Maharaj Kumar Kamal Singh Vs. The
Commissioner of Income-Tax, Bihar & Orissa  INSC 87 (1 October 1958)
AIYYAR, T.L. VENKATARAMA SARKAR, A.K.
CITATION: 1959 AIR 257 1959 SCR Supl. (1) 10
CITATOR INFO :
E 1959 SC1303 (11,12) D 1960 SC1232 (7,47) R
1964 SC 766 (9) F 1967 SC 230 (5,13) R 1968 SC 565 (9,11,32) D 1968 SC 843 (10)
R 1970 SC 300 (4) RF 1972 SC 29 (4) F 1976 SC 203 (10,11,12) D 1976 SC1681 (5)
RF 1977 SC2129 (9) R 1979 SC1960 (6,14)
Income Tax-Re-assessment -Escaped income
-Assessment order based on statement of law subsequently found to be erroneous
Escaped Whether assessment can be reopened-" Information
Escaped-income", meaning of-Indian Income-tax Act, 1922 (XI Of 1922), as
amended by Act 48 of 1948, s. 34(1)(b).
In respect of the assessment of the appellant
to income-tax the Income-tax Officer excluded the amount of interest on arrears
of rent received by him, in view of the decision of the Patna High Court in
Kamakshya Narain Singh v. Commissioner of Income-tax,  14 1. T. R. 673,
that this amount was not liable to be taxed, though an appeal against the said
decision to the Privy Council at the instance of the Income-tax Department was
Subsequently on July 6, 1948, the Privy Council allowed the appeal and held that interest on arrears of rent payable in
respect of agricultural land was not agricultural income as it was neither rent
nor revenue derived from land. As a result of this decision the Income-tax
Officer took proceedings under s. 34 Of the Indian Income-tax Act, 1922, as
amended, and revised the assessment order by adding the aforesaid amount, on
the footing that the subsequent decision of the Privy Council was information
within the meaning of S. 34(1)(b) of the Act and that the Income-tax Officer
had reason to believe that a part Of the assessee's income, had escaped
assessment. It was contended for the appellant that s. 34(1)(b) was not
applicable to the case because (1) the information referred to in the section
means information as to facts and cannot include the decision of the Privy
Council on a point of law, 11 and (2) where income has been duly returned for
assessment and an assessment order has been passed by the Income-tax Officer,
it cannot be said that any income has escaped assessment within s. 34(1)(b).
Held, (1) that the word " information
" in s. 34(1)(b) of the Act includes information as to the true and
correct state of the law and so would cover information as to relevant judicial
decisions; and, (2) that the expression "has escaped assessment" in
to cases where no return has been submitted by the assessee.
The section is applicable not only where
income has not been assessed owing to inadvertence or oversight or owing to the
fact that no return has been submitted, but also where are turn has been
submitted, but the Income-tax Officer erroneously fails to tax a part of
Rajendra Nath Mukherjee v. Income-tax
Commissioner, (1933) L.R. 61 I. A. 10 and Messrs. Chatturam Horliram Ltd. v. Commissioner
of Income-tax, Bihar and Orissa,  2S.C.R.
Raja Benoy Kumar Sahas Roy v. Commissioner of
Income-tax, West Bengal,  24 I.T.R. 70, Madan Lal v. Commissioner of
Income-tax, Punjab,  12 I.T.R. 8 and The Commissioner of Income-tax v.
Raja of Parlakimedi, (1926) I.L.R. 49 Mad. 22, approved. , Maharaja Bikram
Kishore of Tripura v. Province of Assam,  17 I.T.R. 22o, disapproved.
CIVIL APPELLATE, JURISDICTION: Civil Appeal
No. 297 of 1955.
Appeal from the judgment and decree dated
April 7, 1954, of the Patna High Court in Misc. Judicial Case No. 327 of 1951.
A. V. Viswanatha Sastri and B. K. Sinha, for
K. N. Rajagopala Sastri, R. H. Dhebar and D.
Gupta, for the respondent.
