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PETITIONER: COMMISSIONER OF INCOME-TAX, NEW DELHI

       Vs.

RESPONDENT: RAO THAKUR NARAYAN SINGH

DATE OF JUDGMENT: 30/10/1964

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. SHAH, J.C. SIKRI, S.M.

CITATION:  1965 AIR 1421            1965 SCR  (1) 990  CITATOR INFO :  D          1973 SC 254  (6)

ACT: Income-tax  Act,  1922 (11 of 1922), s. 34(1)-Two  items  of income   escaped  assessment   taxed   subsequently-Tribunal considered taxability of only one item-By mistake set  aside the  entire order in respect of both items.No  rectification of mistake-Whether fresh notice under s. 34(1) valid.

HEADNOTE: The Income-tax Officer issued a notice to the assessee under s. 34 on the ground that two items of the assessee’s income, namely forest income and interest income, were not  included in  the  original  assessment  for  the  year  1942-43.   In response  the assessee filed a return fully  disclosing  his interest  income but raised the plea that his forest  income was not taxable.  The, Income-tax Officer however,  assessed both items to tax.  On appeal, the Appellate Tribunal in its order  dated April 25, 1961, although dealing only with  the forest income and holding that the Income-tax Officer had no jurisdiction to initiate proceedings under s. 34 in  respect of such income, by inadvertence or by mistake, set aside the entire  order  of  reassessment both in  respect  of  forest income, as well as the interest income.  The Department  did not take any steps to rectify the mistake under s. 35 or  to have the question of illegality referred to the High Court.. Having  allowed the order of the Tribunal to  become  final, the Income-tax Officer initiated fresh proceedings under  s. 34  in  respect of the interest income and  made  a  revised assessment order which included this income.  The  Appellate Tribunal  confirmed the assessment but the High Court, on  a reference  to  it under s. 66(1), took the view  that  fresh proceedings  under s. 24 could not be taken for the  reason, inter  alia, that the Tribunal’s order dated April 25,  1949 had become final. HELD : The Tribunal had committed a mistake in setting aside the  reassessment order in respect of interest income  also, but  the  income-tax Officer did not resort to  the  obvious remedy of having the mistake rectified as provided for under s. 35 and allowed the Tribunal’s order dated April 25,  1949 to become final.  He could not in the circumstances,  reopen

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the  assessment  by initiating proceedings under s.  34,  as otherwise there would be an unrestricted power of review  in the  hands  of  the  Income-tax Officer  to  go  behind  the findings  of a hierarchy of Tribunals and Courts. [995  E-F; 996 F-H] C.I.T.  Bombay and Aden v. Khemchand Ramdas, (1938)6  I.T.R. 414  and  C.I.T. West Punjab v. The Tribune  Trust,  Lahore, (1948)16 I.T.R. 214, referred to. R.   K.  Das & Co. v. C.I.T., West Bengal,  (1956)30  I.T.R. 439  and  C.I.T.,  Bihar & Orissa  v.  Maharaja  Pratapsingh Bahadur of Gidhaur, (1961) 41 I.T.R. 421. distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 954 of 1963. On appeal. from the judgment and decree dated March 9, 1964, of the Allahabad High Court in Income-tax Miscellaneous Case No. 143 of 1954. 991 K.   N. Rajagopala Sastri, R. H. Dhebar and R. N.  Sachthey, for the appellant. A.   V. Viswanatha Sastri, Z. S. Meeratwal, B. P. Singh  and Naunit Lal, for the respondent. The Judgment of the Court was delivered by Subba  Rao  J.  This appeal by  special  leave  is  directed against  the order of a Division Bench of the High Court  of Judicature at Allahabad holding that the Income-tax Officer, in  the circumstances of the case, went wrong in  initiating proceedings  under  s. 34(1) of the Indian  Income-tax  Act, 1922,  hereinafter  called  the  Act,  in  respect  of   the assessment year 1942-43. The facts may briefly be stated.  The assessee was a  holder of an impartible estate in the district of Ajmer.  On  March 25, 1944, the Income-tax Officer assessed him to  income-tax for the year 1942-43.  On April 5, 1945, on the ground  that two items of the assessee’s income, namely, s year  (forest) income  and  interest  income,  were  not  included  in  the original  assessment,  a notice under s. 34 of the  Act  was issued to him.  In response to the said notice, the assessee filed a return wherein he disclosed fully and completely the particulars of his interest income, but raised the plea that his forest income was not taxable.  The Income-tax  Officer, by his order dated July 12, 1945, made a revised  assessment including both the incomes.  The respondent  eventually,took the  matter on appeal to the Income-tax Appellate  Tribunal, which,  by  it-, order dated April 25, 1949, held  that  the Income-tax   Officer   had  no  jurisdiction   to   initiate proceedings under s. 34 of the Act in respect of the  forest income  on  the  ground  that  the  Income-tax  Officer  had knowledge that the assessee had such income when he made the original  assessment.  Though the Tribunal only  dealt  with the  question  of  forest  income,  by  inadvertence  or  by mistake, it set aside the entire order of reassessment dated July  12, 1945, made by the Income-tax Officer and  restored the original order passed by him.  The Income-tax Department did not take any steps to rectify the mistake under s. 35 of the  Act  or make any attempt to have the  question  of  the illegality  referred to the High Court.  Having allowed  the order  to become final, on January 3, 1950,  the  Income-tax Officer  after  obtaining the sanction of  the  Commissioner initiated proceedings under s. 34 of the Act with respect to the  interest income.  On January 19, 1950,  the  Income-tax Officer issued to the assessee a fresh notice under the said section.  On September 25, 1950, a

