http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: K.   L. VARADARAJAN

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, MADRAS

DATE OF JUDGMENT05/11/1974

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ GUPTA, A.C.

CITATION:  1974 AIR 2357            1975 SCR  (2) 597  1975 SCC  (3) 595

ACT: Indian Income tax Act, 1922-Sec. 17 (1)-Proviso-Whether  the words   "all  assessments  thereafter"   includes   original assessments and not reassessments made under Sec. 34.

HEADNOTE: The  assessee,  during  the  relevant  period  was  studying abroad.   He  derived  income during the period  by  way  of dividend on shares and interest from deposits. The  original  assessments  for  the  relevant  years   were completed  on  January  31,  1956,  December  27,  1956  and February 28, 1958.  The residential status adopted in  those years   was  "resident  and  ordinarily  resident   person". Income-tax  and  super-tax  were  calculated  at  the  rates applicable on the total income. In  the  course  of  the  assessment  proceedings  for   the assessment  year 1958-59, the assessee filed  a  declaration under Sec. 17(1) of the Act on March 24, 1959 claiming to be assessed  at  rates appropriate to his total  world  income. This  assessment  was  completed on March 23,  1960  in  the status of a non-resident.  The application under Sec.  17(1) was rejected. As the I.T.O. found that the assessee was a non-resident  in the 3 previous years ending on December 31, 1954 to December 31,  1956 and his total income had been assessed to  income- tax at the normal rates and further as he had failed to make the  requisite  declaration  under  Sec.  17(1)  within  the requisite time, the I.T.O. was of the view that the  earlier assessments  had been made at a lower rate and action  under Sec. 34 of the Act was accordingly taken and the assessments for the above-mentioned 3 years were reopened and  completed under  Sec. 23(3) read with Sec. 34 of the Act.  The  status of the assessee was treated as a non-resident and his  total income  was brought to tax at the maximum rates.   According to  the  assessee,  the omission on his  part  to  make  the declaration   earlier   tinder  Sec.  17(1)   was   due   to inadvertence and ignorance and requested the I.T.O. that  he should  be taxed at rates appropriate to his  world  income. The I.T.O. rejected all the contentions of the assessee  and held against him. On  appeal,  the  Appellate  Asstt.   Commissioner  and  the Tribunal held that the I.T.O.’s reasoning for not  accepting

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

the  declaration under Sec. 17(1) was not correct  and  held against  the revenue.  A question was referred to  the  High Court  as to whether the declaration filed by  the  assessee under  Sec. 17(1) in respect of the assessment year  1958-59 was  operative  in  relation to the  reassessments  also  in respect  of the assessment years 1955-56, 1956-57 and  1957- 58. The  High  Court held against the assessee.  and  hence  the appeal before this Court. Allowing the appeal, HELD : (1) According to the second proviso to Section  17(1) of  the  Act,  once  the assessee is  allowed  to  make  the declaration  after the expiry of the period specified  "such declaration shall have effect in relation to the  assessment for  the  year  in which the declaration is  made  (if  such assessment  had not been completed before such  declaration) and  all  assessments thereafter." The words of  the  second proviso  to  Sec. 17(1) make it clear that  the  declaration would be operative not only for the assessment for the  year in which the declaration is made if such assessment had  not been  completed  before  such  declaration,  but  also   all assessments   to   be  made  thereafter.   The   words   all assessments thereafter" signify not only assessments for the subsequent 598 years but also would cover assessments for the earlier years in  case the assessments for those earlier years  are  being made  subsequent  to the filing of the  declaration.  [600G- 601B] (2)  According to Sec. 2(8) of the Income tax Act, 1961, the words  "assessment"  includes reassessment although  such  a definition was not there in the Act of 1922.  A. N. Lakshman Shenoy  v.  I.T.O., Bangalore & Ors. [1958] 34 ITR  275  and Commissioner of Income tax v. Khem Chand Ramdas [1938] 6 ITR 414 referred to. [601C] (3)  Further,  in  the context of Section 17(1) of  the  Act also the word "assessment" must include "reassessment  under Sec. 34 of the Act; and to hold otherwise would result in an anomalous  situation.  It should be noted that whenever  the legislature  intended that the word "assessment" should  not include reassessment, it used express words for the purpose. For  example, according to Sec. 67 of the Indian Income  tax Act, 1922 no suit shall be brought in any Civil Court to set aside  or modify any assessment made under the Act.   It  is obvious  that the protection afforded by that section  would be available not only for the original assessments but  also for reassessments made under Sec. 34 of the Act, even though the  word  used  in  the  section  is  assessment  and   not reassessment etc. [602D-E, G; 603-C]