1958. October 1. The Judgment of the Court
was delivered by GAJENDRAGADKAR J.-This is an appeal with the, certificate
issued by the High Court of Judicature at Patna under s. 66A(2) of the
Income-tax Act (hereinafter called the Act) and it raises a, short question of
the construction of s. 34(1)(b) of the Act. This 12 question arises in this
way. Proceedings. were. taken by the Income-tax Officer, Special Circle, Patna,
against Maharaja Bahadur Rama Rajaya Prasad Singh, the father of the appellant,
to levy income-tax for the year 1945-46. The total income assessed to
income-tax by the said order was Rs. 1,60,602. This amount included the sum of
Rs. 93,604 received by the assessee on account of interest on arrears of rent
due to him after deduction of collection charges.
It was urged before the Income-tax Officer by
the assessee that this amount was not liable to be taxed in view of the
decision of the Patna High Court in Kamakshya Narain Singh v. Commissioner of
Income Tax (1). The Income-tax Officer, however, held that, since the
department had obtained leave to appeal to the Privy Council against the said
decision, the matter was sub judice and so be would not be justified in
accepting the assessee's contention. In the result, he included the said amount
in the total income for the purposes of assessment, but ordered that the
realisation of the tax on the &aid amount should be stayed till the
decision of the Privy Council or March 31, 1947, whichever was earlier. This
order was passed under s. 23(3) of the Act on December 31, 1945.
Against this order the assessee preferred an
appeal before the Appellate Assistant Commissioner of Income-tax, Patna.
On May 8, 1946, the appellate authority held
that the Income-tax Officer was bound to follow the decision in the case of
Kamakshya Narain Singh (supra) (1) and so, he set aside the order under appeal
in regard to the amount of Rs. 93,604 and directed the Income-tax Officer to
make fresh assessment. He also observed that it was not clear as to what
portion of the said amount was interest on arrears of agricultural rents and
what portion related to interest on arrears of non-agricultural rents. The
Income Tax Officer was accordingly directed to determine the latter amount and
to levy tax on it.
Pursuant to this appellate order the
Income-tax Officer made a fresh assessment under ss. 23(3) and 31 of the Act on
August 20, 1946. By this order the (1) [1946) 14 I.T.R. 673.
13 total amount of income liable to tax was
determined after deducting the whole of the amount of Rs. 93,604 from it.
Some other minor reductions were also allowed
in compliance with the appellate order. The department did not challenge either
the appellate order or the subsequent order passed by the Income-tax Officer in
pursuance of the said appellate order.
Subsequently, on July 6, 1948, the appeal
preferred by the department to the Privy Council against the decision of the
Patna High Court in Kamakshya Narain Singh's case (1) was allowed and it was
held that interest on arrears of rent payable in respect of agricultural land
is not agricultural income for it is neither rent nor revenue derived from
As a result of this decision, the Income-tax
Officer issued a notice to the assessee under s. 34 of the Act on September 25,
1948. This notice called upon the assessee to file a fresh return as the
Income-tax Officer had reason to believe that a part of the assessee's income
assessable to incometax for the year ending March 31, 1946, had escaped
assessment. It appears that this notice was found to be defective, and so under
the provisions of s. 34, as amended, a fresh notice was issued by the officer
to the assessee on March 18, 1949. The proceedings thus taken by the officer
under s. 34 ultimately led to a revised assessment order passed under s. 23(3)
and s. 34 of the Act and the amount of Rs. 93,604 was added to the assessment
amount as interest on arrears of rent. This revised assessment order was passed
on April 30, 1949.
The assessee appealed against this order but
the appellate authority dismissed the assessee's appeal and confirmed the said
order on July 26, 1949. He held that the subsequent decision of the Privy
Council in the case of Kamakshya Narain Singh (supra) (1) was information
within the meaning of cls. (a) and (b) of s. 34(1) and that the Income-tax
Officer bad reason to believe that a part of the assessee's income had escaped
assessment. The assessee then moved the Income-tax Appellate Tribunal; but on
August 21, (1)  16 I.T.R. 325.
