http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: PANNALAL NANDLAL BHANDARI

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY, BOMBAY.

DATE OF JUDGMENT: 18/10/1960

BENCH: SHAH, J.C. BENCH: SHAH, J.C. DAS, S.K. HIDAYATULLAH, M.

CITATION:  1961 AIR  446            1961 SCR  (2)  35  CITATOR INFO :  RF         1962 SC 478  (9)

ACT: Income-tax--General notice--Non-resident liability to submit return--Period  of Limitation--Indian Income Tax  Act,  1922 (XI of 1922), s. 22(1) & (2), s.34(1)(a) & (b).

HEADNOTE: The appellant, a non-resident for the purposes of the Indian Income-tax  Act, did not submit returns of certain  dividend income  accruing to him within the taxable  territory.   The Income-tax Officer served upon him notices under S. 34  read with S. 22(2) of the Act for assessment of tax in respect of those  years.   The notices in question were  issued  within eight years from the end of the years of assessment and were within the period prescribed by s. 34(i)(a).  The  appellant contended  that notices for assessment were governed by  cl. (i)(b)  of  S.  34 and not by cl. (i)(a),  even  though  the appellant had not made a return of his income for the  years in question as a general notice under s. 22(1) did not  give rise to a liability to submit a return and his inaction  did not  amount to omission or failure to submit a return as  he was  a  non-resident, and the  assessment  proceedings  were barred by limitation. Held,  that the expression "every person " in s. 22  (1)  of the  Indian Income-tax Act, 1922, includes all  persons  who are  liable  to pay tax and non-residents are  not  exempted from  liability to submit a return pursuant to  the  general notice thereunder. Once  a  notice is given by publication  in  the  prescribed manner under s. 22(i), every person whether resident or non- resident whose income exceeds the maximum amount exempt from tax is obliged to submit a return and if he does not do so, 36 it  will  be deemed that there was omission on his  part  to make  a  return  within the meaning of S.  34(i)(a)  of  the Indian  Income  tax Act.  Section 34(1)(b) applied  only  to those cases where there was no omission or failure to make a return  of the income or to make a full and true  disclosure of facts material to the  assessment. In the instant case the proceedings for assessment were pro-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

perly  commenced within the period of limitation  prescribed by s. 34(1)(a).

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 408 of 1957. Appeal  by Special Leave from the Judgment and  Order  dated the 28th September, 1955, of the former Bombay High Court in Income-tax Reference No. 5 of 1955. Sanat  P. Mehta, S. N.  Andley, J. B. Dadachanji,  Rameshwar Nath and P. L. Vohra, for the appellant. A.   N.  Kripal,  R.  H.  Dhebar  and  D.  Gupta,  for   the respondent. 1960.  October 18.  The Judgment of the Court was  delivered by SHAH  J.-To  the appellant who was a  non-resident  for  the purposes of the Indian Income Tax Act, 1922, had accrued  in the  assessment years 1943-44, 194445, 1946-47  and  1947-48 certain  dividend  income within the  taxable  territory  of British  India, but the appellant did not submit returns  of his  income for those assessment years.  In exercise of  his powers  under s. 34 of the Indian Income Tax Act, 1922,  the Income  Tax Officer, Bombay City, served upon the  appellant notices  under  s.  34 read with s, 22(2)  of  the  Act  for assessment of tax in respect of those years.  The notice for the  year 1943-44 was served on the appellant on  March  27, 1952,  for  the year 1944-45 on February 16, 1953,  for  the year  1946-47 on April 4, 1951 and for the year  1947-48  on April  2,  1952.   The  Income  Tax  Officer  completed  the assessments  in  respect of the years 1943-44, 1944  45  and 1947-48 on May 6, 1953 and for the year 1946-47 on March 19, 1952.   The  orders  of assessment  were  confirmed  by  the Appellate  Assistant  Commissioner  and by  the  Income  Tax Appellate Tribunal.  At the instance of 37 the  appellant, the Income Tax Appellate Tribunal drew up  a statement  of the case under s. 66(1) of the Income Tax  Act and submitted to the High Court of Judicature at Bombay  the following two questions: (I).      Whether  the notices issued under s. 22(2) of  the Act  read  with s. 34 of the Act for  the  assessment  years 1943-44, 1944-45, 1946-47 and 1947-48 were served after  the period of limitation prescribed by s.   34 of the Act? (2)  If the answer to Question No. 1 is in the  affirmative, whether  the  assessments  for the years  in  question  were invalid in law? The  High Court answered the first question in the  negative and observed that on that answer, the second question "  did not  arise  ".  With special leave under  Art.  136  of  the Constitution,  this  appeal is preferred  by  the  appellant against the order of the High Court. The  only  question  which falls to be  determined  in  this appeal  is  whether  the  proceedings  for  assessment  were commenced  within  the period of limitation  prescribed  for serving  notice of assessment under s. 34(1)(a) of the  Act. At  the  material  time, by s. 34  (1)(a),  the  Income  Tax Officer  was invested with power amongst others to serve  at any  time  within eight years from the end of  any  year  of assessment notice of assessment if he had reason to  believe that  income,  profits or gains had  escaped  assessment  by reason of omission or failure on the part of the assessee to make a return of his income under s. 22 for that year, or to disclose  fully and truly all material facts  necessary  for his  assessment  of  that year.  In those  cases  where  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

