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TMI Blog1955 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... urn the territorial Income Tax Officer sent it to the Income Tax Officer, Special Circle, as the larger joint family of which Mannalal was a member was being assessed by the Income Tax Officer, Special Circle, and as by that time the partition between the members of the family had not been accepted by the department. Later on, as a result of certain proceedings which came to the High Court, the department accepted the case that there had been a partition between members of the joint family with effect from 9-11-1942. Thereupon, the Income Tax Officer, Special Circle, by his letter dated 19-1-1949 informed the territorial Income Tax Officer that Mannalal Modi had become separate and was carrying on business as an individual from 9-11-1942, that is from the beginning of the year previous to the assessment year of 1944-45. On receipt of this letter the territorial Income Tax Officer, Cuttack, issued a notice under Section 34, Income Tax Act on 21-3-1949 on Mannalal Modi asking him to submit a return. The notice was served on the assessee on 28-3-1949. On 2-5-1949, Mannalal informed the Income Tax Officer that he had filed a return already on 19-10-1944. He was, however, asked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. He thereupon filed an application before the Appellate Tribunal for reference of the case to the High Court on a question of law, and the Appellate Tribunal agreeing with him has referred the following question to this Court: Whether on the facts and in the circumstances of the case, the assessment under Section 34 is valid ? 4. Before the Income Tax authorities there was some dispute as to whether this case would be governed by the amending Act of 1939 or by the amending Act of 1948. Before us, however, learned counsel on both sides have agreed that the case would be governed by the amending Act of 1939. 5. From the above resume of facts, it is clear that the only question for consideration before us is whether the Income Tax Officer was justified in the circumstances of the case in invoking the aid of Section 34 of the Act as it stood after the amendment of 1939. The section after the amendment of 1939 runs as follows: 34. If in consequence of definite information which has come into his possession the Income Tax Officer discovers that income, profits or gains chargeable to Income Tax have escaped assessment in any year, or have been under-assessed or have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that income has not been assessed to Income Tax is not equivalent to the fact that there has been an escapement of tax, and when the department accepted the position that there had been a partition between the members of the family before the accounting year, it was open to the department to proceed to assess him on the return which he had filed on 19-10-1944. The fact that they did not do so would not give rise to the inference that the income had escaped assessment so as to confer jurisdiction on the Income Tax Officer to invoke the aid of Section 34. For this purpose, he relies on a number of decisions. The first one is -- 'Rajendranath Mukerjee v. Commissioner of Income Tax Bengal', (A). This was a case which was finally decided by their Lordships of the Judicial Committee. In this case Burn and Company filed a return in pursuance of a notice issued by the Income Tax Officer. There was another Company known as Martin and Company, and the Income Tax authorities thought that Martin Company had purchased Burn and Company and so the Income Tax authorities made an assessment on Martin Company in respect of the joint income of Burn and Company and Martin and Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lordship Chagla, C. J. and Tendolkar, J. held that, notice under Section 34 is only necessary, if at the end of the assessment year no return has been made by the assessee and the authorities wish to proceed under Section 22(2), but, where the assessee himself chooses voluntarily to make a return, no question can arise under Section 34 of assessment escaping, and therefore, there is no necessity to serve any notice under Section 34. It may be noted that this decision was approved by their Lordships of the Judicial Committee in the case to which I have already made reference, viz., -- 'Bajendranath Mukerjee v. Commr. of Income Tax, Bengal', (A) Mr. Misra has also drawn our attention to a Special Bench decision of the Calcutta High Court in -- 'Lachhiram Basantlal v. Commr. of Income Tax, Bengal where their Lordships held that income cannot be said to have escaped assessment except in the case where an assessment has been made which does not include the income. The next case relied upon by Mr. Misra is that of -- 'Ranchhoddas Karsondas v. Commr. of Income Tax, Bombay City In that case a public notice under Section 22(1) was issued in respect of the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignoring the return and starting proceedings under Section 34 is without jurisdiction. 7. Mr. G.C. Das, the learned counsel for the Income Tax Department, tries to distinguish the case of (A) on the ground that it was a case before the amendment of 1939, and therefore, neither this case, for the subsequent cases which followed it would be a proper guide for the interpretation of the section as it stood after the amendment of 1939. Before the amendment of 1939, the Section 34 stood thus: 34. 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 company on the principal order 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 re-assess 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: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se questions in favour of the department. The assessee went up to the Supreme Court in appeal, and the Supreme Court upheld the decision of the Patna High Court. It will be seen that in that case the Income for the assessment year 1939-40 had actually been assessed, but the proceedings had been quashed as a result of the order of the High Court holding that the assessment was void. Their Lordships of the Supreme Court pointed out that the fact that the income of the appellant for the relevant year remained without any valid assessment emerged only on the High Court finally giving its decision that the assessment previously taken was invalid. So far as the first question is concerned, their Lordships held that there could be no doubt that this fact can be reasonably said to have been discovered by the Income Tax Officer when he got definite information as to the passing of the Bihar Regulation 4 of 1942 applying the Finance Act of 1939 retrospectively for the relevant accounting period, and the judgment of the High Court pronouncing prior proceedings to be invalid. Therefore, their Lordships held that the Income Tax Officer had definite information of a fact as contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bihar v. Kameswar Singh (F) and the passage at p. 418 was cited. In that case Ramaswami J. held that: If an item of income is not charged because it is not included in the return it will be proper to say that the income has escaped assessment. Similarly income will be said to have escaped assessment if it has not been charged on account of a mistake or oversight on the part of the taxing authorities. That was a case under the Agricultural Income Tax Act, but as the language of Section 26 of that Act is almost similar to Section 34, Income Tax Act, Mr. Das wanted to rely upon this passage. The facts of that case show that an item of income was not charged, because it was not included in the return, and therefore, the taxing authorities were justified in treating it as a case of escapement of tax and proceeding under Section 26 of that Act. 8. In the present case, as I have pointed out, the assessment proceedings had not come to an end. The return was still pending. Whether it was pending before the territorial Income Tax Officer or the Income Tax Officer, Special Circle, is immaterial so far as the assessee is concerned. He had filed a return and an assessment could h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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