14 1950, the tribunal confirmed the order
passed by the appellate authority and dismissed the assessee's appeal. It was
held that the provisions of a. 34 as amended in 1948 applied to the case and
that the decision of the Privy Council brought it within the purview of sub-s.
(1)(b) of s. 34.
Meanwhile the assessee died and the appellant
succeeded to the estate of his deceased father. He then filed an application
under s. 66(1) of the Act requiring the tribunal to refer the question of law
raised in the case to the Patna High Court for its opinion. The tribunal
rejected this application on February 27, 1951. Thereupon the appellant moved
the Patna High Court under s. 66(2) of the Act; his application was allowed and
the tribunal was directed by the High Court on December 15, 1951, to state the
case and refer the question of law for its opinion. In compliance with the
requisition of the High Court the tribunal by its order passed on July 23,
1952, submitted a statement of the case and referred to the High Court for its
opinion the question of law raised by the appellant. The question thus raised
is: " Whether in the circumstances of the case the assessment order under
s. 34 of the Act of the interest on arrears of rent is legal ?" On April
7, 1954, this reference was heard by V. Ramaswamy and C. P. Sinha JJ. of the
Patna High Court and the question was answered by them in favour of the
department. The appellant then applied for and obtained a certificate from the
Patna High Court on September 13, 1954. The High Court has certified under s. 66A,
sub-s. (2), of the Act that the case raises a question of law of a substantial
kind and is otherwise a fit case for appeal to this court. That is how the
present appeal has come before us; and the question which it raises for our
decision is about the true construction of s. 34(1)(b) of the Act.
Section 34 of the Act has been amended in
1939 and in 1948.
It is conceded by Mr. Viswanatha Sastri, for
the appellant, that the present case is governed by the section as it was
amended in 1948. This amended s. 34, sub-s. (1), deals with cases of income
escaping assessment in two clauses. Clause (a)covers cases 15 where income has
escaped assessment by reason of the omission or failure on the part of the
assessee to make a return of his income under s. 22. We are not concerned with
this clause. Clause (b) of s. 34(1) provides inter alia that "
notwithstanding that there has been no omission or failure as mentioned in cl.
(a) on the part of the assessee, if 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 the Act, or that excessive loss or
depreciation allowance have been computed, he may, at any time within four
years of the end of that year 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 reassess 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 ". It is clear that two conditions must be
satisfied before the Income-tax Officer can act under s. 34(1)(b). He must have
information in his possession, which, in the context, means that the relevant
information must have come into his possession subsequent to the making of the
assessment order in question and this information must lead to his belief that
income chargeable to income-tax has escaped assessment for any year, or that it
has been under-assessed or assessed at too low a rate or has been made the
subject of excessive relief under the Act. Two questions are raised by Mr.
Sastri under this sub-section in the present appeal. He contends that the
relevant information means information as to facts and cannot include the
decision of the Privy Council on a point of law; and he argues that, where
income has been duly returned for assessment and an assessment order has been
passed by the Income-tax Officer, it cannot be said that any income has escaped
assessment within s. 34(1)(b). Thus the appellant's case is that both the
conditions required by s. 34(1)(b) 16 have not been satisfied and so the order
of revised assessment passed against the appellant is illegal.
It is not disputed-that, according to its
strict literal' meaning, the word " information " may include
knowledge even about a state of tile law or a decision on a point of law.
The argument, however, is that the context
requires that the word " information " should receive a narrower
construction limiting it to facts or factual material as distinguished from
information as to the true state of the law. In support of this argument Mr.
Sastri referred to the marginal notes of ss. 19A and 20A as well as the
province, s of s. 22(3) and s. 28 and urged that the information contemplated
by these provisions is information as to facts or particulars and has no
reference to the state of law or to any question of law; and so the said word
in s. 34(1)(b) should be construed to mean only factual information. We are not
impressed by this arguments If the word " information" used in any
other provision of the Act denotes information as to facts or particulars, that
would not necessarily determine the meaning of the said word in s. 34(1)(b).