Income Tax Officer had in consequence of information in  his possession  reason to believe that income, profits or  gains had escaped assessment even though there was no omission  or failure  as  mentioned in el. (a), he could  under  cl.  (b) within  four  years from the end of the year  of  assessment serve  a  notice  of assessment.   Admittedly,  the  notices issued  by the Income Tax Officer for the years in  question were issued within eight years from the end of the years  of assessment  and  if  el.  (1)(a)  of  s.  34  applied,   the assessment was not barred by the law of limitation. 38 But the appellant contended that the notices for  assessment were, even though he had not made a return of his income for the years in question, governed not by cl. (1)(a) of s.  34, but  by  cl.  (1)(b) of s. 34.  He contended  that  being  a resident  outside  the taxable territory in the years  of  , assessment,  a  general notice under s. 22(1) did  not  give rise to a liability to submit a return, and his inaction did not  amount  to  omission or failure  to  submit  a  return, inviting  the  applicability of s. 34(1)(a).   He  submitted that omission or failure to make a return can only arise qua a  non-resident, if no return is filed after service  of  an individual notice under s. 22(2).  In other words, the  plea is  that a notice under s. 22(1) imposes an obligation  upon persons  resident within the taxable territory and not  upon non-residents, and support for this argument is sought to be obtained from s. 1 sub-s. (2) which extended the Income  Tax Act at the material time to British India. The expression " every person whose total income during  the previous  year  exceeded  the maximum amount  which  is  not chargeable to income-tax " in s. 22(1) includes all  persons who  are  liable  to pay tax and there  is  nothing  in  the section  or in its context which exempts non-residents  from liability   to  submit  a  return  pursuant  to   a   notice thereunder.   The fact that a non-resident assessee may  not come to know of the general notice issued under s. 22(1)  is not  a ground for not giving effect to the plain words  used in  the  section.   In terms, the clause  read  with  r.  18 requires  every person who has taxable income to submit  his return, and if he fails to do so, under s. 34 of the Act the Income  Tax Officer may commence proceedings for  assessment within  the  period  prescribed  by  cl.  (1)(a).    Section 34(1)(b)  applies  only  to those cases where  there  is  no omission  or  failure to make a return of the income  or  to make  a  full and true disclosure of facts material  to  the assessment.  To the appellant though non-resident income bad admittedly accrued in the taxable territory and that  income exceeded  the maximum amount not chargeable to  income-tax., The appellant not having submitted a return in pursuance  of the notice issued under s. 221 the Income Tax 39 Officer  was competent under s. 34(1)(a) to issue notice  at any  time  within  eight years of the end  of  the  year  of assessment for assessing him to tax.  Once a notice is given by  publication  in the press and in the  prescribed  manner under  s. 22(1), every person whose Th. income  exceeds  the maximum amount exempt from tax is obliged to submit a return and  if he does not do so, it will be deemed that there  was omission  on his part to a make a return within the  meaning of s. 34(1)(a).  There is no warrant for the submission that s. 22(1) applies to residents only and that an obligation to make a return on the part of a nonresident can only arise if a notice under sub-s. (2) is served.  Under sub-s. (2) it is open  to  the Income Tax Officer to serve a  special  notice upon  any  person requiring him to furnish a return  in  the

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

prescribed  form, but that provision does not derogate  from the liability arising under sub-s. (1) to submit a return. The  Income  Tax  Act  extends by s.  1(2)  to  the  taxable territory  and  not beyond; but within that  territory,  the Income  Tax Officer has power to tax income  which  accrues, arises  or  is  received, and that is not  disputed  by  the appellant.   If power to tax be granted, it is difficult  to appreciate  the  ground on which the plea that  the  general provision imposing liability upon persons receiving  taxable income is subject to an unexpressed limitation that it is to apply  only  to  residents and not  to  non-residents.   The submission  that  a person liable to pay  tax  but  resident outside the taxable territory must be served with a  special notice  under s. 22(2) before his inaction in the matter  of making a return may be deemed omission within the meaning of s.  34(1)  is  without  force.  There  is  no  such  express provision  made by the statute and none can be implied  from the context. The  High  Court  was therefore right in  holding  that  the proceedings  for assessment were properly  commenced  within the period of limitation prescribed by s. 34(1)(a) from  the close  of the year of assessment.  The appeal fails  and  is dismissed with costs. Appeal dismissed. 40