MAHARAJ KUMAR KAMAL SINGH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case the assessee is Maharaja Bahadur of Dumraon who submitted a return for the asst. yr. 1945 -46 showing a total amount of Rs. 1,60,602 as taxable income. This amount included a sum of Rs. 93,704, which was received by the assessee as interest on arrear of rent after deducting collection charges. At the time the assessment proceeding was taken there was a ruling of the Patna High Court that interest on arrear of rent was agricultural income which was not liable to be charged under the Indian IT Act. The decision of the Patna High Court was pronounced on the 15th Feb., 1954. In spite of this ruling the ITO imposed tax on the amount of interest but ordered that the realisation of the tax will be stayed till the decision of the Privy Council where the matter was pending in appeal. The assessee preferred an appeal to the AAC who set aside the order of the ITO with respect to the amount of Rs. 93,704 and held that this amount should be excluded from assessment according to the ruling of the Patna High Court. The decision of the Privy Council was pronounced on the 6th of July, 1948, and the view taken by the Privy Council was that interest on arrear of rent was not in its character agricultural income but was liable to be assessed under the IT Act. After the decision of the Privy Council was given the ITO started a proceeding under S. 34 against the assessee. The proceeding was started on the 25th Sept., 1948. But in view of the subsequent amendment of S. 34 of the IT Act a fresh proceeding under the amended S. 34 was initiated on 18th of March, 1949. As a result of this proceeding the sum of Rs. 93,704 was ultimately added to the income shown in the return of the assessee as liable to be taxed. An appeal was taken by the assessee to the AAC and the ground of the appeal was that the decision of the Privy Council overruling the view of the Patna High Court was not tantamount to "definite information" within the meaning of S. 34 and the proceeding under S. 34 of the Act was not legally valid. The argument was rejected by the AAC. An appeal was taken to the Tribunal by the assessee but the appeal was also dismissed.

(2.) IN these circumstances the Tribunal has referred the following question of law for the opinion of the High Court

(3.) MR . Dutt did not cite any authority which directly supported his argument. Counsel however referred to two cases, Rajendranath Mukherji vs. CIT, (1934) 2 ITR () and Maharaja Bikram Kishore vs. Province of Assam (1949) 17 ITR 220(). In the first case there is an observation of Lord Macmillan to the effect that income which had already been duly returned for assessment could not be said to have escaped assessment within the statutory meaning of S. 34. But this observation is in the nature of an obiter dictum for the decision is mainly based upon the ground that the assessment proceeding in question was not completed and since there was no limitation of time under S. 23 of the IT Act for completing assessment, proceedings of the IT authorities were legally valid. In holding that S. 34 was not applicable Lord Macmillan observed that the word "assessment" under S. 34 should be given a wider meaning and that the word was not confined to the definite act of making an order of assessment. The observation of Lord Macmillan was however followed by a Bench of the Calcutta High Court in the second case and it was held that income which had been duly returned for assessment could not be said to have escaped assessment within the meaning of s. 34. We think (with the greatest respect) that the decision of the Calcutta High Court is not authoritative for it runs counter to the previous decisions of the same High Court. For instance, in Anglo -Persian Oil Company (India) Ltd. vs. CIT, (1933) 1 ITR 129 (Cal), it was held by another Bench of the Calcutta High Court that S. 34 of the Indian IT Act was not limited to cases of non - disclosure by the assessee or discovery of new matter by the IT authorities. In that case the IT authorities had allowed originally a deduction on certain grounds but later on it appeared that the allowance of deduction was not warranted and S. 34 was applied to reopen the assessment and to assess the amount which had been deducted. It was held upon these facts by the High Court that s. 34 was properly applied. There is a decision to a similar effect in In re, M/s P. C. Mallick and D. C. Aich (1940) 8 ITR 236(). In that case the IT authorities had allowed as a deduction a sum of Rs. 39,492 which was paid to the beneficiaries under the will. Later on the IT authorities came to the conclusion that the sum was improperly allowed and assessed it under S. 34 of the IT Act on the ground that it had escaped assessment in the year in question. On reference to the High Court it was held that the proceeding under S. 34 was validly instituted. The same view has been expressed by other High Courts (see, for example, CIT vs. Rajah of Parlakimedi (1926) 2 ITR 104 (Mad), decided by the Madras High Court ; Amir Singh Sher Singh vs. CIT (1935) 3 ITR 17 1 (Lah)., decided by the Lahore High Court ; and Chimanram Motilal vs. CIT, (1943) 11 ITR 44 (Bom), decided by the Bombay High Court).