The denotation of the said word would naturally depend on the context of the
particular provisions in which it is used. It is then contended that ss. 33B
and 35 confer ample powers on the specified authorities to revise Income-tax
Officer's orders and to rectify mistakes respectively and so it would be legitimate
to construe the word "information " in s. 34(1)(b) strictly and to
confine it to information in regard to facts or particulars. This argument also
is not valid.
If the word "information " in its
plain grammatical meaning includes information as to facts as well as
information as to the state of the law, it would be unreasonable to limit it to
information as to the facts on the extraneous consideration that some cases of
assessment which need to be revised or rectified on the ground of mistake of law
may conceivably be covered by ss. 33B and 35. Besides, the application of these
two sections is subject to the limitations prescribed by them; and so the fact
that the said sections confer powers for revision or rectification would not be
relevant and material in construing 17 s. 34(1)(b). The explanation to s. 34
also does not assist the appellant. It is true that under the explanation
production before the Income-tax Officer of account books or other evidence
from which material facts could with due diligence have been discovered by the
Income-tax Officer would not necessarily amount to disclosures within the
meaning of the said section; but we do not see how this can have any bearing
oil the construction of cl. (b) in s. 34(1). On the other hand, one of the
cases specifically mentioned in s. 34(1)(b) necessarily postulates that the
word "information" must have reference to information as to law.
Where, in consequence of information in his possession, the Income-tax Officer
has reason to believe that income has been assessed at too low a rate, he is
empowered to revise the assessment; and there can be no doubt that the belief
of the Income-tax Officer that any given income has been assessed at too low a
rate may in many cases be due to information about the true legal position in
the matter of the relevant rates. If the word " information " in
reference to this class of cases must necessarily include information as to
law, it is impossible to accept the argument that, in regard to the other cases
falling under the same provision, the same word should have a narrower and a
more limited meaning. We would accordingly hold that the word "
information " in s. 34(1)(b) includes information as to the true and
correct state of the law and so would cover information as to relevant judicial
decisions. If that be the true position, the argument that the Income-tax
Officer was not justified in treating the Privy Council decision in question as
information within s.
34(1)(b) cannot be accepted.
in regard to the other condition prescribed
by s. 34(1)(b).
When can income be said to have escaped
assessment? Mr. Sastri argued that the word "assessment " does not
mean only the order of assessment, but it includes all steps taken for the
purpose of levying the tax and during the process of taxation. That no doubt is
true; but the wide denotation of the word 3 18 " assessment" does not
really assist the appellant; it only shows that along with the order of
assessment which is an important act in the process of taxation, other acts and
steps adopted in the course of taxation are also included in the word ; but it
is with this " most critical act in the process of taxation " with
which we are concerned in the present appeal. Then it is urged that the word
"escaped " according to the Oxford English Dictionary means "to
elude (observations, search, etc.); to elude the notice of a person " ;
and the contention is that it is only where income has not been returned for
assessment that it can be reasonably said that income has escaped assessment.
The dictionary meaning of the word does not support Mr. Sastri's contention.
According to the same dictionary the word " escape " also means
" to get clear away from (pursuit or pursuer); to succeed in avoiding
(anything painful or unwelcome)"; so that judging by +,he dictionary
meaning alone it would be difficult to (-confine the meaning of the word "
escape " only to cases where no return has been submitted by the assessee.
Even if the assessee has submitted a return of his income, cases may well occur
where the whole of the income has not been assessed and such part of the income
as has not been assessed can well be regarded as having escaped assessment. In
the present case, interest on arrears of rent received by the assessee from his
agricultural lands were brought to the notice of the Incometax Officer; the
question as to whether the said amount can be assessed in law was considered
and it was ultimately held that the relevant decision of the Patna High Court
which was binding on the department justified the assessee's claim that the
said income was not liable to be assessed to tax.
