1. Notice issued under Section 34(1)(a) of the Indian Income-tax Act, 1922, for escaped income after the eight-year limitation period. (Para 2 )
Back
Next 
1964 Supreme(SC) 22
SUPREME COURT OF INDIA
29th January, 1964
B.P. SINHA C.J.I., K. SUBBA RAO, RAGHUBAR DAYAL, N. RAJAGOPALA AYYANGAR AND J.R. MUDHOLKAR, JJ.
K. C. Thomas, 1st Income-tax Officer, Market Ward, Bombay, Appellant
Versus
Vasant Hiralal Shah and others, Respondents.
Civil Appeal No. 688 of 1962.
Advocates appeared
M/s. N. D. Karkhanis and R. N. Sachthey Advocates, for Appellant; Mr. I. N. Shroff, Advocate, for Respondents.
Advocates:
I.M.SHROFF, N.D.Karkhanis, R.N.SACH
I.M.SHROFF, N.D.Karkhanis, R.N.SACH
The second proviso to Section 34(3) of the Income-tax Act, 1922, overrides the limitation period in Section 34(1) for assessments made to give effect to directions from higher authorities. Sanction of the revenue board is only required for escaped income of one lakh rupees or more.
Headnote:(A) Indian Income-tax Act, 1922 - Section 34(1) and Section 34(3) - Notice for escaped income - Sanction of authorities - The requirement for the sanction of the revenue board under clause (iii) of the proviso to Section 34(1) is applicable only to cases falling under clause (ii) of the same proviso, specifically where the escaped income is one lakh rupees or more. In any other case, the sanction of the Commissioner is sufficient. (Para 3)
(B) Indian Income-tax Act, 1922 - Section 34(3) - Second proviso - Limitation period - Where a notice is issued to give effect to a direction contained in an order of a higher income-tax authority, the second proviso to Section 34(3) overrides the limitation period prescribed in the first proviso to Section 34(1). Consequently, a notice can be issued even if more than eight years have elapsed and the escaped income is less than one lakh rupees, provided it is in consequence of such a direction. (Paras 4, 5)
Facts of the case:
A notice was issued under Section 34(1)(a) for an assessment year where more than eight years had elapsed and the escaped income was less than one lakh rupees. The notice was issued to give effect to a direction from a higher authority. The High Court quashed the notice on the grounds that the escaped income was below the threshold required for a notice issued after eight years and that the sanction of the revenue board had not been obtained.
Findings of Court:
The High Court erred in holding that the sanction of the revenue board was necessary for a notice involving escaped income of less than one lakh rupees. Furthermore, the second proviso to Section 34(3) removes the time limitation for assessments made in consequence of directions from higher authorities, thereby overriding the restrictions set out in the first proviso to Section 34(1).
Issues: Whether the sanction of the revenue board is mandatory for notices where escaped income is less than one lakh rupees, and whether the second proviso to Section 34(3) overrides the eight-year limitation period in Section 34(1) when the notice is issued to give effect to directions from a higher authority.
Ratio Decidendi: The requirement for the revenue board's sanction under clause (iii) of the proviso to Section 34(1) applies only to cases where the escaped income is one lakh rupees or more. For other cases, the Commissioner's sanction is adequate. Additionally, the second proviso to Section 34(3) is an overriding provision that removes time limits for actions taken to give effect to findings or directions of higher authorities, regardless of the amount of escaped income.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether notice for escaped income under one lakh rupees issued after eight years requires Central Board of Revenue sanction and is barred by limitation. (Para 2 , 3 )
3. CBR sanction is required only for notices under Section 34(1) proviso clause (ii); Section 34(3) second proviso removes time limits for assessments following higher authority directions. (Para 3 , 5 )
4. The second proviso to Section 34(3) of the Income-tax Act overrides the time limitations specified in Section 34(1) when giving effect to higher authority directions. (Para 5 )
5. Appeal allowed, High Court order set aside, and matter remitted for consideration of remaining points. (Para 8 )
6. When is the sanction of the Central Board of Revenue required for a notice under Section 34(1) of the Income-tax Act?
Sanction of the Central Board of Revenue is required only when a notice is issued under clause (ii) of the proviso to Section 34(1), which applies to cases where escaped income is one lakh rupees or more. (Para 3 )
7. Does the second proviso to Section 34(3) override the eight-year limitation period for escaped income under Section 34(1)?
Yes, the second proviso to Section 34(3) removes limitations on the time within which action may be taken or assessments made when such action is in consequence of or to give effect to directions from higher income-tax authorities. (Para 4 , 5 )
8. What sanction is required for notices issued under Section 34(1) that do not fall under clause (ii) of the proviso?
For notices that do not fall under clause (ii) of the proviso to Section 34(1), such as those issued under the second proviso to Section 34(3), the sanction of the Commissioner is sufficient. (Para 3 )
Judgment
MUDHOLKAR, J. : This is an appeal by special leave against the judgment of the Bombay High Court in a writ petition challenging the notice issued under S. 34(1) of the Indian Income-tax Act, 1922 by the First Income-tax Officer, Bombay, who is the appellant before us. In the writ petition various grounds were urged by the respondent in support of the contention that the notice was bad in law. The High Court, however, dealt with only one of those contentions, accepted it and did not permit the respondents counsel Mr. Mehta to put forward the other contentions urged in the writ petition by the respondents.
2. The appellant had issued notice to the respondents under S. 34 (1) (A) of the Income-tax Act in respect of an escaped income of Rs. 47,595/- for the assessment year 1944-45. This notice was issued by him on March 27, 1957. On behalf 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 issued after the expiry of the assessment year and that the sanction of the Central Board of revenue for issuing that notice had not been obtained by the Income-tax Officer as required by cl. (iii) of the proviso to S. 34(1) of the Act. It is not disputed before us that the case falls under Section 34(1)(a). That provision reads thus :
"(1) If -
(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under S. 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or ....
he may in cases falling under cl. (a) at any time x x x x x x serve on the assessee x x x x x x a notice containing all or any of the requirements which may be included in a notice under sub-sec. (2) of S. 22 and may proceed to assess or reassess such income, profit or gains or recompute the loss or depreciation allowance; and the provision of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section :"
We have quoted only the relevant portion. Then follows the first proviso which runs thus :
"provided that the Income-tax Officer shall not issue a notice under cl. (a) of sub-sec. (1)
(i) for any year prior to the year ending on the 31st day of March 1941;
(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too law a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March 1941;
(iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under cl. (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 of such notice :"
It will thus be seen that where the Income-tax Officer has reason to believe that due to any act of the assessee a full and accurate declaration was not made by the assessee for any year, with the result that part of his income has escaped for that year, the Income-tax Officer may issue a notice under cl. (a) at any time.
3. The respondents contention before the High Court was that the notice was bad because it had not complied with the two conditions laid down in
