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PETITIONER: BHANJI BAGAWANDAS

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, MADRAS

DATE OF JUDGMENT: 18/07/1967

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. SIKRI, S.M.

CITATION:  1968 AIR  139            1968 SCR  (1)  17

ACT: Indian Income-tax Act (11 of 1922), ss. 34 and  66(1)-Income Tax   (Amendment)  Act,  1959,  S.   2-Appellate   Assistant Commissioner holding that cash credit appearing on first day of  accounting year not taxable in assessment year  1949-50- Order whether amounts to finding that it is taxable in 1948- 49-S. 34(3) second proviso whether attracted-Notice under s. 34(1)  (a) for 1948-49 issued in 1958-Limitation whether  to be  considered  in the light of Amending, Act  of  1959-High Court  in reference whether can consider effect of  Amending Act when question not directly referred.

HEADNOTE: There  was  a  cash  credit in November  13,  1947,  in  the capital, account of the Appellant assessee whose  accounting period was from November 13, 1947 to November 1, 1948.   The Income-tax  Officer assessed the said credit as income  from undisclosed  sources  in the assessment for  the  assessment year 1949-50.  The Appellate, Assistant Commissioner relying on  C.I.T. v. Darolia & Sons. (27 I.T.R. 515) held that  the amount was not taxable in the assessment year 1949-50.   The Income-tax Officer thereupon assessed the amount in  1948-49 after having issued in November 1958 a notice under s. 34(1) (a)  of the Indian Income’-tax Act, 1922.  He  rejected  the appellant’s  contention that notice under the  said  section was   timebarred.    In  appeal  the   Appellate   Assistant Commissioner  held that in the earlier appeal there  was  no finding that the credit represented the assessee’s income or that  it  should be assessed in the year  1948-49  and  that consequently the notice under s. 34 issued in November 1958, was not saved by the second proviso to s. 34(3) of the  Act. The appeal filed by the Revenue was allowed by the  Tribunal and  in reference the Madras High Court relying on  its  own ruling  in  A.S. Khader Ismail v.  Income-tax  Officer,  (47 I.T.R. 16) upheld the order of the Tribunal.  The  appellant came  to this Court and relied on this Court’s  decision  in Income-Tax  Officer A-Ward Sitapur v.  Murlidhar  Bhagwandas (52  I.T.R. 335) in which the aforesaid Madras decision  had been  overruled.   The Revenue urged that in  answering  the reference  the effect of s. 2 of the Income-tax  (Amendment) Act  1959  must be taken into consideration.   To  this  the