There is no doubt that a part of the
assessee's income had not been assessed and, -in that sense, it has clearly
escaped assessment. Can it be said that, because the matter was considered and
decided on the merits in the light of the binding authority of the decision of
the Patna High Court, no income has escaped assessment when the said Patna High
Court decision has been subsequently reversed by the Privy Council ? We see no
19 justification for holding that cases of income escaping assessment must
always be cases where income has not been assessed owing to inadvertence or
oversight or owing to the fact that no return has been submitted. In our
opinion, even in a case where a return has been submitted, if the Income-tax
Officer erroneously fails to tax a part of assessable income, it is a case
where the said part of the income has escaped assessment. The appellant's
attempt to put a very narrow and artificial limitation on the meaning of the
word escape " in s. 34(1)(b) cannot therefore succeed.
Mr. Sastri, however, argues that the narrow
construction of the expression "has escaped assessment " for which he
contends has been approved by the Privy Council in Rajendranath Mukherjee v.
Income-tax Commissioner (1). He relies more particularly on the observation
made in the judgment in this case that "the fact that s. 34 requires a
notice to be served calling for a return of income which has escaped assessment
,strongly suggests that income which has already been duly returned for
assessment cannot be said to have escaped 'assessment within the statutory
meaning". In order to appreciate the effect of this observation it would
be necessary to examine the material facts in the case and the specific points
raised for the decision of the Privy Council. It appears that, in 1930 the
Income-tax Officer had made an assessment order on Burn & Co., which was an
unregistered firm, assessing them' to income-tax and supertax for the year
192728 under the Act. The individual partners of Burn & Co., who were the
appellants before the Board, contended that it was not competent to the officer
to make the impugned assessment on the firm after the expiry on March 31, 1928,
of the year in respect of which the assessment was made. The Commissioner of
Income-tax met this plea by referring to the other relevant facts which
explained the delay in making the assessment order. Towards the end of 1926-27,
the partners of the registered firm of Martin & Co., had purchased the
business and assets of Burn & Co. This transaction was effected not on
behalf of the firm (1) (1933) 61 I.A. IO, 16. 20 of Martin & Co., but by
the partners of the firm as individuals. In April 1927, the Income-tax Officer
of District I issued a notice to Burn & Co., under s. 22(2) calling for a
return of their total income for the year ending March 31, 1927, with a view to
assessing them for the year 1927-28. A similar notice was issued by the
Income-tax Officer of District 11. When these notices were issued both the
officers did not know that the business of Burn & Co., had been bought by
the partners of Martin & Co. Subsequently this transaction was brought to
the knowledge of the income tax authorities whereupon Burn & Co.'s file was
transferred by the officer dealing with District 11, and in February 1928, an
assessment order was made on Martin & Co., in respect of the combined
incomes returned by Martin & Co., and Burn & Co., on the footing that
the business of Burn & Co., had become a branch of Martin & Co. Martin
& Co., appealed against this assessment and their appeal was allowed by the
High Court in May 1930. It was held that an income of a registered firm cannot,
for the purpose of the Act., be aggregated with the income of an unregistered
firm but that the income of each must be separately assessed irrespective of
the fact that the persons interested in the profits of both concerns are the
same. In consequence of this decision, the assessment made on Martin & Co.,
was amended by the elimination there from of the income returned by Burn &
Co., and in November 1930, an assessment was made on Burn & Co., on their
income as returned by them in January 1928. It was this assessment which was
the subject matter of the appeal before the Privy Council. It would thus be
noticed that the principal question which the appellants raised before the
Privy Council was: Whether the assessment made under s. 23(1) on the appellants
in November 1930 for the year 1927-28 was a legal assessment ? The argument was
that, on a true construction of the Income-tax Act, it was obligatory on the
Income-tax Officer to complete the assessment proceedings within the year of
assessment, and in the event of such assessment not being so completed the only
remedy open to the income-tax 21 authorities was to proceed under s. 34. This
argument was repelled by the Privy Council. Their Lordships held that neither
s. 23 nor any other express provision of the Act limited the time within which
an assessment must be made.
