P. B. MUKHARJI J. - This is a reference by the Commissioner of Income-tax under section 66(1) of the Indian Income-tax Act. The two questions asked in the reference are as follows :
'(1) Whether, in the facts and circumstances of this case, the claim for double taxation relief was properly made within the meaning of section 49A of the Income-tax Act, read with the Income-tax (Double Taxation Relief) (United Kingdom) Rules, 1948 and
(2) Whether, in the facts and circumstances of this case, the claim for the double taxation relief was made within the period prescribed under the Indian Income-tax Act and the Rules ?'
Before answering these two questions, it will be appropriate to set out the relevant facts. The assessee is a non-resident sterling company. Dividend is its only source of income from India. It has also income which accrued or arose outside India from dividends from companies outside India having income accruing or arising in India. Dividends from India were returned in Section A of the return under section 22(2), whereas other dividends were returned in Section C of the said return as not being chargeable in India.
The assessments were made in the first instance for the year 1940-41 and 1941-42 on the 16th December, 1943, for the year 1942-43 on the 17th December, 1943, and for the year 1943-44 on the 20th January, 1944. In such assessments the Income-tax Officer did not include the income accruing outside India in the total income of the company. This was made because of the then decision of the Calcutta High Court in Raleigh Investment Company Ltd. The calendar of the history of the Raleigh Investment case has a bearing on the assessments under consideration in this reference. On the 9th April, 1943, a Special Bench of the Calcutta High Court of Derbyshire C.J., Mitter and Lodge JJ. in Raleigh Investment Co. Ltd. v. Governor-General in Council, held that as the dividends of the sterling companies were declared outside the then British India and paid to the assessee company outside British India, they were income arising to a non-resident outside British India and that explanation (3) to section 4(1) (c) of the Indian Income-tax Act was ultra vires and invalid inasmuch as it was not within the extra-territorial powers conferred on the Indian Legislature by the Government of India Act, 1935. Therefore, it held that as the tax was paid under an illegal demand, it could be recovered back as money had and received an that section 67 of the Indian Income-tax Act was not a bar to the maintainability of the suit. About a year thereafter on the 27th of March, 1944, the Federal Court of India reversed that decision of the Calcutta High Court in Governor-General in Council v. Raleigh Investment Co. Ltd. It held that the source of the dividends paid to the assessee company by the sterling companies was British India and in making the dividends liable to income-tax and super-tax on that basis the Indian Legislature was not giving its law any extra-territorial operation and, even if there was any extra-territorial operation in the impugned provisions, it was within the legislature powers given to the Indian Legislature by the Government of India Act, 1935. The Federal Court, however, also held that the suit related to a matter concerning revenue within section 226 of the Government of India Act, 1935, and the High Court of Calcutta had no original jurisdiction to entertain the suit. Thereafter, on the 2nd February, 1947, the Privy Council dismissed the suit on the technical ground that this was a matter concerning revenue and did not express any opinion on the question whether the impugned provision was ultra vires or not. The Privy Council decision is reported in Raleigh Investment Co. Ltd. v. Governor-General in Council. The fate of the Raleigh Investment case between the 9th April, 1943, and the 2nd February, 1947, had material effect on the assessments in this reference.
While the Raleigh Investments case was going through the hierarchy of courts, the assessees filed formal notices of claim under section 49 of the Income-tax Act on the 24th December, 1943, and 25th January, 1944. This was accepted by the income-tax department as a 'provisional claim' for relief from double income-tax for the four years mentioned there in those letters - 1940-41, 1941-42, 1942-43 and 1943-44. Then the records of this case were transferred to Bombay where the Calcutta decision of the Raleigh Investment case was not binding on the Income-tax Officer. Notices under section 34 of the Income-tax Act were issued upon the assessee on the 28th September, 1944, for all the above years by the escaped income from the dividends, which could not be taxed under the Calcutta decision in Raleigh Investment case. Now these revised assessments under section 34 were completed on the 29th March, 1945, the 28th March, 1946, the 27th March, 1947, and the 19th January, 1948, for the respective years 1940-41, 1941-42, 1942-43 and 1943-44. The communications of the orders of assessment of these respective years were made on the 7th April, 1945, the 9th April, 1946, 9th April, 1947, and the 3rd February, 1948.
