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TMI Blog1957 (12) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome determined at ₹ 7,008 which now included ₹ 3,000 under the head business . This second assessment was set aside on appeal and fresh notices under sections 22(2) and 34 were issued and the proceedings resulted in the income being computed at ₹ 41,833. The appeal to the Appellate Assistant Commissioner was unsuccessful. Before the Appellate Assistant Commissioner, a number of objections were taken, among them being the applicability of section 34, the illegality of assessment under section 34, and the invalidity of the notices themselves. But when the matter came before the Tribunal attention was confined only to one point whether the Department was right in travelling beyond the scope of the notice which according to the assessee was restricted to the item of ₹ 17,800 which had escaped assessment, and in roping the other items as well (such for example as income from a trust), which came to their notice in the course of the examination. 5. The Tribunal, on the facts placed before them in the view that in law section 34 would be applicable only to the particular item which had set in motion the section 34 proceedings and was specifically mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1946, rejected it. This order was challenged in appeal before the Appellate Tribunal, which, by its order dated 7th August, 1950, determined the assessable income at ₹ 21,814 as against ₹ 41,833. The relevant paragraph from the order of the Tribunal reads as under: So far as the assessment for 1939-40 is concerned, the notice under section 34 was issued in respect of a particular item of concealment, which amounted to ₹ 17,800. The enhancement, therefore, should not have gone beyond the item in dispute. The only addition that could have been made to the quantum determined in the original assessment was ₹ 17,800. The assessable income is, therefore, determined at ₹ 21,814 as against ₹ 41,833. In the result, the appeal was partly allowed. The Commissioner of Income-tax then presented an application requiring the Tribunal to refer to the High Court a question of law, which he thought arose from the order of the Tribunal relating to the assessment year 1939-40. The Tribunal in its order of reference, dated 17th July, 1951, observed as under: The Tribunal, on the facts placed before them in the view that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this notice a return in the attached form of your total income and total world income assessable for the said year ending 31st of March, 1940. Income-tax Officer, 'B' Ward. Section 34 of the Indian Income-tax Act has had a chequered history and the Legislature has been amending it from time to time. Prior to the amending Act of 1939, section 34 of the Act read as under: If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year or has been assessed at too low a rate, the Income-tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22, and may proceed to assess or reassess such income profits or gains, 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:... The amending Act of 1939 brought about substantial changes. In this reference we are concerned w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 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... As indicated above, for the purpose of this reference, it is the section as it stood before the amending Act of 1948 which has to be interpreted. It is an accepted principle, that the assessment must be based on the provisions of the Act as it stood in the year in which the income ought to have been assessed, and this proposition has not been contested. The changes made in section 34 from time to time indicate that the earlier intention of the Legislature before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst condition, before machinery under section 34 can be put into operation, is definite knowledge regarding escapement, coming into possession of the Income- tax Officer at the time when intimation is sent to the assessee. What is definite information must, in the nature of things, differ with the circumstances of each case. A precise and all-embracing definition so as to cover all situations and exigencies cannot be attempted. The object of the Legislature in insisting upon definite information being in the possession of the Income-tax Officer, before an action was taken under section 34, was to protect the assessee from harassment, which in all likelihood would result, if action was taken on the basis of mere suspicion, gossip or rumour. The word information is, therefore, synonymous with knowledge, or awareness, in contradistinction to apprehension, suspicion or misgiving. In Jitanram Nirmalram v. Commissioner of Income-tax, Bihar Orissa*, Ramaswami, J., remarked: It is obvious that the phrase 'definite information' in section 34 cannot be construed in a universal sense; its meaning must depend and necessarily vary with the circumstances of each case. