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Mriganka Mohan Sur Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 89 of 1968
Judge
Reported in78CWN227,[1974]95ITR503(Cal)
ActsIncome Tax Act, 1922 - Section 34(1)
AppellantMriganka Mohan Sur
RespondentCommissioner of Income-tax
Appellant AdvocateK. Roy, Adv.
Respondent AdvocateB.L. Pal and ;A.K. Mitra, Advs.
Cases ReferredL. Hazari Mal Kuthiala v. Income
Excerpt:
- .....notice under section 34(1) of the indian income-tax act 1922, should specify under which of the clauses, clause (a) or clause (b), it was issued. counsel for the assessee, however, strongly relied on the decision of the allahabad high court in the case of raghubar dayal ram kishan v. commissioner of income-tax : [1967]63itr572(all) . in that case there was a difference of opinion between the two learned judges and it was referred to the learned third judge, r. s. pathak j. (as the learned judge then was), agreeing with chief justice desai, observed that where an income-tax officer assessed an income under section 34(1)(a) and the appellate tribunal, on appeal, came to a conclusion that it should have been assessed under section 34(1)(b), the tribunal had no jurisdiction to convert or.....
Judgment:

Sabyasachi Mukharji, J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The reference relates to the assessment years 1954-55, 1955-56, 1957-58 and 1958-55 for which the relevant previous years were the financial years ending 31st March, 1954, 31st March, 1955, 31st March, 1957, and 31st March, 1958, respectively. For all these years the firs question referred to this court is :

'Whether, on the facts and in the circumstances of the case, the income from the house properties at 53A and 53B, Gariahata Road, Calcutta, was rightly included in the total income of the assessee under Section 16(3)(a)(iii) of the Indian Income-tax Act, 1922 '

2. In appears that the said question had also been referred for the assessment year 1956-57 in Income-tax Reference No. 42 of 1963. This court has answered the question in the affirmative and in favour of the revenue. In view of the aforesaid decision in Income-tax Reference No. 42 of 1963the question No. 1 has to be answered in the affirmative and in favour of the revenue.

3. For the assessment years 1954-55 and 1955-56 another question being question No. 2 has been referred to this court in the instant reference. The said question is as follows :

' Whether, on the facts and in the circumstances of the case, the Tribunal could in law uphold the assessments for the assessment years 1954-55 and 1955-56 on the notices under Section 34(1)(a) with reference to the powers under Section 34(1)(b) of the Indian Income-tax Act, 1922 ?'

4. In order to appreciate this question it would be necessary to refer to certain facts. The assessee is an individual and has income from salaries, properties and other sources. For the assessment years 1950-51 to 1955-56 the Income-tax Officer issued notices under Section 34(1)(a) on the 10th July, 1958, in order to include 'income from property at 53A and 53B, Gariahata Road, Calcutta, standing in the name of his wife ' on the footing that Section 16(3) was applicable. These assessments were completed on 25th August, 1958. The assessment proceedings for 1957-58 and 1958-59 were initiated under Section 22 and the assessments were completed under Section 23(3) on the 29th November, 1958. On appeal the Appellate Assistant Commissioner decided the appeals for the years 1950-51 to 1958-59 (but not for 1956-57) by a common order. The Appellate Assistant Commissioner held that the proceedings under Section 34 for the years concerned has been validly initiated and further that the provisions of Section 16(3) were attracted. He, accordingly confirmed the assessments.