For the proceedings under section 34 of the Income-tax Act on the escaped assessment, the assessees whole case was that they were entitled to relief for the same reasons as on the original assessment from double income-tax both in India and the United Kingdom and, therefore, they should be allowed that relief. The assessees claim was lost on the ground that such claim for relief double income-tax from proceedings under section 34 was not put in time and was, therefore, barred by limitation. It may be appropriate to mention here that by letter dated the 26th October, 1951, wrongly mentioned as 27th October, 1951, in the reference, Messrs. Price Waterhouse Peat and Company, for the assessee, enclosed an application for relief from double income-tax under section 49 of the Income-tax Act. This letter has, by consent of parties and counsel, been made a part of this paper book.
Now the Income-tax Officer refused to grant relief to the assessee from double taxation of the escaped income under section 34 on the grounds :
(1) no regular claim under the prescribed form was submitted within the prescribed period of time; and
(2) the provisional claim made on the 24th December, 1943, and 25th January, 1944, were in general terms and the returns filed before those dates did not include the dividend on which the double income-tax relief was now claimed.
Regarding relief from double taxation, the Tribunal stated that the proceedings under section 34 read with section 23 finished long after the date within which the assessee was expected to make the claim for relief under section 49A of the Income-tax Act. Therefore, the provisions of the Rules were such that an assessee was required to do something which it was impossible for him to do in the circumstances. The point is that the time for making the claim expired long before the details which were required to be furnished under the rules could be given. The Tribunal, therefore, observed and followed the procedure for provisional claims which the income-tax authority itself had very sensible adopted for a long time because otherwise it was impossible for the assessees to get relief from double taxation to which they were otherwise lawfully entitled.
On behalf of the income-tax authorities, it was contented that whatever concession or directions the Government and the income-tax authorities might have made and followed, it could not override the rules in question and the rules required that applications should be made in the prescribed form. Therefore, the Tribunal constructed the word 'shall' in rule 4(2) of the Rules prescribed under section 49A of the Act to be not mandatory but directory. It thus got over the difficulty of limitation and granted relief to the assessee. It further held that the 'provisional claim' for relief made on the 24th December, 1943, and the 25th January, 1944, although it arose at a time when this question of relief from double taxation by virtue of assessment under section 34 of the Income-tax Act on the escaped income had not arisen, nevertheless was not limited to the claim for the original assessment, but covered such claims as they arose in future relating to the escaped assessment.
It will thus appear from this record that while the Income-tax Officer refused the assessees claim as time-barred, the Appellate Assistant Commissioner held that it was not so in the first instance. He also drew attention to the departmental instructions published in the Income-tax Bulletin (C. B. R. Bulletin, volume 1, No. 1, June Quarter, 1955, page 25), where it is laid down in rule 3 as follows :
'Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department; for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessees on whom it is imposed by law, officers should :
(a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;
(b) when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.'
No doubt these 'instructions', sensible as they are, are not to be regarded as law but as administrative guides.
The Appellate Assistant Commissioner draws pointed attention not only to the fact of these instructions but also to the fact that in this case it was not a question even of any ignorance on the part of the assessee. The circumstances here are more in favour of the assessee for the simple reason that here the question of showing income on which double income-tax relief could be claimed could not arise in the provisional claim which was made in respect of the original assessment by those two letters of the 24th December, 1943, and the 25th January, 1944. He also points to the very practical difficulty that the Income-tax Officer may take a number of proceedings in coming to a final assessment and by the time he arrives at the total income finally assessed, the time for relief may have expired. Not to permit relief in such a case will amount to putting a premium on the inability of the Income-tax Officer, even though for a valid reason, to come to a proper decision at the original stage. The Appellate Assistant Commissioner, therefore, directed the Income-tax Officer to treat the claim in this case as within time. Against that decision the Income-tax Officer appealed to the Tribunal with the result which I have already indicated. The decision of the Tribunal was, firstly, that the relative rule using the word 'shall' must be construed as directory and not mandatory and, secondly, the provisional claim related to the relief on account of double income assessed in the relevant assessment years and it was not a limited claim only for the original assessment made by the department.