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1275  to 1277 of 1970. (From  the Judgment & Order dated the 2nd May, 1969  of  the Madras High Court in T.C. No. 41 of 1966.) S. T. Desai, for the appellant, Hardyal Hardy and S. P. Nayar, for the respondent. The, Judgment of the Court was delivered by KHANNA,  J.-These three appeals by certificate are  directed against  the judgment of the Madras High Court  whereby  the High  Court answered the following question referred  to  it under  section  66(1)  of the Indian  Income-tax  Act,  1922 (hereinafter   referred  to  as  the  Act)  in  respect   of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

assessment  years 1955-56, 1956-57 and 1957-58  against  the assessee appellant and in favour of the revenue               "Whether the declaration filed by the assessee               under   section  17(1)  in  respect   of   the               assessment  year  1958-59  was  operative   in               relation  to the reassessments in  respect  of                             the previous years ending on 31-12-195 4, 31-12-               1955  and  31-12-1956  corresponding  to   the               assessment years 1955-56, 1956-57 and  1957-58               ?" The assessee during the relevant period was studying abroad. He  derived income during that period by way of dividend  on shares and interest from deposits.  The original assessments for  the relevant years were completed on January 31,  1956, December  27, 1956 and February 28, 1958.   The  residential status  adopted in those years was "resident and  ordinarily resident  person".  Income-tax and supertax were  calculated at the rates applicable on the total income.  In the  course of the assessment proceedings for the assessment year  1958- 59,  corresponding to the year ending on December 31,  1957, the assessee filed a declaration under section 17(1) of  the Act  on  March  24, 1959 claiming to be  assessed  at  rates appropriate to the 599 total  world  income.  This assessment  was  completed    on March  23,  1960  in the status of  a  "non-resident".   The application  under  section  17(1)  was  rejected.   As  the income-tax  officer  found  that the  assessee  was  a  non- resident in the three previous, years ending on December 31, J954  to  December 31, 1956 and his total  income  had  been assessed  to income-tax at the, normal rates and further  as he  had  failed  to make  the  requisite  declaration  under section  17(1)  within the requisite  time,  the  income-tax officer  formed  the view that the earlier  assessments  had been  made at a lower rate.  Action under section 34 of  the Act  was  accordingly taken by the  income-tax  officer  and assessments  for  the  above  mentioned  three  years   were reopened and completed under section 23(3) read with section 34  of the Act.  The status of the assessee was  treated  as that  of a non-resident.  The assessee’s  declaration  under section 17(1), which he had made in the course of assessment proceedings  for the assessment year 1958-59,  was  rejected and ignored and- his total income was, brought to tax at the maximum   rates.   The  assessee  in  the  course   of   the proceedings  for  reassessment  requested  that  the  income during the three years in question should be taxed at  rates appropriate to his world income.  According to the assessee, the  omission  on his part to make the  declaration  earlier under  section 17(1) was due to inadvertence and  ignorance. It  was  also contended that as the assessments  were  being reopened and were thus deemed to be pending for the  earlier years,   the   assessee’s  declaration  mad-.   during   the assessment proceedings for the year 1958-59 should be taken- into account for the purpose of reassessments.  The  income- tax officer rejected all the submissions.  According to  the income-tax  officer,  option  had  been  exercised  by   the assessee  after  the prescribed date and it could  not  have effect  on the assessments for the three years in  question. The income-tax officer also referred to the first proviso to section  17(1)  of the: Act and said  that  the  declaration could be entertained only on the first occasion on which the assessee  became  assessable.  The second  proviso,  it  was observed, would also not avail the assessee. The  assessee went up in appeal to the  Appellate  Assistant

