1. This is an appeal by special leave against the judgment of the BombayHigh Court in a writ petition challenging the notice issued under s. 34(1) ofthe Indian Income-tax Act, 1922 by the First Income-tax Officer, Bombay, who isthe appellant before us. In the writ petition various grounds were urged by therespondent in support of the contention that the notice was bad in law. TheHigh Court, however, dealt with only one of those contentions, accepted it, anddid not permit the respondents' counsel Mr. Mehta to put forward the othercontentions urged in the writ petition by the respondents.
2. The appellant had issued notice to the respondents under s. 34(1)(a) ofthe Income-tax Act in respect of an escaped income of Rs. 47,595 for theassessment year 1944-45. This notice was issued by him on March 27, 1957. Onbehalf of the respondents, it is contended that the notice was bad because,though it was in respect of an amount of less than Rs. 1 lakh it was issuedafter the expiry of the assessment year and that the sanction of the CentralBoard of Revenue for issuing that notice had not been obtained by theIncome-tax Officer as required by clause (iii) of the proviso to s. 34(1) ofthe Act. It is not disputed before us that the case falls under s. 34(1)(a).That provision reads thus :
'(1) If -
(a) the Income-tax Officer hasreason to believe that by reason of the omission of failure on the part of anassessee to make a return of his income under section 22 for any year or todisclose fully and truly all material facts necessary for his assessment forthat year, income, profits or gains chargeable to income-tax have escapedassessment for that year, or have been under-assessed, or assessed at too low arate, or have been made the subject of excessive relief under the Act, orexcessive loss or depreciation allowance has been computed, or..........
he may in cases falling underclause (a) at any time.......serve on the assessee..............a noticecontaining all or any of the requirements which may be included in a noticeunder sub-section (2) of section 22 and may proceed to assess or re-assess suchincome, profits or gains or recompute the loss or depreciation allowance; and theprovisions of this Act shall, so far as may be, apply accordingly as if thenotice were a notice issued under that sub-section :'
3. We have quoted only the relevant portion. Then follows the first provisowhich runs thus :
'provided that theIncome-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 yearshave elapsed after the expiry of that year, unless the income, profits or gainschargeable to income-tax which have escaped assessment or have beenunder-assessed or assessed at too low a rate or have been made the subject ofexcessive relief under this Act, or the loss or depreciation allowance whichhas been computed in excess, amount to, or are likely to amount to, one lakh ofrupees or more in the aggregate, either for that year, or for that year and anyother year or years after which or after each of which eight years haveelapsed, not being a year or years ending before the 31st day of March 1941;
(iii) for any year, unless he hasrecorded 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 ofsuch notice :'
4. It will thus be seen that where the Income-tax Officer has reason tobelieve that due to any act of the assessee a full and accurate declaration wasnot made by the assessee for any year, with the result that part of his incomehas escaped assessment for that year, the Income-tax Officer may issue a noticeunder clause (a) at any time.
5. The respondents' contention before the High Court was that the notice wasbad because it had not complied with the two conditions laid down in theproviso to s. 34(1). Adverting to this contention the High Court has observedthus :
'Before the amendment of this section which was inforce on the 27th March, 1957 the period of limitation of eight years wasprovided with regard to the issue of notices under Section 34(1)(a) and aperiod of four years for cases falling under Section 34(1)(b). By the amendmentthe period of limitation was removed and the Legislature provided that if thecase fell under section 34(1)(a) a notice can be served at any time. But whileremoving any bar of limitation, the Legislature provided some safeguards forthe assessee and these safeguards were three in number and they were set out inthe proviso. The first safeguard was that a notice shall not be issued for anyyear prior to the year ending on the 31st day of March 1941; the secondsafeguard was that if eight years had elapsed then the notice should not beissued for an escaped income which aggregated to less than one lakh of rupees;and the third safeguard was that the Central Board of Revenue had to besatisfied on reasons to be recorded that this was a fit case for the issue of anotice, which was for a period beyond eight years. Now, admittedly, this noticeis for an amount which is less than a lakh of rupees and admittedly the CentralBoard of Revenue has not considered this matter at all. Therefore, there doesnot seem to be any answer to the contention put forward by thepetitioner.'