On these facts, the first question can be answered straightaway. As will be seen from the question set out before, it relates to section 49A of the Income-tax Act. Section 49A of the Income-tax Act appeared in the statute book in 1939. Originally it was not applicable at all to the United Kingdom because it provided in material part as follows :
'49A. (1) The Central Government may, by notification in the Official Gazette, make provision for the granting of relief in respect of income on which has been paid both income-tax (including super-tax) under this Act and Dominion income tax.
(2) For the purpose of this section Dominion income-tax means any income-tax or super-tax charged under any law in force in any Indian State or in any part of His Majestys Dominions (other than the United Kingdom) where the laws of that State or part provide for relief in respect of tax charged on income both in that State or part and in British India which appears to the Central Board of Revenue to correspond to the relief which may be granted by this section.'
The words 'other than the United Kingdom' definitely exclude United Kingdom tax from the meaning of the expression 'Dominion tax' under section 49A in its original form. This was completely changed by replacing the words 'other that the United Kingdom' by the words 'including the United Kingdom' on the 15th of August, 1947, by the Adaptation of Income-tax, Profits Tax and Revenue Recovery Acts Order, 1947. But then within this period from 1939 to 15th August, 1947, section 49A, therefore, could not be applied to the United Kingdom tax. The present case is concerned with the United Kingdom tax within this period and, therefore, section 49A could be applied at the relevant time in this case. The answer, therefore, to the first question must be in the negative on this short ground.
We are now left with the second question of this reference which raises the main point of limitation.
Section 49 of the Income-tax Act under which the relief was claimed expressly provides for relief in respect of the United Kingdom income-tax. That is the reason why in the old section 49 A the United Kingdom income-tax was excluded at first. This section 49 was abolished by section 10 of the Income-tax and Business Profits Tax (Amendment) Act (Act XLVIII of 1948), dated the 8th September, 1948, but retrospectively with effect from the 30th March, 1948. The result today now after 1948 is that there is no section 49 and section 49A has been so amended as to include the United Kingdom tax. We are, however, concerned not with the 1948 amendment of section 49, but with the law prior thereto. At the relevant time the material provisions of section 49 of the Act for our purpose were as follows :
'49. (1) If any person who has paid by deduction under section 18 or otherwise Indian income-tax for any year on any part of his income proves to the satisfaction of the Income-tax Officer that he has paid by deduction or otherwise United Kingdom income-tax for the corresponding year in respect of the same part of his income and that the rate at which he was entitled to, and has obtained, relief under the provisions of section 27 of the Finance Act, 1920, is less than the Indian rate of tax charged in respect of that part of his income, he shall be entitled to a refund of a sum calculated on that part of his income at a rate equal to the difference between the Indian rate of tax or the appropriate rate of United Kingdom income-tax whichever is less, and the rate at which he was entitled to, and obtained relief under that section.'
It is followed by certain provisions and provisos which are not material for our purposes. On a plain reading of this section it emphasises (1) that the person must have paid Indian income-tax, (2) that he has also paid the United Kingdom income-tax, and the rate at which he has paid the United Kingdom income-tax, (3) has obtained relief under the provisions of section 27 of the English Finance Act of 1920 and (4) that such relief is less than the Indian rate of tax charged in respect of that part of his income. It is only when he satisfies these four conditions that he qualifies for a refund of the prescribed amount mentioned in section 49. It does not deal at all with the form or manner of making a claim for refund and only specifies the conditions which an assessee must satisfy before he is actually 'entitled' to the refund.
