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TMI Blog1964 (7) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of taxation on income disclosed or undisclosed for a period covering the accounting years from 1st April, 1939, to 31st March, 1947, the corresponding assessment years being 1940-41 to 1947-48. On the 15th May, 1948, the petitioner was served with a notice by the Income-tax Investigation Commission constituted under the provisions of the Income-tax (Investigation Commission) Act, whereby the petitioner was informed that his case has been referred to the said Commission for investigation and report under section 5(1) of the said Act. The petitioner was asked to furnish the Commission with a statement of his total wealth and assets as they stood between the accounting years ending 15th April, 1940, and 30th March, 1947, the assessment years being 1940-41 to 1947-48. The petitioner filed a statement and the investigation and enquiry continued up to the year 1951, when a report was made some time in November, 1951, after considering certain terms of settlement proposed by the petitioner. It is stated in the petition that the Government of India accepted the recommendation of the Investigation Commission and notice was served under section 29 of the Income-tax Act on or about the 9t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment for the years 1940-41 to 1947-48. In order to appreciate the points taken in this application it is necessary to consider the provisions of section 34 and deal with the amendments mentioned above in greater detail. The relevant provisions of sub-section (1) of section 34, as it stood on the dates when the impugned notices were issued, are as follows: "34-(1) If- (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or 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 for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or. . . . .he may in cases falling under clause (a) at any time. . . . .serve on the assessee. . . . .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 re-assess such inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate. Therefore, prima facie here exists no time-limit for reopening the assessment save and except that no notice can be issued for a period prior to the year ending the 31st day of March, 1941. Notices have been served for the assessment years 1940-41 to 1947-48 which would then be in compliance with the provisions of law above-mentioned. What is argued however is that, notwithstanding the omission of the time-limit for reopening the assessments as mentioned above in clause (a) of sub-section (1) of section 34, the petitioner's case ought to have been treated as one arising, not under section 34(1)(a) but under section 34(1A). As will presently appear, there is a time-limit imposed under section 34(1A) and no notice for reopening the assessment can be issued after the 31st day of March, 1956. If this contention is correct, then the impugned notices are invalid as having been issued beyond the period of limitation. It will, therefore, be necessary to set out the relevant provisions of section 34(1A) which run as follows: "34. (1A) If, in the case of any assessee, the Income-tax Officer has reason to believe- (i)that income, profits or gains chargeable to income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Income-tax Officer under section 34(1)(a). The reason why sub-section (1A) was introduced is as follows In 1947, an Act was promulgated known as the Taxation on Income (Investigation Commission) Act, 1947. This statute was brought into force for investigation of the cases of certain assessees who were suspected of having concealed vast income made during the "war years", namely, the period commencing from 1st September, 1939, to 31st March, 1946. As I have stated above, a very important procedural section in that Act was declared ultra vires by the Supreme Court some time in May, 1954, and the position thus created was that neither could notice be issued under section 34(1)(a) in respect of the assessment years prior to 1945-46 as the bar of eight years was already operative, nor could the cases be dealt with under the Taxation on Income (Investigation Commission) Act, 1947. That is why sub-section (1A) was inserted in section 34 by section 2 of the Indian Income-tax (Amendment) Act, 1954. Under section 34 (1A), notice could be issued in respect of the war years, notwithstanding the fact that they were barred under sub-section (1)(a). There were, however, three saf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-49 after the Amendment Act of 1956. It was argued that the case did not fall under section 34(1)(a) but fell within the scope of section 34(1A). The main argument put forward by Mr. Palkhivala on behalf of the assessee was that section 34(1)(a) was a general provision while section 34(1A) was a special provision and, therefore, the principle of generalia specialibus non derogant applied and it was the latter section that applied. This point was repelled by Tambe J. He pointed out that in order to apply this principle certain conditions had to be fulfilled. Firstly, both the general enactment and the particular enactment must be simultaneously operative, secondly, there must be nothing in the general provision indicating a legislative intent to overrule or set aside the particular provision. The learned judge pointed out that at no time did the provisions in the two sub-sections operate simultaneously. As pointed out above, sub-section (1A) was brought into the field because notice could no longer be issued for the war years under section 34(1)(a) and the amendment in sub-section (1)(a) effected in 1956 was made because the provision of sub-section (1A) was no longer effective. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Constitution on the basis of a valid classification, that defence is no longer available in support of it after the introduction of the new sub-section in section 34 of the Income-tax Act, which sub-section is intended to deal with the same class of persons dealt with by section 5(1) of the impugned Act." (p. 721) From this he argues that sub-section (1A) is the proper provision to be applied for the class of persons who were being proceeded against under section 5(1) of the Income-tax (Investigation Commission) Act. He also draws my attention to a recent decision of the Supreme Court in K.S. Rashid & Son v. Income-tax Officer [1964] 52 ITR 355 , 360. In that case, Gajendragadkar C.J. was dealing with the constitutional validity of section 34(1A) and said as follows: "That is how section 5(1) became a dead letter and the Investigation Commission, in consequence, ceased to function. The cases which had been referred to that Commission and which had not been completed had, therefore, to be taken up under section 34(1A) of the Act." The learned standing counsel argues that these statements made in the Supreme Court decisions go to show that cases which were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three reasons : firstly, the latest judgment of the Supreme Court having been given only in December, 1955, it is not possible for the department to issue all notices within the short period of three months left since then ; secondly, the validity of the new section 34(1A) is itself being challenged in several High Courts and it is not known when we shall get a final decision on this point; and, finally, the Taxation Enquiry Commission have recommended that, as in other countries, there should be no time-limit to the reopening of cases of fraudulent tax evasion. This is a desirable reform which has been long overdue. The power of reopening cases beyond eight years will not be exercised unless the amount of total tax evasion exceeds ₹ 1 lakh and then only with the sanction of the Central Board of Revenue. This will ensure that the powers are exercised after proper scrutiny and only in cases of substantial evasion." As I take it, the argument put forward on behalf of the learned standing counsel is briefly as follows : According to him sub-section (1A) applies only to cases of those assessees whose cases were pending before the Income-tax Investigation Commission. In resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Investigation Commission Act. The first difficulty that has to be met by the learned standing counsel is the amended provision in section 34(1B). In order to meet this difficulty, he argues as follows: He says that the sub-section as it now stands is an all-embracing section, covering both the cases of sub-section (1)(a) and subsection (1A). But in the case of assessees coming under sub-section (1A), the settlement can only be effected under sub-section (1B) provided notice had already been served on them prior to 31st March, 1956. According to the learned standing counsel, this is the only way in which the proviso to sub-section (1A) can be harmonised with sub-section (1)(a). In my opinion, this argument cannot be accepted. This again would be adding to the wordings of sub-section (1B). In that sub-section, there is no restriction to the effect that, in spite of notices served under section 34(1)(a), there would be any time-limit if the cases could have come within sub-section (1A). It is also dependent on the earlier argument that in cases of assessees who had been proceeded against under the Income-tax (Investigation Commission) Act, notice could only be issued under sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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