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Raghubar Dayal Ram Kishan Vs. Commissioner of Income-tax, U. P. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberMiscellaneous Case No. 88 of 1963 (Reference under section 66(1) of the Indian Income-tax Act, 1922,
Reported in[1967]63ITR572(All)
AppellantRaghubar Dayal Ram Kishan
RespondentCommissioner of Income-tax, U. P.
Excerpt:
- - -the income-tax appellate tribunal, allahabad bench, has, at the instance of the assessee, submitted under section 66(1) of the income-tax act this statement of case inviting this court to answer the following two questions :1. whether, on the facts and in the circumstances of the case, was the department correct in making the assessment under section 34(1)(a) 2. if the answer to the first question is in the negative, then was the tribunal correct in alternating an assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b) when it was satisfied that the requisites of section 34(1)(b) were found on the record ?' the assessee is a hindu undivided family. clause (a) of section 32(1) applies when 'the income-tax officer has reason to believe that by.....m. c. desai c.j. - the income-tax appellate tribunal, allahabad bench, has, at the instance of the assessee, submitted under section 66(1) of the income-tax act this statement of case inviting this court to answer the following two questions :'1. whether, on the facts and in the circumstances of the case, was the department correct in making the assessment under section 34(1)(a) 2. if the answer to the first question is in the negative, then was the tribunal correct in alternating an assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b) when it was satisfied that the requisites of section 34(1)(b) were found on the record ?'the assessee is a hindu undivided family. in its capital account there were two credit entries, one of rs. 12,000 and odd made.....
Judgment:

M. C. DESAI C.J. - The Income-tax Appellate Tribunal, Allahabad Bench, has, at the instance of the assessee, submitted under section 66(1) of the Income-tax Act this statement of case inviting this court to answer the following two questions :

'1. Whether, on the facts and in the circumstances of the case, was the department correct in making the assessment under section 34(1)(a)

2. If the answer to the first question is in the negative, then was the Tribunal correct in alternating an assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b) when it was satisfied that the requisites of section 34(1)(b) were found on the record ?'

The assessee is a Hindu undivided family. In its capital account there were two credit entries, one of Rs. 12,000 and odd made on December 12, 1953, and the other of Rs. 14,000 and odd made on January 13, 1954. The assessees explanation for the credit entries was disbelieved and the amounts were held by the Income-tax Officer to be its income from an undisclosed source. It has selected the Diwali year as its previous year. If the previous year for the undisclosed source with gave rise to the income was the financial year, the income could be assessed in the assessment year 1954-55, whereas if it was the Diwali year (on the ground that the income was from the disclosed business), it could be assessed in the assessment year 1955-56. The income was included in the assessment for the assessment year 1955-56 by the Income-tax Officer and the Appellate Assistant Commissioner, but the Tribunal on second appeal of the assessee held that the previous year for the income, it being an income from an undisclosed source, was the financial year 1954-55 and that it could not be included in the assessment for the assessment year 1955-56 and reduced the assessed income accordingly. When the order of the Tribunal was received by the Income-tax Officer, he started proceedings under section 34 by issue in a notice on August 2, 1958. The notice is not included in the statement of the case and it is known whether it was expressed to be under clause (a) of section 34(1) or under clause. (b). In reply to the notice the assessee filed a return under protest showing a loss. It contended before the Income-tax Officer that, once the income was included in the assessment for 1955-56, it could not be included in the assessment for another year, that including it in the assessment for 1955-56 was an error of law and not of fact, that action under section 34 can be taken only to correct an error of fact and not of law, that clause (1)(a) did not apply to the facts of the case and that, consequently, the notice was illegal. The Income-tax Officer rejected the objection, holding that, as it did not disclose the income in its return for the assessment year 1954-55, the return was false and, in any case, incorrect, that the income came to light during the assessment for 1955-56 and that the facts came within the scope of clause (a). Accordingly, he reopened the assessee for 1954-55, included the income in the assessment, reassessed the assessee for 1954-55 and served it with a notice required by clause (c) of section 28(1). His order was maintained by the Appellate Assistant Commissioner; he held that the reassessment for 1954-55 was correctly done by the Income-tax Officer under clause (a) The assessee carried the matter on second appeal to the Tribunal. It rejected the assessees contention that section 34 was not applicable at all, but held that clause (b), and not clause (a), was applicable. It observed that in was competent to alter the reassessment from one under clause (a) to one under clause (b) because all the necessary facts were on the record and no further investigation was necessary and the assessee could not be said to be taken by surprise by the alteration. With this alteration, it dismissed the appeal. Then, at the assessees requisition, it submitted this statement.

Clause (a) of section 32(1) applies when 'the Income-tax Officer has reason to believe that by reason of the omission of failure on the part of an assessee to make a return of his income.... for any year or to disclose fully and truly all material facts necessary for his assessment for that year income, profits .......have escaped assessment for that year', whereas clause (b) applies when notwithstanding that there has been no omission or failure as mentioned in clause (a) 'the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits..... have escaped assessment for any year'. Action is be taken under section 34 by serving 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 the notice may be served at any time if it is under clause (a) and only within four years of the end of the year if it is under clause (b). Before issuing a notice under clause (a), the Income-tax Officer is required (vide proviso (iii) to record his reasons for issuing it and to obtain the approval of the Central Board of Revenue in certain circumstances or the Commissioner in other circumstances. A notice issue under section 22(2) calls upon a person to furnish within a certain period (of not less than 30 days) a return in the prescribed form and verified in the prescribed manner setting forth his total income and total world income during the previous year along with such other particulars as may be provided for in the notice. An Appellate Assistant Commissioner, in disposing of an appeal under section 31 from an order of assessment, has the power to '(a) confirm, reduce, enhance or annual the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further enquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct.' An appeal lies to the Tribunal under section 33(1) by an assessee objecting to an order passed by an Appellate Assistant Commissioner under section 31. Under sub-section (4) of section 33, the Tribunal may, in disposing of it, 'pass such orders thereon as it thinks fir, and shall communicate any such order to the assessee and to the Commissioner.'

The power to take action in respect of escaped income under section 34 vests exclusively in the Income-tax Officer and does not vest in the Appellate Commissioner or the Tribunal. Not only can the Tribunal not take action on its own under section 34 but also no appeal lies to it from the Income-tax Officers refusal (or failure) to take it. An appeal lies to in only from an order passed by the Appellate Assistant Commissioner and an appeal lies to the Appellate Assistant Commissioner only from certain orders of the Income-tax Officer specified in section 30. An order refusing to take action under section 34 is not one of the orders specified in section 30. When an Income-tax Offiicer proceeds under clause (a), it amounts to his refusing to proceed under clause (b), and since no appeal lies from the refusal, it is not possible for the Appellate Assistant Commissioner and the Tribunal to require him to proceed under clause (b). It they cannot require him to proceed under clause (b), they cannot treat his proceeding under clause (a) as his proceeding under clause (b). What cannot be done directly cannot be done indirectly. The sole jurisdiction of the Appellate Assistant Commissioner and the Tribunal is to see whether his proceeding under clause (a) is correct or not, to maintain it if it is correct and to quash it if it is not. Passing any other such as directing the Income-tax Officer to prosed under clause (b) or treating the proceeding as one under clause (b) is outside the scope of their jurisdiction.

The essential conditions for the application of clause (b) ar : (1) the Income-tax Officer has certain information in his possession, (2) he forms the belief that a certain income has escaped assessment, and (3) the belief is based on the information. I take it that 'having reason to believe' means that not only there is a reason for the belief but also that the belief is entertained or formed. Having reason to believe means that there is a reason coupled with the belief. In the instant case, the Income-tax Officer had formed the belief that certain income had escaped assessment for the assessment year 1954-55, but that fact alone would not justify his proceeding under clause (b). He could proceed under clause (b) only if he had certain information in his possession and information furnished a reason for the belief. Even if he had certain information which could furnish a reason for the belief, it would not justify his proceeding under clause (b) unless he actually formed the belief on account of the information. If he formed the belief, but not on account of the information, the connection between the information and the formation of belief did not exist and without the connection he could not proceed under clause (b). The words 'in consequence of' occurring in clause (b) are not redundant. Possessing an information, forming a belief and doing so on that basis of the information are all personal or subjective matters; the Income-tax Officer must personally have the information in his possession; he personally must form the belief and he must do so in consequence of the information. He cannot proceed under clause (b) if he himself does not form the belief or does not personally consider that the belief can be formed in consequence of the information. The conditions required for proceeding under clause (b) are so personal in nature that it is not possible for any authority other than the Income-tax Officer concerned to proceed under clause (b). Not only can another authority not proceed under clause (b), but also it has no power to compel him to do so because it cannot compeer him to fulfill the conditions.

The belief has to be about the escape of income from assessment 'for any year'. Though the words used are 'for any year', the belief must be specific, i.e., about the escape of income from assessment for a particular assessment year. A belief that 'the income has escaped assessment for some year' is impossible and in any case too vague to be within the contemplation of clause (b). Assessment of an income must necessarily be for a particular assessment year and, if an Income-tax Officer believes that an income has escaped assessment, it follows that he believes that it has escaped assessment for a particular assessment year. The words 'any year' have been used in clause (b) in order to make it applicable for every assessment year; clause (b) applies for any assessment year in respect of which there is an escape. In assessing any person, one has to start with the assessment year; one has to first decide for what assessment year one wants to assess. Having decided upon the assessment year, one takes the income of the relevant previous year. Just as the assessment is for a particular assessment year, so also the escepe or non-assessment is for particutr assessment year. No question of escape can arise except for a particular assessment year. Therefore, the Income-tax Officer has first to find the assessment year in respect of which there is an escape. If he finds an escape for a particular assessment year, he cannot assess the escaped income for another assessment year and what he cannot be done by the Appellate Assistant Commissioner or the Tribunal on appeal.

