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Commissioner of Income-tax, Bombay City Vs. Bai Navajbai N. Gamadia - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 19 of 1958
Judge
Reported in[1959]35ITR793(Bom)
ActsIncome Tax Act, 1922 - Sections 4(3), 34 and 34(1)B
AppellantCommissioner of Income-tax, Bombay City
RespondentBai Navajbai N. Gamadia
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateR.J. Kolah, Adv.
Excerpt:
.....4 (3) and 34 of income tax act, 1922 - re-assessment proceedings initiated under section 34 for assessment year 1952-53 - re-assessment proceedings initiated on basis of amendment of section 4 (3) (i) - information about promulgation of the amendment is 'information' within meaning of section 34 (1) (b) - completion of assessment for 1952-53 was no bar to application of amended provision of section 4 (3) (i) with retrospective effect from 01.04.1952 - assessment for assessment year 1952-53 liable to be re-opened for purpose of giving effect to amended section 4 (3) (i). - section 3: [s.b. mhase, d.s. bhosale & a.s. oka, jj] offences of atrocities - complaint under held, merely because the caste of the accused is not mentioned in the fir stating whether he belongs to scheduled..........of the indian income-tax act, 1922. the assessee in this case is bai navajbai n. gamadia. the assessment year is 1952-53, the previous year being the financial year 1951-52. a re-assessment was made by initiating assessment proceedings under section 34 of the indian income-tax act. the assessee's appeal before the tribunal in connection with the re-assessment for the assessment year 1952-53 was heard along with the assessee's two other appeals being income-tax appeals nos. 6113 and 6114 of 1956-57 in connection with re-assessment for the assessment years 1953-54 and 1954-55. in all these three appeals, a common contention was raised before the tribunal in regard to the validity of the initiation of the action taken under section 34. 2. the facts giving rise to the reference before.....
Judgment:

K.T. Desai, J.

1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922. The assessee in this case is Bai Navajbai N. Gamadia. The assessment year is 1952-53, the previous year being the financial year 1951-52. A re-assessment was made by initiating assessment proceedings under section 34 of the Indian Income-tax Act. The assessee's appeal before the Tribunal in connection with the re-assessment for the assessment year 1952-53 was heard along with the assessee's two other appeals being Income-tax Appeals Nos. 6113 and 6114 of 1956-57 in connection with re-assessment for the assessment years 1953-54 and 1954-55. In all these three appeals, a common contention was raised before the Tribunal in regard to the validity of the initiation of the action taken under section 34.

2. The facts giving rise to the reference before us briefly are as follows :

In December, 1940, the assessee made an oral trust in respect of securities of the face value of Rs. 5 lakhs. The object of trust was to pay the income arising form the trust properties to a Parsee Hunersala. A deed of trust was executed on 25th August, 1943. Clause 10 of that deed of trust expressly empowered the assessee to revoke the trust either wholly or in part. In the course of the assessment proceedings for 1943-44, the assessee claimed that the income arising from the said trust was exempt under section 4(3)(i) of the Income-tax Act as it then stood. The Income-tax Officer relied upon the provisions of section 16(1)(c) and held that the income arising from the trust properties was liable to be included in the total income of the assessee. The matter ultimately came before this court on a reference at the instance of the Department. The question that arose for consideration by this court was the following : 'Whether upon the facts found by the Tribunal, the sum of Rs. 17,500 being the income from securities has rightly been excluded in terms of section 4(3)(i) notwithstanding the provisions of section 16(1)(c) ?'

3. This court answered that question in the affirmative. Assessments for various subsequent years proceeded upon the footing of that decision. The assessee was assessed for the assessment year 1952-53, the assessment being completed by the Income-tax Officer on 29th August, 1952, on the basis of the legal position as it then prevailed. On 24th May, 1953, section 4(3)(i) of the Income-tax Act was amended by section 3 of the Income-tax (Amendment) Act, 1953. The material portion of the amended section ran as follows :

'Any income...............falling within the following clauses shall not be included in the total income of the person receiving them : (1) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust..... wholly for religious or charitable purposes,....'

