- This matter came before us on a case stated by the Commissioner of Income Tax, Bengal, under Section 66 (2) of the Income Tax Act (Act XI of 1922). The assessments out of which the questions at issue arise are assessments of the years 1928-29 and 1929-30 said to have been made under Section 34 of the Act on the 19th February, 1932. It is necessary to relate at some length the history of the matter in order that it may be clear how the points which have to determine have arisen. Down to the year 1927-28 assessment was made on a firm named Messrs.. Martin & Company, and upon the present applicants, Messrs. Burn & Company as separate assessees but in that year when it came to the notice of the Income Tax Officer that Messrs. Martin & Company, had apparently acquired by purchase the firm of Messrs. Burn & Company the Income Tax Officer proceeded to make an assessment on Messrs. Martin & Company, on the total income of both these firms jointly. Messrs. Martin & Company, made an objection to this joint assessment and as a result of that objection the matter eventually came before this Court on an application under Section 66 (2) when it was held that the firm of Messrs. Burn & Company had been purchased not with any funds belonging to the firm of Messrs. Martin & Company but with other funds which were the private property of the individual persons who happened to be the partners of Messrs. Martin & Company and further that the acquisitive of the firm of Messrs. Burn & Company by these individuals was a separate venture which should have no connection with Messrs. Martin & Company for the purpose of assessment to income-tax. The order of this Court was dated the 16th May, 1930, and in accordance with that order the assessment on Messrs. Martin & Company as a registered firm was modified and the profits of Messrs. Burn & Company which had been added to the income of Messrs. Martin & Company in that year by the Income Tax Officer for assessment purposes were deducted. In view of the fact that Messrs. Burn & Company had filed a return of income in pursuance to a notice issued under Section 22 (2) in respect of their own income for the previous year, that is, the year 1927-28, the Income Tax Officer on receipt of the High Courts order proceeded to make an assessment under Section 23 (1) on Messrs. Burn & Company on the basis of that return. Messrs. Burn & Company challenged the validity of that assessment made under Section 23 (1) and asked for a Reference under Section 66 (2) of the Act to the High Court and a Reference was duly made by the Commissioner of Income Tax. In that Reference certain questions of law were formulated and all of them were decided against Messrs. Burn & Company as assessees on the 18th February, 1932. While the matter of the legality of the assessment made in the year 1927-28 on Messrs. Martin & Company based on the joint income of both the firms was still pending before this Court the assessments of the years 1928-29 and 1929-30 were completed. They were made just as the 1927-28 assessment had been made on Messrs. Martin & Company on the joint income from the two firms. The assessees again took exception to this procedure and it was then agreed between them and the Income Tax Authorities that the decision of the High Court as regards the 1927-28 assessment should govern the assessment for the years 1928-29 and 1929-30. Accordingly when the High Court held that the 1927-28 assessment was irregular and that Messrs. Martin & Company could not be assessed jointly on the income of themselves and Messrs. Burn & Company the 1928-29 and 1929-30 assessments on Messrs. Martin & Company were once more modified. In the meantime, however, Messrs. Burn & Company, the present applicants, had filed their separate income in respect of the years 1928-29 and 1929-30. The Income Tax Officer therefore after the judgment of the High Court previously mentioned, proceeded to make an assessment under Section 23 (1) on the basis of those returns. To this Messrs. Burn & Company objected and the matter ultimately came before the Commissioner of Income Tax on another application under Section 66 (2) and the Commissioner of Income Tax thereupon came to the conclusion that those assessments were indeed irregular in view of the fact that the returns which had been filed by Messrs. Burn & Company had been filed suo motu and not in compliance with any notice issued under Section 22 (2). The Commissioner of Income Tax, upon that cancelled those assessments by an order dated the 30th March, 1931, and further directed that the Income Tax Officer should take steps to make assessments under Section 34 of the Income Tax Act. on the income with should have been assessed in the years 1928-29 and 1929-30. On the 31st March notices under Section 34 were duly served on Messrs. Burn & Company and assessments were duly made. Appeals against those assessments were preferred and finally the Commissioner of Income Tax was asked in an application under Section 66 (2) to refer certain questions of law arising out of those assessments to this Court and these are the questions we are now concerned. The Commissioner of Income Tax in his statement of the case has set out certain dates in connection with the assessments of the two years out of which these questions arise and it may perhaps be desirable that we should here reproduce them. The material dates and events are as follows :-
17th January, 1929. - Assessment for the year 1928-29 made on Messrs. Martin & Company on income including the income of Messrs. Burn & Company.