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992 revised   assessment  order  was  made  in  regard  to   the assessment  year 1942-43 in which the respondent’s  interest income   was  also  included.   On  appeal,  the   Appellate Assistant Commissioner confirmed the said order.  On further appeal,  the ’Income-tax Appellate Tribunal held that  since the  assessee had failed to disclose his interest income  in the  return  filed  by  him under s. 22(2)  of  the  Act  in connection with the original assessment the said income  had escaped  assessment and, therefore, the provisions of s.  34 (1 ) (a) of the Act were attracted.  On application filed by the  assessee, the Tribunal referred the following  question to the High Court under s. 66(1) of the Act:               "Whether on the facts and in the circumstances               of  this case the provisions of s. 34(1)  were               applicable  in respect of the assessment  year               1942-43 on 19th January, 1950, when the notice               under  that  provision  was  issued  for   the               purpose  of  assessing  the  escaped  interest               income." The  High Court came to the conclusion that the Tribunal  in its  order dated April 25, 1949, committed a clear error  in setting  aside the assessment of tax on the interest  income without going ,into the correctness of the imposition of tax thereon,  but that order had become final; it  further  held that   the  said  order  ,did  not  invalidate  the   entire proceedings taken under s. 34 of the Act and, therefore, the Income-tax  Officer could not take proceedings afresh  under s. 34 of the Act.  In the result the High Court answered the question in the negative.  Hence the appeal. Mr. Rajagopala Sastri, learned counsel for the Revenue, con- tended that the interest income had escaped assessment  and, therefore, the Income-tax Officer was competent to  initiate proceedings under s. 34(1) (a) of the Act for assessing  the same. Mr. Viswanatha Sastri learned counsel for the respondent, on the  other  hand,  argued that the assessment  made  by  the Income-tax Officer pursuant to the notice issued under s. 34 of the Act was in its entirety set aside by the Tribunal  on the ground that there was no "discovery" within the  meaning of  s.  34 of the Act and that order had become  final  and, therefore,  the Income-tax Officer could not initiate  fresh proceedings  under  that section on the  ,principle  of  res judicata. To appreciate the contentions of the parties it is necessary to  ,notice  the scope of the order of  the  Tribunal  dated April  25,  1949.   Before the  Appellate  Tribunal  it  was contended  on  behalf of the assessee  that  the  Income-tax Officer who issued the said notice had 993 no definite information which led to the discovery that  the said income had escaped assessment within the meaning of the said  section.  Adverting to the said argument the  Tribunal observed:               "We  do not agree with the contention  of  the               department  that  the Income-tax  Officer  who               made the original assessment did not apply his               mind to this fact, as there is no evidence  to               show that at the material time such income was               considered   taxable   by   the    Department.               Ordinarily  one  would  expect  that  when  an               Income-tax  Officer  makes the  assessment  he               does  according  to law and on  the  facts  as               produced  before him.  If the fact  is  before               him  he  refused  to  take  it  into   account