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appellant  objected that the point was outside the scope  of the  questions of law referred by the Appellate Tribunal  to the High Court. HELD:(i) The view taken by the Madras High Court as  to the  scope  of the word ’finding’ in A. S.  Khader  Ismail’s case  and  followed  by  it in the  present  case  had  been overruled, by this Court.  Accordingly the department  could not take advantage of the second proviso to s. 34(3).  [20E- F] Income-Tax Officer, A-Ward Sitapur v. Murlidhar Bhagwan Das, 52 I.T.R. 335, applied (ii)However, the impact of s. 2 of the Amending Act of 1959 had to be considered before the reference could be  properly answered.  Although the question had not been raised  before the Tribunal or the High Court it was only an aspect of  the question of limitation which had been referred.  All that s. 66(1) requires is that the question of law which is referred to the High Court and which the High Court is to decide must be the question which was in issue before 18 the  Tribunal.   When the question itself  was  under  issue there  is no further limitation imposed by the section  that the  reference  should be limited to those  aspects  of  the question  which had been argued before the Tribunal  and  it will be an over-refinement of the position to hold that each aspect  of a question is itself a distinct question for  the purpose of s. 66(1) of the Act. [22B-D] C.I.T. Bombay v. Scindia Steam Navigation Co. Ltd. 42 I.T.R. 589, applied. Onkarmal  Mehraj v. C.I.T., Bombay-1, 36 I.T.R. 369, and  S. C. Prashar v. Vasantsen Dwarkadas, 49 I.T.R. 1, referred to. [On  the above view the case was remanded to the High  Court for  examining  the  question of law referred  to  it  after considering the impact of the Amendment Act of 1959.]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1984 of 1966. Appeal from the judgment and order dated January 2, 1964  of the Madras High Court in T.C. No,. 153 of 1962. S. Swaminathan and R. Gopalakrishnan, for the appellant. Veda  Vyasa, A. N. Kirpal, R. N. Sachthey and S.  P.  Nayar, for the respondent. The Judgment of the Court was delivered by Ramaswami,  J.-This appeal is brought from the  judgment  of the Madras High Court dated January 1, 1964 in Tax Case  No. 153 of 1962. The  asessment year involved in this appeal is 1948-49,  the corresponding  previous year being the financial year  1947- 48.   For  the accounting period from November 13,  1947  to November  1, 1948 which was the corresponding previous  year for the assessment year 1949-50 there was shown a credit  of Rs.  25,000  in the capital account of  the  appellant.   On November 13, 1947, this amount was credited in the books  of the  appellant.   On  October  30,  1948  this  amount   was transferred  to the account of one  Amrithlal.   Ranchoodas, the father-in-law of the appellant.  The Income-tax  Officer included  the  said amount as income of the  appellant  from undisclosed  sources  in the assessment for  the  assessment year   1949-50.   On  appeal  to  the  Appellate   Assistant Commissioner  the appellant contended that the amount  could not  be included in the assessment year 1949-50 because  the credit  appeared  prior to March 31,  1948.   The  Appellate Assistant  Commissioner allowed the appeal holding that  the

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credit came into the books of the appellant on November  13, 1947,  i.e.,  in  the financial year 1947-48  which  is  the previous  year  for the assessment year  1948-49.   On  this finding,  the Appellate Assistant Commissioner  deleted  the addition of Rs. 25,000 from the assessment of the  appellant for the year 1949-50.  In doing so, the Appellate  Assistant Commissioner followed the decision in C.1.T. v. 19 P.Darolia & Sons(1).  Consequently on November 3, 1958  the, Income-tax Officer issued a notice under s. 34(1)(a) of  the Incometax Act, 1922, (hereinafter referred to as the.  ’Act’ to  the appellant for the assessment year 1948-49.   By  his order dated April 20, 1959 he rejected the contention of the appellant  that the assessment was barred by limitation  and assessed the sum of Rs. 25,000 as income from other sources. The  appellant  took the matter in appeal to  the  Appellate Assistant Commissioner who, by his order dated February  23, 1960,  allowed the appeal.  He took the view that there  was no   finding  in  the  order  of  the  Appellate   Assistant Commissioner  that the credit represented the income of  the appellant or that the same credit should be assessed in  the assessment  year 1948-49.  He further held that  the  notice under  s. 34 issued on November 3, 1958 was bad in  law  and was not saved by the second proviso to s. 34(3) of the  Act. The  Commissioner of Incometax preferred an  appeal  against the  order  of the Appellate Assistant Commissioner  to  the Income-tax  Appellate  Tribunal which  allowed  the  appeal, holding   that  "the  order  of  the   Appellate   Assistant Commissioner in the appeal against the assessment for 1949-- 50 should be taken to contain a finding that the sum of  Rs. 25,000  represented income of the assessee to be  considered in  the  assessment year 1948-49".  At the instance  of  the appellant  the  Appellate Tribunal  referred  the  following questions of law for the opinion of the High Court under  s. 66(1) of the Act:               "(1)   Whether  on  the  facts  and   in   the               circumstances  of  the case,  the  proceedings               initiated   against  the  assessee   for   the               assessment  year 1948-49 under section 34  and               the assessment for the said year are barred by               limitation and. hence not lawful?               (2)   Whether   the   proceedings    initiated               against the assessee               for   the   assessment  year   1948-49   under               section  34  and  the  assessment  made  under               section 34 for the assessment               year 1948-49 could be justified in law as  for               the purpose of giving effect to, a finding  or               directions  in  the  order  of  the  Appellate               Assistant  Commissioner in I.T.A. No.  134  of               1958-59?               (3)   Whether   on  the  facts  and   in   the               circumstances of the case, the assessment made               is saved from the bar of limitation under  the               second proviso to section 34(3)?" By  its  judgment  dated January 2,  1964,  the  High  Court answered  the  questions  in favour of  the  respondent  and against  the appellant.  The High Court followed an  earlier decision in A.S. Khader Ismail v. Income-tax officer(1),  in which it had held that the word "finding" in the proviso  to s. 34(3) of the Act must be given a (1) 27 I.T.R. 515. (2) 47 I.T.R. 16. 20 wide  significance  so  as  to  include  not  only  findings

