Inder Dev Dua, J.
(1) The following question has been referred to the Full Bench for decision:
'Whether or not, in the circumstances of the present case, the notice under Section 34 issued on 25-7-1958 was barred by time?'
(2) This writ petition was initially heard by Bishan Narain, J., who in a detailed judgment referred this question to a larger Bench after deciding some other points on the merits. The case was then placed before a Division Bench consisting of Bishan Narain, J. and myself, but without any discussion it was considered that the question had better be decided by a still larger Bench, and it is as a result of the order of the Division Bench that the present Full Bench has been constituted.
(3) The facts as stated in the writ petition are that Messrs. Shahzada nand and Sons (defunct Hindu undivided family), petitioner No. 1, used to be assessed as H. U. F. through Sahib Dval son of Shahzada Nand, petitioner No. 2, as its Karta until the assessment of 1945-46. By the end of March 1945, according to the petition, the H.U.F. was dissolved completely after partition amongst its members consisting of petitioners Nos. 2 to 5. According to the allegations in the petition, a new firm described as Shahzada Nand and sons (a partnership concern consisting of three brothers Shri Chaman Lal, Shri Madan Gopal and Shri Harbans Lal,l petitioners Nos. 3 to 5) took over the business of the Hindu undivided firm. This partnership firm, according to the petitioners, has been assessed to income-tax as a firm ever since 1946-47.
(4) Sometime in 1951 the Income-tax Department started investigations into the financial affairs of Messrs. Shahzada Nand and Sons, the Hindu undivided firm, which, according to the petitioners, had disrupted and been dissolved in March 1945. The petitioners are stated to have given full information to the Department. After the enquiry lasting for several years the matters is stated to have been dropped as a result of the report of Shri G. R. Bahmat, Income-tax Officer, 'C' Ward, Amritsar. In the meantime Shri G. S. Basanti took over charge as Income-tax Officer, 'A' Ward and the case of the Hindu undivided family, Messrs. Shahzada Nand and sons, petitioner No. 1, was transferred to his file. Shri Basanti, thereupon, issued notices under Section 34, Income-tax Act, to the petitioners. These notices, though purporting to be dated 26th March 1954, were, according to the petition, in fact served on the petitioners on and after 3rd of April 1954. This notice, according to the petitioners case, is barred by time. The proceedings, however, continued and on 29th of March 1955 a sum of Rs. 3,62,00/- was added to the original assessment of petitioner No. 1 for 1945-46 and a penalty notice for default under Section 22(4) was also issued. Eliminating unnecessary facts for our purposes, according to the petition, an appeal was taken by the assessee to the Appellate Assistant Commissioner who, while annulling the assessment order of the Income-tax Officer, 'A' Ward, Amritsar (respondent No.3), made certain observations prejudicial to the petitioners which, according to the petitioners, were not called for. Both the Revenue and the petitioners went up in appeal to the Income-tax Appellate Tribunal which, while dismissing the appeal of the Department, allowed that of the assessee. This order is dated 20th December 1956, and it is averred by the petitioners that this order finally decided the matter of assessment for 1945-46.
(5) On 25th of July 1958 the Income-tax Officer, 'A' Ward (respondent No. 3) issued the impugned notice under Section 34, Income-tax Act, requiring the petitioners to file a return for the assessment year 1945-46. On 12th August 1958 the petitioners moved the Central Board of Revenue (respondent No. 1) to recall this notice, but this request was turned down on 22nd April 1959 after repeated representations. It is next averred that the petitioners are not sure as to who has sanctioned the renewed proceedings under section 34 (Central Board of revenue respondent No. 1 or the Commissioner of Income-tad respondent No. 2) because certified copies of the order sanctioning fresh proceedings under Section 34 and of the statements of the relevant Banks under Section 20-A of the Act have not been supplied, though demanded by the petitioners; the ground for refusal being that they are confidential documents. The petitioners have then alleged that they cannot expect justice or fair treatment from the respondents with the result that they have no other alternative but to approach this Court by means of a writ petition.
(6) As the learned Single Judge has finally decided all the other points arising in the case, we are not called upon at this stage to pronounce upon their correctness or otherwise. I, however, cannot help observing that the procedure adopted by Bishan Narain, J. cannot be considered satisfactory or even desirable. His decision on those points, unless set aside on appeal, is final; at the same time no Letters Patent appeal would appear to be competent against the decisions of those points at this stage because the writ petition has not yet been finally disposed of. The position became rather bewildering when the learned counsel for the petitioners expressed his desire to question the correctness of the decisions on some of those points. In view, however, of the answer we propose to give to the question referred, it has not been necessary for us to express any considered opinion on the legality of the procedure adopted by the learned Single Judge, but it is apparent that such a procedure is likely at times to lead to an embarrassing and difficult situation before the Full Bench. It certainly places the party, against whom the learned Single Judge expresses his final opinion, in a highly unfair position. This matter may call for expression of a considered opinion on some other occasion. In the present case, however, we do not consider it necessary to pursue it any further.
