1. Notice issued under Section 34(1)(a) of the Indian Income-tax Act for an assessment year other than the one under appellate review — Dispute over limitation period. (Para 1 , 2 , 15 )
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1964 Supreme(SC) 19
SUPREME COURT OF INDIA
B.P. SINHA, C.J.I., K. SUBBA RAO, RAGHUBAR DAYAL, N. RAJAGOPALA AYYANGAR AND J.R. MUDHOLKAR, JJ.
Income-tax Officer, A Ward, Sitapur, Appellant
Versus
M/s. Murlidhar Bhagawan Das, Respondent.
Hungerford Investment Trust Ltd. (In Liquidation), Intervener.
Civil Appeal No.130 of 1962
advocates appeared
Mr. K. N. Rajagopal Sastri, Senior Advocate, (Mr. R. N. Sachthey, Advocate, with him, for Appellant; Mr. Bishan Narain, Senior Advocate, (Mr. G. C. Sharma, Advocate and M/s. O. C. Mathur, J. B. Dadachanji and Ravindar Narain, Advocate of M/s. J. B. Dadachanji and Co. with him), for Respondent, Mr. A. V. Viswanatha Sastri, Senior Advocate, (M/s. D. N. Mukherjee and B. N. Ghosh, Advocates, with him), for Intervener.
Advocates:
A.V.VISHWANATHA SASTRI, B.N.GHOSH, BISHAN NARAIN, D.N.MUKHERJI, G.C.Sharma, J.B.DADACHAN, K.N.RAJAGOPAL SASTRI, O.C.MATHUR, R.N.SACH, Ravindra Narayan
A.V.VISHWANATHA SASTRI, B.N.GHOSH, BISHAN NARAIN, D.N.MUKHERJI, G.C.Sharma, J.B.DADACHAN, K.N.RAJAGOPAL SASTRI, O.C.MATHUR, R.N.SACH, Ravindra Narayan
Important Points
The second proviso to Section 34(3) of the Indian Income-tax Act, 1922, lifts the limitation period only for assessments relating to the specific year under appeal or revision; it does not permit initiating time-barred proceedings for other years based on incidental findings.
Subject
Tax Law - Income Tax
Act Referred
Headnote
(A) Indian Income-tax Act, 1922 - Section 34(3) (second proviso) - Section 31 - Limitation for re-assessment - Scope of the second proviso to Section 34(3) which lifts the ban of limitation for assessments made in consequence of or to give effect to any finding or direction contained in an order under Section 31, 33, 33A, 33B, 66 or 66A - The proviso does not confer fresh power to make assessments for escaped incomes without time limit but only lifts the ban to give effect to orders made within the jurisdiction of the appellate, revisional or reviewing tribunal (Paras 3, 8).
(B) Interpretation of "finding" and "direction" - A "finding" is a decision on a material question necessary for the disposal of an appeal in respect of the assessment of a particular year (Para 9) - An incidental finding that income belongs to another year is not a finding necessary for the disposal of the appeal for the year in question and thus does not lift the limitation for the other year (Para 9).
(C) Interpretation of "any person" - The expression is circumscribed by the subject-matter of the appeal or revision and is confined to a person intimately connected with the assessments of the year under appeal (Para 10).
Facts of the case:
An assessment for a particular year was set aside. During proceedings, it was found that certain interest income had escaped assessment. The appellate authority directed that the said income be deleted from the assessment of the year under appeal and instead be included in the assessment for the previous year. The tax officer subsequently initiated proceedings for the previous year. The assessee challenged the notice on the ground that it was issued beyond the prescribed period of limitation.
Findings of Court:
The second proviso to Section 34(3) does not save the time limit prescribed under Section 34(1) in respect of an escaped assessment of a year other than that which is the subject-matter of the appeal or the revision.
Issues: Whether the second proviso to Section 34(3) of the Act removes the limitation period for initiating assessment proceedings for a year other than the one under appeal, based on a finding or direction of the appellate authority.
Ratio Decidendi: The jurisdiction of appellate authorities is strictly confined to the assessment year under appeal. A "finding" must be necessary for the disposal of the appeal for that specific year. The lifting of the limitation ban is intended only to give effect to orders made within the scope of the tribunal's jurisdiction and cannot be construed as increasing that jurisdiction or allowing the tax officer to initiate proceedings for any other year without regard to limitation.
Result: Appeal dismissed.
(B) Interpretation of "finding" and "direction" - A "finding" is a decision on a material question necessary for the disposal of an appeal in respect of the assessment of a particular year (Para 9) - An incidental finding that income belongs to another year is not a finding necessary for the disposal of the appeal for the year in question and thus does not lift the limitation for the other year (Para 9).
(C) Interpretation of "any person" - The expression is circumscribed by the subject-matter of the appeal or revision and is confined to a person intimately connected with the assessments of the year under appeal (Para 10).
Facts of the case:
An assessment for a particular year was set aside. During proceedings, it was found that certain interest income had escaped assessment. The appellate authority directed that the said income be deleted from the assessment of the year under appeal and instead be included in the assessment for the previous year. The tax officer subsequently initiated proceedings for the previous year. The assessee challenged the notice on the ground that it was issued beyond the prescribed period of limitation.
Findings of Court:
The second proviso to Section 34(3) does not save the time limit prescribed under Section 34(1) in respect of an escaped assessment of a year other than that which is the subject-matter of the appeal or the revision.
