1997 Supreme(SC) 206

1997(4) Supreme 197
SUPREME COURT OF INDIA
B.P. Jeevan Reddy and K.S. Paripoornan, JJ.
Associated Stone Industries (Kotah) Ltd. -Appellant
versus
Commissioner of Income Tax, Jaipur -Respondent
Civil Appeal No. 685 of 1980
With
Special Leave Petition (C) No. 10840 of 1980)
Decided on 5.2.1997
Counsel for the Parties :
For the Appellant : R.K. Mehta and Ms. Mnika Mehta, Advocates.
For the Respondent : S. Rajappa, Adv. for S.N. Terdol, Advocate.

Headnote:(i) TAXATION-Indian Income-tax Act, 1922-Sections 34(1)(a) and 34(1)(b)-Re-assessments for years 1950-51 to 1956-57-Legality and validity of-Jurisdiction u/s 34(1)(a) and (b)-Distinction-There being no omission on part of appellant company to fully and truly disclose material or primary facts necessary for assessments-Reassessment proceedings initiated u/s 34(1)(a) were invalid for years 1950-51 to 1956-57-Whether proceedings for reassessment initiated u/s 34(1)(a) could be sustained u/s 34(1)(b) ?-(Yes, if pre-requisite conditions for application of clause (b) are satisfied)-Raghubar Dayal s case, 63 ITR 572 (All) : Overruled-Information obtained by Income Tax Officer need not be one outside the record.

       Held : A look at section 34, clauses (a) and (b) will show that the said clauses deal with two different situations. Section 34 is only a machinery section. They cover different contingencies and situations, but they do not deal with two distinct and separate jurisdictions. Section 34 as a whole - clause (a) or clause (b) deals with cases of reopening of income escapement assessment. Whereas Section 34(1)(a) requires the formation of a belief by the Income Tax Officer, that there is a failure or omission on the part of the assessee to disclose fully and truly all material facts and there must be some material to form such a belief that the failure or omission on the part of the assessee has led to the escapement or under-assessment of income of the assessee, Section 34(1)(b) requires that even if there was no omission or failure on the part of the assessee, but the Income Tax Officer has information and he could form the belief that the income has escaped assessment, he could do so within the period of four years. There are limitations for the exercise of power under Section 34(1)(a), namely, that the Income Tax Officer is bound to record the reasons, which led to the formation of the belief and further sanction of the Commissioner of the Central Board of Revenue is required. Section 34(1)(a) is more onerous or stringent, but Section 34(1)(b) is of wider import covering a larger class of cases. In ordinary civil actions, if a party prays for a larger relief and the Court holds that he is not entitled to the same, but it is apparent from the facts proved or admitted that the party is entitled to a lesser relief, it is always open to the court to grant the latter. Similarly, if the Income Tax Officer has initiated proceeding under the stringent and onerous provisions of Section 34(1)(a) which is found to be invalid, nothing could prevent the appellate or other higher authority from invoking Section 34(1)(b) if the pre-requisite conditions for the application of clause (b) are satisfied. In other words, if the conditions for applicability of Section 34(1)(b) which only provides for shorter period of limitation is satisfied, the assessment though initiated under Section 34(1)(a) could be sustained or justified under Section 34(1)(b) of the Act. (Para 8)

       (ii) Income Tax Act, 1922-Section 18A-Assessment years 1957-58 to 1961-62-Order levying penal interest u/s 18A-Appealability.

       Held : The High Court has rightly answered question No. 5 stating that the penal interest calculated and charged under Section 18A(6) or 18A(8) can be challenged in an appeal filed by the assessee against the order of assessment to tax and the assessee would be entitled to deny his liability to payment of penal interest also while denying his liability to be assessed to tax under Section 18A of the Act. It was opined that no appeal would lie against the order levying interest under section 18A(6) or 18A(8) of the Act. The law so stated by the High Court is not open to objection. Under the Income-tax Act, 1922 there was no specific right against an order levying interest. But, if an appeal is preferred against an order of assessment and interest is levied by the assessment order itself, the assessee can raise the question regarding the exigibility of interest. (Para 9)

       (iii) Income Tax Act, 1922-Appellant, public limited company was incorporated in then Indian State of Kotah for carrying on business of quarrying stones-Lease agreement-Kotah State merged with United State of Rajasthan-Applicability of Income Tax Act, 1922-Assessee s application for exemption from payment of tax-Whether royalty paid by it in excess of minimum amount of Rs. 1,50,000/- was in lieu of income-tax, super tax etc ?-(Yes)-Assessee company was entitled to the credit of amount from Income-tax authorities. (Para 13)