Bishan Narain, J.
1. The Civil Writ No. 307-D of 1954 and Civil Writ No. 308-D of 1954 under Article 226 of the Constitution involve same facts and samepoints and it will be convenient to decide them by this one judgment. The petitioners in Civil Writ No. 307-D are the son and the widow of late Raghunandan Saran, and the other petition has been filed by Raghubir Saran.
Raghunandan Saran and Raghubir Saran were real brothers and were carrying on the business of motor vehicles and spare parts and other allied businesses under the name of Pearey Lal & Sons, Ltd., and Saran Motors, Ltd., etc. The first two concerns are private limited companies and their share-holders before the death of Raghunandan Saran were the two brothers and their respective wives.
2. Taxation on Income (Investigation Commission) Act, 1947 (30 of 1947) received the assent of the Governor General in Council on 18-4-1947, and on 15-5-1948, the Central Government referred to the Commission under Section 5 of the Act the cases of these two brothers and of their concerns for investigation and report.
While the Commission was carrying on the Investigation and certain facts had been discovered, the brothers settled the matter with the Commission and on 29-12-1950, that settlement was accepted toy the Central Government under Section 8A of the Act.
On 19-11-1952, the Income-Tax Officer issued la notice under Section 34, Income-Tax Act, to Raghunandan Saran that in the accounting year 1948-49 certain incomes had escaped taxation and the copy of the proposal was sent by the Income-Tax Officer to the Commissioner of Income-Tax and this proposal shows that the items involved in the notice are:
(a) Rs. 1,49,906/4/- shown in the account books as loan from Begum Zafar All Khan of Rampur; and,
(b) Rs. l,00,000/-/- shown in the account books as deposited in the name of Begum of Rampur.
Civil Writ No. 307-D of 1954 is directed against this notice. Similarly, the Income-Tax Officer issued a notice under Section 34, Income-Tax Act, to Raghubir Saran on the same date to the effect that the income assessable to Income-tax for the year ending 31-3-1950, had escaped assessment and the proposal sent by the Income-Tax Officer to the Commissioner shows that the item involved in the notice is Rs. 49,968/12/- shown in the assessee's account books as a loan taken from Begum Zaidi of Rampur on 11-8-1948. The Writ Petition No. 308-D of 1954 is directed against this notice. Both these petitions were filed on 6-12-1954, i.e., after the lapse of more than two years.
3. The petitioners' prayer is that the Court should issue a writ in the nature of 'certiorari' quashing the abovementioned notices and issue a writ in the nature of prohibition and/or mandamus directing the Income-Tax Officer not to take any proceedings in pursuance of these notices and not to make any assessment on the basis of the above mentioned entries.
The petitioners' case is that proceedings under Section 34, Income-Tax Act, cannot be taken because these items of income were covered by the settlement, and initiation of proceedings under this section was not expressly allowed under the settlement, and, therefore, Section 8A(4) of the Taxation on Income (Investigation Commission) Act is a bar to these proceedings.
In the alternative the petitioners' case is that under the settlement the right to take proceedings was reserved only regarding those items which were discovered by the Income-Tax Officerand that inasmuch as these items had been disclosed to the Commission it cannot be said that these items had been discovered by him.
In this connection the petitioners do not rely on the wording of Section 34 but their case is that Section 34 is, so far as the petitioners are concerned, modified under the settlement and no action under this section could be taken unless the items were subsequently discovered by the Income-tax Officer, and it was further urged that the knowledge of the Commission must be deemed to be the knowledge of the Income-Tax Officer as a copy of the report and that of the settlement had been sent to him when the amount of the tax fixed under the settlement was recovered through him under Section 8A(3) of the Taxation on Income (Investigation Commission) Act.
4. Shri Rajagopal Sastrl, the learned counsel for the respondent, raised a preliminary objection to the hearing of these petitions and relied on a decision of this Court in -- 'U. C. Rekhi v. Income-Tax Officer, 1st 'P' Ward, New Delhi', AIR 1951 Simla 1 (A). In that case the Division Bench has held that the High Court cannot issue a writ of prohibition against the Income-tax Officer where he proceeds under Section 34, Income-tax Act against an assessee who objects to his jurisdiction.
It was also held in that case that the Income-tax Officer has to determine the facts and the law to get jurisdiction to proceed with the case and if he goes wrong then the remedy provided in the Act should be availed of by the assessee. There is no doubt that this decision is fully applicable to the present case and following it I would have dismissed these applications without going into the merits of the cases, but Mr. Veda Vyas has urged before me that a decision of the Supreme Court reported in -- 'Himmatlal Harilal , v. State of Madhya Pradesh', AIR 1954 SC 403 (B), is directly applicable to the facts of this case.
The decision of their Lordships of the Supreme Court, in my opinion, however, does not apply to the present case. In that case it was held that the Imposition of the sales tax under the impugned Act was without the authority or the law and the assessee was entitled to relief under Article 226 of the Constitution as his fundamental right had been Infringed and the remedy provided by the impugned Act was of onerous character as the assessee could not avail of the right of appeal provided in the Act without depositing the whole amount of the tax,
In the present, case, however, the validity of Section 34, Income-tax Act, is not questioned and the right of appeal is not necessarily subject to deposit of the amount of tax (vide Section 45, Income-tax Act). I have heard the counsel on both sides on the merits and have come to the conclusion that these applications have no substance.