6. The High Court is right in saying that a notice cannot be issued wherethe income which has escaped assessment is less than a lakh of rupees and wheremore than eight years have elapsed from the assessment year. To this, however,there is one exception and that is where the matter would fall to be governedby the second proviso to s. 34(3). To this aspect we will, however, come littlelater. But before that what we must consider is the view of the High Court thatthe sanction of the Central Board of Revenue was also necessary. Under clause(iii) of the proviso to s. 34(1) a notice can issue only if the Central Boardof Revenue is satisfied with the reasons recorded by the Income-tax Officer forissuing a notice. For convenience we are describing this process as sanction ofthe Central Board of Revenue. The sanction under this clause is, however,necessary only where the notice in question is issued under clause (ii) of theproviso. That is evidently what the Legislature meant when it says 'in anycase falling under clause (ii)'. For, clause (ii) has to be read with theopening words of the proviso : 'Provided that the Income-tax Officer shallnot issue a notice under clause (a) of sub-section (1)'. So read it willbe clear that the words 'in any case' used in clause (iii) only meana case in which notice can be issued under clause (ii). Such a notice can beissued only when the escaped income is of one lakh of rupees and over. It was,however, contended by Mr. Shroff that clause (ii) of the proviso dealt not onlywith the escaped assessment of one lakh of rupees and over but also withassessments which were less than one lakh of rupees and that, therefore, evenin the present case the sanction of the Central Board of Revenue was required.By excluding action with respect to escaped assessment of less than one lakh ofrupees, clause (ii) can, in one sense, be regarded as dealing with escapedassessments of this kind. But it would be wrong to say that because of this,clause (iii) requires the obtaining of the sanction of the Central Board ofRevenue for a notice to be issued with respect to it. As already pointed out,clause (iii) required such sanction where the notice is issued under clause(ii) and when on a construction of clause (ii), no notice can be issued withrespect to a class of escaped assessments, there can possibly by no requirementof the sanction of the Central Board of Revenue. If a notice is issued byvirtue of some other provision such as the second proviso to sub-s. (3) of s.34, it would be a notice 'in any other case' referred to in clause (iii)of the proviso to sub-s. (1) of s. 34 and in such a case the sanction which isrequired is only that of the Commissioner. Such a sanction was obtained in thiscase and, therefore, the notice cannot be said to be bad because the sanctionof the Central Board of Revenue has not been obtained. Now, we will come to theother aspect of the matter.
7. Limitation is no doubt placed upon the power of the Income-tax Officer byclause (ii) of the first proviso which says that if eight years have elapsedafter the expiry of that year no such notice can issue unless the income whichhas escaped assessment is likely to amount to one lakh of rupees or more. Hereadmittedly the income which has escaped assessment is below on lack of rupeesand more than eight years have elapsed since the assessment year in respect ofwhich the income is alleged to have escaped assessment. Clearly, therefore nonotice could issue under clause (ii). The answer given by the Income-taxOfficer, however, is that limitation is taken away by the second proviso tosub-s. (3) of s. 34. We would quote s. 34(3) and the second proviso to it. Theyrun thus :
'No order of assessment orreassessment, other than an order of assessment under section 23 to whichclause (c) of sub-section (1) of section 28 applies or an order of assessmentor reassessment in cases falling within clause (a) of sub-section (1) orsub-section (1A) of this section shall be made after the expiry of four yearsfrom the end of the year in which the income profits or gains were firstassessable :
. . . . .
Provided further that nothingcontained in this section limiting the time within which any action may betaken or any order, assessment or reassessment may be made shall apply to areassessment made under section 27 or to an assessment or re-assessment made onthe assessee or any person in consequence of or to give effect to any findingor direction contained in an order under section 31, section 33, section 33A,section 33B, section 66 or section 66A.'
8. The second proviso to s. 34(3) could be pressed in aid by the Income-taxOfficer because in issuing the notice he was giving effect to a directioncontained in the order of a higher Income-tax authority.