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necessary for the disposal of the appeal but it would  apply to cases where it is held that the income in question was in respect of an earlier year which was not the  subject-matter of the appeal before the appellate authority. On  behalf of the appellant Mr. Swaminathan put forward  the argument that the decision of the High Court is contrary  to the view taken by this Court in Income-tax Officer,  A-Ward, Sitapur  v.  Murlidhar Bhagwan Das(1) in which it  was  held that  the  expressions  "finding" and  "direction",  in  the second  proviso to s. 34(3), meant respectively,  a  finding necessary for giving relief in respect of the assessment for the year in question, and a direction which the appellate or revisional  authority, as the case may be, was empowered  to give  under  the  sections mentioned  in  that  proviso.   A "finding", therefore, could only be that which was necessary for the disposal of an appeal in respect of an assessment of a  particular  year.  The Appellate  Assistant  Commissioner might  hold, on the evidence, that the income shown  by  the assessee  was  not  the income for  the  relevant  year  and thereby exclude that income from the assessment of the  year under  appeal.   The finding in that context  was  that  the income  did  not  belong to the  relevant  year.   He  might incidentally find that the income belonged to another  year, but that was not a finding necessary for the disposal of  an appeal in respect of the year of assessment in question.  It was further held that the second proviso to s. 34(3) did not save the time-limit prescribed under s. 34(1) in respect  of an  escaped assessment of a year other than that  which  was the  subject-matter of the appeal or revision, as  the  case may be, and accordingly the notice issued under s. 34(1) (a) in  that case was barred by limitation and was not saved  by the  second  proviso  to s. 34(3).  In  the  course  of  its judgment  this  Court overruled the judgment of  the  Madras High Court in A. S. Khader Ismail v. Income-tax  Officer(1). It  follows therefore that the view taken by the High  Court in  the  present  case is not correct in  law  and  must  be overruled. On  behalf of the respondent, however, Mr. Veda  Vyasa  con- tended that in answering the reference the effect of s. 2 of the Income-tax (Amendment) Act (Act 1 of 1959) must be taken into consideration and in view of the amendment made by that section  of the amending Act the questions referred  to  the High   Court  must  be  answered  necessarily  against   the appellant.  Section 2 of the Amendment Act. 1959 inserted in s. 34 of the Act a new sub-section (4) which provides:               "A notice under clause (a) of sub-section  (1)               may be issued at any time notwithstanding that               at  the  time of the-issue of the  notice  the               period of eight years specified               (1)52 I.T.R. 335.               (2) 47 T.T.R. 16.               21               in  that  subsection before its  amendment  by               clause of section 18 of the Finance Act,  1956               (18  of 1956), had expired in respect  of  the               year to which the notice relates.               Section  4 of the Amending Act, 1959  read  as               follows:               "No  notice  issued under clause (a)  of  sub-               section (1) of section 34 of the principal Act               at  any time before the commencement  of  this               Act   and  no  assessment,   reassessment   or               settlement  made or other proceeding taken  in               consequence of such notice shall be called  in               question  in  any  court,  tribunal  or  other