5. In support of his first contention Shri Veda Vyas learned counsel for the petitioners has invited my attention to para. 14 of the report where these items are mentioned and has urged that at the time of settlement the items mentioned in para. 14 were taken into consideration in fixing the amount of concealed income at Rs. 15,00,000/-/-. According to the learned counsel these items are mentioned in para. 14 of the report as follows:
'The loans were....from the Begum of Rampur.....of Rs. 1,00,000/-/- on 8-4-1948.....one from Mrs. Zaidi of Rs. 50,000/-/- on 9-8-1948; and one from Begum Zafar All of Rs. 1,50,000/-/-ou the same date.'
The learned counsel has also relied on the statement of Raghunandan Saran dated 19-2-1949 (Ex. D) made in the course of the investigation proceedings in which Raghunandan Saran alleged that the loan of 8-4-1948, of Rs. 1,00,000/- was really credited in the books on 19-1-1948.
He has also in support of his case relied on the settlement under Section 8A of the Taxation on Income (Investigation Commission) Act. He has further urged before me that these documents conclusively show that these items were taken into consideration in fixing the amount of concealed income at Rs. 15,00,000/-.
6. Now curiously enough the petitioners produced a copy of para. 14 of the report with the writ petitions and not the entire report and I have a suspicion that this was done with the idea that the entire report would not come before the Court and, therefore, the Court would not be able to get the correct picture of the proceedings, which took place before the Income-tax Investigation Commission.
The learned counsel for the respondent, however, produced a copy of the entire report and I have carefully gone through it. It is clear from this report that the investigation was limited to the period from 1-4-1940 to 31-3-1948. The report deals primarily with this period. The report after commenting adversely on the attitude and conduct of Raghunandan Saran and Raghubir Saran during investigation came to the conclusion that the offer of Rs. 15,00,000/-/- for taxation should be accepted
'not because we were satisfied that anything like the real amount of concealed income was being offered for taxation, but because we had not been able to collect definite data on which a larger figure could securely be based and also because a disposal of the cases on the basis of a settlement would obviate further proceedings which might be taken hereafter in order to hamper, if not thwart, the collection of the tax' (vide para. 16 of the report).
In the course of this discussion the Commission mentioned a number of loan items within this period of 1-4-1940 to 31-3-1948, and beyond that period and discussed at length two of the loan items which were within the period and decided to reject the assessees' version of these items as loans advanced to them by third parties and considered them to be concealed incomes. After the Investigation Commission had come to this conclusion, the auditor representative representing the petitioners stated to the Commission:
'His clients desired to be spared further interrogation & would make a fuller disclosure which might be more acceptable to the Commission.'
It is thus clear that the Commission did not mention these loan items, nor did it discuss them with a view to settle them as contemplated in Section 8A(4) of the Taxation on Income (Investigation Commission) Act but with a view to show that the version of the nature of these items given by Raghunandan Saran and Raghubir Saran on oath cannot be accepted as correct.
Apparently it is for this reason that the Commission did not examine at length any of the items in dispute now in detail as they related to a period subsequent to 31-3-1948. It was suggested by the learned counsel for the petitioners that the item of Rs. 1,00,000/- dated 8-4-1948, is a mere repetition of an earlier entry of January 1948 and for this purpose he relied on the statement of Raghunandan Saran dated 19-2-1949, but this statement of his was not accepted by the Commission as correct
It was also suggested that these items represented concealed income of a date prior to 31-3-1948, and, therefore, were covered by that settlement. There is, however, no evidence in support of this allegation and further, in my opinion, this is a matter to be decided by the Income-tax Officer and it is not proper that this Court should take evidence in support of this allegation in the present proceedings.
It is not for this Court under Article 226 to investigate into the correctness of the allegation by scrutinising the accounts etc., particularly when the attitude of the petitioners before the Commission was not at all helpful in discovering correct state of affairs and their statements on oath before it were not found to be reliable by it. This matter has to be decided by the Income-tax Officer.
7. The second portion of the report deals with a period subsequent to 31-3-1948. The assessees disclosed certain items of concealed Income relating to the period 1-4-1948 to 31-3-1949, i.e., the assessment year 1949-50 and these items have been included in the settlement with an under taking that no penalty shall be imposed regarding these items. The report, however, specifically states:
'We desire to make it clear, however, that it is not our finding that the amounts mentioned in the previous paragraph, now disclosed as the concealed income for the years specified, was the only concealed income during the relevant period.
These amounts are merely what the assessees have chosen so far to admit in respect of the period subsequent to 31st of March, 1948, but the methods followed by them for exploiting the various sources of their income and screening off a part of their profits, which our investigation has laid bare and which will be found detailed in the reports of the Authorised Official, may naturally make the Department consider that some further enquiry is called for.