5. There was a further appeal to the Tribunal. The Tribunal's attention was drawn to its consolidated order dated 25th July, 1962, in Income-tax Appeals Nos. 9865 to 9868 of 1960-61 relating to the assessment years 1947-48 to 1949-50 and 1956-57, where the validity of action under Section 34 had been considered. The Tribunal had held that there was no omission by the assessee to disclose the material facts and as such the proceedings under Section 34(1)(a) did not lie. The basis for the Tribunal's so holding seems to be that under the law an assessee is obliged to disclose all the particulars of his income. But the law also imposes upon the Income-tax Officer a duty under Section 16(3) to include certain other income in the income of the assessee even though these are not the income of the assessee. Failure to disclose those incomes which the law enjoins the Income-tax Officer to include under Section 16(3) of the Indian Income-tax Act, 1922, does not amount to a non-disclosure by the assessee in terms of Section 34 of the Indian Income-tax Act, 1922. The Tribunal, however, considered that Section 34(1)(b) might have been applicable but the proceedings were barred by limitation for the assessment years 1947-48 to 1949-50. As regards the assessment year 1956-57 which was a regular assessmentmade under Section 23(3) the Tribunal held on merits that the properties in question had been constructed in the name of the assessee's wife with the funds provided directly or indirectly by the assessee and as such Section 16(3) was applicable. Following the aforesaid decision of the Tribunal for the assessment years 1947-48 to 1949-50, the Tribunal held that the assessments for the years 1950-51 to 1953-54 could have been reopened only under Section 34(1)(b), and as the period of limitation of four years had expired these assessments were bad in law. As regards the assessment years 1957-58 and 1958-59 which were assessments under Section 23(3) the Tribunal held that the Income-tax Officer had correctly applied the provisions of Section 16(3) of the Indian Income-tax Act, 1922, and the inclusion of property income in the assessee's total income was proper. As regards the assessment years 1954-55 and 1955-56 the Tribunal observed that the proceedings under Section 34 were commenced and completed within four years from the end of the relevant assessment year. Though the Income-tax Officer had acted under Section 34(1)(a) the Tribunal supported the assessment as having been made with reference to the powers available under Section 34(1)(b) of the Act. The revenue did not go up in appeal in respect of the assessment years 1950-51 to 1953-54 where the reassessments had been vacated. Thereafter, on application being made, the two questions as mentioned hereinbefore have been referred to this court under Section 66(1) of the Indian Income-tax Act, 1922. The Tribunal in its appellate order had noted that it was submitted that Section 34(1)(a) was not applicable on the ground that there was no suppression of any material fact by the assessee ; action under Section 34(1)(b) might have been possible but the proceedings could not be started under that section for the assessment years 1950-51 to1953-54 on 10th July, 1958, as the proceedings in question were commenced after the expiry of four years from the end of the relevant assessment years. But as regards the assessment years 1954-55 and 1955-56 it appears that proceedings under Section 34 were commenced and completed within four years from the end of the relevant assessment years. So the Tribunal was of the opinion that though the Income-tax Officer had acted under Section 34(1)(a) the assessments could be supported as having been validly made with reference to the powers under Section 34(1)(b). It was undisputed that on merits Section 16(3) was applicable.

6. It appears from the aforesaid facts that Section 16(3) of the Indian Income-tax Act, 1922, was applicable in the instant case and the income of the assessee so far as it related to the property income of 53A and 53B, Gariahata Road, Calcutta, has escaped assessment. It also appears that the said information or knowledge of the Income-tax Officer came to his possession after the original assessments in respect of the assessment years1954-55 and 1955-56, and action was taken by the Income-tax Officer purporting to act under Section 34(1)(a) of the Indian Income-tax Act, 1922, and as mentioned hereinbefore reassessments were commenced and completed within the period of limitation prescribed for action under Section 34(1)(b) of the Indian Income-tax Act, 1922, namely, four years after the completion of the original assessments. Counsel for the assesses contended that in a case where the Income-tax Officer had acted under Section 34(1)(a) of the Indian Income-tax Act, 1922, the Tribunal has no jurisdiction to uphold the said reassessment under Section 34(1)(b) of the Act. It was contended that Section 34(1)(a) of the Indian Income-tax Act, 1922, and Section 34(1)(b) of the said Act gave two different jurisdictions to be exercised in two different contingencies and one was exclusive of the other and if the Income-tax Officer had initiated proceeding under one jurisdiction the Tribunal had no power to convert that proceeding into a proceeding under a separate jurisdiction. In support of this contention reliance was mainly placed on a decision of the Supreme Court in the case of Johri Lal v. Commissioner of Income-tax : [1973]88ITR439(SC) .. There the Supreme Court observed that where the Income-tax Officer himself had proceeded on the basis of Section 34(1)(b) of the Indian Income-tax Act, 1922, and not on the basis of Section 34(1)(a), in the absence of material on record to show that the Income-tax Officer had formed the requisite belief, recorded his reasons for taking action under Section 34(1)(a) and had obtained the sanction of the Central Board or the Commissioner, as the case might be, it was not open to the Appellate Tribunal to justify the proceedings taken by the Income-tax Officer under Section 34(1)(a). It was further observed that the formation of the required belief by the Income-tax Officer before proceedings could be validly initiated under Section 34(1)(a) was a condition precedent : the fulfilment of this condition was not a mere formality, it was mandatory, and failure to fulfil that condition would vitiate the entire proceedings. Further, the formation of the required belief was not the only requirement: the officer was further required to record his reasons for taking action under Section 34(1)(a) and to obtain the sanction of the Central Board or the Commissioner, as the case might be. Relying upon the aforesaid decision of the Supreme Court, counsel for the assessee contended that the aforesaid decision of the Supreme Court was an authority for the proposition that Section 34(1)(a) and Section 34(1)(b) dealt with two separate jurisdictions which were mutually exclusive and. an action in respect of one by the Income-tax Officer could, therefore, not be regarded by the Tribunal as an action taken under the other provision.

