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TMI Blog1963 (3) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to Nagpur for business and became a lessee from Government of manganese mines in and round about Nagpur district. For the assessment year 1947-48 he had made a return of his income and was duly assessed to income-tax as per exhibit I. By that order passed on December 7, 1948, he was assessed to a total income of ₹ 39,750. According to the petitioner, at the time that the assessment order was passed, he had produced all the evidence in his possession, including his account books and the Income-tax Officer was satisfied as to the genuineness of the transactions therein disclosed. It is unnecessary for the purpose of deciding this petition to refer to the several transactions which have been set forth by the petitioner in paragraphs 3 and 4 of his petition, though no doubt, they were referred to extensively in the arguments before us. After the first assessment was made on December 7, 1948, the assessee, taking advantage of the voluntary disclosure scheme then announced by the Government of India, made a statement of disclosure in a petition filed by him on October 22, 1951. That disclosure was made voluntarily, and on the basis of that disclosure a revised assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that it was under section 34, and specifying only the obvious fact the officer considered that certain income had escaped assessment. The petitioner has challenged this notice, inter alia, on the ground that both when it was issued and served on the petitioner, the issuance of it was barred by limitation laid down in section 34 itself. That is the principal point with which we are concerned here. Having set forth the facts resulting in the issuance of the notice impugned in this petition and in order to understand further developments in the case of the petitioner, we may here set forth the several provisions of the law and particularly the considerable number of amendments which section 34 underwent, and which have a material bearing upon the decision of this petition. In doing so we shall only quote the portions of section 34 which are relevant for the points taken in this petition. After all the amendments it had undergone, section 34, as it stood before the new Indian Income-tax Act (Act XLIII of 1961) was passed, stood as follows: 34. Income escaping assessment.--(1) If-- (a) the Income-tax Officer has reason to believe that by reason of the omi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st day of March, 1941; (iii) for any year, unless he has recorded his reasons for doing so, and, in any case, falling under clause (ii), unless the Central Board of Revenue, and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice: Provided further that the Income-tax Officer shall not issue a notice under this sub-section for any year, after the expiry of two years from that year, if the person on whom the assessment or reassessment is to be made in pursuance of the notice is a person deemed to be the agent of a non-resident person under section 43: Provided further that the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be. Explanation.--Production before the Income-tax Officer of account books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section... (3) No order of assessment or reassessment, other than an order of assessment under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en an assessee who had concealed the particulars of his income or deliberately furnished inaccurate particulars thereof and cases of other assessees. By the Amending Act of 1939, in the case of the former class, the period of limitation prescribed was eight years and in other cases, four years from the end of the assessment year. Moreover, a condition was laid down to the exercise of the power, namely, that definite information should have come into the possession of the Income- tax Officer who in consequence thereof discovered that income, profits or gains chargeable to income-tax had escaped assessment. There were other conditions laid down in the provisos with which we are here not concerned. The third major change that the section underwent was when it was amended by virtue of section 8 of the Income-tax and Business Profits Tax Amendment Act, 1948 (Act XLVIII of 1948), which came into force from March 30, 1948. In the section as amended also a distinction was made between the assessees who had omitted or failed to make a return or to disclose fully and truly all material facts necessary for the assessment for that year and the assessees in whose cases no omission or failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sos to section 34, sub-section (1) were added. The second proviso is what applies in this case. Another change made was that Act 1 of 1959 added to section 34 the fourth sub-section by virtue of section 2 of the Indian Income-tax (Amendment) Act, 1959. That is the sub-section which we have already quoted. At the same time, Act I of 1959 itself made a provision upon which reliance was placed in the present case on behalf of the department. That provision is section 4 of the Amending Act, 1 of 1959, which runs as follows: Saving of notices, assessments, etc., in certain cases.--No notice issued under clause (a) of sub-section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceedings taken in consequence of such notice shall be called in question in any court, tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or reassessment was made, the time within which such notice should have been issued or the assessment or reassessment should have been made under that section as in force before its amendment by clause (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee acquired a valuable right and the provisions of section 34 would not enable the department to get over that right in favour of the assessee. It is said that it was expressly in consequence of this decision of the Calcutta High Court that the amendment of section 34 by Act 1 of 1959 was brought into effect. So far as the other requirements of section 34(1)(a) are concerned, it is not in dispute before us that the notice impugned in the present petition was a notice issued under clause (a). It is also not in dispute that the notice pertains to escaped income which is not above one lakh of rupees nor is it the department's case that it was likely to be one lakh of rupees or more. Upon these facts, therefore, it is clear that the provision of the second clause of the first proviso to the amended section 