The actual limitation for making this claim for relief is provided in section 50 of the Income-tax Act, which reads as follows, quoting only the relevant portion :
'No claim to any refund of income-tax or super-tax under this Chapter shall be allowed, unless it is made within four years from the last day of the financial year commencing next after the expiry of the previous year in which the income arose, accrued or was received or was deemed to have arise, accrued or been received or was brought into British India.'
This also is followed by certain other provisos with which we are not concerned. It will appear from section 50 that limitation for claims for refunds is four years. From the language of section 50, it is also clear that no particular form in which the claim is to be made is prescribed. All that it says is that it is to be made within four years.
The major contention of the income-tax authorities must be set out here before quoting and considering rule 40 prescribing the manner of making an application for refund and its form. It is first contended on behalf of the income-tax authorities that the formal claims under section 49 of the Income-tax Act dated the 24th December, 1943, and the 25th January, 1944, do not satisfy the requirements of section 49. Obviously they do not. The letters themselves show it. Obviously the letters show that the assessee had not yet then obtained relief under section 27 of the English Finance Act. That is one of the qualifying conditions before an assessee is entitled to relief from double taxation. But it is precisely for this reason that the system of permitting 'provisional claims' grew up. There was often great delay in settling assessments and claims to relief in the United Kingdom and, therefore, provisional claims for double income-tax relief unsupported by proof that relief had actually been obtained in the United Kingdom was accepted if presented within the period of limitation, of course, on the assessee definitely undertaking to produce such proof as soon as the relief in the United Kingdom was actually obtained. When this undertaking was fulfilled the claim was treated as one presented in due time. That practice was recognised in the Income-tax Manual and under the caption 'provisional claim' at page 289 of the Income-tax Manual of 1945, the following procedure is laid down :
'Provisional claim. - The time-limit for making a claim for refund under section 49 is mentioned in section 50. Since, however, there is often very great delay in settling assessments and claims to relief in the United Kingdom, provisional claims for double income-tax relief unsupported by proof that relief has actually been obtained in the United Kingdom will be accepted if presented within the limitation period if the assessee definitely undertakes to produce such proof as soon as relief in the United Kingdom has been actually obtained. When this undertaking is punctually fulfilled the claim will be treated as one presented in due time.'
This was the almost uniform practice followed throughout by the department. Today it is challenged by the department itself on the ground that this practice, sanctified by long adoption for years and embodying commonsense and fairness, does not alter the strict limitation of four years enjoined by section 50 of the Act. No doubt, if the practice is ultra vires or is against the statute, then it must go; but the question remains how did the practice, if it was so obviously ultra vires, come into being because the period of limitation of four years was clearly laid down in section 50 of the Act all the time. The answer is not far to seek. The answer is that this practice is not ultra vires. As pointed out above, section 50 only stipulates that the claim is to be made within four years. It does not prescribe by statute or statutory provision how or in what manner the claim is to be made. If it leaves it undetermined, then the claim, in any form, if made within four years, should satisfy the statute. Section 49 of the Act does not at all speak of how a claim for refund for double taxation is to be made. It only speaks of the conditions which an assessee must satisfy before he is entitled to the refund. With a view to enable that claim being made, this system of provisional claim, when all details had not been obtained to qualify for the relief, was permitted as sufficient satisfaction of the statutory limitation in section 50 of the Indian Income-tax Act. The procedure and practice, therefore, for entertaining 'provisional claims' as laid down in the Income-tax Manual quoted above, do not violate either section 49 or section 50 of the Income-tax Act.
