumstances, there was "escapement of chargeable income from assessment" - a question to be dealt with presently - there can be no doubt that this fact can be reasonable said to have been discovered by the Income-tax Officer only when he got definite information as to (1) the passing of the Bihar Regulation 4 of 1942 applying the Indian Finance Act of 1939 retrospectively for the relevant accounting period, and (2) the judgment of the High Court pronouncing prior proceedings to be invalid. It is knowledge of both these facts, together, that would, with reference to the circumstances of the present case, constitute the discovery of the relevant fact in consequence of definite information received by the Income-tax Officer. The information as to both these facts taken together could only be after the decision of the High Court on 30-9-1943. As already stated, the notice under S. 34(1), whose, validity is in question, was based on the order of the Income-tax Officer dated 8-2-1944, after the judgment of the High Court was pronounced. That order which has been extracted above, shows clearly that it was in consequence of the judgment of the High Court in the back-ground of the promulgation of Regulation 4 of 1942 that fresh action under S. 34(1) was being initiated.