16th May, 1930. - Order of the High Court cancelling the assessment for the year 1927-28 made on Messrs. Martin & Company on the joint income from the two firms.
4th June, 1930. - Order of the Commissioner directing the assessment of the year 1927-28 to be revised in conformity with the order of the High Court and asking also that the assessments for the years 1928-29 and 1929-30 should be revised in accordance with the agreement between the Commissioner and the assessees, viz., that the decision of the High Court in the matter of the 1927-28 assessment would govern those assessments also.
24th October, 1930. - Revised assessment on Messrs. Martin & Company for the years 1927-28, 1928-29 and 1929-30 excluding the income of Messrs. Burn & Company.
8th November, 1930. - Assessment on Messrs. Burn & Company in respect of the income of that firm only for the years 1927-28, 1928-29 and 1929-30.
30th March, 1931. - Cancellation of the assessment for 1928-29 and 1929-30 on Messrs. Burn & Company by the Commissioner under Section 33 of the Act on an application for a Reference to the High Court on the ground that the proceedings for assessment had not been legally initiated.
31st March, 1931. - Issue of notice under Section 34 on Messrs. Burn & Company in respect of the income which should have been assessed in the years 1928-29 and 1929-30.
19th February, 1932. - Completion of these proceedings under Section 34 by the Income Tax Officer and assessment.
The Commissioner of Income Tax states that arising out of the 1928-29 assessment six questions of law were formulated by the assessees under Section 66 (2). The first question runs as follows :-
'Did the terms of the notice in this case, dated 31st, March, 1931, purporting to be served under Section 34 of the Indian Income Tax Act, 1922, constitute a valid notice under the said section?'
That question has been referred by the Commissioner to this Court. As regards the other questions put forward by the assessees they seem to resolve themselves into these two questions :- (1) In the circumstances of this case when did the income which should ordinarily have been assessed in 1928-29 escape assessment? (2) Was the notice served on the assessees in this case under Section 34 a notice served within the period of limitation allowed by that section? These two questions relating to the 1928-29 assessment were also referred by the Commissioner to this Court.
Now, as regards the 1929-30 assessment the questions formulated were these : 'Did the terms of the notice in this case, dated the 31st March, 1931, purporting to be served under Section 34 of the Indian Income Tax Act, 1922, constitute a valid notice under the said section?' The Commissioner points out in his statement of the case that this was an assessment which should have been ordinarily have been made in the year 1929-30 and he says that even in accordance with the contention advanced by the assessees with regard to the correct interpretation of Section 34 of the Act the notice under Section 34 was in fact served in due time, for it was served before the end of the year following the year 1929-30. It is not necessary that we should say very much with regard to the questions put forward in connection with the assessment of the year 1929-30, because Mr. Pugh who appeared on behalf of the applicants quite early in his argument admitted that the notice dated 31st March, 1931, in respect of the year 1929-30 was served within the time limited under Section 34 of the Act and he abandoned the contention that by reason of the actual form of the notice it was not a valid notice under that section. What we are really now concerned with, therefore, is the question whether or not the notice dated 31st March, 1931, requiring Messrs. Burn & Company to deliver to the Income-tax Officer not later than the 5th May, 1931, or within 30 days of the receipt of the notice a return of their income from all sources which were assessable for the year ending the 31st March, 1929, was in form a good notice, and otherwise, even if it were, whether it nevertheless constituted a valid notice under Section 34 of the Act. A copy of the actual notice is set out on page 41 of the paper-book. It is headed 'Notice under Section 34 of the Indian Income Tax Act (Act XI of 1922).' It is quite true that the notice was in the form of a letter instead of being in the common form prescribed by the Central Board of Revenue but it was conceded by Mr. Pugh that in fact all the details provided for in that form of notice had, in fact, been dealt with in the letter and we gathered the impression that Mr. Pugh did not seriously desire to stress this particular point. It is to be observed that there is no standard form of notice prescribed in Section 34 itself. All that the section requires is that a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22 