It is then urged by the department that in any event the formal claims under section 49 of the Income-tax Act, dated the 24th December, 1943, and 25 January, 1944, could only cover double taxation relief in respect of the original assessment but not in respect of the escaped assessment under section 34 which had not arisen then. For that purpose it is argued that the application was made on the 26th October, 1951, which was well beyond the four years within the meaning of section 50 of the Income-tax Act. If the application dated the 26th October, 1951, is taken by itself independently without any reference to the claims put in on the 24th December, 1943, and 25 January, 1944, then the argument of the income-tax authorities is unassailable and must be accepted. It may also be said here that this application in respect of the escaped assessment dated the 26th October, 1951, does not even mention the previous notices under section 49. It is, therefore, contended with considerable force that relief under double taxation was granted on the original assessment on the letters of the 24th December, 1943, and 25th January, 1944, treating them as provisional claims well within the time of limitation of four years under section 50 of the Act. But then this must be confined only to the relief in respect of the escaped income. This point is, of course, without any merit at all and is a point of pure technicality. If the relief from double income-tax is given on the original assessment, there is no question that the assessee is also entitled to the same relief with regard to the escape income under section 34 of the Act. The only ground on which the income-tax authorities are resisting the claim for refund is again limitation.
For this purpose reference now to rule 40 of the Income-tax Rules is necessary. Rule 40 was made under section 59 of the Income-tax Act which provides for rule-making power by the Central Board of Revenue subject to the control of the Central Government for carrying out the purposes of the Act and especially for prescribing the procedure to be followed on applications for refund under section 49 of the Act. It is provided by sub-section (5) of section 59 that 'Rules made under this section shall be published in the Official Gazette, and shall thereupon have effect as if enacted in this Act.' One of the rules made under section 59 and now having the effect as if enacted in the Income-tax Act is rule 40. Rule 40 provides as follows :
'40. An application for refund of income-tax under section 49 of the Act shall be made in the following form :
Application for relief from double income-tax under section 49 of the Indian Income-tax Act, 1922.
I,...... of....... do hereby state that I have paid (or under the provisions of section 49B of the Act must be deemed to have paid), United Kingdom Income-tax and super-tax amounting pounds.......... for the year ending 19. ..., on an income of pounds.......... and that Indian income-tax/income-tax and super-tax of Rs........... has also been paid (or under the provisions of section 49 B of the Act must be deemed to have been paid) on the same income/income from the same source amounting to Rs........ I have obtained relief under the provisions of section 27 of the Finance Act, 1920, at the rate of....... in accordance with the attached certificate from His Majestys Inspector of Taxes.
I now pray for a further relief at the rate of...... amounting to Rs......... under section 49 of the Indian Income-tax Act, 1922, to which I am entitled. My income from all sources to which this Act applies during the 'previous year' ending on the............ 19. ....., amounted to Rs....... only. - See Return of income attached/already submitted.
I hereby declare that what is stated herein is correct.
The form prescribed follows the requirements of section 49. Obviously in this case these requirements could not be satisfied within the time period of limitation of four years for the very good reason that, by the time the escaped income was assessed, the time for claiming the refund had expired. Therefore, such a form could not be invoked or used by the assessee in the facts of this case. A form and a rule cannot be applied to do or mean impossible things. Rule 40, therefore, could not possibly have been invoked or the form therein used by the assessee in this case for no application to the particular fact and situation presented in this case. Therefore, it follows that we shall have to proceed as though there was no rule to cover this case. That means that there was no prescribed form to meet such an eventuality as has happened in this case. Therefore, we are thrown on the system of allowing provisional claims which was wisely and properly and with good sense introduced by the income-tax department. Therefore, it follows again that the letters of the 24th December, 1943, and 25th January, 1944, must be treated as sufficient demand within the meaning of section 50 of the Income-tax Act which prescribes no particular method or manner of making the application. In that view of the matter the language of rule 40 saying that an application of refund shall be in the following form is no longer of any importance because this rule has no application to the particular event in the facts of this case. Secondly, of course, the reason put forward by the Tribunal is also compelling and sound that in such a case the word 'shall' and the word 'form' are directory and not mandatory so that a breach of form will not vitiate the act of making claims by barring it with limitation. To do so will result in manifest injustice and great hardship. This is supported also by high authorities which it is unnecessary to discuss in detail. I shall, however, make a brief reference to some of them. Maxwell puts the proposition at page 376 of the tenth edition of Interpretation of Statutes in the following terms :
'It may, perhaps, be found generally correct to say that nullification is the natural and usual consequence of disobedience, but the question is in the main governed by considerations of convenience and justice (per Lush J., R. v. Ingall), and, when that result would involve general inconvenience or injustice to innocent persons, or advantage to those guilty of the neglect, without promoting the real aim and object of the enactment, such an intention is not to be attributed to the legislature. The whole scope and purpose of the statute under consideration must be regarded (Salford Guardians v. Dewhurst, Vita Food Products Inc. v. Unus Shipping Co.). The general rule is, that an absolute enactment must be obeyed or fulfilled exactly, but it is sufficient if a directory enactment be obeyed or fulfilled substantially.'