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             thinking  that  it  was  immaterial  or   even               inadvertently takes no notice of it, it cannot               be  said that the Income-tax Officer  came  in               possession  of a definite  information  within               the  meaning of s. 34.  We are, therefore,  of               the  opinion  that proceedings.  under  s.  34               could  not be initiated against  the  assessee               for the four assessment years under reference.               The orders passed by the Income-tax Officer in               respect of these four years are therefore  set               aside  and the original orders under s.  23(3)               are restored." We  have  extracted  the order in extenso  as  the  argument really  turns  upon  the  scope  of  the  said  order.   The Appellate Tribunal in considering the validity of the notice under  S. 34 of the Act only discussed the question  of  the escape of the year income; it did not advert to the interest income at all.  It came to the conclusion, having regard  to the fact that the Income-tax Officer at the time he made the original  assessment had knowledge of the existence  of  the syar  income, that the Income-tax Officer did not come  into possession of definite information within the meaning of s.   34 of the Act.  Though the finding was arrived at on the  basis of   the syar income alone the Tribunal set aside the entire order of  reassessment  and restored the original  order  of assessment made by the Income-tax Officer under s. 23 (3) of the  Act.  The legal effect of the order was that  the  are- assessment  of the entire income, including the syar  income and  interest income, was set aside on the ground  that  the Income-tax Officer did not come into possession of  definite information  leading  to a "discovery"  and,  therefore,  he could  not initiate proceedings under s. 34 of the Act.   It is true that the Tribunal had committed a mistake in setting aside  the  reassessment order in respect  of  the  interest income 994 also; but, so long as that order stands, it comprehends both the incomes. The Income-tax Officer did not take any further  proceedings by way of reference to the High Court on any question of law arising  out of the order of the Tribunal; nor did  he  take any  proceedings  under s. 35 of the Act to have  the  order corrected  on  the ground of mistake.  With the  result  the order has become final. The  question,  therefore, is not whether the order  of  the Tribunal in so far as it related to the interest income  was made  by  inadvertence or under a mistake, but  whether  the Income-tax  Officer  could initiate proceedings  over  again under s. 34 of the Act in derogation of the finding given by the Tribunal that the Income-tax Officer did not  "discover" that the income had escaped assessment. The  Income-tax Act is a self-contained one.  It  creates  a hierarchy   of  tribunals  with  original,   appellate   and revisional  jurisdictions.   Section 31 gives,  inter  alia, right  of  appeal  against some  orders  of  the  Income-tax Officer to the Appellate Assistant Commissioner; section  33 provides  for a further appeal to the  Income-tax  Appellate Tribunal; and sub-s. (6) of s. 33 says that save as provided in  s. 66 orders passed by the Appellate Tribunal on  appeal shall  be final.  Section 66 provides for reference  to  the High  Court on a question of law; and s. 66-A  provides  for appeals in certain cases to the Supreme Court.  It is  clear from the said provisions that the order of the Tribunal made within its jurisdiction, subject to the provisions of s.  66 of  the  Act,  is final.  Therefore,  the  decision  of  the

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Tribunal  in  respect  of the  subject-matter  under  appeal before it is final and cannot be reopened by the assessee or the Department. The Judicial Committee in Commissioner of Income-tar, Bombay &  Aden v. Khemchand Ramdas(1) succinctly stated  the  legal position thus :               "But  it  is  not  true  that  after  a  final               assessment  under those sections (ss.  23  and               29) has been made, the Income-tax Officer  can               go  on making fresh computations  and  issuing               fresh  notices  of demand to the  end  of  all               time............   But  when  once   a   final               assessment  is arrived at, it cannot in  Their               Lordships’  opinion be reopened except in  the               circumstances detailed in               (1)   (1938) 6 I.T.R. 414, 424, 426.               995               Sections  34 and 35 of the Act and within  the               time limited by those sections."               Later on the same idea is restated thus               "In Their Lordships opinion the provisions  of               the two sections are exhaustive, and prescribe               the  only circumstances in which and the  only               time  within which such fresh assessments  can               be  made  and fresh notices of demand  can  be               issued." The Judicial Committee again in Commissioner of  Income-tax, West Punjab v. The Tribune Trust, Lahore(1), after  noticing the  relevant  sections  of the  Act,  reaffirmed  the  same position and held that assessments once made would be  valid and  effective  until  they were set  aside  in  the  manner prescribed  by the Act and that, if not so set  aside,  they were  final.   If  so,  it follows that  the  order  of  the Tribunal on the said question, namely, that the whole  order of reassessment under s. 34 of the Act was invalid as  there was   no  "discovery"  that  the  relevant  income   escaped assessment, had become final. The only two sections that enable the Income-tax Officer  to reopen  final  assessments  are  ss.  34  and  35.   If  the Appellate  Tribunal committed a mistake, under s. 35 it  can be  rectified within four years from the date of the  order. In the present case it was a clear case of mistake, for  the Tribunal  set aside the order of reassessment in respect  of the interest income, though its validity to that extent  was not disputed.  But, for one reason or other, the Revenue did not resort to the obvious remedy and allowed the mistake  to remain  uncorrected.  In the se circumstances, can s. 34  of the  Act  be resorted to ? Learned counsel for  the  Revenue says  that s. 34(1) (a), as amended in 1948, confers such  a power  on the Income-tax Officer.  The material part  of  s. 34, before amendment, read:               "(1) If in consequence of definite information               which  has  come,  into  his  possession   the               Income-tax  Officer  discovers  that   income,               profits or gains chargeable to income-tax have               escaped assessment in any year               Section 34 (1 ) (a), as amended in 1948, reads               :               "If  the  Income-tax  Officer  has  reason  to               believe  that  by reason of  the  omission  or               failure on the part of in assessee to disclose               fully  and truly all material facts  necessary               for his assessment for that year.               (1)   (1941) 16 I.T.R. 214.               996

