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HIGH COURT OF ORISSA
MISRA,P.V.B.RAO, JJ.
Ramchandra Mardaraj
Versus
Commr.of Income-tax, B.and O.
S.J.C. No.10 of 1953,
Decided On : 28-02-1955
INCOME TAX - S.34 - REASSESSMENT - DEFINITE INFORMATION - INCOME FROM FORESTS - AGRICULTURAL INCOME - DECISION OF COURT - WHETHER DEFINITE INFORMATION - WHETHER INCOME ESCAPED ASSESSMENT.
Fact of the Case:
The assessee, the Raja Bahadur of Khallikote, derived his income, among other sources, from forests. For the assessment year 1939-40, the Income-tax Officer made an assessment under S.23(3); the accounting year for the relevant period ended on 31-3-39. In the original assessment under S.23 (3) of the Act, the Income-tax Officer did not take the income from forests into account as till then the revenue authorities were under the impression that such income was agricultural income and as such was not assessable to income-tax. On 17-4-1941, the Patna High Court held in the case of - the Province of Bihar v. Pratap Udai Nath Sahi Deo, AIR 1941 Pat 289 (SB) (A) that income from forests such as Lakhar, Bankar and Phalkar from forests of spontaneous growth as distinct from forests grown by the process of cultivation were non-agricultural income and as such were assessable to income-tax. On 14-12-1942, a notice was issued to the assessee under S.34 for the assessment year 1939-40 in respect of his income from forests. The Income-tax Officer treated the judgment of the Patna High Court as a definite information which had come into his possession, and as a result of which he discovered that the income from forests had escaped assessment and so he issued notice under S.34 of the Act.
Finding of the Court:
The Court held that the decision of the Patna High Court cannot be said to constitute definite information within the meaning of S.34 so as to entitle him to reopen the assessment which had already been completed. The Court further held that the second condition for the exercise of powers under S.34 has not been established in the present case, as the department knew that the assessee was in receipt of incomes from his forests, but they did not deliberately assess him, because in their view of the law such incomes were not assessable to tax.
Issues: 1. Whether the decision of the Patna High Court constituted definite information within the meaning of S.34 of the Income-tax Act, 1922, so as to entitle the Income-tax Officer to reopen the assessment which had already been completed? 2. Whether the income from forests had escaped assessment within the meaning of S.34 of the Income-tax Act, 1922?
Ratio Decidendi: 1. The Court held that the words "definite information" in S.34 of the Income-tax Act, 1922, cannot relate to information regarding a new decision as to the interpretation of a section of the Act. It is the established law that decisions of Courts of law do not create a new law. They only declare what the law is. Every man is supposed to know the law. The Income-tax Officer may not assess a certain income due to his ignorance of the law, but if he later on finds out that he was under a wrong impression about the existing law, it cannot be said that a definite information has come into his possession by virtue of which he discovers that certain income has escaped assessment. 2. The Court held that the words "has escaped assessment" in S.34 of the Income-tax Act, 1922, cannot be read as equivalent to "has not been assessed", and the word assessment is not confined to the definite act of-making an order of assessment. As the learned counsel for the Revenue does not admit that it was shown in the return that he was in receipt of income from the forests we have to take his admission that the department knew that the assessee was in receipt of income from his forests, and in any such case, it was always open to the department to assess the income from forests in the relevant assessment year even if the assessee did not show it in his return.
Final Decision: The Court answered the question referred to it in the negative, holding that the reassessment of the income for the assessment year 1939-40, in the present case, by invoking the provisions of S.34 was not correct.
Judgement
MISRA, J.:- This is a reference under S.66(1), Income-tax Act by the Income-tax Appellate Tribunal, Madras Bench B, at the instance of the assessee, the Raja Bahadur of Khallikote. The question referred to us is as follows :
"Whether the reassessment of the income for the assessment year 1939-40 by invoking the provisions of S.34 was correct."
2. The assessee is the zamindar of Khallikote and derive his income, among other sources, from forests. For the assessment year 1939-40, the income-tax officer made an assessment under S.23(3); the accounting year for the relevant period ended on 31-3-39. In the original assessment under S.23 (3) of the Act, the Income-tax Officer did not take the income from forests into account as till then the revenue authorities were under the impression that such income was agricultural income and as such was not assessable to income-tax. On 17-4-1941, the Patna High Court held in the case of - the Province of Bihar v. Pratap Udai Nath Sahi Deo, AIR 1941 Pat 289 (SB) (A) that income from forests such as Lakhar, Bankar and Phalkar from forests of spontaneous growth as distinct from forests grown by the process of cultivation were non-agricultural income and as such were assessable to income-tax.
On 14-12-1942, a notice was issued to the assessee under S.34 for the assessment year 1939-40 in respect of his income from forests. Apparently the Income-tax Officer treated the judgment of the Patna High Court as a definite information which had come into his possession, and as a result of which he discovered that the income from forests had escaped assessment and so he issued notice under S.34 of the Act. In pursuance to this notice the assessment was completed on 28-2-1944. The assessee filed an appeal against this order. Before the Appellate Assistant Commissioner the assessee raised a point that S.34 was not applicable in the circumstances of the case, because, according to the assessee, the section to be operative contemplated the discovery of a fact, and the Income-tax Officer did not, in this case, discover any fact, because he already knew at the time of the original assessment that the assessee had forest income as well as interests on arrears of rent, etc.
This point was overruled by the Appellate Assistant Commissioner who held that the Patna High Court for the first time held in the case already referred to that incomes from forests of spontaneous growth as distinct from forests grown by the process of cultivation and tilling of the soil, were non-agricultural incomes, and in the opinion of the Appellate Assistant Commissioner this exposition of the correct meaning of agricultural income was a definite information of a fact not possessed by the Income-tax Officer at the time of the original assessment. Accordingly, he held that the Income-tax Officer was justified in invoking the provisions of S.34 in this case. On facts, however, certain questions were raised, and in the opinion of the Appellate Assistant Commissioner, the quantum for the assessment under S.34 had to be re-determined as indicated in his order dated 29-11-1944, and accordingly the case was remanded to the Income-tax Officer.
Thereafter the Income-tax Officer made a fresh assessment under S.34 and S.23(3). Against this order the assessee again filed an appeal before the Appellate Assistant Commissioner. Before him the applicability of S.34 was again questioned and the order was also attacked on merits. With regard to the first point, the Appellate Assistant Commissioner held that his predecessor in office had already decided the point, and that had become final as no appeal had been filed against that part of the order, and as such, the appellant was debarred from raising that point over again before him. He then considered the merits of the assessment, and gave some relief to the assessee by excluding that portion of the income from forests which was the result of agricultural operations. He also gave some other minor relie
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