To the same effect is the enunciation of the law on this point in Craies on Statute Law, fifth edition, at page 243, where the case of R. v. Leicester, at page 12, is quoted holding the enactment there as merely directory and the enactment in question was in relation to the time for holding the sessions. Lord Tenterden in that case said :
'It has been asked what language will make a statute imperative if 54 Geo. 3, c. 84, be not so. Negative words would have given it that effect, but those used are in the affirmative only.'
But Craies points out that it does not appear that this can be laid down as a universal rule. In R. v. Lofthouse, it was held that where voting paper had been distributed which were not precisely in the form given in Schedule A, as the column for the number of votes was left blank, the omission did not vitiate the voting papers nor made the election void.
Lastly, it is necessary to discuss the argument advanced on behalf of the income-tax authorities that the letters date the 24th December, 1943, and 25th January, 1944, making the Income-tax Officer to treat the same as formal notices of claim under section 49 of the Income-tax Act, could only cover the original assessment and the income which had been returned at the time when those letters had been written but not those incomes which had escaped assessment and for which proceedings were subsequently taken under section 34 of the Act. In fact, it is said on this branch of the argument that it is impossible to hold that the general claims made in those letters could be stretched to include dividend income brought to tax under section 34 much later, claims for which had not arisen at the time when the letters had been written. There is a good deal of force in that objection. The facts on this point have already been stated earlier. Now the actual language used in the letter of the 24th December, 1943, is as follows :
'Will you please treat this letter as a formal notice of claim under section 49 for 1940-41, 1941-42 and 1942-43 and confirm that you have done so.'
It was so confirmed by the Income-tax Officers letter of the 3rd January, 1944. To the same effect was the letter of the 25th January, 1944, in respect of the year 1943-44, which was also confirmed by the Income-tax Officers letter of the 26th January, 1944.
The words of these letters are unqualified. They do not in terms restrict the claim only to the original assessments. It is no doubt true that at those dates when these letters were written, no question of escaped assessment under section 34 arose and, therefore, it can very well be said that the escaped assessment was not under contemplation at the time and, therefore, those letters of that time could not be construed to include claims in respect of double income-tax relief relating to the escaped assessment under section 34. If the escaped income was something entirely different from the original assessment, then there would be no answer to this argument. But I am satisfied on the authorities that the original assessment and the escaped income assessment are, in their essential nature, the same for the purpose of the claim for refund.
