1951 (3) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under Section 34 of the Indian Income-tax Act for the assessment year 1939-40.
2. Whether the income had escaped assessment within the meaning of Section 34 of the Indian Income-tax Act.
3. The applicability of previous legal precedents and the interpretation of "definite information" and "discovery" under Section 34.
4. The jurisdiction of the High Court in hearing references under Section 66 of the Indian Income-tax Act.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 34:
The primary issue was whether the notice issued on 12th February 1944 under Section 34 for the assessment year 1939-40 was valid. The assessee argued that the notice was illegal as the Income-tax Officer had no "definite information" or "discovery" that income chargeable to tax had escaped assessment. However, the court held that the promulgation of Bihar Regulation IV of 1942, which brought the Indian Finance Act of 1939 into force in Chota Nagpur with retrospective effect, constituted "definite information." This information led the Income-tax Officer to discover that income had escaped assessment. The court concluded that the notice was validly issued based on this "definite information."

2. Income Escaping Assessment:
The court examined whether the income had indeed escaped assessment within the meaning of Section 34. The assessee contended that since a return was duly filed in 1939-40, the income could not be said to have escaped assessment. The court referred to the Judicial Committee's decision in Sir Rajendranath Mukkerjee v. Commissioner of Income-tax, Bengal, where it was held that income which has been duly returned cannot be said to have "escaped" assessment. However, the court distinguished the present case, noting that the initial assessment was illegal as the Indian Finance Act of 1939 was not in force in Chota Nagpur. Therefore, the proceedings initiated before the enactment of Bihar Regulation IV of 1942 were void, and the income had indeed escaped assessment.

3. Interpretation of "Definite Information" and "Discovery":
The court discussed the interpretation of "definite information" and "discovery" under Section 34. It was held that "definite information" could include information about a change in the state of law, not just new facts. The court cited several cases, including Williams v. Trustees of W.W. Grundy and British Sugar Manufacturers Ltd. v. Harris, to support the view that "discovery" could be based on a legal point. The court concluded that the Income-tax Officer's knowledge of the promulgation of Bihar Regulation IV of 1942 constituted "definite information," leading to the discovery that income had escaped assessment.

4. Jurisdiction of the High Court:
The court emphasized the limited jurisdiction of the High Court under Section 66 of the Indian Income-tax Act, which is confined to deciding questions of law raised by the Appellate Tribunal. The court noted that it could not examine issues not formulated by the Tribunal or where no statement of the case was made. The court referenced Anglo French Textile Co. Ltd. v. Income-tax Appellate Tribunal and Commissioner of Income-tax, Bihar and Orissa v. Maharajadhiraja of Darbhanga to underscore that the High Court's jurisdiction is exceptional and should be exercised strictly within the statutory framework.

Conclusion:
The court held that the notice issued on 12th February 1944 under Section 34 was valid for the assessment year 1939-40. The income had escaped assessment within the meaning of Section 34 due to the initial illegal assessment. The court affirmed the interpretation of "definite information" and "discovery" to include changes in the state of law. The High Court's jurisdiction under Section 66 is limited to questions of law duly raised and formulated by the Appellate Tribunal. The assessee was ordered to pay the costs of the reference.

Separate Judgment:
Sarjoo Prosad, J. concurred with the judgment and had nothing to add.