(7) Since the question referred is a pure question of law, it would hardly be profitable to refer to the written statement filed by the respondents or to the replication put in by the petitioners in reply to the written statement.
(8) The learned counsel for the petitioners, to begin with, read out to us the order of the Appellate Tribunal dated 20th December 1956, whereby the appeal of the Department was dismissed. It may be mentioned that the Appellate Assistant Commissioner had, by his order on the appeal filed by the assessee, held that the notice, which was served on the assessee on 3rd of April 1954, was barred by limitation as time had expired on the 31st March 1954. Following a decision of the Appellate Tribunal the Appellate Assistant Commissioner opined that the service of the notice should under the law have been effected within the prescribed time. So far, the decision of the Appellate Tribunal was in favour of the assessee. It appears that the parliament in 1956 amended Section 34 of the Income-tax Act and omitted the time-limit of eight years from clause (a), sub-section (1) of Section 34. Taking advantage of this amendment which, according to the Department is retrospective in its operation, the impugned notice was sent under section 34 of the Act to the assessee on 25th of July 1958. On 8th of August 1958 the assessee demanded copies of the recorded reasons and the sanction of the Board for the fresh notice, and it is one of the grievances of the petitioners that those documents have not yet been supplied to them.
(9) The answer to the question referred really depends on the construction to be placed on section 34(1)(a) and on Section 34(1-A) of the Income-tax Act. It is, in the circumstances, necessary to reproduce Section 34 in its entirety so that we may have a complete picture of the scheme of this section: '34(1) If-
(a) 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 relief under the Act, or excessive loss or depreciation allowance has been computed, or
(b) notwithstanding that 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 chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of S. 22 and may proceed to assess or re-assess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section:
Provided that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1):
(i) for any year prior to the year ending on the 31st day of March, 1941;
(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which eight years have elapsed, not being a year or years ending before the 31st day of March,1941;
(iii) for any year, unless he has recorded his reasons for doing so, and in any case falling under clause (ii), unless the Central Board of Revenue, and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice:
Provided further that the Income-tax Officer shall not issue a notice under this sub-section for any year, after the expiry of two years from that year, if the person on whom the assessment or re-assessment is to be made in pursuance of the notice is a person deemed to be the agent of a non-resident person deemed to be the agent of a non-resident person under Section 43:
Provided further that the tax shall be chargeable at the rate at which it would have been charged had the income, profits or gains not escaped assessment or full assessment, as the case may be.
Explanation: Production before the Income-tax Officer of account-books or other evidence from which material facts could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.
(IA) If, in the case of any assessee, the Income-tax Officer has reason to believe-
(i) that income, profits or gains chargeable to income-tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on the 1st day of September, 1939, and ending on the 31st day March 1946; and
(ii) that the income, profits, or gains which have so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more;
he may, notwithstanding that the period of eight years or, as the case may be, four years specified in sub-section (1) has expired in respect thereof, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22, and may proceed to assess or re-assess the income, profits or gains of the assessee for all or any of the years referred to in clause (I), and thereupon the provisions of this Act (excepting those constrained in clauses (I) and (iii) of the proviso to sub-section (I) and in sub-sections (2) and (3)of this section) shall, so far as may be, apply accordingly:
Provided that the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issue of such notice:
Provided further that no such notice shall be issued after the 31st day of March, 1956.
(IB) Where any assessee to whom a notice has been issued under clause (a) of sub-section (1) or under sub-section (1-A) for any of the years ending on the 31st day of March of the years 1941 to 1948 inclusive applies to the Central Board of Revenue at any time within six months from the receipt of such notice or before the assessment or re-assessment is made, whichever is earlier, to have the matters relating to his assessment settled, the Central Board of Revenue may, after considering the terms of settlement proposed and subject to the previous approval of the Central Government, accept the terms of such settlement, and, if it does so, shall make an order in accordance with the terms of such settlement specifying among other things the sum of money payable by the assessee.
(1C) Any sum specified in a settlement arrived at in pursuance of sub-section (1B) may be recovered and any penalty for default in making payment of any such sum may be imposed and recovered in the manner provided in Chapter VI.