The reasons for this conclusion may be briefly summarised. No doubt, as a general proposition this is well-settled that proceedings under section 34 do not reopen the whole assessment in the sense that the assessment originally made could be reopened or new objections to such original assessment could be permitted during the proceedings for assessment of escaped income under section 34 of the Income-tax Act. The observation of Beaumont C.J. in Madhavjee Damodar Thackersay v. Commissioner of Income-tax and the observations of the Calcutta High Court in Satyendra Mohen Roy Choudhury v. Commissioner of Income-tax are clear on that point. But then subject to that limitation the whole purpose and object of assessment of escaped income under section 34 show that it is one income for the same year of the same assessee which is being assessed. It will be unnecessary to discuss the language of section 34 in detail except to say that it can be applied when the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make the return of his income or to disclose fully and truly all material facts necessary for the assessment for that year, income chargeable to income-tax has escaped assessment for that year or has been under-assessed or assessed at too low a rate of has been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed. Basically, it attracts income that has escaped. That is the governing word of the section. It has been the subject of many decisions of which two will be material and relevant for the purpose of this reference. The first decision, is that of the Division Bench of the High Court in Krishna Hydraulic Press Ltd. v. Commissioner of Income-tax, consisting of Derbyshire C.J. and Gentle J. Gentle J., who delivered the judgment of the Division Bench, at page 512 of the report made the following observation on the construction of section 34 of the Income-tax Act :
'The words which require particular attention are have escaped assessment in any year. The assessment which was made in August, 1940, was in respect of the year 1938-39 and it was made because in the year of assessment the company escaped assessment in that year and the provisions of the section can only be called into effect when, as is material, the Income-tax Officer has reason to believe the assessee has concealed the particulars of his income. This section enables an assessment to be made in a subsequent year when the assessee has escaped from being assessed. From what has he escaped He has escaped from an assessment which would have been made upon the him during an earlier year. The object of the section is to overcome the result of an assessee escaping from an assessment which should have been made upon him. Another object, of course, is that there may be recovery from him of income-tax which he should have paid had the assessment been made during the correct period. From this, in my view, it must follow that the assessment made in a subsequent year must be the same as the assessment would have been, had it been made in the correct year.'
That shows that it is one assessment, the original and the escaped income being one. In fact, the escaped income is added back to the total income of the original assessment and then a new rate and a new slab of taxation are worked out. That this is so, also appears from the observation of Rajamannar C.J. and Yahya Ali J. in the decision of the Division Bench of the Madras High Court in Govindarajulu Iyer v. Commissioner of Income-tax. The relevant observation at page 397 of the Madras Division Bench decision are as follows :
'It is also clear that under section 34 of the Act there is no de novo assessment in the sense that it is open to the assessee also to show that he has been wrongly assessed in respect of matters which are not covered by the notice under section 34. Essentially the proceedings under section 34, whether partially or totally, relate to the same proceeding which must be deemed to have commenced with the publication of the general notice under section 22(1). In some respects and in some cases it may lead to a supplemental assessment. In other cases it may result in assessment for the first time, as in this case where there has not been any assessment before. We do not find any justification for the artificial separation of a proceeding under section 34 from a proceeding relating to the original assessment or to proceedings which started before a notice under section 34, so long as they all relate to the same assessee and the same period.'
In fact, in that Madras case it was held that where proceedings were taken under section 34, such proceedings would be deemed to relate to the proceedings which commenced with the public notice under section 22(1) leading to the original assessment.
That being so, it is clear that the letters of the 24th December, 1943, and 25th January, 1944, when treated as notices of claim under section 49 of the Income-tax Act, must cover a claim not merely for the original assessment but also for any escaped income assessment, the proceedings of which might arise even subsequent as, in fact, they did, to those dates on the ground that such further proceedings under section 34 relate to the same assessee for the same year and to the same assessment, with this difference only that the escaped income is being assessed with no right of objection by the assessee to question the original assessment or to reopen it. Taking that view of the matter, it must be held that on those two dates, the 24th December, 1943, and the 25th January, 1944, the claims were within the period of four years as required by section 50 of the Income-tax Act and, therefore, the claim for refund of the assessee was not barred.
Therefore, the answer to the second question must be in the affirmative and the claim for refund must be held to have been made within the period prescribed under Indian Income-tax Act and the Rules thereunder.
We think that in fairness the Commissioner of Income-tax should pay the costs of this reference to the assessee in this case because not only did he lose both before the Appellate Commissioner and before the Tribunal but also because he had the Income-tax Manual and the directions and practice all against him on this point, a practice which I hold is not ultra vires and is eminently sensible and which has been followed for may years by the income-tax department and we have failed to see any reason why the authorities suddenly after so many years wanted to take an entirely different view, which we have found to be untenable.
Certified for two counsel.
BOSE J. - I agree.
Reference answered accordingly.