Commissioner of Income-Tax, New Delhi
Vs. Rao Thakur Narayan Singh [1964] INSC 244 (30 October 1964)
30/10/1964 SUBBARAO, K.
SUBBARAO, K.
SHAH, J.C.
SIKRI, S.M.
CITATION: 1965 AIR 1421 1965 SCR (1) 990
CITATOR INFO:
D 1973 SC 254 (6)
ACT:
Income-tax Act, 1922 (11 of 1922), s.
34(1)-Two items of income escaped assessment taxed subsequently-Tribunal
considered taxability of only one item-By mistake set aside the entire order in
respect of both items No rectification of mistake-Whether fresh notice under s.
34(1) valid.
HEADNOTE:
The Income-tax Officer issued a notice to the
assessee under s. 34 on the ground that two items of the assessee's income,
namely forest income and interest income, were not included in the original
assessment for the year 1942-43. In response the assessee filed a return fully
disclosing his interest income but raised the plea that his forest income was
not taxable. The, Income-tax Officer however, assessed both items to tax. On
appeal, the Appellate Tribunal in its order dated April 25, 1961, although
dealing only with the forest income and holding that the Income-tax Officer had
no jurisdiction to initiate proceedings under s. 34 in respect of such income,
by inadvertence or by mistake, set aside the entire order of reassessment both
in respect of forest income, as well as the interest income. The Department did
not take any steps to rectify the mistake under s. 35 or to have the question
of illegality referred to the High Court..
Having allowed the order of the Tribunal to become
final, the Income-tax Officer initiated fresh proceedings under s. 34 in
respect of the interest income and made a revised assessment order which
included this income. The Appellate Tribunal confirmed the assessment but the
High Court, on a reference to it under s. 66(1), took the view that fresh
proceedings under s. 24 could not be taken for the reason, inter alia, that the
Tribunal's order dated April 25, 1949 had become final.
HELD : The Tribunal had committed a mistake
in setting aside the reassessment order in respect of interest income also, but
the income-tax Officer did not resort to the obvious remedy of having the
mistake rectified as provided for under s. 35 and allowed the Tribunal's order
dated April 25, 1949 to become final. He could not in the circumstances, reopen
the assessment by initiating proceedings under s. 34, as otherwise there would
be an unrestricted power of review in the hands of the Income-tax Officer to go
behind the findings of a hierarchy of Tribunals and Courts. [995 E-F; 996 F-H]
C.I.T. Bombay and Aden v. Khemchand Ramdas, (1938)6 I.T.R.
414 and C.I.T. West Punjab v. The Tribune
Trust, Lahore, (1948)16 I.T.R. 214, referred to.
R. K. Das & Co. v. C.I.T., West Bengal,
(1956)30 I.T.R.
439 and C.I.T., Bihar & Orissa v.
Maharaja Pratapsingh Bahadur of Gidhaur, (1961) 41 I.T.R. 421. distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 954 of 1963.
On appeal. from the judgment and decree dated
March 9, 1964, of the Allahabad High Court in Income-tax Miscellaneous Case No.
143 of 1954.
991 K. N. Rajagopala Sastri, R. H. Dhebar and
R. N. Sachthey, for the appellant.
A. V. Viswanatha Sastri, Z. S. Meeratwal, B.
P. Singh and Naunit Lal, for the respondent.
The Judgment of the Court was delivered by
Subba Rao J. This appeal by special leave is directed against the order of a
Division Bench of the High Court of Judicature at Allahabad holding that the
Income-tax Officer, in the circumstances of the case, went wrong in initiating
proceedings under s. 34(1) of the Indian Income-tax Act, 1922, hereinafter
called the Act, in respect of the assessment year 1942-43.
The facts may briefly be stated. The assessee
was a holder of an impartible estate in the district of Ajmer. On March 25,
1944, the Income-tax Officer assessed him to income-tax for the year 1942-43.