7. Clauses (a) and (b) of Section 34(1) of the Indian Income-tax Act, 1922, are similar to Clauses (a) and (b) of Section 147 of the Income-tax Act, 1961. Section 34 of the 1922 Act provided a machinery for reopening of theassessment or making reassessment in certain contingencies and these contingencies have been mentioned in Clauses (a) and (b) of Section 34(1). The limitations upon some of the actions arising out of these clauses have also been provided in the said section. It is, however, necessary to emphasise that Section 34 of the Indian Income-tax Act, 1922, and similarly, Section 148 of the Income-tax Act, 1961, are not charging sections but machinery sections. Clause (a) of Sub-section (1) of Section 34 deals with a case where on materials the Income-tax Officer has reason to believe that because of the failure of the assessee either to make a return of the income or to disclose fully and truly all material facts necessary for his assessment for that year the income for the particular year had either escaped assessment or had been under-assessed. Clause (b) of Sub-section (1) of Section 34 deals with the case even where there was no omission or failure on the part of the assessee but the Income-tax Officer has information from which he could form the belief that income had escaped assessment. Action under Clause (a) could be taken at any time subject to the limitations provided in Clause (ii) of the proviso to Section 34(1) of the Act but action under Clause (b) has to be taken within four years from the end of the relevant assessment year. The proviso to Section 34(1) contains certain other limitations for a notice under Clause (a) of Sub-section (1) of the said section and one of the important limitations is that the Income-tax Officer before taking action should record his reasons for so doing and in certain cases should obtain the sanction either of the Commissioner or of the Central Board of Revenue, as the case may be. Under Sub-section (3) of Section 34 the reassessment under Clause (b) of Section 34(1) has to be completed within four years from the end of the year in which the income, profits or gains were assessable. The said conditions of the proviso to Section 34(1) do not apply to the notice under Clause (b) of Section 34(1). An examination of different ingredients of Clause (a) and Clause (b) of Section 34(1) indicates that under Clause (a) it is essential for the Income-tax Officer to have reason to believe : (i) that there was omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for assessment; (ii) that due to that omission income chargeable to tax has either escaped assessment or has been under-assessed. It is further necessary that there must be material for the Income-tax Officer to form the aforesaid belief, viz., that there was omission, as mentioned hereinbefore, and that as a result of such omission income has escaped assessment. It is further necessary that the Income-tax Officer should record his reasons and obtain the sanction either of the Commissioner or of the Central Board of Revenue, as the case may be. Under Clause (b) of Sub-section (1) of Section 34 it is necessary for the Income-tax Officer to form the belief that: (i) income chargeable to tax has escaped assessment andthat (ii) belief can only be formed upon information. It is not necessary for him either to record the reasons or to obtain the sanction of the Commissioner or the Central Board of Revenue. Section 34, as mentioned hereinbefore, is a machinery section and it deals with the power of the Income-tax Officer to reopen and reassess certain income and the situations in which such power of reopening and reassessment can be used have been prescribed in the two different clauses of Sub-section (1) of Section 34. It appears to us that these two clauses deal with the power of reopening and of making reassessment and it covers different contingencies and situations. Clauses (a) and (b) do not deal with separate jurisdictions; both deal with cases of income escaping assessment. It is also necessary to examine whether Clause (a) and Clause (b) are mutually exclusive. It is true that these two clauses are mutually exclusive from one point of view, that is to say, where information is of such a nature as to lead to the formation of the belief that there was failure or omission on the part of the assessee to disclose fully and truly all material facts, that information must come always within Clause (a) of Sub-section (1) of Section 34. Action in such cases must be taken within the condition prescribed under Clause (a) of Sub-section (1) of Section 34. But if the information is not sufficient to lead to the formation of the belief or if there was no such information at all that there was failure or omission on the part of the assessee to disclose fully and truly all material facts but there was information that there was escapement