(1D) Any settlement arrived at under this section shall be conclusive as to the matters stated therein; and no person, whose assessments have been so settled, shall be entitled to re-open in any proceeding for the recovery of any sum under this Act or in any subsequent assessment or re-assessment proceeding relating to any tax chargeable under this Act or in any other proceeding whatsoever before any court or other authority any matter which forms part of such settlement.
(2) Where an assessment is re-opened in circumstances falling under clause (b) of sub-section (I) the assessee may, if he has not impugned any part of the original assessment order for that year either under Section 30 or under section 33 A, claim that the proceedings under sub-section (1) of this section shall be dropped on his showing that he had been assessed on an amount or to a sum not lower than what he would be rightly liable for even if the items alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made:
Provided that in so doing he shall not be entitled to reopen matters concluded by an order under section 33-B or Section 35, or by a decision under section 66 or Section 66-A.
(3) No order of assessment or re-assessment, other than an order of assessment under Section 23 to which clause (c) of sub-section (1) of Section 28 applies or an order of assessment or re-assessment in cases falling within clause (a) of sub-section (1) or sub-section (1-A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable:
Provided that where a notice under clause (b) of sub-section (1) has been issued within the time therein limited, the assessment or re-assessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if at the time of the assessment or re-assessment the four years aforesaid have already elapsed: Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or re-assessment may be made, shall apply to a re-assessment made under Section 27 or to an assessment or re-assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Section 31, section 33, Section 33-A, section 33-B, Section 66-A.'
(10) On behalf of the petitioners it is contended that the notice in question can only fall under section 34(1-A). This provision, according to the counsel, specifically deals with the escaped assessment regarding income, profits or gains chargeable to income-tax for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on 1st September 1939 and ending on 31st March 1946, and also if the income, profits or gains, which had so escaped assessment, amount to or are likely to amount to one lakh of rupees or more. This sub-section, according to the argument, is a more specific provision and is therefore an exception to the more general provision contained in sub-section (1)(a). At the second proviso to sub-section (1-A) expressly lays down that no such notice, as is contemplated by it, can be issued after the 31st day of March 1956. Now if the impugned notice falls under sub-section (1-A), then indisputably it is out of time and therefore wholly unauthorised and liable to be quashed. On behalf of the Department, however, it is very strenuously urged that the notice really falls within the ambit of Section 34(1)(a). It is contended that sub-section (1)(a) in terms is broad and comprehensive enough to cover the case in hand. It is further urged that this sub-section deals with special cases where the income, profits or gains of an assessee chargeable to income-tax have escaped assessment and have been under-assessed or assessed at too low a rate etc. by reason of the omission of failure on the part of an assessee to make a return of his income under Section 22. The counsel's contention is that sub-section (1)(a),deals with special cases and sub-section (1-A) deals with more general cases and therefore, sub-section (1)(a), being an exception, should be held to cover the case. Now these are the two rival contentions which call for scrutiny and determination.
(11) It is unnecessary to notice certain decisions of the Supreme Court and of this Court which were cited on behalf of the petitioners in support of the proposition that the Courts must construe the various provisions of a statute harmoniously in order to ascertain the true legislative intent, for, this proposition is not disputed on behalf of the respondents. As a matter of fact, counsel for both the parties have based their respective submissions on the rule of harmonious construction, and each one of them has tried to find support from this rule for his own point of view. It is a cardinal and elementary rule of statutory construction that if possible, within the ambit of reason, full force, meaning, significance and effect must be accorded to every word, clause, section and provision of a statute, so that no part of it becomes inoperative or superfluous or insignificant; this is desirable in the interest of harmony and consistency and to make the entire statutory scheme effectual. On behalf of the Revenue stress was also laid on the argument that Section 34 is procedural and not a taxing provision and therefore it should be construed in a way which should make it workable. The counsel for the assessee, on the other hand, contended that the provisions of Section 34 in the instant case really determine the question of imposing a tax on the assessee and therefore in case of reasonable doubt the construction favourable to the assessee should be placed. It is further contended that the section would be equally workable if the notice in the present case is held to fall under sub-section (1-A) and therefore barred by time. It is forcibly contended that workability of a taxing provision does not necessarily mean that it should always be so construed as to result in favour of the Revenue.
(12) On behalf of the respondents some decisions of the Supreme Court were referred to, but, in my opinion, they are of no practical assistance in the present case because the question, which arises before us, did not arise there either directly or indirectly. An attempt was made by Shri Awasthy to refer to the objects and reasons of the amending Bill in pursuance of which Section 34 of the Income-tax Act was amended in 1956. In my opinion, it is hardly permissible to refer to them in the instant case and indeed the learned counsel also failed to convince us as to how those reasons could give us any legitimate and helpful guidance is construing the two sub-sections in question.