What has happened in this case is that the Income-tax Officer thought that the assessee failed to disclose fully and truly all material facts necessary for its assessment for 1954-55; he does not claim to have in his possession certain information nor does he claim that on account of that information he had reason to believe that income for the assessment year 1954-55 had escaped assessment. He certainly formed the belief that a certain income had escaped assessment for the assessment year 1954-55 and he had certainly had reason for the belief but according to him the reason of the escape was the assessees omission or failure to disclose fully or truly all material facts necessary for its assessment for 1954-55. It had filed the return but it concealed from it the fact that the amounts of Rs. 12,000 and odd and Rs. 14,000 and odd received by it on December 12, 1953, and January 13, 1954, were its income liable to be taxed by disguising the receipts as deposits. It did not give true and full particulars of the receipts with the result that when it was assessed for 1954-55, the Income-tax Officer did not know that they constituted taxable income and, therefore, did not include them in the assessment. Clause (a) thus clearly applied to the facts of the case. The Income-tax Officers failure to include the receipts in the nature assessment for 1954-55 was not in spite of the fact that he knew their real nature and source. The assessee had never stated that the receipts were its income liable to be taxed; on the country, its statement was that it was not taxable income at all and even that statement was made after the assessment for 1954-55. The real nature and source of the receipts came to the knowledge of the Income-tax Officer for the first time when he assessed it for 1955-56, but he committed the mistake of treating them as its income liable to be assessed for 1955-56, whereas it could be assessed only for 1954-55. It was this mistake that can be said to have been brought to his notice by the earlier order of the Tribunal whereupon he proceeded to issue a notice under section 34. Clause (b) cannot be said to be applicable just because he could be said to have received information about the assessment year for which the receipts could be correctly taxed. As there was a failure on the assessees part to disclose fully and truly all materials facts, clause (a) applied and, when it applied, clause (b) did not apply.

The Tribunal has not recorded the finding that the Income-tax Officer had in the possession any information in consequence of which he formed the belief about the escape. In its earlier order it had only found that the previous year for the income from an undisclosed source is a financial year and that the income in question was not liable to be assessed for 1955-56 as it was not earned in the relevant previous year. It had not said that was liable to be assessed for 1954-55; it had not said a word about that assessment year. Therefore, it could not be said that its order itself amounted to information to the Income-tax Officer that the income had escaped assessment for 1954-55. The information required for the purpose of clause (b) is an information other that that given by the return which discloses fully and truly all material facts necessary for the assessment. Clause (b) applies when there is no omission or failure mentioned in clause (a), i.e., the return disclosed fully and truly all material facts necessary and, in addition, there is information. The case in which the return does not disclose fully and truly all material facts is not governed by clause (b) nor does information that a return believed to disclose fully and truly all material facts really did to disclose fully and truly all material facts which come within its scope. Since the assessee has disclosed fully and truly all material facts in respect of the escaped income, the information contemplated by clause (b) is normally in respect of the law applicable to the facts unless the Income-tax Officer made a mistake in disbelieving or ignoring some of the facts of assuming some facts which did not exist at all. When an income is liable to be assessed, the facts relating to it are disclosed fully and truly and yet it is not assessed, it is obviously a case of a mistake and the information required by clause (b) is about the mistake. In the instant case there is no question of any mistake; when assessing the assessee for 1954-55, the Income-tax Officer did not erroneously disbelieve any statement made in the return, even though it was correct or did not assume any fact even though it did not exist and did not apply any law wrongly to the facts found by him; yet the income escaped assessment. The escape was due to the fact that all the facts relating to the income were not disclosed fully and truly. He knew of the escape for the first time when the Tribunal by its earlier order excluded the income from the assessment year 1955-56. Till then there was no escape even (because the income had been assessed for 1955-56). Since he did not know till then that the income was assessable for 1954-55, as far as he was concerned, no income had escaped for that year when the Tribunal passed its earlier order, from which he learnt that it should have been assessed for 1954-55 and he knew that it had not been assessed. Though he had some information in his possession, clause (b) did not apply because it was not in addition to a full and true disclosure of all material facts in the return. The Tribunal committed a double mistake in thinking that clause (b) applied; it erroneously held that clause (a) was not applicable and erroneously ignored the words 'notwithstanding that there has been no omission....... of the assessee' and proceeded merely because the Income-tax Officer had acted on some information. It did not realise that when an escape can be attributed to omission or failure to disclose fully and truly all material facts clause (a) applies and that clause (b) applies when information is received by the Income-tax Officer about a mistake committed by him wrongly disbelieving a fact that exists or assuming a fact that does not exist or of applying the law wrongly. For the assessment year 1954-55 the Income-tax Officer had not committed any mistake of this nature and consequently there was no question of receiving the information about it and hence he could not act under clause (b).

If a return is filed, clause (a) applies if there is still a failure to disclose fully and truly all material facts; and clause (b) applies if there is no such failure but the Income-tax Officer has in his possession information in consequence of which he has reason to believe that income has escaped assessment. If a return is not filed, only clause (a) can apply. Clause (a) applies either when no return is filed or when a return is filed but there is a failure to disclose fully and truly all material facts; clause (b) applies where a return has been filed and there is no failure. The word 'or' occurring first in clause (b) has the meaning of 'and'. Clause (b) is alternative to clause (a), i.e. it governs what is not governed by clause. (a). Omission to file a return is governed by clause (a) as well as failure to disclose all material facts fully and truly; therefore, clause (b) applies when there is neither the omission nor the failure. Thus the two clauses are mutually exclusive; in a given set of circumstances, one or the other can apply but both can never apply. When an Income-tax Officer applies clause (a), it follows that the circumstances in which clause (b) can apply are non-existent and neither the Appellate Assistant Commissioner nor the Tribunal can apply it. If he states the facts found by him and they attract clause (b) and not clause (a), his saying that clause (a) is applicable will not make clause (b) not applicable by the Appellate Assistant Commissioner or the Tribunal because then it would be a simple case of applying a wrong law to the facts found. But if the facts expressly found by him are those referred to in clause (a), it is not open to the Appellate Assistant Commissioner of the Tribunal to find the facts to which clause (b) applies merely because they consider that from the material on the record they should have been found to be proved. They have no original jurisdiction in this respect at all. It is not for them to proceed under section 34, the Income-tax Officer having the exclusive jurisdiction to do so. The facts mentioned in clause (b) (as also those mentioned in clause (a)) are jurisdictional facts, i.e., the Income-tax Officer derives his jurisdiction over the escaped income from the existence of those facts. If any of the facts does not exist, he has no jurisdiction over the escaped income at all. He must find their existence before assuming jurisdiction over the escaped income. Since only he has jurisdiction, it follows that the facts must be found by him; they cannot be found for him by the Appellate Assistant Commissioner or the Tribunal acting as has benamidar or proxy. If he does not find them, the income cannot be assessed at all under section 34. Here he did not find that there was no failure on the assessees part to disclose fully and truly all material facts necessary for its assessment for 1954-55; on the contrary, he found such failure. He certainly had some information but it was not the information required by clause (b), e.g., information in addition to that given by a return disclosing fully and truly all material facts. He did not claim to have to have in his possession any information required by clause (b); he only claimed to have the information that the return for 1954-55 did not disclose fully and truly all material facts. Therefore, clause (b) did not apply to the facts of the case and, even if it applied, the Tribunal could not apply it when it was not applied by the Income-tax Officer. The Tribunal could apply it only if it found that the conditions for its application existed, i.e., that there was no omission or failure, the Income-tax Officer had information about his applying the law wrongly or disbelieving facts or assuming facts or assuming facts wrongly during the assessment year 1954-55 and his belief about the escape of income was based on it. These facts do not exist and the Tribunal could not apply clause (b).

Sri Das referred us to Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, where the Supreme Court observes that the word 'information in section 34(1)(b) includes information as to the true and correct state of the law'. It was argued that the Tribunals finding in the earlier order stating that the escaped income was assessable in the assessment year 1954-55 was information in the Income-tax Officers possession. It was for the Income-tax Officer to treat it as information and to say that he was informed about the correct the state of the law. He could not be said to have been informed of the Tribunals finding did not register any impression in his mind. Every statement made to a person is not information to him; it is not if he does not understand it or does not give any thought to it or does not believe it.

The first proviso to section 34 was amended with effect from April 1, 1956, and now under clause (iii) of its reasons have to be recorded by the Income-tax Officer, and the Commissioners approval for the issue of notice under section 34 is required, only if he proceeds under clause (a). It was contented by Sri R. L. Gulati that the proviso in force in the assessment year 1954-55 governs the case and not the proviso in force on August 2, 1958, the date of the issue of the notice. I reject this contention mainly because the amendment in the proviso is of a procedural nature. The amendment deals with the condition required for the issue of a notice and fulfillment of the condition is essentially a procedural matter. An Income-tax Officer has to proceed in a certain manner before issuing a notice; up to March 31, 1956, he had to record the reasons and obtain the Commissioners approval for issuing a notice under clause (b) and since April 1, 1956, he is not required to do so. The issue of a notice is prima facie governed by the relevant law in force on the date of the issue and there is nothing in the amending Act No. 18 of 1956 of in the proviso to suggest that it is governed by the law in force during the assessment year in respect of which the escape has taken place. There is no warrant for saying that, though on August 2, 1958, there was no law requiring the Income-tax Officer to record the reasons and to obtain the Commissioners approval for proceeding under clause (b), he was bound to do so because the escape was in the assessment year 1954-55 when the relevant law required him to do so. To say that the notice issued in this case was governed by the amended proviso is not giving to the amendment to the proviso retrospective effect.