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

Commissioner.   It  was contended inter alia on  his  behalf that  the income-tax officer was wrong in holding  that  the declaration under section 17(1) could be entertained only on the  first  occasion  when  the  person  became  assessable. According to the assessee, the declaration could be accepted even  later  provided  sufficient cause was  shown  for  not filing  the  declaration  earlier.   The  assessee   further submitted  that the assessment as non-resident was made  for the first time in respect of assessment year 1958-59 and  as section   34   proceedings  were   fresh   proceedings   the declaration  made  in  1958-59 ought to  be  accepted.   The Appellate  Assistant Commissioner held that  the  income-tax officer’s reasoning for not accepting the declaration  under section  17(1)  was  not correct.  In  this  connection  the Appellate  Assistant Commissioner referred to his  order  in the  appeal by the assessee for the assessment year  1958-59 wherein  he had held that the assessee had sufficient  cause for not filing the declaration under section 17(1) when  the assessee became first assessable.  It was also held that the failure  to  file  the declaration bad  not  resulted  in  a reduction of tax liability. 600 The declaration filed on March 24, 1959 by the assessee,  in the  opinion of the Appellate Assistant commissioner,  could be  availed  of for the assessments for the three  years  in question  as  the  assessment  orders  consequent  upon  the reopening of assessments were being made subsequent to  that date. The department went up in appeal to the Income-tax Appellate Tribunal  against  the  order  of  the  Appellate  Assistant Commissioner.   The Tribunal accepted the reasoning  of  the Appellate  Assistant Commissioner and dismissed the  appeal. On  being  moved  by the.  Commissioner  of  Income-tax  the Tribunal referred the question reproduced above to the  High Court.  The High Court in answering the question against the assessee referred to the expression "all assessments  there- after"  in the two provisos to section 17(1) of the Act  and observed that those words showed that the declaration  could be availed of in respect of assessments for subsequent years and  not  in respect of assessments made by the  revenue  in exercise of its power under section 34 of the Act.  The word "assessments" in the above expression, in the opinion of the High Court, referred to only original assessments and not to assessments  made  by the revenue in exercise of  its  power under section 34 of the Act. In  appeal  before us Mr. Desai on behalf of  the  assessee- appellant  has assailed the judgment of the High  Court  and has  contended  that correct view of law was taken  by,  the Appellate  Assistant  Commissioner  and  the  Tribunal.   As against  that  Mr.  Hardy  on  behalf  of  the  revenue  has supported the view taken by the High Court. After hearing the learned counsel for the parties, we are of the, opinion that the submission made by Mr. Desai is  well- founded.   The  assessee, as mentioned  earlier,  filed  the declaration in the course of assessment proceedings relating to  the year 1958-59 on March 24, 1959.  Although the  above declaration  was  rejected by the  income-tax  officer,  the Appellate  Assistant  Commissioner on appeal in  respect  of assessment  for the assessment year 1958-59 held that  there was  sufficient  cause for the assessee in  not  making  the declaration  on  the  first  occasion  on  which  he  became assessable and that his failure to make such declaration had not resulted in reducing his liability to tax for any  year. The   assessee   was,  accordingly  allowed  to   make   the declaration  after  the  expiry of  the  prescribed  period.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