shall be served. Mr. Sundaram in his well-known text book 'The Law of Income Tax in India' 3rd Edition at page 844 says : 'If the information on which the supplementary assessment is proposed to be made has already been furnished by the assessee himself, though in some other connection, and it has also been verified by him, it is strictly speaking unnecessary for the Income Tax Officer to issue a notice, though in practice the assessee is probably given an opportunity of being heard, on the analogy of the provision in Section 35.' We are quite satisfied that the form of the notice which was given on the 31st March, 1931, sufficiently and properly complied with the requirements of Section 34 of the Income Tax Act. The substantial questions which we have to decide as regards 1928-29 assessments is first of all the question whether on the ground that the income of the year 1928-29 did not escape assessment, Section 34 can be made applicable at all. Section 34 reads as follows :- 'If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year or has been assessed at too low a rate, the Income Tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or in the case of 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 reassess such income, profits or gains, 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 tax shall be charged 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.'
The argument advanced on behalf of the applicants Messrs. Burn & Company is that Section 34 ought not to have been invoked in this case at all because the income concerned had in fact not escaped assessment. It is to be observed that Section 34 can only be brought into operation if for any reason income chargeable to income-tax has escaped assessment in any year. Mr. Pugh has argued with great cogency that the income of Messrs. Burn & Company for the year 1928-29 did not escape assessment though the liability for the income-tax may have been placed on the wrong shoulders. It is to be borne in mind from the history of the case which we have narrated that the assessment for the year 1928-29 was completed while the matter of the assessment for the year 1927-28 was still pending before the High Court. The assessment was made on Messrs. Martin & Company on the 17th January, 1929. On the 19th December, 1928, Messrs. Burn & Company had written to Mr. Martin who was then the Income Tax Officer a letter in which they stated that they proposed to close the accounts of their firm in the month of July in each year instead of on April 30th as theretofore. They also pointed out that under Section 2, sub-section 11 (a), they required the consent of the Income Tax Officer to do that and they asked to be informed of the conditions that the Income Tax Officer would think fit to impose on them. They concluded the letter by saying, 'We propose making the alteration for the purpose of assessing tax for the year 1928-29. In reply to that letter the Income Tax Officer on the 10th January, 1929, informed Messrs. Burn & Company that he was prepared to allow the alteration in the accounting period provided the firm paid tax on fifteen (15) months profits in this assessment for 1928-29. In reply Messrs. Burn & Company on the 11th January, 1929, wrote to the Income Tax Officer, Mr. Martin, a further letter in which they said 'With reference to your letter No. R-F 15 of the 10th instant we have the honour to enclose herewith return under Section 22 (2) of the Indian Income Tax Act, 1922, for the official year 1928-29.' It will be seen therefore that Messrs. Burn & Company did actually make a return for the year 1928-29 and that such return was in response (sic) in accordance with the conditions and requirements. We think it is not unreasonable to hold that the assessment was made in response to a notice under the Act. In the circumstances we find it not a little difficult to understand how it came about that the Commissioner took the view that the return filed by Messrs. Burn & Company had been filed, as he says, suo motu, and it would seem there was no necessity for the Commissioner to have made the order of 30th March, 1931, cancelling the assessment. However, be that as it may, we should be inclined to hold that in all the circumstances of the case the income of Messrs. Burn & Company in respect of the year 1928-29 did not escape assessment. It is, however, not necessary that we should express a definite opinion on this point in view of the conclusion we have arrived at with regard to the further point taken on behalf of the assessees in respect of the assessment of the year 1929-30. This point relates to the interpretation to be put upon the expression in any year for the purposes of Section 34. The argument put forward on behalf of the assessees is that no assessment could lawfully be made under Section 34 because notice purporting to have been