MEHAR SINGH J. - The question referred to this court under sub-section (1) of section 66 of the Indian Income-Tax Act, 1922 (Act 11 of 1922), is :
'Whether on a true interpretation of section 34 of the Indian Income-Tax Act, the assessment made under section 34 of the Income-Tax Act was bad in law because the notice issued under that section was not served on the assessee within four from years from the end of the assessment year 1947-48 ?'
The question on the facts arises under section 34(1)(b) of Act 11 of 1922. The assessee is a Hindu undivided family. In its return for the assessment year 1947-48, among other incomes, it showed its share of profits from the income of a registered firm with style of a Jokhiram-Balmukand, Pilkhuva, as Rs. 2,258. At that time the assessment on that firm had not yet been made. Subsequently, when assessment of the income of that firm was made, the share of the assessees profit was computed at Rs. 6,843. On March 31, 1952, a notice was issued by the Income-tax Officer under section 34(1)(b) and section 22(1) Act 11 of 1922 calling upon the assessee to submit a return of its total income. The notice was served on the assessee on April 10, 1952. The Supplementary assessment was completed on March 25, 1953. In that assessment the Income-tax Officer substituted the share of the profit of the assessee from the income of that firm on the higher figure of the already referred to in place of the earlier figure of Rs. 2,258 and raised a demand against the assessee for income tax accordingly. On appeal by the assessee, the Appellate Assistant Commissioner being of the opinion that notice under section 34(1)(b) of Act 11 of 1922 should have been served on the assessee at least on March 31, 1952, found that the service in the case of the notice was beyond that date and that nullified the resultant action against the assessee. In an appeal by the department to the Income-tax Appellate Tribunal (Delhi Bench) that order of the Appellate Assistant Commissioner was upheld following Sri Niwas v. Income-tax Officer, 'A' Ward, Sitapur. The order of Income-tax Appellate Tribunal is of December 20, 1956. It was after that the Commissioner of Income-tax obtained a reference of the question as above to this court.
In sub-section (1) of section 34 of the Act 11 of 1922, clause (a) deals with income escaping assessment on account of the commission or failure on the part of an assessee to make a full disclosure of his income and clause (b) then reads : 'Notwithstanding that there has been no commission 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 within eight years and in cases falling under clause (b) at any time within four years of the end of the 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 notice under sub-section (2) of section 22 and may proceed to assess or reassess 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.'
Sub-section (3), with the first proviso, of the same section is in these words : 'No order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies or of assessment or reassessment in cases falling wihtin clause (a) of sub-section (1) of this section shall be made after the expiry of four years, from the end of year in which the income, profits gains were first assessable : Provided that where a notice under sub-section (1) has been issued within the time therein limited, the assessment or reassessment 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 such periods exceeds the period of eight years of four years, as the case may be.'
In this case notice under section 34(1)(b) of Act 11 of 1922 was given on the last day of the expiry of four years from the year ending 1947-48, and admittedly the service of the notice on the assessee was beyond that period of four years. So that in terms no notice under that provision was served on the assessee because the word used in sub-section (1) of section 34 is 'serve'. In Sri Niwass case a similar question came up for consideration before the learned judges but in relation to clause (a) of sub-section (1) of section 34. It was held that an Income-tax Officer has jurisdiction to take the proceedings under that provision when notice has been served on the assessee within the meaning of sub-section (1) of section 34 and, consequently, within the time stated in it. If no such notice has been served within that time, the jurisdiction of the Income-tax Officer under sub-section (1) of section 34 is not attracted. An argument was urged before the learned judges with references to the use of the word 'issued' in the first proviso to sub-section (3) of section 34 when it says 'where a notice under sub-section (1) has been issued within the time therein limited' and this was repelled by learned judges by pointing out that sub-section (1) and (3) of section 34 of Act 11 of 1922 deal with different matters and the use of word 'issue' in sub-section (3) does not lead to any inference that the word 'serve' in sub-section (1) is also used in the sense of 'issue'. The learned judges point out that the retention of the word 'serve' in sub-section (1) by the legislature, even though section 34 was amended several times, leads to the inference that the legislature did not intend that 'serve' must be read as equivalent to 'issue'. Although that was a case under clause (a) of sub-section (1) of section 34, the ratio of the decision applies equally effectively to clause (b) of sub-section (1) of section 34. It is this case which was followed by the Income-tax Appellate Tribunal. Commissioner of Income-tax v. D. V. Ghurye was