But I take into consideration the unamended proviso because it supports the view that prior to April 1, 1956, the Tribunal could not alter assessment under clause (a) to assessment under clause (b). We have not be fore us either the reasons recorded by the Income-tax Officer or the approval of the Commissioner but it may be legitimate to assume that they were for proceeding under clause (a) and not for proceeding under clause (b). The Income-tax Officer does not seem to have ever been in doubt that the matter was governed by clause (a) and naturally he must have recorded the reasons, and obtained the Commissioners approval, for acting under clause (a). If he had not recorded the reasons, and had not obtained the Commissioners approval, for acting under clause (b), he had no jurisdiction to issue a notice for acting under clause (a). His recording the reasons, and obtaining the Commissioners approval, for acting under clause (a), would not enure for acting under clause (b) and, if he could not act under clause (b), the Tribunal could not substitute clause (b) for clause (a) in the assessment order. So, prior to April 1, 1956, the Tribunal had no power to alter the clause. It cannot be said that the amendment to the proviso with effect from April 1, 1956, has added to the Tribunals power and now empowered it to alter the clause.

The power conferred upon the Tribunal by section 33(4) is certainly very wide but not absolutely unlimited or arbitrary. The power to consider a certain order to be fit to be passed is controlled by the provisions of the Act; it has not the power to consider any order as one fit to be passed. if in view of what the Income-tax Officer did and ordered the reassessment cannot be done under clause (b), the Tribunal should not consider it fit to alter the reassessment from one under clause (a) to one under clause (b); if it must not find such alteration fit, it has no jurisdiction to order it.

Sri Das argued that the power to act under clause (b) is smaller than the power to act under clause (a) and, therefore, the Tribunal can alter the acting under clause (a) to acting under clause (b). The analogy of an appellate courts power to alter a conviction to one for a smaller offence does not apply. The powers of clauses (a) and (b) are different in nature and have no quantitative values so that one can be said to be 'smaller' than the other. In the absence of one power being wholly included in the other power, it cannot be said that one power is smaller than the other. A comparison of mutually exclusive powers is impossible.

Sri Das next argued that when the Income-tax Officer proceeded under section 34 on the basis of the Tribunals order, the Tribunal had the power to correct him when he proceeded erroneously. We are not concerned with the question what power the Tribunal would have if it had directed in its earlier order that the Income-tax Officer should proceed under clause (b) and he had proceeded under clause (a) in contravention of the direction, for the simple reason that the Tribunal had not given any such direction at all. The Income-tax Officer issued the notice on his own without any direction from the Tribunal.

In Ram Narain v. State of Uttar Pradesh. S. K. Das J., speaking for the court, said at page 20 :

'.... the legality of the tax imposed on the appellant must be considered with reference to the clause under which the assessment was actually made, and a different clause under which the assessment might have fallen cannot be called in aid of the assessment.'

So the Tribunal ought to have judged the validity of the assessment with reference to clause (a) and not with reference to clause (b) under which it might have been made. After finding it invalid, it had nothing more to do than to allow the appeal and quash the assessment order. It could not justify the assessment on the ground that it could have been made under clause (b).

The cases in which it was held that the proviso to section 13 can be applied by an Appellate Assistant Commissioner or the Tribunal, even though it has not been applied by the Income-tax Officer, are distinguishable. The words used in the proviso are 'if the method employed is such that in the opinion of the Income-tax Officer, the income.... cannot properly be deduced therefrom'; it has been held that, though it is the opinion of the Income-tax Officer that is specifically mentioned, the Appellate Assistant Commissioners or Tribunals opinion justifies acting under the proviso even though the Income-tax Officer did not act under it. The same, however, cannot be said about an Appellate Assistant Commissioners or the Tribunals proceeding under clause (b) of section 34 when the Income-tax Officer has refused to pores under it or proceeded instead under clause (a). The essential distinction between the two cases is that the opinion referred to the proviso is to be formed not for the purpose of assuming jurisdiction but in the course of exercise of jurisdiction and all that the Income-tax Officer does in the process of assessment is subject to the Tribunals appellate jurisdiction. The facts mentioned in clause (a) or clause (b) are, on the other hand, jurisdictional facts required for the very assumption of jurisdiction and while the assumption of jurisdiction is, the refusal or failure to assume jurisdiction is not, subject to the Tribunals appellate jurisdiction. All that the Income-tax Officer does in the exercise of his jurisdiction is objective or justiciable and is subject to the Tribunals appellate jurisdiction. All that he does after assuming jurisdiction can be done by the Appellate Assistant Commissioner or the Tribunal but an Appellate Assistant Commissioner or the Tribunal cannot assume jurisdiction under section 34 when he has refused to do it. In Commissioner of Income-tax v. Kanpur Coal Syndicate, the Supreme Court decided that the Appellate Assistant Commissioner is empowered by section 31(3)(b) and the Tribunal is empowered by section 33(4) to set aside an assessment on an association of persons and direct the Income-tax Officer to assess the members individually. Subba Rao J., speaking for the court, observed at page 229 :

'The Appellate Assistant Commissioner has... plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do..... Under section 33(5) ... the Appellate Tribunal may authorise the Income-tax Officer to amend ....any assessment made on any parter of the firm or any member of the association. Under this section the Appellate Tribunal has ample power to set aside the assessment made on the association of persons and direct the Income-tax Officer to assess the individuals or it direct the amendment of the assessment already made on the members. The comprehensive phraseology used both in section 31 and section 33.. does not countenance the attempt of the revenue to restrict the powers of the Appellate Assistant Commissioner or of the Appellate Tribunal; both of them have power to direct the appropriate authority to assess the members individually instead of the association of persons as a unit.'

The power of the Tribunal that was considered that was considered by the Supreme Court was essentially different from the power to alter assessment under one clause of section 34(1) to another clause and in respect of the latter power there is no scope for applying the principle that its power is conterminous with that of the Income-tax Officer. Its power is conterminous with that of the Income-tax Officer because it has appellate jurisdiction over what he does in the exercise of his jurisdiction. It has no appellate jurisdiction in respect of his refusing or failing to proceed under one of the clauses. This case is to be distinguished for the same reasons for which the decisions that the Tribunal can apply the proviso to section 13, even though it has not been applied by the Income-tax Officer, have been distinguished above. In the exercise of its appellate jurisdiction it can only quash the proceedings under clause (a); it cannot direct him to proceed under clause (b) or amend the assessment to one under clause (b). Then section 33(5) specifically deals with the power invoked in the case before the Supreme Court. The observations of Subba Rao J., therefore, do not support the contention that the Tribunal has the power to convert an assessment under clause (a) into one under clause (b).

The Tribunal has not drafted the statement correctly and formulated the questions intelligently. Question No. 1 is on the face of it suggested by the Commissioner and not by the assessee. The assessee could not have suggested it because the Tribunals decision was in its favour. It had contended in the appeal before the Tribunal decision was in its favour. It had contended in the appeal before the Tribunal that clause (b), and not clause (a), applied. The statement has been submitted at its instance and the question that was sought to be referred by it is the question about the Tribunals power to alter the assessment from one under clause (a) to one under clause (b). Question No. 2 formulated by the Tribunal brings out this question but only if question No. 1 is in the negative. Even if the Tribunal could frame questions at the suggestion of the Commissioner, its duty was first to frame questions sought by the assessee to be referred and then frame question which might arise out of the answers to the former questions and might be suggested by the Commissioner. The questions that could be suggested by the Commissioner depended for their existence on the answers to be given by this court to the question suggested by the assessee and not vice versa. The first question that the Tribunal should have framed was about its power to alter the assessment and the second question could have been whether the assessment by the Income-tax Officer under clause (a) was correct or not and it could have invited this court to answer it in case the first question was answered against the Commissioner. The assessee was aggrieved by the Tribunals order and its case was that it had no jurisdiction to alter the assessment; in reply to this it could be said on behalf of the Commissioner, firstly, that it had the power to alter the assessment and, in the alternative, that the Tribunal itself was wrong in holding that clause (a) did not apply. So the Tribunal should have asked for an answer to question No. 1 if this court answered question No. 2 in the negative and in the assessees favour.

I would reframe the questions as follows :

'(1) Was the Tribunal legally correct in altering the assessment made under section 23(3)/34(1)(a) to an assessment made under section 23(3)/34(1) in the circumstances of this case ?

(2) If the above question is answered in the negative, was the Income-tax Officer legally correct in making the assessment under section 34(1)(a) ?'