given under that section was served more than one year after the year in which the assessment should normally have been made and that, if the income of Messrs. Burn & Company escaped assessment at all it escaped assessment in the year 1928-29 and therefore proceedings under Section 34 could only have been opened before the end of the year 1929-30. The view of the Income-tax authorities seems to have been this that there was an assessment of income for the year 1928-29 on the income of Messrs. Martin & Company and that assessment must be presumed to have been valid until it was declared to be invalid and it was only held to be invalid as a result of the order of this Court dated 16th May 1930, or by the Commissioners order dated 4th June, 1930, and his subsequent order dated 30th March 1931. The Commissioner seems to have been of the opinion that the earliest possible date from which the period of limitation could be held to run was the date of the order of the Commissioner of the 4th June, 1930, that assessment should be dealt with in accordance with the decision of the High Court of the 16th May, 1930. It was contented before us on behalf of the Income-tax Authorities that the correct view is that the period of limitation should run from the 30th March, 1931, that is, the date on which the Commissioner cancelled the first separate assessment of Messrs. Burn & Company and directed the Income Tax Officer to make a fresh assessment of their income Under Section 34. The Commissioner seems not to have appreciated that the expression escape assessment is not the same thing as escape from assessment and that upon the assumption that there was at one time an assessment of the income of Messrs. Burn & Company at the proper time it would scarcely be right to say that they escaped assessment in respect of that income at a later period. Mr. Pugh has argued that the expression in any year can only refer to the year in which the assessment would normally and properly be made or at any rate, initiated and as regards the year 1928-29 he has put the matter thus :- The year 1927-28 was the earning year. The year 1928-29 was the assessment year or as we may call it, the tax year and the year 1929-30 was the 'corrective' year so that as regards the assessment for the year 1928-29 the Income-tax authorities would merely have had time up to 31st March, 1930, within which to take proceedings under Section 34; supposing always that the income of Messrs. Burn & Company had in fact previously escaped assessment. It may perhaps not inaptly be said that in relation to the assessment year 1928-29 the year 1929-30 was, as it were, an annus poenitentiae available to the Income-tax authorities. Mr. Pugh crystallised the whole of this argument into this proposition :- If there was no escape from the assessment, then Section 34 did not apply at all; if on the other hand there was an escape, then the proceedings under Section 34 were altogether too late. It was conceded by both sides that if the expression in any year bears the meaning contended for by Mr. Pugh, then without doubt the notice of the 31st March, 1931, was given too late and so the income-tax authorities would be relegated to the remedies, if any, they might still have consequent on the original assessment. Mr. Pugh in support of his argument as to the meaning of the expression in any year as used in Section 34 referred to a number of other sections of the Income Tax Act, 1922, notably Section 2, sub section 11, sections 3, 6, 12 and 23 and he invited us to come to the opinion that the language and tenor of those sections as well as the language of Section 34 itself indicate that in the expression in any year the word year can only refer to the actual twelve months in which an assessment would normally and properly be made. It is obvious that to hold otherwise would bring it about that if an assessment had been duly made, and if for any reason the assessment was subsequently cancelled even after a considerable lapse of time, the right of the Income-tax authorities to demand a fresh return by virtue of the provisions of Section 34 might be prolonged indefinitely. Having carefully considered the matter and having given due weight to the arguments of the learned Advocate-General we think we ought to accept the contention put forward by Mr. Pugh on behalf of the assessees and hold that the expression in any year must be read as meaning the year during which proceedings in assessment in respect of that very year should have been initiated. We accordingly hold that the notice served on the assesses in this case under Section 34 was not valid notice in that it was not served within the period of limitation allowed by the section. For the reasons already given this disposes of the case in favour of the assessees. We make no order as to costs.
Reference answered accordingly.