They then examined the other argument urged
by the appellants that s. 34 implied a prohibition against the making of an
assessment after the expiry of the tax year.
In dealing with this argument, s. 34 was
construed and it was observed that the argument sought to put upon the word
"assessment " too narrow a meaning, and upon the word " escaped
" too wide a meaning. It was in this connection that their Lordships
approved of the observation made by Rankin C. J. in Re: Lachhiram Basantlal (1)
that I....... income has not escaped assessment if there are pending at the
time proceedings for the assessment of the assessee's income which have not yet
terminated in a final assessment thereof ". In other words, the conclusion
of the Privy Council was that so long as assessment proceedings are pending
against an assessee and no final order has been passed thereon, it would be
premature to suggest that any income of the assessee has escaped assessment. It
is only after the final order levying the tax has been passed by the Income-tax
Officer that it would be possible to predicate that any part of the assessee's
income has escaped assessment. In the result their Lordships held that "
since proceedings pursuant to the notice issued against the appellants under s.
22(2) had been pending and no order had been passed against the appellants in
the said proceedings, it would not be possible to accept their argument that
the Income-tax Officer should have taken action against them in respect of the
income for the relevant year under s. 34 of the Act ". If this decision is
considered in the light of the relevant facts and the nature of the argument
raised before the Privy Council by the appellants, it would be difficult to
accept the contention that, according to the Privy Council, s. 34 would be
inapplicable wherever notice under s. 22(2) has been issued against an
assessee, a return has been submitted by him and (1) (1030) I.L.R. 58 Cal. 909,
22 a final order has been passed by the
Income-tax Officer in the said assessment proceedings. To say that, so long as
the assessment proceedings are pending, it is impossible to assume that any
income has escaped assessment is very much different from saying that income
cannot be said to have escaped assessment wherever assessment proceedings have
been taken and a final order has been passed on them. We must, therefore, hold
that this decision does not support Mr. Sastri's contention about the
inapplicability of s. 34 in the present case.
In this connection it may be relevant to
refer to the decision of the Calcutta High Court in Be: Lachhiram Basantlal
(supra) (1) because, as we have already pointed out, the statement of the law
made by Rankin C. J. in regard to the effect of s. 34 of the Act in this case
has been expressly approved by the Privy Council in the case of Rajendra Nath
Mukherjee (supra) (2). While dealing with the assessees' argument that the
order of assessment was invalid Since it had been passed more than one year
after the expiry of the relevant financial year and that the Income-tax Officer
might have acted under s. 34, Rankin C. J. stated that income cannot be said to
have escaped assessment except in the case where an assessment has been made
which does not include the income. It is true that this observation is obiter
but it is fully consistent with the subsequent statement of the law made by the
learned Chief Justice which has received the approval of the Privy Council.
Mr. Sastri has also relied on the decision of
this Court in Messrs. Chatturam Horliram Ltd. v. Commissioner of Incometax,
Bihar & Orissa (1) in support of his construction of s. 34. In Chatturam's
case (supra) (3) the assessee had been assessed to income-tax which was reduced
on appeal and was set aside by the Income-tax Appellate Tribunal on the ground
that the Indian Finance Act of 1939 was not in force during the assessment year
in Chota Nagpur. On a reference the decision of the tribunal was upheld by the
High (1) (1930) I.L.R. 58 Cal. 909, 912. (2) (1933) 61 I.A.10, 16. (3)  2
23 Court. Subsequently the Governor of Bihar
promulgated the Bihar Regulation IV of 1942 and thereby brought into force the
Indian Finance Act of 1939 in Chota Nagpur retrospectively as from March 30,
1939. This ordinance was assented to by the Governor-General. On February
8,1944, the Income-tax Officer passed an order in pursuance of which
proceedings were taken against the assessee under the provisions of s. 34 and
they resulted in the assessment of the assessee to income-tax. The contention
which was raised by the assessee in his appeal to this Court was that the
notice issued against him under s. 34 was invalid. This Court held that the
income, profits or gains sought to be assessed were chargeable to income-tax
and that it was a case of chargeable income escaping assessment within the
meaning of s. 34 and was not a case of mere non-assessment of income-tax. So
far as the decision is concerned, it is in substance inconsistent with the
argument raised IVY Mr. Sastri. He, however, relies on the observations made by
Jagannadhadas J. that " the contention of the learned counsel for the
appellant that the escapement from assessment is not to be equated to
non-assessment simpliciter is not without force " and he points out that
the reason given by the learned judge in support of the final decision was that
though earlier assessment proceedings had been taken they had failed to result
in a valid assessment owing to some lacuna other than that attributable to the
assessing authorities notwithstanding the chargeability of income to the tax.