Sri Gulati question the Tribunals power to frame a question at the instance of the Commissioner when submitting a statement under section 66(1) at the assessees instance. The application under section 66(1) was made by the assessee and no application was made by the Commissioner; so it was argued that the Tribunal had no jurisdiction to frame a question at his suggestion. Under section 66(1), while an application is required for the Tribunals referring to the High Court any question of law arising out of its order, what the Tribunal is required to do on granting the application is 'to draw up a statement of the case and refer it to the High Court.' Though the statement is to specify the questions to be answered by the High Court, what the Tribunal is required to do is to refer the statement to the High Court. The High Court is required by sub-section (5) to decide the questions of law raised by the statement. Since the High Courts duty is simply to decide the questions of law raised by the statement, the Tribunal is required to frame the questions of law arising out of the statement. All sorts of questions of law can arise out of a statement but the High Court is required to decide only such of them as are raised by the statement, i.e., as arise out of the Tribunals order and are mentioned in the application under subsection (1). The Tribunal is required to incorporate such questions in the statement so that the High Court is spared the trouble of ascertaining which questions are to be answered by it. Several questions of law may be raised before the Tribunal during the hearing of an appeal, some at the instance of the assessee and others at the instance of the Commissioner. Some questions of law may be answered by the Tribunal in the assessees favour and others in the Commissioners favour. One question may arise out of the answer given to another questions and one of these questions may be answered in the assessees favour and the other in the Commissioners favour. If the order i.e., the final decision in the appeal is in the assessees favour, he is not aggrieved by any question being answered adversely to him. When some question are decided in his favour and the appeal is decided on the basis of the answers, the adverse answers given to other questions cannot be said to arise out of the Tribunals order. If one question is answered against the assessee and another in his favour and the appeal is decided on the basis of the latter answer, it means that the former question was not material because even if it had not been raised and had not been answered, the decision in the appeal would have been raised and had not been answered, the decision in the appeal would have been in his favour. If the decision of an appeal does not depend upon the answer given by the Tribunal to a question, the question cannot be said to arise out of its order. No question, the answer to which does not supply a reason for the Tribunals order in the appeal, can be said to arise out of the order. So, when a party aggrieved by the order applies under sub-section (1), he cannot require reference to the High Court of any question which was answered in his favour. When one question is answered in the assessees favour and from the answer another question arises which is answered in the Commissioners favour and the order is based in the latter answer, an application under sub-section (1) can be made only by the assessee. Only he is aggrieved by the order based on the answer to the second question and the Commissioner cannot apply. But once he applies and the Tribunal has to frame the questions arising our of its order, it must frame not only the latter question but also the former question if required by the Commissioner. Actually both questions arise out of its order; though it is based on the answer to the latter question, the latter question itself arises out of the answer given to the former question. It is open to the Commissioner to submit to the answer given to the former question and thus take it out of the category of questions arising out of the Tribunals order but, if he does not do so and considers that the question is a live one, then the Tribunal must frame it. The former question would be held not to arise out of its order only if, an account of the Commissioners submitting to the answer given to it, it can be said to be not a live question. There is no question in existence if neither party raises a dispute about it. Even though there had been a dispute previously and a question had arisen on account of it, the dispute may come to an end on the answer being given to the question and the state of 'no question' will come into existence. The reference under sub-section (1) is of questions of law arising out of the Tribunals order passed under section 33(4). There can be no reference of any question, even if of law, arising out of any other order of the Tribunal. When a High Court answers the questions of law referred to it by the Tribunal and sends a copy of its judgment to the Tribunal, the Tribunal is required by sub-section (5) to dispose of the case 'conformably to such judgment'. Any order that the Tribunal passes under this provision is not an order under section 33(4) and, therefore, no question, even if of law, arising out of its order can be referred under section 66(1). In other words, there cannot be two references under sub-section (1) in one case; all question of law that arise must be referred in one instalment. When the Tribunals order depends upon an answer given to one question which arises out of the answer given to another question, the latter question also must be referred if required by the party against whom it is answered, otherwise the party would be left without any remedy. It could not make an application under sub-section (1) because the order was in its favour though the question was answered against to (as the order was based on the answer given in its favour to the second question) and, if the Tribunal is debarred from framing the question at its instance, it means that it is deprived of the right of having the question answered by the High Court. Another way of dealing with the matter is to hold that when a party applies under sub-section (1), the questions arising out of the Tribunals order include not only the questions which were answered against the party and which it wants to be referred to the High Court but also the questions which the other party would have a right to get referred to the High Court and wants to be so referred and would arise out of the Tribunals order passed under sub-section (5).

Since sub-section (1) of section 66 does not contain any provision requiring the Tribunal to frame the questions on which the High Courts answers are invited, it cannot be said that it has no power to frame a question suo motu to that its power in respect of the framing of question is confined to the questions mentioned in the application made to it. Though an applicant has mentioned the questions of law which he wants to be referred to the High Court, there is no provision laying down that the Tribunal must select the questions to be framed by it out of them. The framing of questions is at its discretion. It is bound to frame such of the questions as are mention in the application, are of law and arise out of its order; but no provision confines its power to framing only these questions and takes away its discretion to frame other questions, though not asked for by the appellant, provided they are also questions of law and arise out of its order. Framing a question of law arising out of its order is not acting suo motu merely because it is not mentioned in the application.

In Commissioner of Income-tax v. Banthia Bank Ltd. and Girdhardas and Co. Ltd. v. Commissioner of Income-tax, Chagla C.J. and Tendolkar J. stated 'whoever may be the party who asks for a reference, once a reference is determined upon, all questions of law which arise out of the order of the Tribunal can be referred to the High Court for its determination. Questions may be suggested either by the party which wants a reference or by the party which is content with the decision of the Tribunal.' Modi and Chhangani JJ. of the Rajasthan High Court followed Girdhardas & Co. Ltd. in Educational and Civil List Reserve Fund No. 1 v. Commissioner of Income-tax.

The Commissioner could not apply under sub-section (1) (because the Tribunals order was in his favour). If he still applied and the Tribunal referred the question (whether clause (a) applied or clause (b)), the High Court could refuse to answer it. Still, Sri Gulati argued, he should have as a precaution made an application under sub-section (1) for referring the question to the High Court so that if the assessee applied, the questions suggested by both could be referred by the Tribunal. He added that the Commissioner could withdraw the application if the assessee did not make any application within the prescribed period. The alternative suggestion was that when the assessee applied, the Commissioner also should have applied for reference of the question. The alternative suggestion cannot always be adopted because there is a period of limitation prescribed for an application and, by the time the Commissioner knows that the assessee has applied, the limitation for his applying might have expired. Section 5 of the Limitation Act does not apply to such an application though it applies to an application under sub-section (2). As regards the first suggestion, the question is not what the Commissioner might have done by way of precaution but what he ought to have done or what he had a right to do. The Commissioner had no locus standi to apply for reference of the question whether clause (a) applied to the facts of the case or not so long as there was no application by the assessee. He cannot be blamed for not doing what he was not bound to do. There is no reason to think that, even if he had applied, his application would have been entertained by the Tribunal and the Tribunal would have waited to see whether the assessee applied or not. The Tribunal was not bound to wait till the expiry of the period of limitation for an application by the assessee and could reject the Commissioners application there and then on the ground that the question sought to be referred by him was of only academic interest.

Sri R. L. Gulati relied upon Commissioner of Income-tax v. D. Arokiaswami Chetti & Co. On an application for registration of a partnership, the Tribunal held that the partnership was for a certain period which had expired before the application for renewal of registration was made and consequently the deed of partnership was not in operation on that date but that it was not essential for the renewal that it was in operation on that date and accordingly renewed the registration. At the instance of the Commissioner it referred only one question to the High Court, it being whether 'on the facts and in the circumstances of this case' the application for renewal satisfied the requirements of the law and the partnership was entitled to renewal. Rajamannar C.J. and Yahya Ali J. held that the partnership deed had to be in operation on the date of the application and answered the question in the negative. The assessee attempted to reopen the Tribunals finding that the deed had ceased to be in operation on the date of the application and the learned judges ruled him out of order because he had not applied under sub-section (1); the question sought to be reopened by him was not referred to the High Court by the Tribunal and could not be said to be involved in the question actually referred by it and the words 'on the facts and in the circumstances of this case' only meant the Tribunals finding that the deed was not in operation. The fact that in the instant case the Tribunal has actually referred the question at once distinguishes it from D. Arokiaswami Chetti & Co. Though the learned judges referred to an application by the other party, they shad no occasion to decide, and did not decide, that without such an application no question could be framed at the suggestion of the opposite party. What we have to decide is whether the Tribunal could refer the question at the instance of the Commissioner without an application by him and this question never arose, and was not decided, in D. Arokiaswami Chetti & Co.

Sri Gulati referred us to Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. which lays down that a High Court acting under sub-section (2) of section 66 cannot ask the Tribunal to refer to it a question not raised by the application under sub-section (1). Even if an assessee and the Commissioner apply under sub-section (1) and the Tribunal rejects both the applications and only the assessee applied under sub-section (2), the High Court cannot call upon the Tribunal to refer to it any question mentioned in the Commissioners application under sub-section (1) but not in the assessees. Sri Gulati argued that if the Tribunal had rejected the assessees application under sub-section (1) and it had come to this court under sub-section (2), the High Court could not direct the Tribunal to refer to it question No. 1. I find that this matter has not been considered by the Supreme Court in this decision. It is true that a High Court can under sub-section (2) call for reference of only those questions which could have been referred by the Tribunal under sub-section (1) but the Supreme Court has not decided that the Tribunal acting under sub-section (1) cannot refer to the High Court a question not mentioned in the application under sub-section (1) but suggested by the other party.

Lastly, Sri R. L. Gulati contended that question No. 1. I framed by the Tribunal is of fact and should not be answered by us. It was held Commissioner of Income-tax v. Lakhiram Ramdas that whether there was any omission or failure referred to in clause (b) or not is a question of fact and not of law and cannot be referred by the Tribunal to the High Court. Question No. 1 is however a different question and is undoubtedly of law. Whether the facts found attract clause (a) or clause (b) is a question of law; there is no dispute about the facts and the sole controversy is about the law applicable to them. Whether what the assessee did amounts to its not disclosing truly and fully all material particulars is a question of law and that is the essence of question No. 1

My answer to the two questions as reframed by me are as follows :

No. 1. No; even if the Tribunal thought that clause (b) applied and not clause (a), it had not jurisdiction to alter the assessment from one under clause (a) to one under clause (b).

No. 2. Yes; the escaped income was rightly assessed under clause (a) by the Income-tax Officer and the Appellate Assistant Commissioner.

A copy of this judgment should be sent under the signature of the Registrar and seal of the court to the Tribunal as required by section 66(5) of the Income-tax Act.