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d receive ready comprehension. Besides section 34, the word discover has occurred in taxation statutes in England. Section 52 of the Taxes Management Act, 1880, reads: If the surveyor discovers that any properties or profits chargeable to the duties have been omitted from first assessments, or that any person so chargeable has not made a full and proper or any return, or has not been charged to the said duties, or has been under-charged in the said first assessments, or has obtained and been allowed from and in such first assessments any allowance, deduction, abatement or exemption not authorised by the Tax Act. then, the Additional Commissioners shall make an additional first assessments on any such person in such sum as they think ought to be charged on him. The use of the word discovers in the above, and in other, English statutes is a helpful guide for construing it in our Income-tax Act which is in pari materia. The meaning of the word discovers , and what it implies, has been considered in a number of English authorities. In The King v. Kensington Income Tax Commissioners (Ex parte Aramayo)*, the contention on behalf of the taxpayer was, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 125 of the Income-tax Act, 1918. This section was similarly worded as section 52 of the Taxes Management Act, 1880. Section 125 runs: (1) If the surveyor discovers-that any properties or profits chargeable to tax have been omitted from the first assessments; or...... then the surveyor shall amend the assessment and assess the person liable to the full amount....... Finlay, J., after citing the above quoted passage from the judgment of Bray, J., in Rex v. Kensington Income Tax Commissioners* said at page 532: There seems to be little doubt that if 'discovers' means coming to the conclusion from his (the Inspector's) examination, that passage applies here , and the view expressed by Bray, J., as to the meaning of discovers was adopted in that case. In Inland Revenue Commissioners v. Mackinlay's Trustees#, a case decided by the Court of Session of Scotland, the Lord President, Lord Normand, in giving his opinion, stated: The question, therefore, is whether a discovery that a mistake, essentially a mistake of law, has been made is a discovery within the meaning of section 125. I think the word 'discover' in itself, accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of facts which were in existence during the chargeable accounting period, and that facts which came into existence subsequent to the chargeable accounting period could under no circumstances be made the basis for reassessment of the profits of that period. On behalf of the Commissioner of Excess Profits Tax, the Attorney-General contended, that the words, if the Excess Profits Tax Officer discovers , occurring in section 15 of the Act meant nothing more than that if the Excess Profits Tax Officer finds or satisfies himself . Their Lordships of the Supreme Court, while entertaining the contention of the learned Attorney-General, observed: It is argued by Mr. Kolah that the word 'discovers' can aptly be used only when the facts on which the discovery is made were in existence during the chargeable accounting period. In its natural and ordinary sense the word 'discovers' carries no such limitation. The meaning given to it in the Oxford English Dictionary is 'the finding out or bringing to light that which was previously unknown.' (Vol. 3, page 433). It will therefore be correct to say that when a person comes to know of a fact of which he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot called upon to discover the exact quality or quantity of the omission; it was sufficient if he found that there had been some omission, and it would be immaterial if it was greater or smaller than he had supposed it to be. It would be no less a discovery, when the actual omission was of some different kind to the supposed omission. In the words of Vaisey, J., the Special Commissioner who discharges duties similar to those of Income-tax Officer under section 34 of the Act, on discovering an omission, could very well say: It have discovered that there is an omission. I am not yet in a position to say what it is, either in quality or in quantity, but that is why I have made these assessments. (Earl Beatty v. Inland Revenue Commissioners). Now the meaning of the word such as used in juxtaposition with income, profits or gains remains to be considered. According to the learned counsel for the assessee, the term such income etc. etc. refers not to the entire escaped income but to that part of it only, with respect to which the Income-tax Officer had a definite information, in consequence of which he had discovered the escapement. This restricted scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors, without any reference whatever to the oath of the assignor or the certificate of the assignee. In other words it specified only the last preceding clause of the subject-matter. In view of the above, I am fortified in my conclusion that the word such occurring in section 34 has to be attributed to the last antecedent, namely, the escaped or under-assessed etc. income, profits or gains, without in any way further linking it with any particular escapement that was discovered in consequence of any definite information. Mr. Sibal next argues that notice under section 34 was defective for reasons of vagueness. There is no warrant for the assumption, that