Issues: Whether the second proviso to Section 34(3) of the Act removes the limitation period for initiating assessment proceedings for a year other than the one under appeal, based on a finding or direction of the appellate authority.
Ratio Decidendi: The jurisdiction of appellate authorities is strictly confined to the assessment year under appeal. A "finding" must be necessary for the disposal of the appeal for that specific year. The lifting of the limitation ban is intended only to give effect to orders made within the scope of the tribunal's jurisdiction and cannot be construed as increasing that jurisdiction or allowing the tax officer to initiate proceedings for any other year without regard to limitation.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether the second proviso to Section 34(3) of the Indian Income-tax Act removes limitation for any year or only for the year under appeal or revision. (Para 3 )
3. Appellate jurisdiction is confined to the assessment year under review; findings must be necessary for disposal of that year's appeal, not incidental findings regarding other years. (Para 7 , 8 , 9 , 10 )
4. The second proviso to Section 34(3) of the Indian Income-tax Act does not lift the limitation period for assessments of years other than the one under review. (Para 12 )
5. Appeal dismissed — Notice issued under Section 34(1)(a) held to be barred by limitation. (Para 14 )
6. Does the second proviso to Section 34(3) of the Indian Income-tax Act, 1922, remove the limitation period for any assessment year?
No. The proviso only lifts the limitation ban for assessments or re-assessments of the specific year that is the subject-matter of the appeal or revision. It does not save the time limit for escaped assessments of years other than the one under review. (Para 8 , 12 )
7. What constitutes a finding under the second proviso to Section 34(3) of the Indian Income-tax Act?
A finding is a decision on a material question necessary for the disposal of an appeal for a particular year. Incidental findings, such as concluding that income belongs to a different year, do not qualify as findings necessary for the disposal of the appeal under review. (Para 9 )
8. Who is included within the expression any person in the second proviso to Section 34(3) of the Indian Income-tax Act?
The expression is circumscribed by the subject-matter of the appeal or revision. It refers to persons intimately connected with the assessments of the year under appeal, such as partners in a firm or members of a Hindu undivided family. (Para 10 )
Judgment
SUBBA RAO, J. : (for himself and on behalf of B. P. Sinha C.J.I. Rajagopala Ayyangar J.)
This appeal by special leave raises the question of the construction of the proviso to sub-sec. (3) of S. 34 of the Indian Income-tax Act, 1922, as amended by Act 25 of 1933 hereinafter called the Act.
2. The facts lie in a small compass and they are as follows : The respondent is a firm carrying on business in different lines. It was assessed to income-tax under S. 23 (4) of the Act for the assessment year 1949-50 on the ground that the notice issued under sub-ss (2) and (4) of S. 22 of the Act had not been complied with. On September 27, 1955, the said assessment was cancelled under S. 27 of the Act. But before the said cancellation it was found that an interest income of Rs. 88,737/- in the shape of U. P. Encumbered Estates Act Bonds revived by him in discharge of the debts due from third parties had escaped assessment as the assessee failed to disclose the same. The Income-tax Officer issued a notice under S. 34(1) (a) of the Act for the assessment year 1949-50 on the ground that the said sum of Rs. 88,737/- had escaped assessment in the said assessment year. After the assessment of that year was set aside under S. 27 of the Act, the Income-tax Officer, ignoring the notice issued by him under S. 34 (1) (a) of the Act, included that amount in the fresh assessment made by him. The assessee preferred an appeal against that order and that was disposed by the Appeallate Assistant Commissioner on December 4, 1957. The Appellant Assistant Commissioner in his order held that the bonds were reveived by the assessee in the previous accounting year and therefore, directed that the sum representing interest on the bonds should be deleted from the assessment for the year ending 1949-50 and included in the assessment for the year ending 1948-49. Pursuant to the direction given by the Appellate Assistant Commissioner the Income-tax Officer initiated proceedings under S. 34 (1) of the Act in respect of the assessment year 1948-49. The notice issued under that section was served on the respondent on December 5, 1957. The assessee filed a petition under Art. 226 of the Constitution in the High Court of judicature at Allahabad for quashing the said proceedings, mainly on the ground that the proceedings were initialed beyond the time prescribed by S. 34 of the Act. The High Court accepted the contention and quashed the proceedings initiated by the Income-tax Officer. Hence the appeal.
3. The proceedings would be in time, if the second priviso to S. 34 (3) of the Act could be invoked. The question, therefore, is what is the true meaning of the terms of the second proviso to S. 34 (3) of the Act. It reads:
"Provided further that nothing in this section limiting the time within which any action may be taken, or any order assessment or re-assessment may be made, shall apply to a re-assessment made under S. 27 or to an assessment or re-assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under S. 31, S. 33, S. 33A, S. 33B, S. 66 or S. 66A."
Prima facie this proviso lifts the ban of limitation imposed by the other provisions of the section in the matter of taking an action in respect of or making an order of assessment or re-assessment falling within the scope of the said proviso. The scope of the proviso is confined to an assessment or re-assessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under S. 31 i. e., in an appeal before the Assistant Appellate Commissioner, under S. 33 i. e., in an appeal before the Tribunal, under S. 33A i. e., in a revision before the Commissioner under S. 33B i. e., in a revision before the Commissioner against an order of the Income-tax Officer, and under Ss. 66 and 66A i.e., in a reference to the High Court and appeal against the High Court s order to the SC.