As on question is answered in favour of one party and the other favour of the other, there should be no order as to costs of this reference. Counsels fee should be assessed at Rs. 200.

MANCHANDA J. - I agree with my Lord the Chief Justice that the questions require to be reframed, and that the question as reframed be answered in the affirmative and against the assessee but I am inclined to take a different view on question No. 1, as it raises an important point as to the power of the Tribunal to alter a more onerous and stringent subsection under which assessment or reassessment proceedings are taken by the Income-tax Officer to a comparatively less severe and more advantageous sub-section for the assessee. In this particular case the assessee may gain some advantage by the question being answered in his favour but by and large if the Tribunal is held not to have any such power, the taxpayer will be the loser. I agree to the proposed answer to question No. 2 and this is in itself sufficient to dispose of the reference but as the matter may not be allowed to rest here I would express my views on both the questions for what they are worth.

The material facts in respect of the two questions as reframed are these. The relevant year of assessment is the assessment year 1954-55. The status of the assessee was that of a Hindu undivided family. There were two credits, one of Rs. 12,744 on December 12, 1953, and of Rs. 14,332 on January 13, 1954, found entered in the capital account of the assessee Hindu undivided family in its account books relevant for the assessment year 1955-56. In the assessment year 1955-56, the assessee was called upon to explain the source and nature of these case credits.

The explanation given was that these credits represented the sale proceeds of ornaments to Ajodhya Prasad Ram Babu of Etawah. The said Ajodhya Prasad denied having purchased any ornaments from the assessee. In view of this denial and the absence of any other satisfactory proof, the explanation given by the assessee was not believed and the aforesaid two sums were added as income from an undisclosed source in the assessment for the assessment year 1955-56. No objection as to the assessment year in which the undisclosed income could be assessed appears to have been taken before the Income-tax Officer. The said credits having been found entered in the books relevant for the assessment year 1955-56, the addition was made in that assessment year. When the matter went before the Appellate Assistant Commissioner, again no objection as to the assessment year was taken and the addition made was confirmed. When the matter was year taken up in second appeal before the Tribunal for the assessment year 1955-56, the assessee for the first time raised the question that, as the amount found credited had been added as income from an undisclosed source, the relevant previous year would be the financial year ending on the 31st March, 1954, and therefore the deposits could not have been assessed in the assessment year 1955-56. Accepting this connection the Income-tax Appellate Tribunal directed the deletion of Rs. 27,707 from the total income assessed in the assessment year 1955-56.

'Consequent upon the Tribunals order, action under section 34 of the Act was taken to assess these deposits' for the assessment year 1954-55, which was what the assessee had itself in effect claimed before the Income-tax Appellate Tribunal. The notice issued was under section 34 without specifying whether it was under sub-clause (1)(a) or (b) of that section. On the merits the assessee does not appear to have put up any contest as he stated that he did not want to produce any further evidence except what had been produced in the earlier assessment year 1955-56, which explanation, as already observed, had been rejected both by the Income-tax Officer and the Appellate Assistant Commissioner and the merits were not agitated before the Tribunal for that assessment year.

Having succeeded in getting the amount of Rs. 27,707 deleted from the assessment for 1955-56, on what after all was a technicality, the assessee now before the Tribunal for the first time challenged the validity of the notice under section 34, particularly if it was one issued under section 34(1)(a) as that would inevitably lead to penalty proceedings under section 28(1)(c) of the Act. The argument before the Income-tax Officer was that once a cash credit had been included in the assessment for a particular year and, if for any reason it was deleted, it could not be included under the provisions of section 34(1)(a) in any other year as the error would be one of law and not of fact and action under section 34 could only be taken if there was an error of fact and not of law. The Income-tax Officer rejected this contention observing, 'while going through the facts of the case I find that the material facts which govern the application of the provisions of section 34(1)(a) are whether by omission or failure on the part of the assessee to disclose fully and truly....... the income has escaped assessment.' In this case the assessee did not disclose the huge deposits amounting to Rs. 27,707 at the time of the assessment proceedings for the year 1954-55 and this return of income was false or at any rate inaccurate. The fact that the income of the assessee amounting to Rs. 27,707 was accounted for in the books in the assessment year 1955-56 came to the notice of the department after the assessment for the year 1954-55 had been completed, since even the return for the year 1955-56 was filed after the said order had been passed. It is also clear that the assessee did not give any indication of these deposits during the course of assessment proceedings for the year 1954-55. Thus section 34(1)(a) is clearly attracted in this case.' The Income-tax Officer further reiterated the finding given earlier that the assessee had failed to prove the source, nature or character of the impugned credits, particularly as the person to whom they were sold, i.e., Sri Ajodhya Prasad, had totally denied this purchase and the statement was supported by the books of account of his firm. Accordingly, the assessment was made under section 34(1)(a) read with section 23(3) of the Act and the sum of Rs. 27,707 was included as income an undisclosed source in the assessment year 1954-55. The Income-tax Officer also separately issued a notice under section 28(1) of the Act to show cause why penalty should not be levied.

The Appellate Assistant Commissioner noted that the assessee had confined his objections before him only to the validity of the notice under section 34. The validity was challenged on two ground : (1) That in the notice issued under section 34, the various clauses under which action was being taken had not been specified; and (2) that there was no failure to disclose material facts in the return filed for the assessment year 1954-55. The Appellate Assistant Commissioner rejected these contentions and held that the question of failure to disclose was to be considered with reference to the particular assessment year in which the income fell to be assessed. This was not a case where particulars about the said deposits were disclosed in the assessment for the year 1954-55 by the Income-tax Officer had left these amounts out of consideration for one reason or the other. The inclusion was accordingly upheld.

When the case came up before the Tribunal again, the inclusion on the merits was not challenged but only ground taken was that action under section 34 was bad, for the reason that the assessee was not bound to disclose, in the assessment proceedings for 1954-55, the impugned credits, which appeared in the account books relating to the assessment proceedings for the year 1955-56. The Tribunal was impressed by this argument and held that 'law does not expect the assessee to assume the case credits were income receipts, that the financial year was the previous year in respect thereof, and, although they did not appear in the account books in that year, it was bound to disclose in the assessment year relevant to the financial year.....' They, however, went on to hold 'we however find that the assessment should have been made under section 34(1)(b). All the necessary facts are found on the record and no further investigation is necessary and we had put this question to the learned counsel for the assessee at the time he argued. The assessees counsel is not taken by surprise for effectively meeting this case. It would be unjust in our opinion to annual the assessment when section 34(1)(b) applies to the facts of the case. We, therefore, alter the assessment to one under section 34(1)(b).' The appeal of the assessee was accordingly dismissed. The Tribunal has, as already observed, referred the two questions, one at the instance of the assessee and the other at the instance of the Commissioner of Income-tax.

Section 34 requires that there must be 'failure to disclose fully and truly all facts necessary for his assessment for that year.' The words 'the assessment for that year' refer necessarily to the assessment which is the relevant one. The assessee itself had in its appeal before the Tribunal, for the assessment year 1955-56, contended, if not directly at least by necessary implication, that the correct assessment year for assessment of the impugned credits was the assessment year 1954-55. When the department tried to assess it for the assessment year 1954-55 by taking proceedings under section 34, the assessee turned round and said that there was no failure to disclose the impugned credits as they had appeared in its books relevant for the assessment year 1955-56 and it was not obliged to disclose these in its return for the assessment year 1954-55 and therefore section 34(1)(a) could not have been invoked. In other words, the assessees contention in substance was that, as the credits appeared in its business books relevant for the assessment year 1955-56, it was under no obligation to draw the attention of the Income-tax Officer to such credits in the course of the assessee proceedings for 1954-55 even if they represent income from an undisclosed source.

There is an obvious fallacy in this argument of the assessee. Section 34 is not a charging section. It merely provides a machinery whereby income which has escaped assessment or was under-assessed in the relevant assessment year can be brought into the net of taxation. The impugned credit were found to be the undisclosed income of the assessee but they were deleted from the assessment year 1955-56, as the previous year for undisclosed income was the financial year and therefore fell to be assesseed for the assessment year 1954-55. So far as the latter year is concerned, if it was at all income assessable in that year, then undoubtedly that income had escaped assessment. The only question that would then arise would be whether the reassessment proceedings should be under section 34(1)(a) or section 34(1)(b) of the Act. The prerequisite conditions under section 34(1)(a) are more stringent than those under section 34(1)(b). Sub-section (1)(b) is the general provision for bringing to assessment escaped or under-assessed income. That does not require any act of commission or omission on the part of the assessee before it can be invoked. All that is necessary if that the Income-tax Officer in consequence of information in his possession should have reason to believe that some income has escaped assessment 'for any year'. It is well settled that the information need not necessarily be one of fact but may even be information as to the correct state of the law. The position in law as to what was the previous year for income from an undisclosed source was not clear or settled at the time when the original assessment in the present case was made. That is why no such objection was taken by the assessee till the matter reached the stage of the Tribunal by way of appeal for the assessment year 1955-56. It was only at that time that a decision of the Patna High Court had been delivered holding that the previous year for income from an undisclosed source is the financial year and not the previous year which the assessee may have adopted for his income from known sources. The said order of the Tribunal for the assessment year 1955-56 did constitute 'information' within the meaning of section 3 : See Chatturam Horilram v. Commissioner of Income-tax, V. M. Raghavalu Naidu & Sons v. Commissioner of Income-tax and Commissioner of Income-tax v. Lakshmana Iyer. If the condition is satisfied that there was information received by the Income-tax Officer after the original assessment had been made and in consequence thereof he had reason to believe that income had escaped assessment, the provisions of section 34(1)(b) would be clearly attracted. There is, however, a period of limitation prescribed for action under section 34(1)(b) and that is that action must be taken within four years from the end of that year. No particular form of notice has been specified nor does it appear that it is at all necessary to specify the sub-section; all that sub-section (1) requires is 'a notice containing all or any of the requirements which may be inclued in a notice under sub-section (2) of section 22 '. In the instant case the Income-tax Officer himself in the assessment order record : 'Consequent upon the Tribunals order, action under section 34 was taken to assess these deposits in this assessment in which they fall, i.e., for the assessment year 1954-55.' The notice was admittedly issued within the period of limitation of four years and, therefore, there could not have been much doubt that the provisions of section 34(1)(b) were clearly attracted and the sum of Rs. 27,707 which was income from an undisclosed source was assessable in the assessment year 1954-55. If the Income-tax Officer had made the assessment under section 34(1)(b), there could not have been two opinions that the assessee was properly assessed. Merely because the Income-tax Officer chose to open his mouth a little too widely and invoked the provisions of section 34(1)(a) in order to impose a penalty, the assessee cannot reasonably hope to escape altogether from the net of taxation in respect of income held to he on merits from an undisclosed source.

