Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
PETITIONER:
COMMISSIONER OF INCOME-TAX, NEW DELHI
Vs.
RESPONDENT:
RAO THAKUR NARAYAN SINGH
DATE OF JUDGMENT:
30/10/1964
BENCH:
SUBBARAO, K.
BENCH:
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
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.
JUDGMENT:
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
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 the 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
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.
997