of income or under-assessment of the income provided it is within four years of the completion of the original assessment and the belief to that extent is reasonably formed then action under Clause (b) of Sub-section (1) of Section 34 can be taken. In the case of P.R. Mukherjee v. Commissioner of Income-tax : [1956]30ITR535(Cal) .a Division Bench of this court observed that it was not necessary or imperative that notice under Section 34 must specify under which of the two clauses of the section, Clause (a) or Clause (b), the notice was issued. The main notice, it was observed, to be issued in a case under Section 34 was the notice under Section 22(2). Section 34 merely authorised the issue of such a notice. In that case it was held that the words with which Clause (b) of Section 34(1) opened should be taken as contemplating both a case where there was no actual omission or failure to mention all material facts and also the case where there was an omission or failure in fact but such an omission or failure was not in respect of facts known to the assessee at the time and, therefore, was not deliberate. It was observed by the court that action which was purported to be taken under Section 34(1)(a) of the Indian Income-tax Act, 1922, could be justified under Section 34(1)(b) of the Act also. It appears that so far as the said decision held that it was not necessary to indicate in the notice under Section 34 under which of the clauses it was issued, that part of the decision has been upheld by the Supreme Court in the case of Kantamani Venkata, Narayana & Sons v. First Additional Income-tax Officer, Rajahmundry : [1967]63ITR638(SC) . It was observed there that it was not necessary or imperative that notice under Section 34(1) of the Indian Income-tax Act 1922, should specify under which of the clauses, Clause (a) or Clause (b), it was issued. Counsel for the assessee, however, strongly relied on the decision of the Allahabad High Court in the case of Raghubar Dayal Ram Kishan v. Commissioner of Income-tax : [1967]63ITR572(All) . In that case there was a difference of opinion between the two learned judges and it was referred to the learned third judge, R. S. Pathak J. (as the learned judge then was), agreeing with Chief Justice Desai, observed that where an Income-tax Officer assessed an income under Section 34(1)(a) and the Appellate Tribunal, on appeal, came to a conclusion that it should have been assessed under Section 34(1)(b), the Tribunal had no jurisdiction to convert or alter the assessment made by the Income-tax Officer under Section 34(1)(a) to an assessment under section 34(1)(b) and maintain it as such. It was further observed by the learned judge that Clause (a) and Clause (b) of Section 34(1) contemplated two distinct and mutually independent jurisdictions. R.S. Pathak J. (as his Lordship then was) observed that the two notices were separate and distinct from each other and that was apparent from the proviso to Sub-section (1) of Section 34 where specific reference had been made to a notice under Clause (a) of Sub-section (1). It was apparent also from the first proviso to Sub-section (3) where reference was specifically made to a notice under Clause (b) of Sub-section (I). Sub-section (4) spoke of a notice under Clause (a) of Sub-section (1). It, however, appears to us that the said reference was made to prescribe the different conditions for the issuance of the notice and completion of assessment under different contingencies covered by Clause (a) and Clause (b) of Sub-section (I) of Section 34. With respect it may be pointed out that separate proviso limiting the conditions under which notices under Clause (a) or Clause (b) can be issued and assessment has to be completed do not indicate that Clause (a) or Clause (b) deal with two separate jurisdictions. It is true that there are separate limitations prescribed for different contingencies but some of the conditions are common and provided the conditions which are common are all fulfilled and the other limitation of the other clause is also fulfilled, then action taken in respect of one might be justified with reference to the powers under the other clause. In the aforesaid decision Manchanda J. observed that even though the Income-tax Officer might have chosen to make the assessment under the more stringent and onerous provisions of Section 34(1)(a), there was nothing to prevent the appellate court from invokingSection 34(1)(b) provided the pre-requisite conditions were satisfied and these were found on record. The learned judge further observed that Section 34 was not a charging section. It merely provided a machinery whereby an income which had escaped assessment or had been under-assessed in the relevant assessment years could be brought into the network of taxation. With respect, we are in agreement with the aforesaid view expressed by Manchanda J.

