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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 ..... of section 34. Action was accordingly taken and the income 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 motio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Commissioner, who, by his order dated 11th March, 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 ..... 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 with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 amending Act of 193 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from others. The first 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 nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extual use. It is very often the secondary meanings, which acquire more extensive recognition, and 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 K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based upon the material then before him." In Williams v. Trustees of W.W. Grundy*** the same view was taken of the meaning of the word "discovers" occurring in section 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, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Officer could be held to have discovered that there had been grant of excessive relief. The contention of Mr. Kolah, counsel for the appellants--which did not find favour with their Lordships--was, that discovery, for the purpose of section 15 of the Act, must be 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' carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words "definite information" which the framers of section 34 had in view, as it emerged after the passing of the amending Act of 1939, was to prevent the Income-tax Officers from making assessments blindly and officiously or on the basis of rumours, gossips or vague apprehensions. The Income-tax Officer was not 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" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any creditor." The controversy in that case was in relation to the use of the word "such" in the sentence "and failure to make and file such inventory and list shall render such assignment void." The Supreme Court of Wisconsin held, that according to the natural, reasonable and grammatical construction, the word "such" referred only to a correct inventory of assets and list of creditors, 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rth, M.R., who also associated himself with the following passage from the unreported decision of the Court of Appeal dated 3rd November, 1926, in Williams v. Henry Williams from the judgment of Sargant, L.J.: "I cannot see that non-assessment prevents the incidence of the liability, though the amount of deduction is not ascertained until assessment. The liability is imposed by the charging section............ The subsequent 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable, ut res valeat potius quam pereat. In the present instance two considerations are in their Lordships' opinion decisive. First, no powers are imposed by the section on 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all. The question in that case was: "Whether in the circumstances of this case the notice of reassessment issued to the applicant under section 34, Income-tax Act, was invalid or illegal for failure to specify the particular source of income that had escaped assessment?" It was held that all that was necessary under section 34 was that a notice should be given, which 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder this section, therefore, pertains to those items only which have escaped assessment and to no others. If it was permissible to the Assistant Commissioner of Income-tax to add fresh items of income under different heads to the items already detected by him as having escaped, even though the limitation prescribed by section 34 had expired, it would deprive the assessee 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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