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             income, profits or gains chargeable to income-               tax   have   escaped   assessment   for   that               year......  he  may  in  cases  falling  under               clause (a) at any time.................  serve               on the assessee a notice................" It  is  said that the words "has reason to believe  that  by reason of the omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his  assessment  for  that year,  income  profits  or  gains chargeable  to income-tax have escaped assessment" are  more comprehensive   than  the  words  "the  Income-tax   Officer discovers  that income etc., have escaped assessment in  any year"  and,  therefore, though there was a  finding  by  the Tribunal that the Income-tax Officer did not "discover" that there  was  escape of assessment,.  the  Income-tax  Officer under the amended s. 34 can initiate proceedings in spite of that finding.  We cannot accept this argument.  It could not have  been the intention of the Legislature by amending  the section  to enable the Income-tax Officer to  reopen  final- decisions  made against the Revenue in respect of  questions that  directly  arose for decision in  earlier  proceedings. The  Tribunal  held  in the  earlier  proceedings  that  the Income-tax  Officer knew all the facts at the time  he  made the original assessment in regard to the income he later  on sought  to tax.  The said finding necessarily  implies  that the Income-tax Officer had no reason to believe that because of the ’assessee’s failure to disclose the facts income  has escaped  assessment.  The earlier finding  is  comprehensive enough  to  negative "any such reason" on the  part  of  the Income,-tax  Officer.  That finding is binding on  him.   He could  not on the same facts reopen the proceedings  on  the ground that he had new information.  If he did so, it  would be  a clear attempt to circumvent the said order, which  had become  final.  We are not concerned in this appeal  with  a case where the Income-tax Officer got new information  which he  did  not  have at the time when the  Tribunal  made  the order.   The finding of the Tribunal is, therefore,  binding on the Income Officer and he cannot, in the circumstances of the  case,  reopen the assessment and  initiate  proceedings over again.  If that was not the legal position, we would be placing  an unrestricted power of review in the hands of  an Income-tax  Officer  to go behind the findings  given  by  a hierarchy of tribunals and even those of the High Court  and the Supreme Court with his changing moods. The decisions: cited by the learned counsel for the  Revenue do not countenance such a contention.  Chakraverti C.J., in 997 R.   K.  Das  &  Co. v.  Commissioner  of  Income-tax,  West Bengal(1),  speaking  for the Division Bench,  only  decided that  the Income-tax Officer could not make  a  reassessment unless  he issued the prescribed notice and issued it  in  a valid  form.   As the notice under s. 34 of the  Act  issued therein  was  held  to be bad  inasmuch  as  the  Income-tax Officer  did not take the sanction of the Commissioner,  the learned  Chief Justice held that the returns filed  pursuant to such notice was also bad.  We are not here concerned with that  aspect  of the case.  The judgment of  this  Court  in Commissioner  of  Income-tax,  Bihar &  Orissa  v.  Maharaja Pratapsingh Bahadur of Gidhaur(2) held that, as the  earlier notice issued under s. 34(1) of the Act without the sanction of the Commissioner was bad, the entire proceedings for are- assessment  were illegal.  There was an observation ’at  the end  of  the  judgment to the effect that  "there  was  time enough for fresh notices to have been issued, and we fail to see  why  the old notices were not recalled and  fresh  ones

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issued".  The point now raised before us, viz., how far  and to  what  extent a final order made in  earlier  proceedings under  s. 34 of the Act would be binding on  the  Income-tax Officer in subsequent proceedings under the said section was neither raised nor decided in that case. The  said  decisions,  therefore, have  no  bearing  an  the question raised before us. For  the foregoing reasons we hold that the answer given  by the High Court to the question referred to it is correct. In the result, the appeal fails and is dismissed with costs. Appeal dismissed. (1)  (1956) 30 I.T.R. 439. (2)  [1961] 2 S.C.R. 760. 997