1. The question that arises on this reference is a question of limitation and what was contended by the assesses was that certain notices served by the Income-tax Officer under Section 22(2) of the Act read with Section 34 were out of time and therefore the assessment pursuant to these notices was invalid in law.
2. The two rival contentions we have to consider are, one that the period of limitation is eight years as contended by the department and the other is that the period of 'limitation is four years as contended by the assessee; and turning to Section 34 the period of limitation would be eight years if the case falls under Section 34(1)(a) and the period of limitation would be four years if the case falls under Section 34(1)(b).
3 A case falls under Section 34(1)(a) if there is an omission or failure on the part of the assessee to make a return of his income under Section 32; and admittedly in this case the assessee has made no return of his income under Section 32. Section 34(1)(b) applies where there has been no omission or failure as mentioned in Clause (a), in other words, where the assessee has made a return and the conditions laid down in Sub-clause (b) are satisfied.
4. The first contention of Mr. Palkhiwalla is that the case does not fall under Sub-clause (a) because there has been no omission or failure on the part of the assessee, and this contention is based on this that there was a public notice given under Section 22(1), that there was no individual notice under Section 22(2) that the public notice did not bind the assessee and that there was no obligation on the part of the assessee in response to the public notice to make any return and, therefore, there was no omission or failure on the part of the assessee as contemplated by Section 34(1)(a).
5. The legislature has advisedly used two expressions 'omission' and 'failure' on the part of the assessee. Failure must connote that there is an obligation which has not been carried out and if there was no obligation upon the assessee to make a return then it would not be a failure on his part to carry out that obligation. But the Legislature has also used the expression 'omission', and it is clear that the expression 'omission' does not connote any obligation as the expression 'failure' does.
'Omission' is a colourless word which merely refers to the not doing of something, and if the assessee in fact does not make a return, it is an omission on his part, whether the law casts any obligation upon him to make a return or not; but as the matter is of some importance we have considered Mr. Paikhiwalla's contention that under
Section 22(1) if there is a public notice issued by the Income-tax Officer, that notice under the subsection does not bind the assessee and there is no obligation upon the assessee to make a return.
It is said that as the assessee in this case admittedly was a resident of Indore, he was a nonresident and at the material dates he was a foreigner and therefore an obligation can only be cast upon him to make a return provided an individual notice was served upon him under Section 22 (2). Section 22(1) provides for a constructive notice. If a notice is given in the manner prescribed under Section 22(1) then whether there is an actual notice or not, in the eye of the law there is a constructive notice and therefore it is futile to consider whether the person to whom this constructive notice has been given had an opportunity of reading the notice or not.
It is said that a foreigner should not be expected to read a notice given in a newspaper in India. Could a resident be heard to say that he had no notice under Section 22(1) because he had no opportunity of reading the notice either because he did not read the particular newspaper or that he was not in India or for any other ground? If such a plea could not be made by a resident, it is difficult to understand why such a plea is permitted to a non-resident.
The constructive notice prescribed by a statute does not consider at all whether in fact the notice was read by the person sought to be affected by the notice or even whether the person sought to be affected by the notice had an opportunity of reading the notice. If the conditions laid down in the statute are satisfied, the law looks upon the notice as being actually served upon the person affected by the notice. Therefore whether the person is a resident or a non-resident, if the notice is given as prescribed under Section 22(1), it is sufficient notice which casts an obligation upon the assessee to make a return.
6. Mr. Palkhiwalla relied on the judgment of the House of Lords in 'Whitey v. Commissioner, Inland Revenue' (1926) 10 Tax Cas 88 (A). In that case the House of Lords was considering an actual notice served upon the assessee who was a foreigner resident in the United States of America, and the question that arose for determination of the learned Law Lords was whether a notice could be served out of jurisdiction to bind a foreigner, and the majority of the Law Lords held that such a notice could be served, that a return of super tax could be called for, and in the absence of such a return the best judgment assessment could be made.
Viscount Cave, L. C. dissented from the Judgment and there is not much point in referring to the judgment of Viscount Cave, L.C, on this point because his view of the law did not prevail, but we do not find any discussion In this judgment drawing any distinction between an actual notice and a constructive notice. In principle there can be no difference.
A statute may provide for actual notice or it may provide for constructive notice. If according to the House of Lords an actual notice calling for a return could be served upon a foreigner there is no reason why a constructive notice provided by a. statute should not have the same effect.
7. The final argument urged by Mr. Palkhiwalla is that Section 1(2), Income-tax Act extends the Act to the whole of India, and as the assessee was outside India as India was understood, then, he was resident of an Indian State, the provision with regard to Section 22 has no application to a non-resident. The contention is obviously untenable.
It is now well settled law that Indian Legislature has the competence to tax non-residents and the Legislation cannot be challenged on the ground of extra-territoriality. If the Legislature has the power to tax a non-resident, surely it has the power which is not of such a wide nature of making a provision for the issue of a notice which would bind a non-resident.
In our opinion, therefore, the case falls under Section 34(1)(a), the period of limitation is eight years and if this is the period of limitation there is no dispute that the notices were issued in time and the assessments were completed in time and the assessments were valid and binding.
8. Our answers to the questions submitted to us will be: (1) In the negative. (2) Does not arise.
9. The assessee to pay the costs.
10. Answer accordingly.