R. S. PATHAK J. - The assessee, a partnership firm, advanced two loans, one of Rs. 97,00,000 on May 1, 1946, and the other of Rs. 5,10,000 on May 10, 1946, to M/s. Bagla Jaipuria and Company. On October 17, 1946, Messrs. Bagla Jaipuria and Company paid a sum of Rs. 1,77,232 to the assessee on account of interest on the two loans.
The Income-tax Officer, proceeding on the consideration that the assessee followed the mercantile system of accounting, assessed Rs. 1,60,000 of the total amount of interest as income for the assessment year 1947-48 and the balance, Rs. 17,232, as income for the assessment year 1948-49. Upon appeal by the assessee against the assessment for the assessment year 1947-48, the Appellate Assistant Commissioner held that the sum of Rs. 1,60,000 was not taxable as income for that assessment year as it could not be said to have accrued during the previous year ending October 17, 1946. He excluded that sum from the assessment.
On June 12, 1963, the Income-tax Officer issued a notice under section 34 of the Indian Income-tax Act, 1922, in respect of the assessment year 1948-49 for the purpose of bringing the sum of Rs. 1,60,000 to tax. He overruled the objection of the assessee that the proceedings were without jurisdiction and made an assessment order including the sum in the assessees total income. The Appellate Assistant Commissioner dismissed the appeal filed by the assessee. He held that the case fell under section 34(1)(a) and not under section 34(1)(b). The assessee proceeded in second appeal to the Income-tax Appellate Tribunal. The two members of the Tribunal hearing the appeal agreed that the case was not governed by section 34(1)(a) but fell to be decided by reference to section 34(1)(b). They differed on the question whether the bar of limitation of making the assessment was raised by the second proviso to section 34(3). The Accountant Member was of the view that it was, while the Judicial Member held that it was not. Upon reference made to him, the President of the Tribunal agreed with the view expressed by the Accountant Member. Upon the view taken by the majority of the members of the Tribunal that the assessment proceedings were not bared by limitation the assessees appeal was dismissed.
At the instance of the assessee, the Tribunal has referred the following question of law for the opinion of this court :
'Whether, on the facts and in the circumstances stated above, the assessment for the assessment year 1948-49 made under section 23(3) read with section 34 and second proviso to section 34(3), was valid and legal ?'
The second proviso to section 34(3) reads :
'Provided further that nothing contained in this section limiting the time within which any action may be made, shall apply to a reassessment made under section 27 or to an assessment made on the assess or any person in consequence of or to give effect to any finding oar direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A.'
The question is whether the aforesaid proviso enables the Income-tax Officer to ignore the bar of limitation when making an assessment of escaped income for any assessment year or does it enable him to do so only in respect of that assessment year which was the subject-matter of appeal or revision in which the finding or direction was give. The question was clouded by controversy until the Supreme Court resolved the controversy recently in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das, where in the majority judgment Subba Rao J. pointed out :
'A finding, therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression direction cannot be construed in vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give under section 31. Under that section he can give directions, inter alia, under section 31(3)(b), (c) or (e) or section 31(4). The expression direction in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other tribunals can issue under the powers conferred on hims or them under the respective sections. Therefore, the expression finding as well as the expression direction can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein. The words in consequence of or to give effect to do not create any difficulty, for they have to be collated with, and cannot enlarge the scope of the finding or direction under the proviso. If the scope is limited as aforesaid, the said words also must be related to the scope of the findings and directions.... In the result, we hold that the said proviso would not save the time limit prescribed under sub-section (1) of section 34 of the Act in respect of an escaped assessment of a year other than that which is the subject-matter of the appeal or the revision, as the case may be'.
We hold that the assessment proceedings taken by the Income-tax Officer, which according to the Tribunal fell under section 34(1)(b), are barred by limitation. The question referred to this court must be answered in the negative.
Mr. Gulati has challenged the finding of the Tribunal that the impugned assessment proceedings must be considered with reference to section 34(1)(b) and not with reference to section 34(1)(a), and he has attempted to refer us to material on the record in order to show that the case attracted the provisions of section 34(1)(a). That question has not been referred by the Tribunal to this court and we cannot, therefore, entertain the contention raised by Mr. Gulati.
In the circumstances of the case, the parties shall bear their own costs.
Question answered in the negative.