8. As mentioned hereinbefore, strong reliance was placed by counsel for the assessee on the decision of the Supreme Court in the case of Johri Lal v. Commissioner of Income-tax. That case, however, dealt with a different situation. That was a case where notice under Section 34(1)(b) had been issued and it was sought to be justified by the Tribunal under Clause (a) of Sub-section (1) of Section 34. There are obvious difficulties in that matter. Firstly, in order to be an action under Clause (a) there must be formation of a belief that there was failure or omission on the part of the assessee to disclose fully and truly all material facts and there must be further materials to form the belief that such a failure or omission had led to the escapement or under-assessment of the income of the assessee. The aforesaid belief must be formed by the Income-tax Officer before initiation of action. If the Income-tax Officer has not formed that belief about the omission and about the failure leading to the escapement, no other authorities, appellate or otherwise, can form that belief for the Income-tax Officer. Furthermore, there are limitations, namely, that the reasons must be recorded under Clause (a) of Section 34(1) and sanction must be obtained either of the Commissioner or of the Central Board of Revenue, as the case may be. That is not the requirement under Clause (b) of Section 34(1). The belief that there was an escapement of income is common both to Clause (a) and Clause (b). Where, therefore, the belief has been formed and such belief has been formed upon information coming subsequent to the original assessment, there is nothing provided action is taken within the period of limitation, viz., four years from the end of the relevant assessment year, which prevents the Income-tax Officer from taking action under Clause (b) of Section 34(1) and the appellate court can find out whether the belief had been formed about the escapement of income upon information coming subsequent to the original assessment and notice issued within the period of four years from the end of the relevant year. On the materials it is undisputed that the belief could have been formed that income of the assessee had escaped assessment, and that belief was there. It is also apparent that the materials for the formation of such belief came into the possession of the Income-tax Officer subsequent to the original assessment. The objection to the action in this case seems to be that the Income-taxOfficer had, however, formed the belief that such an escapement of income was due to the conduct of the assessee. The expression used in Clause (b) does not exclude a situation where if on the materials the Income-tax Officer thought that there was an omission but the materials were not such to justify that belief but there were materials to show that the income had escaped assessment and such information came subsequent to the original assessment provided action is taken within four years from the end of the relevant year. It is true that action taken under Section 34(1)(b) by the Income-tax Officer could not be justified by the appellate authority if these essential conditions are not fulfilled. But the situation is different where action is taken under Clause (b), then the Income-tax Officer has to fulfil the conditions of Clause (a) in order later to sustain action under that clause and if these are not fulfilled the Tribunal cannot validate the assessment in such a case. If, however, these conditions for action under Clause (b) had been fulfilled, as it appears from the record in this case that these were sufficient, action can be justified under Clause (b) of Section 34(1), though purported to be taken under Clause (a) of Section 34(1).

9. There is, further, another aspect of the matter. It appears that there was information that the income had escaped assessment. It appears further that the information came subsequent to the original assessment and the notice for reassessment had been issued within the period of four years from the end of the relevant assessment year. If this is the position there, even if the Income-tax Officer had purported to take action under Clause (a) it could be justified under Clause (b). It has been held that if a particular action is valid under one section it cannot be rendered invalid because the identical action could also be taken under another section and it makes no difference that the two empowering provisions are either in the same statute or in different statutes. Furthermore, the exercise of power would always be referable to jurisdiction which confer the validity to it and not the jurisdiction under which it would be nugatory. For this reliance may be placed on the observations of the Supreme Court in the case of L. Hazari Mal Kuthiala v. Income-tax Officer, Special Circle, Ambala Cantt : [1961]41ITR12(SC) .

10. In the aforesaid view of the matter and in view of the facts of this case, we are of the opinion that question No. 2 should be answered in the affirmative and in favour of the revenue.

11. In the result, both the questions are answered in the affirmative and in favour of the revenue. In the facts and circumstances of this case, each party will pay and bear its own costs.

Hazra , J.

12. I agree.


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