1. This judgment will dispose of two appeals Nos. 41-D and 42-D of 1955 under Clause 10 of the Letters Patent from the judgment, dated August 22, 1955, of a learned Single Judge of this Court.
2. On May 15, 1948, the Central Government referred to the Commission under Section 5 of the Taxation on Income (Investigation Commission) Act, 1947 (Act No. XXX of 1947), for investigation and report of the cases of Raghunandan Saran and Raghbir Saran, two real brothers, in connection with evasion of payment of tax on income by them.
The Commission entered into an investigation and during the investigation Raghbir Saran was examined and he made certain disclosures about concealed income but his statement was not satisfactory and before it could be concluded, the auditor representative on behalf of the two brothers stated to the Commission that 'his clients desired to be spared further interrogation and would make a fuller disclosure which might be more acceptable to the Commission.' Accordingly disclosures were made by the two brothers to the Commission, but the Commission was not satisfied with the disclosures. At the same time it accepted a settlement to which the two brothers were agreeable whereunder the two brothers were to pay income-tax on a sum of Rs. 15.00.000/- for evasion of taxation between April 1, 1940, and March 31, 1948. The Commission made its report on December 9, 1950, and also forwarded the terms of settlement to the Central Government. The settlement was accepted by the Central Government and on the basis of that tax was levied on the said amount stated in the settlement.
3. In the terms and conditions of the settlement are mentioned in paras Nos. 6 to 9 certain other items of concealed income that were discovered by the Commission and some of those items are of dates after March 31, 1948. But among those items are not the three items of (a). Rs. 1,49,906/47-shown as loan from Begum Zafar Ali Khan of Rampur and (b) Rs. 1,00,000/- shown as deposit in the name of Begum Rampur in the account books of Raghunandan Saran, and (c) Rs. 49.968/12/- shown in the account books of Raghubir Saran as a loan taken from Betum Zaidi of Rampur. The date of the first and the last items is August 9, 1948, and of the second item is April 8, 1948. These arc the items in dispute in these appeals. Clause 10 of the settlement is :
'It is agreed by all the parties aforesaid, viz., Raghbir Saran, Raghunandan Saran, Messrs Piara Lal and sons, Limited, Messrs. Saran Motors Ltd., and Messrs. Ghaziabad Engineering Company Ltd., that the inclusion of the different items of concealed income in the several assessments or reassessments, as provided for in Clause . 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 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 tile revised returns, if any, that may be filed by them in the assessments or reassessments concerned'.
After stating that the two brothers Raghbir Saran and Raghunandan Saran has agreed to comply with the terms and conditions of the settlement, in Clause 11 a proviso was added to this clause, which reads -
'Provided, however, and the same is agreed to by each and all of the five assessees mentioned above, that they or either of them shall not be entitled to any immunity whatsoever 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 & 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'.
Clause 10 of the settlement refers to specific items as provided for in Clause 6, 7(a), 7(b), 8 and 9 of the settlement and not one of those relates to the three items in dispute. It has already been pointed out that there is no reference at all to any of those three items in any part of the settlement.
4. In its report the Commission, in para 14, deals with a number of loans, some of which were of dates before March 31, 1948, and some after. In the latter category are the three items in dispute. The reference to all these loans has been made in the report by the Commission to show that they are in fact not loans but secret profits and that in this respect the statement of Raghunandan Saran was not reliable and could not be accepted. This was a reference first to discredit the statement of Raghunandan Saran and secondly to show the nature of the items-shown as loans by the assessees. It was a general consideration of the nature of the loan and the genuineness of the same. Then the Commission in its report proceeded to consider the item referred to in Clause 6, 7(a), 7(b) 8, and 9 of the settlement, in para 17, and state in part 18 :
'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 nave chosen so far to admit in respect of the period subsequent to 31-3-1948, 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 officials, may naturally make the Department consider that some further enquiry is called for. As expressly provided in the 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'.
5. On 19-11-1952 the Income-tax Officer issued, under Section 34 of the Income-tax Act, one notice to Raghunandan Saran relating to the first two disputed items and another notice to Raghbir Saran relating to the third disputed item that for the accounting year 1948-49 those items of income had escaped taxation. It appears that a copy of the notice in each case was sent by the Income-tax Officer to the Commissioner of Income-tax. Thereupon on 6-12-1954, some two years after the issue of the notices legal representatives of Raghunandan Saran filed civil writ No. 307-D of 1954 and Raghbir Saran filed civil writ No. 308-D of 1954, questioning the legality and validity of the notice issued by the Income-tax Officer as stated above. The petitions were contested by therespondents, Union of India and Income-tax Officer Central, Circle II, New Delhi.
6. Two arguments were urged before the learned Single Judge upon the validity and legality of the notices and those arguments were (a) that the three items in dispute were covered by the terms & conditions of the settlement and proceedings under Section 34 of the Income-tax Act were barred under Sub-Section (4) of Section 8-A of Act No. XXX of 1947, and (b) that under the terms and conditions of the settlement right to proceedings has been reserved only us to such items which are discovered by the Income-tax Officer and as the three items in dispute had been disclosed in the report of the Commission it could not be said that those items have been discovered by the Income-tax Officer.