As expressly provided in Terms and Conditions of Settlement the Income-tax Officer shall have the fullest liberty to make any enquiry he considers necessary in the course of the assessment or reassessment proceedings and if he discovers any other item of income, whether under the specific heads mentioned above or under any other head, he will bring the same under assessment in accordance with law.' The report, therefore, expressly allows the proceedings under Section 34 to be initiated regarding this period with the exception of the items mentioned in the settlement or mentioned in para. 16 of the report. It is noticeable that the items now in dispute are not mentioned in this portion of the report nor are they mentioned in the settlement and, therefore, it cannot be said that these items were covered by the settlement.
8. For these reasons I hold that the petitioners have failed to prove in these proceedings that notices under Section 34 issued by the Income-tax Officer for the assessment year 1949-50 regarding the items in dispute were barred by Section 8A(4) of the Taxation on Income (Investigation Commission) Act.
9. Shri Veda Vyas then urged that in any case these items had not been discovered by the Income-tax Officer as they had already been mentioned before the Commission and, therefore, under the terms of the settlement the Income-tax Officer cannot initiate proceedings under Section 34, Income-tax Act.
There is no substance in this argument. It is conceded before me that under the provisions of Section 34, as it stands now, all that is required is that the Income-tax Officer should have reason to believe that on account of various reasons certain income has escaped assessment and it is not necessary that he should make any discovery that a particular item of income has escaped assessment.
His argument, however, is that but for thesettlement between the parties the notice would be valid but that settlement alters the situationand for this purpose he has placed his relianceon the following term of the settlement(Clause 10):
'It is agreed by all the parties aforesaid,viz., L. Raghubir Saran, L. Raghunandan Saran, Messrs. Pearey Lal & Sons, Ltd., Messrs. Saran Motors, Ltd. and Messrs. Ghaziabad Engineering Co., Ltd. that the inclusion of the different itemsof concealed income in the several assessments or reassessments, as provided for in Clauses 6, 7(a), 7(b), 8 and 9 hereof, shall be without prejudice to the right of the Income-tax Department to include in the relevant assessments or reassessments any other item of income that they may 'discover' either under the specific heads mentioned above or under any other head, in addition to the items of income already disclosed and mentioned in the several clauses referred to above, or further items that may be disclosed by the parties concerned in the revised Returns, if any, that may be filed by them in the assessments or reassessments concerned.'
He has also relied on the proviso mentioned in Clause 11
'provided, however.....that they or eitherof them shall not be entitled to any immunitywhatsoever in respect of any further item of undisclosed income which the income-tax officer may be able to 'discover' and which he may include in the relevant assessments, or reassessments and that to such items of concealed income 'discovered' and included by the Income-Tax Officer in the assessable income for the relevant assessments or reassessments the ordinary law as to tax, penalty and prosecution shall apply.'
The learned counsel for the petitioners has emphasised the word 'discover' in these passages. In my opinion; the meanings ascribed to these terms and conditions of the settlement or the report are not borne out by them. These conditions of settlement, in fact, make it absolutelyclear that it is open to the Income-Tax Officer to take proceedings in accordance with law if he comes to the conclusion that certain income hasescaped assessment.
The right of the Income-Tax Officer to deal with the matter in accordance with law hasbeen expressly preserved. Moreover, the settlement could not and did not intend to modify the provisions of Section 34 as applicable to these two petitioners. Once it is held that the items in dispute are not covered by the settlement then there is nothing in the report of the Commission or in the settlement to prevent the Income-tax Officer from proceeding against the petitioners in accordance with law. In fact, in para. 18 of the report the Commission has specifically stated:
'These amounts are merely what the assessees have chosen so far to admit in respect of the period subsequent to 31st of March, 1948, but the methods followed by them for exploiting the various sources of their income and screening off a part of their profits, which our investigationhas laid bare and which will be found detailed in the reports of the Authorised Official, may naturally make the Department consider that some further enquiry Is called for.' As anticipated by the Commission the Income-tax Officer considers it necessary in view of the report that a further enquiry is called for and has issued notices under Section 34, Income-tax Act. I am clear in my mind that the settlement does not affect the powers of the Income-tax Officer to issue notices under Section 34 in accordance with law, and that being my opinion, this contention of the learned counsel fails.
10. At the end I may state that although the notices under Section 34 were issued on 19-11-1952, the present petitions were not filed till 6-12-1954. It is well settled that although there is no specific period of limitation for a petition under Article 226, the High Court may refuse to exercise its powers under this Article if the petitioner is guilty of laches.
It is noticeable that the petitioners do not explain this delay of two years in coming to the High Court under Article 226 of the Constitution asked to explain the cause of delay, merely stated and the learned counsel for the petitioners, when that his clients were trying to approach the Commission and the Central Board of Revenue during this period.
He was, however, unable to give the provision of law under which this was being done. In fact, there is no reason given for this inordinate delay and even if I had held in favour of the petitioners on the merits of the case, I would have refused to interfere at this stage on account of this inordinate delay.
11. For these reasons I find these applications to be without any substance and I dismiss them with costs. I assess the counsel's fee at Rs. 200/- in each case.