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PETITIONER: HUSSAIN BHAI AND OTHERS

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, MADRAS

DATE OF JUDGMENT16/04/1971

BENCH: SIKRI, S.M. (CJ) BENCH: SIKRI, S.M. (CJ) MITTER, G.K. HEGDE, K.S. GROVER, A.N. REDDY, P. JAGANMOHAN

CITATION:  1971 AIR 1256            1971 SCR  390

ACT: Income  tax  Act, (11 of 1922), s. 34(1)(a)  and  Income-tax (Amendment) Act, 1959, s. 4-Effect on bar of limitation.

HEADNOTE: Notice  under s. 34(1) (a) of the Income-tax Act,  1922  was served  in, February 1957 on the appellant with  respect  to escaped  income of Rs. 40,000 for the assessment year  1948- 49.   On  appeal the Appellate Assistant  Commissioner  held that  the  proceedings were illegal.  On July 9,  1958,  the Income-tax  Officer issued another notice and  assessed  the assessee’s income including therein the Rs. 40,000, to tax. When the matter came up before the High Court on  reference, the.  High Court held that the notice dated July 9, 1958 was a  fresh  notice  but  that it was saved  from  the  bar  of limitation by s. 4 of the Income tax (Amendment) Act, 1959. In appeal to this Court, HELD:Section  4 of the 1959-Act refers to  all  notices issued tinder s.    34(1)  (a) of the 1922 Act at  any  time before the commencement of the, 1959-Act.  The notice  dated July  9,  1958,  in  the  present  case,  fell  within  that description.   But s. 4 of the 1959-Act does not  save  such notices  from  attack on all grounds  whatsoever;  the  only ground  of attack which cannot be taken is that at the  time the notice was issued the period prescribed by s. 34(1)  (a) of  the  1922-Act, as in force before its amendment  by  the Finance  Act, 1956, had expired.  But in the  present  case, what  the  assessee was saying was, that a notice  under  s. 34(1) (a) as amended by the Finance Act of 1956, could  have been issued under that Act in respect of the assessment year 1948-49  till  April 1, 1957; but when the  Finance  Act  of 1956, came into force, he came to be governed by the 8  year period prescribed by the Act as amended by the 1956 Act  and not  the  8 year period prescribed by the Act  as  it  stood before  the  amendment  in 1956.   Accordingly  the  escaped income  being  less than a lakh, the  assessee’s  ground  of attack  was that the 8 years prescribed by s. 34 as  amended after  1956 had a] ready expired before July 9,  1958.   The assessee’s  stand  was correct, and the notice  was  barred. [395B-F].

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Observations  of  Sarkar, J. in S.C.  Prashar-  v.  Vasantam Dwarakados, [1964] 1 S.C.R. 29, 90, applied.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1097  of 1967. Appeal from the judgment and order dated December 1, 1965 of the Madras High Court in Tax Case No. 175 of 1963 (Reference No. 49 of 1963). 391 T. A. Raunachandran, for the appellants. Jagadish  Swarup, Solicitor-General, S. Mitra, P. L.  Juneja and R.    N. Sachthey, for the respondent. The Judgment of the Court was delivered by Sikiri  C.  J -This appeal by certificate  granted  by  the Madras High Court under Section 66A(2) of the Indian Income- tax  Act, 1922, hereinafter referred to as the Act, is  from the judgment of the Madras High Court in a reference made to it  under  Section  66  (1) of the  Act  by  the  Income-tax Appellate Tribunal, Madras Bench. The Tribunal referred the following question.               "Whether  the  present  proceedings  initiated               under Section 34(1) (a) of the Act against the               assessees are valid in law ?" The, relevant facts may now be stated.  For tile assessment year 194849 (accounting, year ending November 12,,.1947)  an assessment was made on Abdullabhai Fazalali in the status of an individual onSeptember 30, 1948 ,on a total income of Rs. 9,102. the sourcesof   income   considered   in   the assessment were share income fromthe firm of S. A.  Bhaagt and  Co., and proper come.  Subsequently, it came  to  light that  Abdullabhai Fazalali had deposited Rs. 40,000 in  cash on July 28, 1947 in the branch of the Bank of India Ltd.  at Palanpur,  now in North Gujarat.  Abdullabhai Fazalali  died on  August 1, 1954.  Notice under Section 34 (1) (a) of  the Act   was  served  on  February  9,  1957   on   Hussainbhai Abdullabhai  as legal heir and representative of the  estate of the late Abdullabhai Fazalali.  On March 9, 1957 a return was filed showing the income as Rs. 8,237, but in Column ’D’ the sum of Rs. 40,000 aforesaid was mentioned. While  the proceedings were pending under Section  23(2)  of the  Act a petition was filed in the High Court  challenging the validity of the proceedings under Section 34(1)(a).   On March  15,  1957  assessment was made.   An  appeal  to  the Appellate Assistant Commissioner under Section 30 of the Act was  filed  on April 15 1957.  On March 15, .1958  the  High Court dismissed the writ petition on the ground         that the  assessee  had already availed himself of  the  ordinary remedies provided under the Act.  It appears from the  order of  Appellate  Assistant Commissioner dated April  29,  1958 that the High Court expressed the view: that the proceedings under  Section’  34 (1) (a) were  illegal.   The  appellate Assistant Commissioner by this order: following the  finding of   the  High  Court  regarding  the  illegality   of   the proceedings under Section 34 392 set aside the assessment on the ground that the  proceedings initiated under Section 34 were illegal and not valid. The Income Tax Officer then issued a fresh notice under Sec- tion  34  (1)  (a)  on  July  9,  1958  to  all  the   legal representatives  of the deceased Abdullabhai  Fazalali.   By his  order dated December 14, 1960, the  Income-tax  Officer held  that  the cash deposit of Rs. 40,000 in  the  Bank  of