On April 5, 1945, on the ground that two items of the assessee's income,
namely, s year (forest) income and interest income, were not included in the
original assessment, a notice under s. 34 of the Act was issued to him. In
response to the said notice, the assessee filed a return wherein he disclosed
fully and completely the particulars of his interest income, but raised the
plea that his forest income was not taxable. The Income-tax Officer, by his
order dated July 12, 1945, made a revised assessment including both the
incomes. The respondent eventually,took the matter on appeal to the Income-tax
Appellate Tribunal, which, by it-, order dated April 25, 1949, held that the
Income-tax Officer had no jurisdiction to initiate proceedings under s. 34 of
the Act in respect of the forest income on the ground that the Income-tax
Officer had knowledge that the assessee had such income when he made the
original assessment. Though the Tribunal only dealt with the question of forest
income, by inadvertence or by mistake, it set aside the entire order of
reassessment dated July 12, 1945, made by the Income-tax Officer and restored
the original order passed by him. The Income-tax Department did not take any
steps to rectify the mistake under s. 35 of the Act or make any attempt to have
the question of the illegality referred to the High Court. Having allowed the
order to become final, on January 3, 1950, the Income-tax Officer after
obtaining the sanction of the Commissioner initiated proceedings under s. 34 of
the Act with respect to the interest income. On January 19, 1950, the
Income-tax Officer issued to the assessee a fresh notice under the said
section. On September 25, 1950, a 992 revised assessment order was made in
regard to the assessment year 1942-43 in which the respondent's interest income
was also included. On appeal, the Appellate Assistant Commissioner confirmed
the said order. On further appeal, the 'Income-tax Appellate Tribunal held that
since the assessee had failed to disclose his interest income in the return
filed by him under s. 22(2) of the Act in connection with the original
assessment they said income had escaped assessment and, therefore, the
provisions of s. 34 (1 ) (a) of the Act were attracted. On application filed by
the assessee, the Tribunal referred the following question to the High Court
under s. 66(1) of the Act:
"Whether on the facts and in the
circumstances of this case the provisions of s. 34(1) were applicable in
respect of the assessment year 1942-43 on 19th January, 1950, when the notice
under that provision was issued for the purpose of assessing the escaped
interest income." The High Court came to the conclusion that the Tribunal
in its order dated April 25, 1949, committed a clear error in setting aside the
assessment of tax on the interest income without going ,into the correctness of
the imposition of tax thereon, but that order had become final; it further held
that the said order ,did not invalidate the entire proceedings taken under s. 34
of the Act and, therefore, the Income-tax Officer could not take proceedings
afresh under s. 34 of the Act. In the result the High Court answered the
question in the negative. Hence the appeal.
Mr. Rajagopala Sastri, learned counsel for
the Revenue, con- tended that the interest income had escaped assessment and,
therefore, the Income-tax Officer was competent to initiate proceedings under
s. 34(1) (a) of the Act for assessing the same.
Mr. Viswanatha Sastri learned counsel for the
respondent, on the other hand, argued that the assessment made by the
Income-tax Officer pursuant to the notice issued under s. 34 of the Act was in
its entirety set aside by the Tribunal on the ground that there was no
"discovery" within the meaning of s. 34 of the Act and that order had
become final and, therefore, the Income-tax Officer could not initiate fresh
proceedings under that section on the ,principle of res judicata.
To appreciate the contentions of the parties
it is necessary to ,notice the scope of the order of the Tribunal dated April
25, 1949. Before the Appellate Tribunal it was contended on behalf of the
assessee that the Income-tax Officer who issued the said notice had 993 no
definite information which led to the discovery that the said income had
escaped assessment within the meaning of the said section. Adverting to the
said argument the Tribunal observed:
"We do not agree with the contention of
the department that the Income-tax Officer who made the original assessment did
not apply his mind to this fact, as there is no evidence to show that at the
material time such income was considered taxable by the Department.
Ordinarily one would expect that when an
Income-tax Officer makes the assessment he does according to law and on the
facts as produced before him. If the fact is before him he refused to take it
into account thinking that it was immaterial or even inadvertently takes no
notice of it, it cannot be said that the Income-tax Officer came in possession
of a definite information within the meaning of s. 34. We are, therefore, of
the opinion that proceedings. under s. 34 could not be initiated against the
assessee for the four assessment years under reference.