the notice, the contents of which have been reproduced in the earlier part of this judgment, was defective in any manner. It is true that there is no specification in the notice, either of the income or of the source that has escaped assessment, but that is not necessary. In Istifa Khan v. Commissioner of Income-tax**, the question, whether the notice under section 34 without specification of income or the sources of the income which had escaped assessment was invalid in law , was answered in the negative, and it was obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent provisions as to assessment and so on are machinery only. They enable the liability to be quantified, and when quantified, to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately. Lord Hanworth, while referring to the above cited observation from Lord Dunedin's judgment, said: Lord Dunedin, speaking, of course, with accuracy as to these taxes, was not unmindful of the fact that it is the duty of the subject to whom a notice is given to render a return in order to enable the Crown to make an assessment upon him ; but the charge is made in consequence of the Act, upon the subject ; the assessment is only for the purpose of quantifying it. In Chatturam and Others v. Commissioner of Income-tax [1947] 15 I.T.R. 302 this proposition was examined by our Federal Court, and Kania, J., expressed himself thus, at page 307: The income-tax assessment proceedings commence with the issue of a notice. The issue or receipt of notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer to convene the assessee, or to issue notices calling on him to produce documents, though these powers are essential if the Income-tax Officer is to conduct a quasi-judicial enquiry before deciding that profits have escaped assessment or have been assessed at too low a rate. To the maxim cited above by their Lordships of the Privy Council to the effect that it is better for a statute to have effect, than to be made void, (ut res valeat potius quam pereat), I may take the liberty of supplementing, that it is desirable that the words should be made subservient, and not contrary, to the intention of the Legislature (verba intentioni non e contra debent inservire). Thus the contention of the assessee's learned counsel for adoption of the strict interpretation of a fiscal statute in favour of the subject, in the light of what has been discussed above, is without force and must be rejected. In Drummond v. Collins* Lord Parker, delivering the judgment in the House of Lords, observed: This section (section 41 of the Income Tax Act, 1842) is a collecting section and not a taxing section, and there is no reason in principle why it should no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h sufficiently draws the attention of the assessee to the case, which he has to meet. In that case, on its facts, it was held that the notice was sufficient to enable the assessee to meet the charge of escapement of income. The next authority cited on behalf of the assessee is Commissioner of Income-tax v. Nawab Shah Nawaz Khan [1938] 6 I.T.R. 370. There are no doubt certain observations in the judgment which appear to lend countenance to the contention of the assessee and the passage in Kanga's commentary is based upon this authority. But if the sentences to which our attention was drawn are read in the background of the facts of that case, and in the light of the questions which the Judges of the Lahore High Court were called upon to answer, they would not support the argument canvassed by the assessee's learned counsel before us in this case. The facts of the reported case were, that an assessment was made on the Mamdot Estate of the assessee for the year 1933-34, the accounting year being 1932-33. On 16th February, 1935, an additional assessment was made under section 34 of the Income-tax Act in respect of a sum of ₹ 8,675-8-0, which the assessee was said to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see of the protection afforded by section 34. No doubt section 31 empowers an Assistant Commissioner of Income-tax in general terms to enhance an assessment, but we o not consider that that power can be exercised irrespective of the limitations imposed by section 34. From the above passage when read as a whole, it will be noticed that the distinguishing features of the Lahore case were, that what was being examined was the competence of the Appellate Assistant Commissioner, and not of the Income-tax Officer, for purposes of proceeding under section 34. Section 34 does not confer any power on any authority other than the Income-tax Officer. The argument, which found favour under section 34. Section 34 does not confer any power on any authority other than the Income-tax Officer. The argument, which found favour there, was, that the Appellate Assistant Commissioner, while disposing of the appeal, could not go beyond the subject-matter of the appeal. The new source of income, which the Appellate Assistant Commissioner wanted to tax was held not to be included within the narrow ambit of his appellate powers. The argument that met with the approval of the Hon'ble Judges of the La ..... X X X X Extracts X X X X X X X X Extracts X X X X
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