also a case under clause (a) of sub-section (1) of section 34 in which notice was issued within the period of eight years but served after the expiry of that period as provided in clause (a) of sub-section (1) of section 34. Similar argument as in Sri Niwass case was urged before the learned judges and was repelled. Sri Niwass case was followed. The learned Chief Justice at page 686 observed : 'In other words, the attempt is to equate the expression served used in section 34 with the expression issued used in the proviso to sub-section (3). Now we must frankly confess that we find it difficult to understand why the legislature has used in the proviso the expression where a notice under sub-section (1) has been issued within the time therein limited. In sub-section (1) no time is limited for the issue of the notice : time is only limited for the service of the notice; and therefore it is more appropriate that the expression issued used in the proviso to sub-section (3) should be equated with the expression served rather than that the expression served used in sub-section (1) should be equated with the expression issued used in the proviso to sub-section (3).' These two cases have been referred to by their Lordship in Banrasi Debi v. Income-tax Officer, District IV, Calcutta and the passage reproduced from Ghuryes case has been cited by their Lordship. The ratio in those two cases has been accepted in Banarasi Debi case That was a case under clause (a) of sub-section (1) of section 34 but was considered by their Lordship in the light of section 4 of the Indian Income-Tax (Amendment) Act, 1959. Their Lordship pointed out that, when that amendment was made the High Court had in the two cases already referred to refused to interpret the word 'served' in sub-section (1) of section 34 as 'issued' because of the use of the latter word in the first proviso to sub-section (3) of the same section. So that the decision in Banarasi Debis case rahter gives support to Sri Niwass case and Ghuryes case It does not advance the argument on the side of the Commissioner of Income-tax. The learned counsel on behalf of the Commissioner of Income-tax has not been able to derive any advantage from Banarasi Debis case In the first place, it was a in which the decision proceeded on the interpretation of section 4 of the Indian Income-tax (Amendment) Act, 1959, and, secondly, their Lordship accepted the ratio of the other two cases to which reference has already been made.
In these circumstances, of course, the answer to the question under reference has to be affirmative. But in the end the learned counsel for the Commissioner of Income-tax refers to section 31 of the Indian Income-tax (Amendment) Act, 1953 (Act 25 of 1953), and contends that in view of the provisions of those validating section, the view taken by the Income-tax Appellate Tribunal can not be maintained. Section 31 of Act 25 of 1953 in so far as relevant here reads :
'For the removal of doubts it is hereby declared that the provisions of sub-section (1), (2) and (3) of section 34 of the principal Act shall apply and shall be deemed always to have been applied to any assessment or reassessment for any year ending before the first day of April, 1948, in any case where proceedings in respect of such assessment or reassessment were commenced under the said sub-section after the 8th day of September, 1948, and any notice issued in accordance with sub-section (1).... whether before or after the commencement of the Indian Income-tax (Amendment) Act, 1953, shall, notwithstanding any judgment or order of any court, Appellate Tribunal or income-tax authority to the contrary, be deemed to have been validity issued.... and no such notice .... shall be called in questionon the ground merely that the provisions of section 34 did not apply....'
The learned counsel says that, in any case, this provision validates any defect in the notice issued to the assessee under sub-section (1) of section 34 of Act 11 of 1922. But even this sub-section refers to 'any notice issued in accordance with sub-section (1)'; it does not refer to any notice served according to that sub-section. In sri Niwass cases, the use of the expression 'issued' in the first proviso to sub-section (3) of section 34 of Act 11 of 1922 was not accepted by the learned Judges to alter the meaning and scope of the expression 'served' in sub-section (1) of section 34 of that Act. The amending Act 25 of 1953, section 31, had been made prior to the decisions in those cases and long before the decision in Banarsi Debis case and yet in none of these cases was any reliance placed on the expression 'notice issued' in section 31 of this last mentioned Act as altering the meaning of the expression 'served' in sub-section (1) of section 34 of Act 11 of 1922. Just as the expression 'issued' in the firs proviso to sub-section (3) of section 34 of Act 11 of 1922 cannot be read to affect the meaning of the expression 'served' in sub-section (1) of section 34 of that Act, in the same manner the expression 'issued' in section 31 of Act 25 of 1953 does not affect the meaning and scope of the expression 'served' as used in sub-section (1) of section 34 of Act 11 of 1922. So that even section 31 of Act 25 of 1953 does not advance the argument on the side of the Commissioner of Income-tax.
The answer to the question in the reference is thus in the affirmative. The Commissioner of Income-tax shall bear the costs of the opposite party the counsels fee being Rs. 100.
FALSHAW C.J. - I agree.
Reference answered in the affirmative.