Mr. Sastri says that it is only in cases where income can be shown to have
escaped assessment owing to some lacuna other than that attributable to the
assessing authorities that s. 34 can be invoked. We do not think that a fair
reading of the judgment can lead to this conclusion. The observations on which
reliance is placed by Mr. Sastri have naturally been made in reference to the
facts with which the Court was dealing and they must obviously be read in the
context of those facts. It would be unreasonable to suggest that these
observations were intended to confine the application of s. 34 only to cases
where 24 income escapes assessment owing to reasons other than those
attributable to the assessing authorities. Indeed Jagannadhadas J. has taken
the precaution of adding that it was unnecessary to lay down what exactly
constitutes escapement from assessment and that it would be sufficient to place
their decision on the narrow ground to which we have just, referred. We are
satisfied that this decision is of no assistance to the appellant's case.
It appears that the construction of s. 34 has
led to a divergence of judicial opinion in the High Courts of this country, and
so it would be necessary to refer briefly to the decisions to which our
attention was invited in this appeal. In Madan Lal v. Commissioner of I. T.,
Punjab (1), the majority decision of the Full Bench of the Lahore High Court
held that s. 34 of the Act, as it stood then, was not confined to cases where
income had not been returned at all.
It applied also to cases where an item of
income is included in the return made by the assessee but is left unassessed by
the Income-tax Officer, or, if assessed in the first instance, the assessment
is cancelled by any appellate or revisional authority. Din Mohammad J. who
delivered the majority judgment has expressed his agreement with the opinion of
Coutts Trotter C. J. in The Commissioner of Income-tax v. Raja of Parlakimedi
(2) that the words " escaped assessment " apply even " to cases
where the Incometax Officer has deliberately adopted an erroneous construction
of the Act as much as to a case where an officer has not considered the matter
at all, but simply omitted the assessable property from his view and from his
The next case which has been cited before us
is the decision of the Bombay High Court in The Commissioner of Income-tax,
Bombay v. Sir Mahomed Yusuf Ismail (3). In this case Beaumont C. J. construed
the word " definite information " in s. 34 and held that in order to
take action under the said section, there must be some information as to a fact
which leads the Income-tax Officer to discover that income (1)  3 I.T.R.
438. (2) (1926) 49 Mad. 22, 28.
(3)  12 I.T.R. B.
26 has escaped assessment or has been
under-assessed. The learned Chief Justice, however, added that the fact may be
as to the state of the law, for instance, that a case has been overruled or
that a statute has been passed which has not been brought to the attention of
the Income-tax Officer.
Chagla J. who delivered a concurring judgment
was inclined, to hold that the word " information " in the section
must be confined only to information as to facts or particulars and cannot
include information as to law. In his opinion, " a mistake of law or
misunderstanding of the provisions of the law is not covered by the language of
the section as amended in 1939 ". It may be pointed out that in coming to
this conclusion the learned judge appears to have relied on the observations of
Rowlatt J. in Anderton and Halstead Ltd. v.