It is well settled that what the Income-tax Officer himself could have done, the appellate court can also do. The powers of the appellate court are generally speaking the same as that of the original court. Therefore, even though the Income-tax Officer may have chosen to make the assessment under the more stringent and onerous provisions of section 34(1)(a), there is nothing to prevent the appellate court from invoking section 34(1)(b), provided the prerequisite conditions are satisfied and they are found on the record. In the present case the requisite conditions for invoking section 34(1)(b) were all present. There was information as to the correct state of law in the shape of the order of the Tribunal for the assessment year 1955-56 which led the Income-tax Officer to believe that the sum of Rs. 27,707 had escaped assessment for the assessment year 1954-55 and the notice was issued within the prescribed period of limitation.

Apart from the principle that an appellate court has ordinarily the same powers as the original court, the provisions of section 33(4) of the Act give the Tribunal plenary powers 'to pass such orders thereon as it thinks fit.' These words have come up for consideration before various courts. In Oriental Building and Furnishing Co. v. Commissioner of Income-tax it was observed by the Punjab High Court :

'From the language used in section 33(4) of the Act it is plain that in an appeal under section 33 of the Act the Tribunal is competent to decide facts as well as law and possesses authority to substitute its own order of assessment for the order under appeal.'

In that case it was held that the Tribunal was competent to apply the proviso to section 13 of the Act, even though the income-tax authorities had not made the assessment on that basis. The aforesaid conclusion of the Punjab high Court was generally approved by the Supreme Court in Commissioner of Income-tax v. McMillan & CO., though there was no detailed discussion of the issue involved. The Supreme Court also approved the observations (sic) of the Bombay High Court in K. F. Vakeel v. Commissioner of Income-tax, where the Tribunal had taken a view contrary to that taken by the authorities below that the assessee should be assessed not on the cash basis but on the accrual basis. The High Court had taken the view that 'it was not for the Tribunal to form an opinion on that question at all, as the opinion had to be formed and exercised by the Income-tax Officer and not by the appellate authority.' The Supreme Court disagreed with the law as propounded by the High Court and, agreeing with the Tribunal, observed :

'While we agree that, in the first instance, the Income-tax Officer as the first assessing officer has to form the opinion about the applicability of the proviso to section 13, we do not agree that it is not open to any other authority, which is lawfully in size in of the order of assessment of which the method of accounting under section 13 is only part, to come to a different conclusion with regard to the applicability of the proviso... Both the Appellate Assistant Commissioner and the Appellate Tribunal have wide powers to go into questions of fact and law, the Appellate Assistant Commissioner under section 31(3) and the Appellate Tribunal under section 33(4)... We see no justification for holding that these powers, so widely expressed by the statute, become ineffective in one particular case only, namely, when the determination or opinion is in favour of the assessee as respects the propriety of the method of accounting.'

The Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate, affirming the decision of the Allahabad High Court, held that the Appellate Tribunal has ample power under section 33(4) to set aside an assessment made on an association of persons and direct the Income-tax Officer to assess the members individually or to direct amendment of the assessment already made on the members. It was there observed :

'The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do. If the Income-tax Officer has the option to assess one or the other of the entities in the alternative, the Appellate Assistant Commissioner can direct him to do what he should have done in the circumstances of a case... Under this section (section 33(4)) the Appellate Tribunal has ample power to set aside the assessment made on the association of persons and direct the Income-tax Officer to assess the individuals or to direct the amendment of the assessment already made on the members. The comprehensive phraseology used both in section 31 and section 33 of the Act does not countenance the attempt of the revenue to restrict the powers of the Appellate Assistant Commissioner or of the Appellate Tribunal; not of them have power to direct the appropriate authority to assess the members individually of the association of persons as a unit.'

In the present case, as already observed, the Income-tax Officer could have made the assessment under section 34(1)(b) as all the conditions were satisfied but, if he did not do so, it would be open to the Tribunal in appeal to direct him to do so or to do so itself provided all the prerequisite conditions are satisfied and found on the record. Question No. 2 as referred and agreed to by the parties clearly assumed that all these conditions were satisfied and the necessary facts existed on the record when the Tribunal changed the assessment from section 34(1)(a) to section 34(1)(b) of the Act. This court cannot now proceed to enquire when answering that question as to whether some necessary requirement for invoking section 34(1)(b) was not already on the record. The powers of the Tribunal are plenary and are conterminous with that of the Income-tax Officer. The decision of the Tribunal was more in favour of the assessee inasmuch as by invoking section 34(1)(b) the assessee was automatically being saved from penalty action under section 28(1)(c) of the Act. The assessee was not at all prejudiced and, therefore, had little of no provocation to ask for a reference.

The question that remains to be considered is whether action under section 34(1)(a) could also, in any event, have been taken by the Income-tax Officer in the facts and circumstances of this case. This is question No. 1; but, as pointed out by my Lord the Chief Justice, this should have been the second and not the first question. I agree that it has to be answered against the assessee.

As already observed, section 34(1)(a) requires concealment of the furnishing of inaccurate particulars of income for the relevant assessment year. The amount credited appears in the business books of the assessee maintained on the basis of Samvat year and if it was undisclosed income from known business, then undoubtedly it would have been assessable in the assessment year 1955-56. These credits were not brought to the notice to the Income-tax Officer for the assessment which was made upon the assessee for the relevant assessment year 1954-55. They were, therefore, neither disclosed in the return nor was the attention of the Income-tax Officer drawn by the assessee in the assessment proceedings for 1954-55. These credits were only discovered by Income-tax Officer when making the assessment for 1955-56. The assessee ultimately seceded before the Tribunal only on the technical ground that the impugned credits were added as income from an undisclosed source and as such were assessable not in 1955-56 as they fell within the financial year 1953-54 relevant for the assessment year 1954-55. In these circumstances it would not be unreasonable to hold that it was equally open to the Income-tax Officer to take a technical stand that, as it was established that the credits were income from an undisclosed source (even if the assessee did not admit it to be so) and as the amount had found its way into its books of account, albeit the capital accounts, it was obliged to draw the attention of the Income-tax Officer to the existence of such an amount in its books of account, for the financial year 1953-54, during which the credits had actually found their way into its books of accounts. If the Income-tax Officers attention had been drawn and yet he had chosen to assess it for the assessment year 1955-56, as income from an undisclosed source, the assessee would indubitably have been right in asserting that there was no failure to disclose all material facts. The finding, however, in this case is that the credits themselves were only discovered by the Income-tax Officer in the course of the assessment proceedings for 1955-56 and, therefore, if the assessee chose to take a stand not on merits but on a technicality in the assessment year 1955-56, it is equally open to the Income-tax Officer to take the technical plea that, in the proceedings for the assessment year 1954-55, the assessee had not disclosed the existence of these credits and which fact was material for the assessment of that year. When ornaments are alleged to have been sold and the assessee wants to treat the realisation therefrom as capital accretion, it is his duty that fact to the notice of the Income-tax Officer so that the Income-tax Officer may decide as to whether the receipt therefrom is genuine and capital in nature or it is merely an eyewash and assessable as income from a known source of business or from some undisclosed source and it will then be for him to decide in which year, if at all, it has to be brought to assessment. If the sale of the ornaments had been brought to his notice during the relevant year, which in this case happened to be statutorily, contrary to the previous year adopted by the assessee itself, the assessment year 1954-55, as the income was from an undisclosed source, then if the Income-tax Officer chooses not to assess him in that year but in the assessment year 1955-56, he will not later on be able to turn round and invoke the provisions of section 34(1)(a) after the Tribunal has deleted the addition thereof from the income assessed for the assessment year 1955-56. In the present case the Income-tax Officers attention was never drawn, not had he applied his mind as to the year in which the impugned credits were assessable and, therefore, there was no question of any change of mind, or his being debared from proceeding under section 34(1)(a) of the Act.

For the reasons given above, I would answer both the questions in the affirmative and against the assessee. The parties are left to bear their own costs of this reference. Counsels fee is assessed at Rs. 200.

BY THE COURT

(December 27, 1965)

As we differ about the answer to be given to question No. 2, we direct that the case be laid before the Hon. the Chief Justice for obtaining a third judges opinion on the following question :

'Had the Tribunal the power, in the circumstances of this case, to maintain on appeal an assessment made by an Income-tax Officer under section 34(1)(a) of the Income-tax Act on its holding that though it could not be made under that provision it could be made under section 34(1)(b) ?'

V. BHARGAVA J. (9-2-1966) - In the reference I have heard learned counsel for the assessee as well as learned counsel for the income-tax department. The question referred to me for opinion by the Division Bench is :

'Had the Tribunal the power, in the circumstances of this case, to maintain on appeal an assessment made by an Income-tax Officer under section 34(1)(a) of the Income-tax Act on its holding that though it could not be made under that provision it could be made under section 34(1)(b) ?'