34 would be attracted in the instant case unless the department is in a position to show that any other provision of the law saves the notice. Now, as we have said, in justification of the notice issued under section 34(1)(a) reference was made to three separate provisions of law and, therefore, we turn to examine each one of the provisions invoked. The first is the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 34 being ultra vires of article 14 had been raised in the case before the learned single judge, against whose decision the Division Bench heard a Letters Patent Appeal. The learned single judge, Mr. Justice S.T. Desai, upheld that objection and himself held that the second proviso to section 34(3) did infringe article 14. What the learned single judge held will be found at page 200 of 58 Bombay Law Reporter: In my judgment the classification is based on real and substantial distinction. It is not arbitrary but rests on a substantial basis. I am, therefore, of opinion that the challenge to the proviso so far as it relates to the assessee who was a party to the various proceedings enumerated in it must fail. On the other hand there are to my mind formidable difficulties with which respondents Nos. 1 and 2 are faced in their attempt to meet the challenge against the constitutionality of that part of the second proviso to sub-section (3) of section 34, which renders the bar of time-limit applicable to the case of any person alleged to have escaped assessment and who is sought to be assessed or reassessed in consequence of or to give effect to any fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r class. In appeal a Division Bench upheld the decision of the learned single judge but not on the point of unconstitutionality made by him but upon an interpretation of the relevant provisions of the Income-tax Act itself. However, when the matter came before the Supreme Court, it seems to us that though a decision was taken only by a majority there is a clear pronouncement that the second proviso to section 34(3) offends against article 14. The decision is to be found clearly stated in the judgment of Mr. Justice A.K. Sarkar, in the last but one paragraph where he referred to the decision which he was about to deliver on that very day in Commissioner of Income-tax v. Sardar Lakhmir Singh [1963] 49 I.T.R. (S.C.). 70. Mr. Justice S.K. Das, after adverting to the distinction between persons who are liable to pay tax and have failed to pay it and with regard to whom a finding or direction is given and persons who are liable to pay tax and have failed to pay it and with regard to whom no finding or direction is given, observed [1963] 49 I.T.R. (S.C.) 1, 12, 13. I am in agreement with the view expressed by the learned Chief Justice that no rational basis has been made ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be held to be ultra vires the legislature. Even on this narrow ground it seems to me that the respondents are entitled to succeed. No doubt, His Lordship further went on to say that in that case Purshottam Laxmidas was not even a party, though Purshottam Laxmidas was a party to certain other appeals before the Appellate Tribunal and he, therefore, observed [1963] 49 I.T.R. (S.C.) 1, 13. I have some difficulty in appreciating how the firm, Purshottam Laxmidas, can be treated as an assessee within the meaning of the second proviso to sub-section (3) of section 34 for the assessment year 1942-43. If the firm cannot be so treated, then even on the narrow ground stated by Desai J. the proviso would be of no help to the present appellants. To the same effect is the decision of Mr. Justice Kapur in his judgment in the last four paragraphs. No doubt, two of the judges of the Full Bench, namely, Mr. Justice Hidayatullah and Mr. Justice Raghubar Dayal, specifically found that the provisions of the second proviso to section 34(3) did not infringe article 14, but in view of the majority decision, they concurred in the final order passed in the appeal and allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concur from delivering a dissenting judgment or opinion. It is clear from article 145(5) that a judgment delivered by the Supreme Court is the one delivered by a majority of the judges where there is a difference of opinion, but in that case the judge who does not concur also delivers a judgment albeit, a dissenting judgment. Article 145(5), therefore, uses the word judgment both with regard to the final pronouncement of the court itself as well as for the dissenting pronouncement of an individual judge who does not concur. There does not appear to be any warrant for reading the provision of article 145(5) into the provisions of article 141, and we do not think that the law declared can be approximated to the judgment delivered by the Supreme Court. On the other hand, having regard to the provisions of article 145(5) that a judge who does not concur may also deliver a judgment, it is clear that the law declared may as well be in a dissenting judgment as in a majority judgment. The argument, therefore, that the three judges whose decision resulted in the allowing of the appeal in Purshottam's case (unreported) did not form a majority of those holding that article 14 appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act is concerned, it reads as follows: A notice under clause (a) of sub-section (1) may be issued at any time notwithstanding that at the time of the issue of the notice the period of eight years specified in that sub-section before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired in respect of the year to which the notice relates. We have already referred to the provisos to section 34(1) which were radically altered by the Amending Act of 1953. The first proviso limits the period during which a notice contemplated in sub-section (1) of section 34 can be issued to a period prior to the year ending on March 31, 1941. In other words, no notice can be issued in respect of a period prior to that date. The second proviso says that the Income-tax Officer was not to issue a notice contemplated in clause (a) of sub-section (1) for any year if eight years have elapsed after the expiry of that year unless the income, profits or gains are one lakh or in excess of one lakh of rupees or likely to be so. There are other conditions for limiting the issue of a notice with which we are not here concerned. The conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941..... What then was the exact effect of the changes made by section 18 of the Finance Act? Prior to the Finance Act of 