The learned Single Judge repelled both the contentions and further came to the conclusion that the petitions were inordinately delayed which delay was not explained and that the assessees had a proper and adequate remedy available to them under the Income-tax Act. The petitions were dismissed with costs, by one judgment of the learned Single Judge and these appeals are from that judgment. Of the assessees, Raghunandan Saran having died the original civil writ petition No. 307-D of 1954 was filed by his son Ashok Saran and his widow Rakasha Saran. Original civil writ No. 308-D of 1954 was filed by Raghbir Saran, but he has died since, and he is represented by his daughter's son Harshan Kumar, These are the appellants in these two appeals.
7. In these two appeals the learned counsel for the appellants has pressed the very two arguments which were advanced before the learned Single Judge on behalf of the appellants. Sub-Section (4) of Section 8-A of Act No. XXX of 1947 says -
'(4) Where a settlement has been accepted by Government under Sub-Section (1), no proceedings under Section 34 of the Indian Income-tax Act, 1922 (XI of 1922), or under Section 15 of the Excess Profits-Tax Act, 1940 (XV of 1940), shall be initiated in respect of the items of income covered by the settlement unless initiation of such proceedings is expressly allowed by the terms of the settlement'.
It is clear that for consideration of this Sub-Section nothing else is to be looked into but the settlement. If it covers a particular item of income, no proceedings with regard to that item can be taken under Section 84 of the Indian Income-tax Act, unless initiation of such proceedings is expressly allowed by the terms of the settlement. It has been pointed out above that the settlement in this case does not cover the three items in dispute and, indeed, it does not even refer to them.
Therefore, Sub-Section (4) of Section 8-A of Act No. XXX of 1947 cannot be applied to this case. Although it is stated clearly in the settlement that with regard to items of concealed income after 31-3-1948, the Income-tax Officer may proceed to make enquiry and in case of discovery of concealed items of income proceed with regard to them according to law, yet, in this case, it is not necessary to rely upon this aspect of the settlement, for the items in dispute are not at all covered by the settlement and by no manner of reading of Sub-Section (4), as above, can that SubSection be applied to this case.
Therefore, both the arguments advanced on behalf of the appellants are without substance. The three items of dispute not having been covered by the settlement proceeding under Section 34 of the Indian Income-tax Act are open to the Income-tax Officer against the appellants and nothing stated in the settlement, which does not come within the scope of Sub-Section (4), as above, and in the report, can take away the power of the Income-tax Officer under Section 34 ofthe Indian Income-tax Act or operate so as to amend' or alter the meaning and scope of that Sub-Section.
8. The learned counsel for the appellants has laid sonic stress upon the remarks of the Commission in the report with regard to the three items in dispute. The report of the Commission cannot be taken into consideration for the application of Sub-Section (4) of Section 8-A of Act No. XXX of 1947. That Sub-Section only refers to the settlement and no matter what; is stated by the Commission in the report, it is irrelevant for the purposes of that Sub-Section.
Besides, it has already been shown that reference to the three items in dispute in the report by the Commission was not to make the concealed income of Rs. 15,00,000/- as subject to taxation including those three items, but the reference was first to discredit Raghunandan Saran, and then, to show the true nature of the loans as concealed items of income and not loans. Thus, in the first place, the report is irrelevant for the consideration of the application or Sub-Section (4) of Section 8-A of Act No. XXX of 1947, and secondly, the figure of settlement for taxation was not. arrived at taking into consideration of three items in-dispute even in the report by the Commission.
9. Some argument has been vexed by the learned counsel for the appellants on the use of the word 'discovery' in the report as also the settlement, hut as Sub-Section (4) of Section Section-A of Act No. XXX of 1947 does not apply to these cases, the use of that word has no significance in the fact and circumstances of these cases.
10. The learned counsel for (he appellants contends that in so far as the second disputed item of Rs. 1,00,000/- is concerned, it was really credited in-the account books on 19-1-1948, and was transferred from there to the account of Raghunandan Saran on 8-4-1948. His contention is that this item does not fall within the accounting year in question and so the notice is not good as regards it. This is a matter for the Income-tax Officer. If the legal representatives of Raghunandan Saran are able to convince the Income-tax Officer of this position, the learned counsel for the respondents has said that naturally enough the Income-tax Officer will drop this item from consideration under the relevant notice. As stated this is a matter for the Income-lax Officer and not for this Court in an appeal arising out of a writ petition.
11. On these considerations alone the two appeals fail and must be dismissed. Some argument has been addressed on the question of delay and as also on the question of adequate remedy available to the appellants under the Indian Income-tax Act, and, in the view that has been taken in these two appeals, it has not been necessary to go into those considerations.
12. These appeals are dismissed with costs.
D. Falshaw, J.
13. I agree.