9. Dealing with this matter the High Court has observed as follows in itsjudgment :
'Now, when there was a limitation of eight yearsunder section 34(1)(a) the second proviso to Section 34(3) has to be resorted.Section 34(3) has to be resorted to by the Income-tax Department if it wantedto issue a notice after the period of limitation, and a notice after eightyears in a case falling under section 34(1)(a) could only be issued provided itwas a result of a direction contained in an order passed by an income-taxAuthority. But by reason of the recent amendment the question of limitationdoes not arise, but the Legislature has provided certain safeguards as alreadypointed out. Therefore, whether a notice is issued as a result of a directioncontained in any order of an Income-tax Authority or not, if it is a noticewhich is issued beyond eight years the notice must satisfy the conditions laiddown in the proviso to Section 34(1). Therefore, the result is that in somerespects the law has been made more rigorous against the assessee; and in otherrespects it has been made more lenient. Before the amendment a notice could beissued after eight years in respect of any escaped income, whatever the amount,provided the notice was issued to give effect to a direction contained in anorder of an Income-tax Authority. Now a direction is not necessary for theissue of a notice. But as against that an assessee whose escaped income is nota lakh of rupees is completely protected and even though there may be adirection contained in an order of an Income-tax Authority no notice can beissued against the assessee if the escaped income is less than a lakh ofrupees. Therefore, on the one hand, the assessee whose escaped income is lessthan a lakh of rupees is now put in a better position than he was before theamendment. The assessee whose escaped income is more than a lakh of rupees is putin a worse position because he can be proceeded against even without adirection contained in an order of an Income-tax Authority provided the CentralBoard of Revenue has applied its mind to the question of the issue of thenotice.'
10. It would appear that the view of the High Court was that the provisionsof the second proviso to s. 34(3) would not apply to a case where the escapedassessment is of an amount less than a lakh of rupees and more than eight yearshave elapsed. Apparently, the High Court has overlooked the fact that thesecond proviso to sub-s. (3) of s. 34 was amended first by Act 25 of 1953 andthen by Act 18 of 1956. As it stood prior to these amendments it read thus :
'Provided further that nothing contained in thissub-section shall apply to a re-assessment made under section 27 or inpursuance of an order under section 31, section 33, section 33A, section 33B,section 66 or section 66A.'
11. By the amendment of 1953, for the words 'sub-section', thewords 'section limiting the time within which any action may be taken orany order, assessment or re-assessment may be made' were substituted. Bythe amendment of 1956 it now stands as already quoted by us. If the proviso inits present form applies here it would govern the whole of s. 34(1) and wouldconsequently include even an escaped assessment with respect to whichlimitation is provided in clause (ii) of the first proviso to s. 34(1). Theresult, in our opinion, would be the same even if the case were to fall to begoverned by the Amending Act of 1953, though not by that of the Amending Act of1956. We may add that the amendment of 1953 took effect from April 1, 1953 andthat of 1956 from April 1, 1956.
12. Apart from the view expressed by the learned Judges as regards theeffect of the changes made in s. 34(1) with the provisos we have set outearlier a view which we have held is not correct - they did not furtherconsider the proper construction to be placed on the second proviso to s. 34(3)of the Act on which the validity of the impugned notice to the respondents mustultimately be decided.
13. As we have pointed out earlier, at the beginning of the judgment, thelearned Judges confined their attention practically only to the construction ofproviso (iii) to s. 34(1) which was decided in favour of the respondents anddid not permit them to argue the other points raised by them. We do not proposeto decide these other points, particularly for the reason that the parties arenot agreed as to what precisely were the contentions which were raised forargument.
14. For the reasons stated above, the decision of the High Court is clearlywrong. We, therefore, allow the appeal, set aside the order of the High Courtand remit the matter to it for the consideration of the other points which wereraised before it by the respondents but upon which they were not heard. Asregards costs we think that they should abide the result of the writ petitionbefore the High Court.
15. Appeal allowed and case remanded.