The orders passed by the Income-tax Officer
in respect of these four years are therefore set aside and the original orders
under s. 23(3) are restored." We have extracted the order in extenso as
the argument really turns upon the scope of the said order. The Appellate
Tribunal in considering the validity of the notice under S. 34 of the Act only
discussed the question of the escape of the year income; it did not advert to
the interest income at all. It came to the conclusion, having regard to the
fact that the Income-tax Officer at the time he made the original assessment
had knowledge of the existence of the syar income, that the Income-tax Officer
did not come into possession of definite information within the meaning of s.
34 of the Act. Though the finding was arrived at on the basis of the syar
income alone the Tribunal set aside the entire order of reassessment and
restored the original order of assessment made by the Income-tax Officer under
s. 23 (3) of the Act. The legal effect of the order was that the are-
assessment of the entire income, including the syar income and interest income,
was set aside on the ground that the Income-tax Officer did not come into
possession of definite information leading to a "discovery" and,
therefore, he could not initiate proceedings under s. 34 of the Act. It is true
that the Tribunal had committed a mistake in setting aside the reassessment
order in respect of the interest income 994 also; but, so long as that order
stands, it comprehends both the incomes.
The Income-tax Officer did not take any
further proceedings by way of reference to the High Court on any question of
law arising out of the order of the Tribunal; nor did he take any proceedings
under s. 35 of the Act to have the order corrected on the ground of mistake.
With the result the order has become final.
The question, therefore, is not whether the
order of the Tribunal in so far as it related to the interest income was made
by inadvertence or under a mistake, but whether the Income-tax Officer could
initiate proceedings over again under s. 34 of the Act in derogation of the
finding given by the Tribunal that the Income-tax Officer did not
"discover" that the income had escaped assessment.
The Income-tax Act is a self-contained one.
It creates a hierarchy of tribunals with original, appellate and revisional
jurisdictions. Section 31 gives, inter alia, right of appeal against some
orders of the Income-tax Officer to the Appellate Assistant Commissioner;
section 33 provides for a further appeal to the Income-tax Appellate Tribunal;
and sub-s. (6) of s. 33 says that save as provided in s. 66 orders passed by
the Appellate Tribunal on appeal shall be final. Section 66 provides for
reference to the High Court on a question of law; and s. 66-A provides for
appeals in certain cases to the Supreme Court. It is clear from the said
provisions that the order of the Tribunal made within its jurisdiction, subject
to the provisions of s. 66 of the Act, is final. Therefore, the decision of the
Tribunal in respect of the subject-matter under appeal before it is final and
cannot be reopened by the assessee or the Department.
The Judicial Committee in Commissioner of
Income-tar, Bombay & Aden v. Khemchand Ramdas(1) succinctly stated the
legal position thus :
"But it is not true that after a final
assessment under those sections (ss. 23 and 29) has been made, the Income-tax
Officer can go on making fresh computations and issuing fresh notices of demand
to the end of all time............ But when once a final assessment is arrived
at, it cannot in Their Lordships' opinion be reopened except in the
circumstances detailed in (1) (1938) 6 I.T.R. 414, 424, 426.
995 Sections 34 and 35 of the Act and within
the time limited by those sections." Later on the same idea is restated
thus "In Their Lordships opinion the provisions of the two sections are
exhaustive, and prescribe the only circumstances in which and the only time
within which such fresh assessments can be made and fresh notices of demand can
be issued." The Judicial Committee again in Commissioner of Income-tax,
West Punjab v. The Tribune Trust, Lahore(1), after noticing the relevant
sections of the Act, reaffirmed the same position and held that assessments
once made would be valid and effective until they were set aside in the manner
prescribed by the Act and that, if not so set aside, they were final. If so, it
follows that the order of the Tribunal on the said question, namely, that the
whole order of reassessment under s. 34 of the Act was invalid as there was no
"discovery" that the relevant income escaped assessment, had become
final.
The only two sections that enable the
Income-tax Officer to reopen final assessments are ss. 34 and 35. If the
Appellate Tribunal committed a mistake, under s. 35 it can be rectified within
four years from the date of the order.