(13) After looking at the matter from all aspects put before us by the counsel for the parties, I am clearly of the view that sub-section (1-A) of Section 34 is the proper sub-section under which the impugned notice should be held to fall. The period which this sub-section has in view for the purposes of assessing escaped income is the period between 1st September 1939, and 31st March 1946. Under sub-section (1)(a) the only limitation placed is that no notice can be issued for any year prior to the year ending 31st March 1941; otherwise it. is permissible to issue notice for any period subsequent to the date mentioned above. A further limitation is placed by clause (ii) of the first proviso in the form of the minimum income, profits or gains which may be considered to have escaped assessment etc., being one lakh of rupees of more. For this class of cases there is no limitation, but for those in which income, profits and gains that have escaped assessment are less than one lakh of rupees a notice must be issued within a period of eight years. In clause (iii) of the first proviso, it is further provided that the Central Board of Revenue where the escaped income is one lakh of rupees or more, and in other cases the Commissioner, if satisfied for reasons to be recorded, may declare a case to be fit for issuing such a notice. Sub-section (1-A), on the other hand, is confined to a very limited sphere. It only covers the period between 1st September, 1939, and 31st March, 1946, which appears to be the period covered by the Second World War. The Legislature seems apparently to be conscious of the provisions of Section 34(1)(a) and the proviso to it, but has nevertheless made a special provision in the form of sub-section (1-A) added in 1954. For the special cases so provided by the new provision an outside limit for issuing motives has also been fixed from which it is obvious that the Parliament desired the Tax-Authorities to act more promptly in the cases covered by the new provision. Now considering the language and scope of the two sub-sections in question before us, sub-section (1-A) would prima facie appear to be an exception to the cases covered by sub-section (1)(a), and if this be the correct view, then the notice in question cannot but be held to fall under sub-section (1-A).
(14) Mr. Awasthy suggested that sub-section (1)(a) covers only those cases where the income has escaped assessment by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 or to disclose fully and truly all material facts necessary for the assessment. It is contended that the present case falls within the letter of this sub-section. According to him, sub-section (1-A) is intended to cover only those cases where no default has been committed by the assessee and the escapement from proper assessment is due to other circumstances and one illustration that he has suggested is where the Income-tax Officer under the existing view of the law passes an assessment order which under a later clarification by a higher Tribunal like the supreme Court or the High Court the assessee may be considered to have been under-assessed. Whether or not the case illustrated would fall under sub-section (1-A), I feel disinclined, as at present advised, to hold that this is the only kind of case for which the notice must issue, to 31st March, 1956. I have not been able to find any cogent reason for enacting such a provision in 1954 and fixing the outside limit for issuing notices to the and of March, 1956; the learned counsel for the respondents has equally failed to point out any cogent and convincing reason.
(15) The construction to be placed on taxing statutes does not involve any equity. These statutes have to be construed on their own plain meanings keeping in view that in cases of reasonable doubt the taxing statutes should be construed in favour of the citizen rather than the Revenue, for, imposition of tax must, according to our jurisprudence, be justified by a valid piece of legislation. Of course it is not permissible either to stretch the language unreasonably or to construe it in a needlessly narrow manner. A proper balance must be struck between the essential needs and desires for revenue of a modern welfare State on the one side, and, desirability that the citizen must know clearly his liability before he is called upon to contribute towards it on the other.
(16) The argument of a workable construction of the statute in question advanced on behalf of the Revenue would appear to me really to emphasize the policy of law to ensure collection of taxes so that, if possible, taxing statutes should be so interpreted as to accomplish the result. On this premises statutes establishing procedure for collection of taxes are sometimes given Libra construction, as also legislation intended to prevent frauds upon the Revenue. But this argument does not appear to me to be of much assistance to the respondents in the case in hand. Section 34 in my view does not merely lay down a procedure for collecting a tax already imposed. In so far as the case in hand is concerned, this provision also deals with the determination of the assessees' liability to be taxed with the result that unless a case reasonably falls within its purview, the assessees can not be lawfully taxed.
(17) In view of the above discussion, in my opinion, the impugned notice dated the 25th July, 1958, should be held to be barred by time and I would answer the question referred accordingly. The case will now go back to a learned Single Judge for disposing of the writ petition in accordance with law and in the light of the answer just given.
FINAL ORDER (D/- 26-9-1961)
(18) It is clear and cannot be disputed that in view of the Full Bench Decision, the writ petition has to be allowed, which I hereby do. There will however, be no order as to costs.
(19) Petition allowed.