According to the second proviso to section 17(1) of the Act, once  the assessee is allowed to make the declaration  after the expiry of the period specified ,,such declaration  shall have effect in relation’ to the assessment for the. year  in which  the declaration is made (if such assessment  had  not been completed before such declaration) and all  assessments thereafter".   The  words of the second proviso  to  section 17(1)  reproduced above make it clear that  the  declaration would be operative not only for the assessment for the  year in which the declaration is made if such assessment had  not been  completed before such declaration, but ’also  for  all assessments   to  be  made  thereafter.   The   words   "all assessments  thereafter", in our opinion, signify  not  only assessments  for. the subsequent years but would also  cover assessments for                             601 the earlier years in case the assessments for those  earlier years  are.being  made  subsequent  to  the  filing  of  the declaration.  The words"all assessments, thereafter" have  a wide  amplitude and we see no cogent reason for  not  giving them their natural meaning or for restricting their  scope.’ Those words would include within their ambit all assessments made  subsequent  to the filing of  the  declaration-and  it would be wrong to so construe them as if the legislature had used the words "all assessments for the subsequent years". We  are  unable to subscribe to the view taken by  the  High Court  that  the  assessments  referred  to  in  the   words reproduced above mean, only the original assessments and not the  reassessments  made  under  section  34  of  the   Act. According  to section 2(8) of the Income-tax Act,  1961  the words  "assessment" includes reassessment.  Although such  a definition  was  not  there in the Act  of  1922,  the  word "assessment"  in the second proviso to section 17(1) of  the Act  must  necessarily, in our opinion,  cover  reassessment under  section 34 of the Act.In the case of A.  N.  Lakshman Shenoy v. Income-tax Officer, Bangalore & Ors.(1) this Court held  that  the word "assessment" in-the Finance  Act,  1950 would  include reassessment.  It was observed that the  col- location  of the words "levy, assessment and  collection  of income-tax"’  showed  that  the  word  "assessment"  had   a comprehensive meaning so as to cover reassessment.  The case of  Commissioner of Income-tax.v. Khemchand  Ramdas(2)  upon which  reliance had been placed by the,revenue  in  Shenoy’s case,  as  has  also  been done in  the  present  case,  was distinguished.   This Court referred to the observations  of the Judicial’ Committee in the case of Khemchand Ramdas  and held  that those, observations lend no support to  the  view that  the  word "assessment" must always bear  a  particular meaning in the Income-tax Act.  Reliance in this context was placed  upon  the following observations of.’  the  Judicial Committee               "These two questions are so closely related to               one  another  that they  can  conveniently  be               considered together.  In order to answer  them               it  is  essential to bear in mind  the  method               prescribed by the Act for making an assessment               of  tax,  using  the word  assessment  in  its               comprehensive  sense  as including  the  whole               procedure  for  imposing  liability  upon  the               taxpayer.    The   method  consists   of   the               following  steps.   In the  first  place,  the               taxable  income  of  the taxpayer  has  to  be               computed.  In the next place, the sum  payable               by  him on the basis of such computation  has,               to be determined.  Finally, a notice of demand

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

             in the prescribed form, specifying the sum  so               payable, has to be served upon the taxpayer."               This  Court further observed in Shenoy’s  case               :               "If  the  word ’assessment’ is  taken  in  its               comprehensive sense, as we think it should  be               taken  in the context of section 1 3 ( 1 )  of               the  Finance  Act,  1950,  it  would   include               ’reassessment’  made under the  provisions  of               the Act.  Such ’reassessment’               (1) [1958] 34 ITR 275.               (2) [1938] 6 ITR 414,               602               will without doubt come within the  expression               ’levy,  assessment and collection  of  income-               tax’.   In  his  speech  in  Commissioner  for               General.  Purposes of Income Tax for the  City               of  London v. Gibbs and Others(1)  Lord  Simon               has pointed out that the word ’assessment’  is               used  in the English Income tax code  in  more               than  one  sense- and  sometimes,  within  the               bounds  of  the  same  section,  two  separate                             meanings  of  the  word  may  be  foun d.   One,               meaning  is  the fixing of the  sum  taken  to               represent the actual profit and the other  the               actual sum in tax which the taxpayer is liable               to pay.               It  has  been  contended before  us  that  the               Finance  Act and the Income-tax Act should  be               read  together  as forming one ,code,  and  so               read the words ’assessment’ and ’reassessment’               acquire  definite and  distinct  connotations.               We are unable to agree, for the reasons  which               we  have already given, that even if  we  read               the Finance Act along with the Income-tax  Act               the   word   ’assessment’  can  be   given   a               restricted  meaning.  To repeat these  reasons               the  Income-tax  Code  itself  uses  the  word               assessment  in  different senses, and  in  the               context  and collocation of the words  of  the               Finance Act, the word ’assessment’ is  capable               of bearing a comprehensive meaning only." In  the  context  of  section 17(1) of  the,  Act  the  word "assessment"  must  necessarily include  reassessment  under section 34 of the Act.  To hold otherwise would result in an anomalous situation.  This can best be illustrated by taking a  concrete  case.  An assessee files a  ,declaration  under section  17(1) of the Act in respect of the assessment  year 1955-56.   Supposing his assessment for the year 1956-57  is reopened and an order for reassessment is made.  In case the ,declaration made under section 17(1) can be availed of only for the original assessments and not for reassessments under section 34 of the Act, the result would necessarily be  that the declaration would have to be excluded from consideration in making the reassessment ’for the year 1956-57 even though the  declaration  had been filed much earlier.   This  could hardly  have  been the intention of  the  legislature.   The entire  scheme of section 17(1) as well as the  context,  in our  opinion,  clearly shows that the word  "assessment"  in section  17(1) has been used in a comprehensive sense so  as to include reassessment. It  may also be observed that there are indications  in  the Act  that  whenever the legislature intended that  the  word "assessment"  should  not  include  reassessment,  it   used