4. The effect of this amendment was to render the income derived from the properties upon the aforesaid trust liable to be included in the income of the assessee. Now, this amendment was given retrospective effect from 1st April, 1952, with the result that if the law as altered by this amendment had to be given effect to from 1st April, 1952, the income from the properties settled upon trust as aforesaid was liable to be included in the income of the assessee. As regards assessment years 1953-54 and 1954-55, the assessments were completed on 25th November, 1953, and 15th July, 1954, respectively long after the date of the coming into force of the Indian Income-tax (Amendment) Act, 1953. In spite of the fact that the amendment had come into force, the Income-tax Officer failed to give effect to the provisions of the Act as amended for assessment years 1953-54 and 1954-55 an did not include the income from the properties settled upon trust in the income of the assessee for those assessment years. This was discovered very much later after the assessment for the year 1954-55 was completed. An application was made to the Commissioner of Income-tax to permit the Income-tax Officer to issue a notice under section 34(1)(b) for each of the aforesaid three years and the reasons given in connection with all these three years were as follows :

'The assessee has created a revocable trust for charitable purposes. It was decided by the High Court that section 16(1)(c) is not applicable to income which is exempt under section 4(3)(i). But under section 3 of the Indian Income-tax (Amendment) Act 1953 (XXV of 1953) section 4 of the Income-tax Act (1922) is amended and it is made subject to the provisions of section 16(1)(c). In view of this, the income arising to the trust which exceeds Rs. 15,000 for each year is to be included in the income of the assessee.'

5. The Commissioner was satisfied for the reasons aforesaid that the cases were fit for the issue of such notices and proceedings were initiated under section 34 of the Income-tax Act. The initiation of these proceedings was challenged by the assessee. In respect of the assessment years 1953-54 and 1954-55, the Tribunal held that it was not the case of the Department that there was any ignorance of law. The only contentions urged before the Tribunal were that certain facts relating to the trust were not known to the Income-tax Officer assessing the assessee. The Tribunal, after examining these contentions, came to the conclusion that there was no ignorance as regards facts which would entitle the Income-tax Officer to take proceedings under section 34 and held that the Department has failed to prove that the action taken under section 34 was validly initiated for the assessment years 1953-54 and 1954-55. As regards assessment year 1952-53, the Tribunal held that it was not necessary to give nay such finding inasmuch as according to the Tribunal there was another legal ground on which the re-assessment proceedings could be set aside. The Tribunal considered that as there was a completed assessment for assessment year 1952-53 before the amending Act of 1953 was enacted, the law as amended could not be applied so as to re-open such completed assessment. The question that has been referred to us is in terms following :

'Whether in the circumstances of the case, the Income-tax Officer was entitled on receipt of information to the effect that section 4(3)(i) of the Indian Income-tax Act had been amended by an Act which received assent on May 24, 1953, but which was expressed to have retrospective effect, to issue a notice under section 34(1)(b) so as to re-open the assessment for 1952-53 made on 29th August, 1952 ?'

6. This reference has been made at the instance of the Commissioner.

7. Mr. Kolah strongly urged before us that we should not decide this question at the present stage. According to his submission, the facts necessary for determining this question cannot be found in the statement of the case and that having regard to the well settled law on the subject, we should refer the case back to the Tribunal for determining other questions of facts and making a further statement of facts to enable us to decide the question. Mr. Kolah's contention was that the only ground on which the Department sought to reopen the assessment in connection with the assessment year 1952-53 was ignorance about facts similar to the ignorance about facts pleaded in respect of assessment years 1953-54 and 1954-55. According to him, there was in fact no such ignorance and that there being no other ground pleaded for re-opening the assessment, it was not open to the Department to re-open the matter by taking proceedings under section 34. In the course of the order of the Tribunal, the Tribunal has stated as follows. We are setting out the passage in extenso inasmuch as Mr. Kolah's argument in this connection is founded on it :

'Certainly the Income-tax Officer is presumed to know the amendment in section 4(3)(i) for the assessment years 1953-54 and 1954-55 before he completed the assessments for those years. Further we also find on record that the original returns for these three years were accompanied by appropriate balance-sheets and each of them clearly showed on the assets side a sum of Rs. 5 lakhs in the name of Bai Navajbai N. Gamadia Supplementary Trust. We find that these balance-sheets bear certain verification marks. In the face of this material on record, we are unable to accept the submission of the Departmental Representative that these original assessments were completed by the Income-tax Officers concerned in ignorance of the existence of this trust and the terms of the trust settlement. The greater probability is that they made these assessments in ignorance about the changes made in the law.

But that was not the case of the departmental representative and hence we do not find it necessary to deal with it.'

8. Mr. Kolah strongly urged that it was never the case of the departmental representative that the assessment for 1952-53 had been made in ignorance about the charges made in the law. Mr. Kolah contended that the observation of the Tribunal to the effect that greater probability was that the assessments were made in ignorance about the changes made in the law was applicable to the assessment year 1952-53. We are unable to accept this contention. The aforesaid words used by the Tribunal are words which are inapplicable to the year 1952-53. At the time when the assessment for the year 1952-53 was made, i.e., on 29th August, 1952, the law as was then known was the law which stood before the alterations made by the Income-tax (Amendment) Act, 1953. It cannot possibly be urged that at the time when on 29th August, 1952, the Income-tax Officer assessed the assessee for the year 1952-53, he should have known the law which was promulgated at a much later date. This assessment cannot be said to have been made in ignorance of law. The amend law came into force with retrospective effect from 1st April, 1952.