When dealing with this reference, a question arose whether, in answering this question, 'the circumstances of this case', which I have to take into account, will include the circumstance that, according to the concurrent decision of the Division Bench, the facts found in this case showed that the assessment of the income of the assessee should have been and was correctly made by the Income-tax Officer under section 34(1)(a) of the Income-tax Act. This is the concurrent opinion of both Members of the Bench, which has referred the case to me. The opinion is based on the findings of fact recorded by the Income-tax Appellate Tribunal and the facts stated in the statement of the case, but differs from the opinion of the Tribunal on a question of law. The Tribunals opinion was that this was a case where the assessment should have been made under section 34(1)(b), but this court has now held that, on those very facts, which were before the Tribunal, section 34(1)(a) was applicable. The difficulty that has arisen before me is that, if I take into account the circumstance that this court has now recorded a definite opinion that the provisions of section 34(1)(a) were really applicable and the provisions of section 34(1)(b) could not be applied, the obvious answer to the question referred to me would be that the Tribuanl had no power to maintain the assessment under section 34(1)(a). Even if it be held that, in answering the first question, it will not be competent for me to take into consideration the opinion recorded by this court on the second question, the difficulty still remains because, on the circumstances of the case, appearing in the judgment of the Income-tax Appellate Tribunal and in the statement of the case, it must also come to the opinion that in this case the assessment should correctly have been made under section 34(1)(a) and not under section 34(1)(b) and this conclusion arrived at by me, on the basis of the circumstances of the case, taken into account by the Bench, cannot be ignored. It is obvious that no Tribunal can be held to have a power to convert what a thing really is, into what it is not and, in the present case, the effect of the opinion of the Bench as well as myself based on the circumstances of the case with regard to the second question leads to the conclusion that the Tribunal, in this case, has committed the error of passing an order maintaining the assessment under section 34(1)(b) under which it could not be made legally and has set aside the assessment made validly by the Income-tax Officer under section 34(1)(a). It has been contended before me by learned counsel for both the parties that, in fact, the Bench, when referring this case, did not at all intend that this circumstance should be taken into account by me and the question should not be answered on this basis. It was suggested to me by learned counsel and it also seems to me that the question, which the Bench really wanted to be answered by me, was the abstract question of law, whether the Tribunal had jurisdiction to convert an assessment under section 34(1)(a) by the Income-tax Officer into an assessment under section 34(1)(b) in appropriate cases where section 34(1)(a) does not apply and section 34(1)(b) would be applicable and could be validly applied by the Tribunal. If such an abstract question has to be answered by me, it is clear that I should not be called upon to take into account all the circumstances of this particular case, which include the circumstances that this court has already held that in this particular case the assessment was valid under section 34(1)(a) and should be made under section 34(1)(a). Consequently, as suggested by learned counsel, I direct that this reference be returned to the Bench concerns for clarification or reframing the question, so that the point to be answered by me may be quite plain.

In this case, Mr. Gopal Behari, appearing on behalf of the department, further urged that I should decline to answer this question on the ground that the answer to this question, whether in the affirmative or in the negative, will not affect the assessment in the case of this assessee and such a question, which will not really have any final effect on the assessment, need not be answered by me. It does appear that whatever be the answer given by me on this question, it will not affect the actual assessment in this case. If I answer the question in the negative and hold that the Tribunal had no power to uphold the assessment under section 34(1)(b), the result will be that the answer given by this court to the second question will become effective and, consequently, when the reference is returned, the Tribunal would have to make orders in conformity with that opinion. The assessees income will then have to be assessed under section 34(1)(a) in accordance with that opinion. On the other hand, even if I answer the question in the affirmative and hold that the Tribunal had the jurisdiction to convert the assessment made under section 34(1)(a) by the Income-tax Officer into an assessment under section 34(1)(b), that opinion will not prove effective, because even then it will be necessary that the assessment in this case of the income of the assessee be upheld under section 34(1)(a) and not under section 34(1)(b). This position will have to be given effect to because once it is found that the income could be validly assessed only under section 34(1)(a) and not under section 34(1)(b), the order of the Tribunal directing assessment under section 34(1)(b) would become obviously incorrect and the Tribunal itself must set it aside in order to give directions in conformity with the opinion of this court which it is required to do under section 66(5). Thus, it seems that, whatever be the answer to this question referred to me, there will be no ultimately effect on the assessment of the income in this case. which will ultimately have to be governed by the opinion given in the respect of the second question. Mr. Gulati, on the other hand, urged that, since this question has been referred to me for opinion under the proviso to section 66A, my jurisdiction is confined to answering this question on the point on which there has been difference of opinion between the members of the Bench and I have no power to go into the question whether this reference is necessary or what the result of answering this reference will be. It seems to me that, in these circumstances, it would not be proper for me to hold that this reference is unnecessary and to decline to give any opinion on the point referred. It will, of course, be open to the referring Bench to reconsider whether the question is a necessary one and needs to be referred for my opinion. The papers may be laid before the Bench concerned at a very early date.

BY THE COURT

(22-2-1966)

We have perused the judgment of the third learned judge to whom the point of law upon which we had differed, was referred. The question that we meant to refer was the question of jurisdiction of the Tribunal to alter the provision or section under which an assessment was made when the matter came up before it on appeal. We, therefore, now clarify the position and refer the following for opinion (in substitution of the order previously referred) :

'If an Income-tax Officer assesses an income under section 34(1)(a) and the Tribunal, on appeal, comes to the conclusion that it should have been assessed under section 34(1)(b), has it jurisdiction to convert or alter the assessment into one under section 34(1)(b) and maintain it as such ?'

R. S. PATHAK J. (16-8-1966). - The following point of law has been referred for opinion :

'If an Income-tax Officer assesses an income under section 34(1)(a) and the Tribunal, on appeal, comes to the conclusion that it should have been assessed under section 34(1)(b), has it jurisdiction to convert or alter the assessment into one under section 34(1)(b) and maintain it as such ?'

The assessee, which is Hindu undivided family, was assessed for the assessment Year 1955-56. The income assessed included receipts represented by two credit entries in the capital account. The Income-tax Appellate Tribunal, upon second appeal by the assessment, held that the receipts were not taxable as income for the assessment year 1955-56 inasmuch as the 'previous year' in which that income arose was the finacial year 1953-54. The Income-tax Officer, therefore, initiated proceedings under section 34 of the Income-tax Act, 1922, for the purpose of charging the receipts to the for the assessment year 1954-55. He issued notice under section 34, and the assessee field a return under protest. The Income-tax Officer made an order including the receipts in the total income of the assessee and taxed them accordingly. He rejected the objection that the case did not fall within the terms of section 34(1)(a), and it appears from the assessment order that he reopened the assessment because of his belief that income had escaped assessment by the failure of the assessee to disclose the deposits when the original assessment for the year 1954-55 was taken that, therefore, income had escaped assessment by the failure on the part of the assessee to disclose fully and truly its income. The Appellate Assistant Commissioner, upon appeal by the assessee, confirmed the view that the case fell under section 34(1)(a). The assessee appealed to the Tribunal. The Tribunal accepted the assessees contention that section 34(1)(a) was not attracted, but proceeded to hold that the assessment should have been made under section 34(1)(b) and observed :

'The fact that the cash credits were deleted by the Tribunal in a later year does constitute information for taking action under section 34(1)(b). We are competent to convert the assessment under section 34(1)(a) into 34(1)(b). All the necessary facts are found on the record and no further investigation is necessary and we had put this question to the learned counsel for the assessee also at the time of the argument. The assessees counsel is not taken by surprise for effectively meeting this case. It would be unjust, in our opinion, to annual the assessment when section 34(1)(b) applies to the facts of the case. We, therefore, alter the assessment to one under section 34(1)(b).'

At the instance of the assessee the Tribunal made a reference to this court. It framed the following question :

'1. Whether on the facts and in the circumstances of the case was the department correct in making the assessment under section 34(1)(a)

2. If the answer to the first question is in the negative then was the Tribunal correct in altering an assessment made under section 23(3)/34(1)(a) into an assessment under section 23(3)/34(1)(b) when it was satisfied that the requisites of section 34(1)(b) were found on the record ?'

The reference was heard by Desai C.J. and Manchanda J. Both the learned judges were of the view that the questions should be reframed as follows :

'(1) Was the Tribunal legally correct in altering the assessment made under section 23(3)/34(1)(a) to an assessment under section 23(3)/34(1)(b) in the circumstances of this case

(2) If the above question is answered in the negative was the Income-tax Officer legally correct in making the assessment under section 34(1)(a) ?'

The learned judges did not find themselves in agreement on the answer to the first question. Desai C.J. declined to recognise any jurisdiction in the Tribunal to alter the assessment from one under section 34(1)(a) to one under section 34(1)(a), while Manchanda J. affirmed that the Tribunal had that jurisdiction. On the second question, both learned judges agreed that the Income-tax Officer had correctly made the assessment under section 34(1)(a). There being a difference of opinion on the answer to the first question, the point of law upon which they differed was referred to a third judge. The matter was laid before. V. Bhargava J. who, in order that the point of law be more clearly framed to enable him to express an opinion thereon, returned the case to the Division Bench. The point of law was, therefore, reframed.