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             authority  merely  on the ground that  at  the               time the notice was issued or at the time  the               assessment or re-assessment was made the  time               within  which  such notice  should  have  been               issued  or  the  assessment  or  re-assessment               should have been made under that section as in               force  before its amendment by clause  (a)  of               section  18  of the Finance Act, 1956  (18  of               1956), had expired." Mr.  Veda Vyasa referred to the decision of the Bombay  High Court in Onkarmal Meghraj v. C.I.T. Bombay-I.(1) in which it was  held  that  there  was nothing in s.  2  or  4  of  the Amendment Act of 1959 to restrict the terms of the words "at any  time" occurring in s. 4 of that Act as meaning "at  any time  after  April  1, 1956", viz., the date  on  which  the amendments  made by the Finance Act, 1956, came  into  force and there was nothing in the provisions of   the   Amendment Act of 1959 which limited the retrospective operation of  s. 4.  It  was  also  held that  since  the  enactment  of  the Amendment  Act of 1959 a notice issued after April 1,  1956, for reopening an assessment, by virtue of s. 4, could not be permitted  to be called in question on the ground  that  the notice  was not issued within the period prescribed  by  the unamended   s.  34(1)(a).   On  behalf  of  the   respondent reference was also made to the decision of this Court in  S. C.  Prashar v. Vasantsen Dwarkadas,(2) in which it was  held that  s.  4  of  the Amendment Act,  1959  operated  on  and validated  notices  issued under s. 34(1)(a) as  amended  in 1948  even  earlier than April 1, 1956, in other  words,  in respect  of  assessment years prior to March 31,  1956.  and therefore notices issued under s. 34(1)(a) of the Income-tax Act  before  April 1, 1956, could not be challenged  on  the ground that they were issued beyond the time limit of  eight years from the respective assessment years prescribed by the 1948 amendment.  On behalf of the appellant Mr.  Swaminathan raised the objection that the point was not taken up by  the respondent in the High Court, nor was there any reference to it in the statement of the case tiled by the respondent.  It was  also  contended that the point raised was  outside  the scope  of  the questions of law referred  by  the  Appellate Tribunal  to the High Court.  We do not think there  is  any substance in the (1) 38 I.T.R. 369.          (2  ) 49 I.T.R. 1. 22 objection  raised  on behalf of the appellant.  One  of  the questions  referred  to the High Court is  "whether  on  the facts  and in the circumstances of the case  the  assessment made  is saved from the bar of limitation under  the  second proviso to section 34(3)?" It is true that the impact of the Amending Act, 1959 (Act 1 of 1959) was not raised before the Appellate Tribunal or before the High Court, but it is not a separate  question  by itself and is only an aspect  of  the question  of limitation which has already been  referred  by the Appellate Tribunal to the High Court.  As pointed out in CI.T.  Bombay V. Scindia Steam Navigation Co.  Ltd.,(1)  the question  of law referred to the High Court under s. 66  may be a simple one having its impact on one point, or it  might be  a  complex  one,  involving more  than  one  aspect  and requiring  to  be tackled from different  standpoints.   All that  section  66(1) requires is that the  question  of  law which is referred to the High Court and which the High Court is to decide must be the question which was in issue  before the  Tribunal.  Where the question itself was  under  issue, there  is no further limitation imposed by the section  that the  reference  should be limited to those  aspects  of  the

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question  which had been argued before the Tribunal, and  it will be an over-refinement of the position to hold that each aspect  of a question is itself a distinct question for  the purpose  of  s.  66(1)  of the Act.   In  our  opinion,  the argument  of the respondent with regard to the legal  effect of  the Amending Act of 1959 (Act 1 of 1959) is  within  the frame-work  of  the question already referred  to  the  High Court and it is therefore competent to this Court, in a case of  this  description,  to  allow a  new  contention  to  be advanced. It  is, however, necessary that the case should be  remanded to the High Court for examining the question of law referred to  it after ’considering the impact of the Amending Act  of 1959 (Act 1 of 1959). For these reasons we allow this appeal, set aside the  judg- ment of the High Court dated January 2, 1964 and remand  the case  to it for further hearing and answering the  reference in  light of the Income-tax Amending Act 1 of 1959.  In  the circumstances  of  the case we direct  that  the  respondent should pay the cost of this appeal in this Court, Appeal allowed. Y. P. (1) 421.  T.T.R. 589, 23