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

express  words  for  the purpose.  Section 33B  of  the  Act empowers the Commissioner of Income-tax if he considers  any order  passed by the income-tax officer to be erroneous  and prejudicial to the interest of revenue to make inter alia an order,  after  complying  with  the  requirements  of   that section.  canceling  the assessment and  directing  a  fresh assessment.  Sub-section (2) of that (1)  [1942] A.C. 402,406. 603 section makes it clear that no order can be made under  that section  to revise an order,of reassessment made  under  the provisions  of section 34.  If the order of  assessment  did not  include  an  order  of  reassessment  made  under   the provisions  of section 34, there would have been hardly  any necessity  of  making  a provision  in  sub-section  (2)  of section 33B that no order can be made under sub-section  (1) of’  that  section to revise an order of  reassessment  made under the pro-. visions of section 34. According to section 67 of the Act, no suit shall be brought in  any  Civil Court to set aside or modify  any  assessment made  under  the  Act.  It is obvious  that  the  protection afforded by that section would be available not only for the original  assessments but also for reassessments made  under section  34  of  the Act even though the word  used  in  the section  is assessment and not reassessment.  Likewise,  the fact  that the legislature has used the  word  "assessments" and  not ,,.reassessments" in the second proviso to  section 17(1) of the Act would not exclude the applicability of that proviso  to cases of reassessments subsequent to the  filing of the declaration. The  matter  may  also  be looked  at  from  another  angle. Proceedings under section 34 of the Act can be initiated  if the  income-tax, officer has reason to believe that  income, profits  or  gains  chargeable to  income-tax  have  escaped assessment  for  any year or have  been.  under-assessed  or assessed at too law a rate or have been made the subject  of excessive  ’relief  under  the  Act  or  excessive  loss  or depreciation allowance has been computed.  The first of  the above five contingencies deals with income, profits or gains chargeable  to income-tax escaping assessment.  In  such  an event   the  income-tax  officer  would   after   initiating proceedings under section 34 make assessment of such income, profit or gain.  In the other four contingencies, the carder made  by  the income-tax officer would  be  for  reassessing such.  income,  profit or gain or recomputing  the  loss  or depreciation allowance.  If the view propounded on behalf of the  revenue  were to be accepted that assessment  does  not include  reassessment made under section 34 of the Act,  the result  would  be that the benefit of the  declaration  made under  section 17 (1 ) of the Act, in case other  conditions are  fulfilled,  would  be  available  only  in  the   first contingency  mentioned above relating to escaped  assessment and not in the remaining contingencies because they  pertain to  reassessment.  This would certainly be anomalous for  it would  result  in placing persons whose income  has  escaped assessment  in a better position compared to persons,  whose income has been under-assessed or assessed at too low a rate or has been the subject of excessive relief under the Act or in whose cases 604 excessive loss or depreciation allowance has been  computed. This   could   hardly  have  been  the  intention   of   the legislature. We, therefore, accept these appeals, set aside the  judgment of  the High Court and discharge the answer given by  it  to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

the question referred to it.  The question reproduced  above is  answered in, the affirmative in favour of the  assessee- appellant  and against the revenue.  The assessee  appellant shall be entitled to his costs both in this Court as well as in the High Court.  One hearing fee. S. C.  Appeals allowed. 605