1956, clauses (a) and (b) of section 34 contemplated two categories of cases of escaped income: (a) those whose income escaped because they failed to disclose fully and truly all material facts (we will call them by the compendious if somewhat un-English expression culpable escapees ), and (b) those whose income escaped assessment without any omission or failure on their part (we will call them innocent escapees ). Culpable escapees could be dealt with at any time within eight years, whereas innocent escapees only within four years. The reason was obvious. A culpable escapee could not be treated on a par with an inno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. AFTER AMENDMENT Over one lakh. Under one lakh. To be dealt with within four years. To be dealt with at any time. To be dealt with within eight years. With the alterations of the other terms and conditions upon which notices under section 34 shall issue, we are not here concerned. It will be noticed that the 1956 amendments tightened up the law only in regard to one class of escapees , i.e., those culpable escapees whose escaped income, profits or gains was a lakh of rupees or over. In their case, there was after the amendment no period of limitation for garnering in their escaped income, profits and gains. All other classes and categories remained under the same liabilities as before so far as this point of limitation is concerned. It is in this context that we have to consider the applicability of sub- section (4) of section 34 when it came into force on March 12, 1959, by the Indian Income-tax (Amendment) Act, 1959 (Act I of 1959). It was added after the amendments by which the three new provisos to section 34(1) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that sub- section (4) of section 34 applies only to cases of escaped income falling under clause (a) of section 34 (culpable escapees) where the escaped income, profits or gains is one lakh of rupees or more and not to other cases. In the present case, it is not in dispute that the escaped income, profits or gains was not, nor was it likely to be, one lakh of rupees or more in any case. Therefore, sub-section (4) cannot help the department. The other provision of law referred to in order to justify the notice issued in the instant case and to take it out of the limitation of eight years in the un-amended sub-section (1) of section 34 was section 4 of the Amending Act, I of 1959, itself. That Act came into force on March 12, 1959, and section 4 thereof reads as follows: 4. Saving of notices, assessments, etc., in certain cases.--No notice issued under clause (a) of sub-section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceedings taken in consequence of such notice shall be called in question in any court, tribunal or other authority merely on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the coming into force of the Act. But that is not the case here. In the present case, the notice was issued after the Act came into force on January 5, 1962. In that case also Mr. Justice Sarkar has made certain remarks which are pertinent for consideration of the other provisions of section 34 also. He observed*: But the section protects such notice only against the invalidity caused by section 34(1) as it stood after the 1948 amendment, that is, against the invalidity caused by reason of the notice having been issued after the expiry of the time prescribed for it in this section as it then stood. Section 4 does not protect the notice from invalidity otherwise attaching to it. Now it will be remembered that the 1939 amendment of section 34 also prescribed a period of time for the issue of the notice. That prescription had to be obeyed whenever applicable. Section 4 provided for no immunity against a breach of that prescription. So, though section 4 of the 1959 Act freed a notice from the bar of limitation in respect of it imposed by the 1948 amendment, it did not altogether do away with all prescriptions of time. In spite of section 4, a notice contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as intended to have retrospective operation and to cover cases where the right to issue notice in respect of any particular year had become barred by lapse of a period of eight years before the amendment of 1956 came into force. We may observe that some of the observations which the learned judges made in coming to that decision are contrary to the observations which we have already quoted from the judgment of Mr. Justice Sarkar in Prashar v. Vasantsen Dwarkadas [1963] 49 I.T.R. (S.C.) 1. To that extent, therefore, the authority of Brindaban Chandra Basak's case [1962] 46 I.T.R. 14 is, in our opinion, considerably shaken. But apart from that, we may also make two other points. The arguments in the Calcutta High Court were merely confined to the general point whether sub-section (4) was retrospective in its operation or not. The words of the section were not stressed in the argument. The import of the words specified in that sub-section before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956) , were completely missed. It was not noticed that before its amendment in 1956, the reference to the eight years was not to be found in clause (ii) of proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.R. 241 that, even assuming that the notice was valid, it could not be held that any income of the petitioner had escaped assessment because the petitioner had at the time of the earlier assessment disclosed all primary facts fully and truly and, therefore, there was no question of any income having escaped or of failure to disclose fully and truly all material facts as required by clause (a) of sub-section (1) of section 34. He pointed out that in the Supreme Court case referred to above, a distinction has been clearly drawn between primary facts and other facts and it has been pointed out that if primary facts are disclosed fully and truly, section 34(1)(a) would not be attracted. Mr. Bobde on behalf of the petitioner has also requested us to note here that the notice impugned in the present petition was not sought to be justified under the provisions of the new Indian Income-tax Act, 1961 (XLIII of 1961). The question was raised but Mr. Natu on behalf of the department did not invoke any of the provisions of that Act in support of the notice. The notice in the instant case was issued prior to the new Act, XLIII of 1961, came into force on April 1, 1962. However, as we have said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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