9. The information about the promulgation of the amendment is 'information' within the meaning of section 34(1)(b) of the Income-tax Act as observed by the Supreme Court in Chatturam Horilram v. Commissioner of Income-tax. That information could only come into the possession of the Income-tax Officer on or after the promulgation of the amending Act i.e., on or after 24th May, 1953. That information must be necessity be subsequent to 29th August, 1952, the date when the assessment was made. In consequence of such information in this possess in the Income-tax Officer had reason to believe that income chargeable to income-tax had escaped assessment for the assessment year 1952-53.

10. The facts necessary for the purpose of deciding the question before us are those which we can find from the statement of the case itself. The only fact necessary for the purpose of answering the question is whether the Income-tax Officer received information to the effect that section 4(3)(i) of the Indian Income-tax Act had been amended by an Act which received assent on 24th May, 1953, but which was expressed to have retrospective effect from 1st April, 1942, in consequence whereof he had reason to believe that income for the assessment year 1952-53 had escaped assessment. If this fact exists, then the question that is raised is whether under section 34(1)(b) so as to re-open the assessment for the year 1952-53. It is patent on the record that the assessment was made on 29th August, 1952, and the amending Act was promulgated subsequent thereto. The knowledge of that amendment is sufficient in law to constitute receipt of information within the meaning of section 34(1)(b) of the Income-tax Act and the receipt of such information is sufficient for the Income-tax Officer to have reason to believe that income for the assessment year 1952-53 has escaped assessment. In view thereof, it is not necessary for us to refer the case back to the Tribunal for a further finding on facts.

11. Coming to the merits of the question before us, we find that the ratio decidendi of a recent judgment delivered by the Supreme Court is applicable to the facts of the present case. That is the case of M. K. Vankatachalam v. Bombay Dyeing and . That was a case under section 35 of the Indian Income-tax Act. The position in law would be no different in a case like the present arising under section 34(1)(b). In that case by section 13 of the Indian Income-tax (Amendment) Act, 1953, a proviso was added to section 18A(5) of the Income-tax Act with retrospective effect. The Amending Act was deemed to have come into force from 1st April, 1952. The question which the Supreme Court had there to decide was whether the amendment which had been given retrospective effect could be made applicable to matters completed before the actual date when the amendment was promulgated in proceedings taken under section 35 of the At. The Supreme Court held that the amendment could be made so applicable. In that case, at page 145, Mr. Justice Gajendragadkar, who delivered the judgment of the court, observed as follows :

'But it is urged for the respondent that the retrospective operation of the relevant provision is not intended to affect completed assessments.'

12. In that case reliance was placed on the observations of the Privy Council in Delhi Cloth and General Mills Co. Ltd. v. Income-tax Commissioner . Dealing with the aforesaid argument, the learned Judge observes as follows :

'In our opinion, this argument does not really help the respondent's case because the order passed by the Income-tax Officer under section 18A(5) cannot be said to be final in the literal sense of the word. This order was and continued to be liable to be modified under section 35 of the Act. What the Income-tax Officer has purported to do in the present case is not to revise his order in the light of the retrospective amendment made by section 13 of the Amendment act alone, but to exercise his power under section 35 of the Act; and so the question which falls to be considered in the present appeal centres round the construction of the expression 'mistakes apparent from the record' used in section 35. That is why we think the principle of the finality of the orders of the sanctity of the existing right cannot be effectively invoked by the respondent in the present case.'

13. We can equally use these remarks in connection with the exercise of the powers under section 34 of the Act and we can equally say that the order of assessment passed cannot be said to be final in the literal sense of the word. The order was and continued to be liable to be modified under section 34 of the Act. In view of this judgment of the Supreme Court, we must hold that the completion of the assessment for 1952-53 was no bar to the application of the amended provision of section 4(3)(i) of the Act with retrospective effect from 1st April, 1952, and that the assessment for assessment year 1952-53 was liable to be re-opened under section 34(1)(b) of the Income-tax Act for the purpose of giving effect to the provisions contained in the amended section 4(3)(i) of the Act.

14. Our answer to the question is in the affirmative.

15. Assessee to pay the costs.

16. Question answered in the affirmative.


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