After providing for the assessment of an assessees total income and the determination of the tax payable thereon, the legislature made provision by section 34 for reopening the assessment, or for making an assessment where no assessment had been made earlier, in those cases where income, profits or gains chargeable to income-tax had escaped assessment, or had been under-assessed,or assessed at too low a rate, or had been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance had been computed. All these are cases affecting the determination of the ultimate tax liability, and intended to bring to tax the total income truly assessable. The cases may arise from a variety of reasons, and those reasons are classified in clauses (a) and (b) respectively of sub-section (1) of section 34. Power to initiate proceedings by reference to the reasons referable to clause (a) or to clause (b) has been conferred upon the Income-tax Officer. Each clause contains the conditions which must be satisfied before the jurisdiction under clause (a) or clause (b) to initiate the assessment proceedings can be invoked. They are two distinct jurisdictions, one flowing from clause (a) and the other from case (b) and the invoking of each jurisdiction is dependent upon the existence of conditions preceding the exercise the exercise of the corresponding jurisdiction. The jurisdiction under clause (a) to assess or reassess the income, profits or gains or recompute the loss or depreciation allowance can be invoked only when 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 belief under that Act, or excessive loss or depreciation allowance have been computed. The jurisdiction under clause (b) can be invoked when, although there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains or the loss or depreciation allowance have been similarly affected. The provocation for invoking the jurisdiction is distinct in each case, and it is the Income-tax Officer in whose judgment the legislature has reposed confidence for the purpose of deciding whether the proceedings for assessing or reassessing the escaped income should be taken. If the Income-tax Officer having exercised his judgment comes to the belief envisaged by clause (a), he must record his reasons for deciding to take action under that clause, and then move the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, in accordance with the statute, for their satisfaction that it is a fit case for taking the proceeding contemplated by him. Proceedings under either clause are initiated against the assessee by the service of a notice containing all or any of the requirements which may be included in a notice under section 22(2). Upon service of such notice, the Income-tax Officer proceeds to assess or reassess the income, profits or gains or recompute the loss or depreciation allowance. The assessment proceeding commences with the service of the notice. Now the notice served when the Income-tax Officer decades to proceed under clause (a) cannot be considered as a notice with reference to clause (b). It is pointed out that the notice issued by the Income-tax Officer merely mentions that it is one under section 34. That, however, does not mean that the notice can be treated as one under both clauses (a) and (b). The notice invoking the one jurisdiction cannot be confused with the other. That the two notices are separate and distinct from each other is apparent from the first proviso to sub-section (1) of section 34, where specific reference has been made to 'a notice under clause (a) of sub-section (1)'. This is apparent also from the first proviso to sub-section (3) where reference is specifically made to notice under clause (b) of sub-section(1). Sub-section (4) speaks of a notice under clause (a) of sub-section (1). It seems to me that the notice issued by the Income-tax Officer must be a notice specifically under clause (a) or specifically under clause (b). Further, the sub-section provides different periods of limitation for serving the notice, according as it is one under clause (a) or clause (b). Where the notice is under clause (a) and the Income-tax Officer proceeds to make an assessment, the assessment order passed by him is an order under clause (a) of sub-section (1). Where the notice is under clause (b), the assessment order passed by the Income-tax Officer is one under clause (b) of sub-section (1).

From all these considerations, it is clear that clauses (a) and (b) of sub-section (1) of section 34 contemplate two distinct and mutually independent jurisdictions.

Having analysed the nature of the two jurisdictions conferred upon the Income-tax Officer by sub-section (1) of section 34, I shall now turn to consider the question whether the Tribunal can convert an assessment made by the Income-tax Officer under clause (a) of that sub-section to an assessment under clause (b). The jurisdiction of the Tribunal is set out by section 33. The Tribunal has the power to hear appeals against an order passed by the Appellate Assistant Commissioner under section 28 or section 31. Upon such appeals the Tribunal has jurisdiction to 'pass such orders thereon as it thinks fit'. There can be little doubt that the jurisdiction conferred upon the Tribunal by this provision is very wide. But when it is remembered that the jurisdiction is a creature of the statute, it is necessary for the courts to discern the limits within which that jurisdiction must be exercised. I find it impossible to accept the contention that the language which the legislature has used confers an absolute jurisdiction upon the Tribunal. It is pointed out that the appellate jurisdiction of the Tribunal is conterminous with the jurisdiction of the Income-tax Officer in the matter of assessment, and I am referred to Oriental Building and Furnishing Co. v. Commissioner of Income-tax. It is necessary to be clear in this regard. It is the assessment of the income made by the Income-tax Officer and considered by the Appellate Assistant Commissioner which is the subject of appeal before the Tribunal. It is not open to the Tribunal to exercise jurisdiction in matters lying outside the assessment process. It has all the jurisdiction which the Income-tax Officer has in the matter of making an assessment. But it has no jurisdiction in matter preceding the assessment process. Reference has also been made to Commissioner of Income-tax v. Kanpur Coal Syndicate. That was also a case concerned with the process of assessment. Here I am concerned with the statutory power conferred upon the Income-tax Officer to determine the existence of certain conditions before he invokes the jurisdiction to assess or reassess. The power exercised by the Income-tax Officer at that stage does not form part of the assessment process. It precedes it and is distinct from it. It is not open to the Tribunal to enter into the sufficiency of the reasons upon which the Income-tax Officer had reason to believe that he should proceed to reopen the assessment. The Tribunal cannot sit in judgment over the sufficiency of those reasons. That is because the function has been entrusted entirely to the judgment of the Income-tax Officer. So far as the domain preceding the assessment is concerned, it is only the ground that there were no reasons at all for forming the belief and, therefore, for invoking the juridiction under clause (a) or clause (b) or that the Income-tax Officer did not form any belief at all that can form the subject of appellate examination.

In Commissioner of Income-tax v. McMillan & Co., the Supreme Court held that it was open to the Tribunal it determine whether the proviso to section 13 applied even though the language of the proviso appeared to indicate that it was the Income-tax Officer who had to form the opinion about the applicability of the proviso. It is important to remember that the question of applying the proviso to section 13 arises when the assessment proceeding has commenced, and during the course of that proceeding. It is applied for the purpose of determining the true income, profits or gains, and in the course of the exercise of jurisdiction already commenced. It is not applied for the purpose of determining whether or not the jurisdiction to assess can be invoked at all. The question whether the proviso to section 13 should be applied is a matter falling for objective consideration. To my mind, the law laid down in McMillans case can have no relevance to the question raised before me.

Upon all these considerations it seems to me that the Tribunal, in an appeal before it, cannot exercise the functions of the Income-tax Officer and decide that an assessment can be sustained under clause (a) or clause (b) of sub-section (1) of section 34. If the Tribunal does not enjoy that jurisdiction, it does not have jurisdiction to convert an assessment made under clause (a) to one under clause (b).

What was described as a preliminary objection has been raised by Mr. Gopal Behari on behalf of the Commissioner of Income-tax. He contends that the point referred for opinion is academic and should not be answered, and urges that when a point of law is referred to a third judge upon a difference of opinion between the members of a Division Bench, it is open to the third judge to decline to decide the point of law if he finds that it will not consequently affect the ultimate decision in the case. Mr. Gopal Behari says that I have the same power to decline to decide the point of law as the High Court has to decline to answer a question of law referred to it upon a reference under section 66 when it comes to the view that the question is academic. Without considering the submission on its merits, it seems to me that when the members of the Division Bench, who have to dispose of the reference, considered it necessary or desirable to answer the question, it is only proper that the third judge to whom the point of difference between them has been stated should not decline to express his opinion on the point. The objection is rejected.

In my opinion, the Tribunal has no jurisdiction to convert or alter an assessment made by the Income-tax Officer under section 34(1)(a) to one under section 34(1)(b) and maintain it as such. The point of law is answered in the negative.

The papers of this case shall now be laid before the Division Bench with my opinion.

BY THE COURT

S. C. MANCHANDA and M. H. BEG JJ.

MANCHANDA J. (22 - 8 - 1966) - Two question were referred for the decision of this court under section 66(1) of the Income-tax Act. The reference came up before a Bench consisting of Desai C.J. and one of use (Manchanda J.). The question were reframed as both the judges who heard the reference agreed that the question required to be reframed. The question as reframed read :

'(1) Was the Tribunal legally correct in altering the assessment made under section 23(3)/34(1)(a) to an assessment under section 23(3)/34(1)(b) in the circumstances of this case

(2) If the above question is answered in the negative was the Income-tax Officer legally correct in making the assessment under section 34(1)(a) ?'

On the second question both the judges who heard the reference were agreed that the provisions of section 34(1)(a) applied. There was, however, disagreement on the second question as to whether an assessment made under section 23(3)/34(1)(a) by the Income-tax Officer could be changed by the Income-tax Appellate Tribunal to an assessment under section 23(3)/34(1)(b) of the Act. This point was referred for opinion of a third judge, Pathak J., who has now given his decision holding that the Tribunal had no jurisdiction to convert or alter the assessment made by the Income-tax Officer under section 34(1)(a) to one under section 34(1)(b) and maintain it as such. The papers have now been laid before a Division Bench of which the Chief Justice is no longer a member as he has retired and his place has been taken by M. H. Beg J. The practice of the court has been that in such a case the matter is merely laid before a Bench to give effect to the opinion of the majority of the judges who has have heard the case, including those who first heard it. That is also what is provided in the proviso to section 66A of the Income-tax Act, 1922. In these circumstances, the case is only laid before the Bench now constituted for giving effect to the orders already passed and determining the incidental question of costs. As the case has to be decided in conformity with the judgment of the majority of the judges who have heard the case including those who first heard it, we would answer the first question in the negative and in favour of the assessee.

The second question has already been answered by the judges who heard the case and is again answered by us in the affirmative by saying that the escaped income should have been assessed under clause (a) of section 34(1) of the Act.

As both the parties have partly succeeded, they are left to bear their own costs. Counsels fee is assessed at Rs. 400.


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