In the present case it was a clear case of
mistake, for the Tribunal set aside the order of reassessment in respect of the
interest income, though its validity to that extent was not disputed. But, for
one reason or other, the Revenue did not resort to the obvious remedy and
allowed the mistake to remain uncorrected. In the se circumstances, can s. 34
of the Act be resorted to ? Learned counsel for the Revenue says that s. 34(1)
(a), as amended in 1948, confers such a power on the Income-tax Officer. The
material part of s. 34, before amendment, read:
"(1) If in consequence of definite
information which has come, into his possession the Income-tax Officer
discovers that income, profits or gains chargeable to income-tax have escaped
assessment in any year Section 34 (1 ) (a), as amended in 1948, reads :
"If the Income-tax Officer has reason to
believe that by reason of the omission or failure on the part of in assessee to
disclose fully and truly all material facts necessary for his assessment for
that year.
(1) (1941) 16 I.T.R. 214.
996 income, profits or gains chargeable to
income- tax have escaped assessment for that year...... he may in cases falling
under clause (a) at any time................. serve on the assessee a
notice................" It is said that the words "has reason to
believe that by reason of the omission or failure on the part of an assessee 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" are more comprehensive than the words "the Income-tax
Officer discovers that income etc., have escaped assessment in any year"
and, therefore, though there was a finding by the Tribunal that the Income-tax
Officer did not "discover" that there was escape of assessment,. the
Income-tax Officer under the amended s. 34 can initiate proceedings in spite of
that finding. We cannot accept this argument. It could not have been the
intention of the Legislature by amending the section to enable the Income-tax
Officer to reopen final- decisions made against the Revenue in respect of
questions that directly arose for decision in earlier proceedings.
The Tribunal held in the earlier proceedings
that the Income-tax Officer knew all the facts at the time he made the original
assessment in regard to the income he later on sought to tax. The said finding
necessarily implies that the Income-tax Officer had no reason to believe that
because of the 'assessee's failure to disclose the facts income has escaped
assessment. The earlier finding is comprehensive enough to negative "any
such reason" on the part of the Income,-tax Officer. That finding is
binding on him. He could not on the same facts reopen the proceedings on the
ground that he had new information. If he did so, it would be a clear attempt to
circumvent the said order, which had become final. We are not concerned in this
appeal with a case where the Income-tax Officer got new information which he
did not have at the time when the Tribunal made the order. The finding of the
Tribunal is, therefore, binding on the Income Officer and he cannot, in the
circumstances of the case, reopen the assessment and initiate proceedings over
again. If that was not the legal position, we would be placing an unrestricted
power of review in the hands of an Income-tax Officer to go behind the findings
given by a hierarchy of tribunals and even those of the High Court and the
Supreme Court with his changing moods.
The decisions: cited by the learned counsel
for the Revenue do not countenance such a contention. Chakraverti C.J., in 997
R. K. Das & Co. v. Commissioner of Income-tax, West Bengal(1), speaking for
the Division Bench, only decided that the Income-tax Officer could not make a
reassessment unless he issued the prescribed notice and issued it in a valid
form. As the notice under s. 34 of the Act issued therein was held to be bad
inasmuch as the Income-tax Officer did not take the sanction of the
Commissioner, the learned Chief Justice held that the returns filed pursuant to
such notice was also bad. We are not here concerned with that aspect of the
case. The judgment of this Court in Commissioner of Income-tax, Bihar &
Orissa v. Maharaja Pratapsingh Bahadur of Gidhaur(2) held that, as the earlier
notice issued under s. 34(1) of the Act without the sanction of the Commissioner
was bad, the entire proceedings for are- assessment were illegal. There was an
observation 'at the end of the judgment to the effect that "there was time
enough for fresh notices to have been issued, and we fail to see why the old
notices were not recalled and fresh ones issued". The point now raised
before us, viz., how far and to what extent a final order made in earlier
proceedings under s. 34 of the Act would be binding on the Income-tax Officer
in subsequent proceedings under the said section was neither raised nor decided
in that case.
The said decisions, therefore, have no
bearing an the question raised before us.
For the foregoing reasons we hold that the
answer given by the High Court to the question referred to it is correct.
In the result, the appeal fails and is
dismissed with costs.
Appeal dismissed.
(1) (1956) 30 I.T.R. 439.
(2) [1961] 2 S.C.R. 760.
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