Birrell (1) that "the word I discover'
in s. 125 of the English Act does not include a mere change of opinion on the
same facts and figures upon the same question of accountancy, being a question
of opinion ". Incidentally, we may observe that this statement of the law
by Mr. Justice Rowlatt appears to have been overruled by the Court of Appeal in
Commercial Structures Ltd. v. R. A. Briggs (2).
Soon after the decision of the Bombay High
Court was reported the same question was raised before the Madras High Court in
Raghavalu Naidu & Sons v. Commissioner of Incometax, Madras (3). Leach C.
J. who delivered the judgment of the court agreed with the construction which
had been put on the expression "definite information " by the Bombay
High Court on the ground that "it is very desirable to avoid conflict on
such a question ". He, however, added that in view of the opening words of
the amended section as it was amended in 1939, the word " discovers "
means something more than 'has reason to believe' or ' satisfies himself' and
that consequently it would not be right to regard the English decisions on the
meaning of the word " discovers " in s. 125 of (1)  I. K. B.
271. (2)  117 I.T.R. Supplement 30.
(3)  13 I.T.R. 194, 197.
4 26 the English Act as being in point. He
also made it clear that in following the Bombay, decision they did not imply
that the definite information must relate to a pure question of fact because it
was impossible to lay down a rule to cover all cases in which this section can
In the Calcutta High Court, conflicting views
have been expressed on this point. In Maharaja Bikram Kishore of Tripura v.
Province. of Assam (1), Harries C. J. and Mukherjea J. had to deal with the
construction of s. 30 of the Assam Agricultural Income-tax Act (Assam IX of
1939) which corresponds to s. 34 of the Act. They held that where a certain
income has been included in his return by the assessee but was not assessed on
the ground that it was not assessable, it cannot be treated as income which has
escaped assessment and reassessed under s. 30 of the Assam Agricultural
Income-tax Act. In his judgment the learned Chief Justice has mentioned that
the earlier decisions of the Calcutta High Court were no doubt against the
contentions of the appellant but he took the view that the question was really
concluded by the decision of the Privy Council in Rajendra Nath Mukherjee's
case (supra) (2). The Privy Council decision was read by the learned Chief
Justice as supporting the view that s. 34 would be inapplicable to cases where
income has been returned, assessment proceedings have been taken and a final
order of assessment has been passed by the Income-tax Officer against the assessee.
We have already pointed out that the decision of the Privy Council does not
support this view. In Raja Benoy Kumar Sahas Roy v. Commissioner of 1. T., West
Bengal(1), Chakravartti C. J. and Lahiri J. have taken a contrary view.
They have held that information as to the
true state or meaning of the law derived freshly from an external source of
authoritative character is definite information within the meaning of s. 34.
It appears that, in construing the scope and
effect of the provisions of s. 34, the High Courts have had (1)  17
I.T.R. 220. (2) (1933) 61 1,A. 10, 16.
(3)  24 I.T.R. 70.
27 occasion to decide whether it would be
open to the Incometax Officer to take action under s. 34 on the ground that he
thinks that his original decision in making the order of assessment was wrong
without any fresh information from an external source or whether the successor
of the Income-tax Officer can act under s. 34 on the ground that the order of
assessment passed by his predecessor was erroneous, and divergent views have
been expressed on this point. Mr. Rajagopala Sastri, for the respondent,
suggested that under the provisions of s. 34 as amended in 1948, it would be
open to the Income-tax Officer to act under the said section even if he merely
changed his mind without any information from an external source and came to
the conclusion that, in a particular case, he had erroneously allowed an
assessee's income to escape assessment. We do not propose to express any
opinion on this point in the present appeal. In the result we hold that the
Patna High Court was right in coming to the conclusion that the decision of the
Privy Council was information within the meaning of s. 34 (1)(b) and that the
said decision justified the belief of the Income-tax Officer that part of the
appellant's income had escaped assessment for the relevant year.
The appeal accordingly fails and must be
dismissed with costs.