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India in Palanpur came from undisclosed sources of income of the assessee in the then taxable territories and assessed it accordingly. We may mention that no reference was made to the  Income-tax (Amendment) Act, 1959 (1 of 1959) by him. The  assessee  appealed to the Appellate  Assistant  Commis- sioner  and  inter alia contended that  the  assessment  was time-barred.  The Appellate Assistant Commissioner held that the  Appellate  Assistant  Commissioner’s  order  passed  in respect of the original proceedings under Section 34 did not contain  any  finding  or direction within  the  meaning  of Section  34 (3) and accordingly the assessment  order  dated December 14, 1960 was vitiated. The Revenue then filed an appeal, before the Income-tax  Ap- pellate  Tribunal.   The Appellate Tribunal  set  aside  the order  of the Appellate Assistant Commissioner holding  that the  proceedings under Section 34 (1) (a) had been  properly initiated  by  the  notices  issued on  July  9,  1958,  and directed him to decide the other issues raised according  to law. We  may  mention that on the point of  limitation  the  only point  debated before the Appellate Tribunal  was  regarding the effect of the proviso to Section 34(3) of the Act.   The Appellate Tribunal came to the conclusion that the order  of the Appellate assistant Commissioner dismissing the original proceedings under Section 34(1)    (a)  against  Hussainbhai Abdullabhai, who legally represented the     assessee, could be construed as giving a direction to the Income-tax   officer to initiate fresh proceedings. The  High Court in the reference, however, came to the  con- clusion  that the second proviso to Section 34 (3) would  be inapplicable.  The High Court observed :               "There  was  no direction or  finding  in  the               Order of the Appellate Assistant  Commissioner               dated  April  24, 1958 as would  attract  that               proviso.   A finding for the purpose  of  that               proviso  should be one on a point at issue  in               the assessment proceedings or in the appeal".               393               .lm0               It was contended before the- High Court that a               fresh  notice served under Section 31 (4)  (a)               beyond eight years of the assessment order was               barred  by time.  The Revenue  contended  that               ,Section 4 of the Income Tax (Amendment)  Act,               1959 (1 of 1959) saved a fresh notice from the               bar  of limitation.  The High Court held  that               Section  4 of Act 1 of 1959 saved  the  notice               under  Section  34 (1) (a) issued on  July  9,               1958   from  the  bar  of   limitation,   ,and               accordingly answered the question against  the               assessee.               The  short  question  before  us  is   whether               Section 4 of the Indian Income-tax (Amendment)               Act, 1959 saves the fresh notice from the  bar               of  limitation.   But in order to  fully  deal               with the point it is necessary to set out  the               relevant portion of Section 34(1)   (a) as  it               existed at various times.               The  relevant  portion of Section 34  (1),  as               amended in 1948, reads as follows:               34. (1).  If               (a)The  Income-tax  Officer has  reason  to               believe  that  by reason of  the  omission  or               failure  on the part of an assessee to make  a

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             return of his income under section 22 for  any               year  or  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 for that year.......               he  may in cases falling under clause  (a)  at               any  time  within  eight years  and  in  cases               falling  under clause (b) at any  time  within               four  years of the end of that year, serve  on               the  assessee, or, . . . a  notice  containing               all  or any of the requirements which  may  be               included in a notice under sub-section (2)  of               Section 22......... The  relevant  portion of Section 34 (1) as amended  by  the Finance Act, 1956 (Act XVIII of 1956) reads thus:               "34. (1) If               (a)the  Income-tax  Officer has  reason  to               believe  that  by reason of  the  omission  or               failure  on the part of an assessee to make  a               return of his income under section 22 for  any               year  or  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 for that year. . . .               he  may in cases falling under clause  (a)  at               any time and in cases falling under clause (b)               at  any time within four years of the  end  of               that year, serve on the assessee               394 ments  which may be included in a notice  under  sub-section (2) of section 22. Provided  that  the  Income-tax Officer shall  not  issue  a notice under clause (a) of sub-section (1)-               (i)   for any year prior to the year ending on               the 31st day of March, 1941;               (ii)  for  any  year,  if  eight  years   have               elapsed after               the  expiry of that year, unless  the  income,               profits  or  gains  chargeable  to  income-tax               which have escaped assessment.............               amount  to,  or are likely to amount  to,  one               lakh  of  rupees  or more  in  the  aggregate,               either for that year, or for that year and any               other year or years after which or after  each               of which eight years have elapsed, not being a               year  or years ending before the 31st  day  of               March, 1941 ...."               Section  34(4) of the Act as inserted  by  the               Indian Income-tax (Amendment) Act, 1959  reads               as follows:               "(4) 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  in  that               sub-section before its amendment by  clause(a)               of section 18 of the Finance Act, 1956 (18  of               had  expired in respect of the year  to  which               the notice relates.               Section 4 of the Indian lncome-tax (Amendment)               Act, 1959, provided :               "4.  Saving of notices, assessments, etc.,  in               certain  cases.-No notice issued under  clause               (a)  of sub-section (1) of section 34  of  the

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             principal   Act   at  any  time   before   the               commencement  of this Act-and  no  assessment,               re-asessment  or  settlement  made  or   other               proceedings  taken  ’in  consequence  of  such               notice  shall  be called in  question  in  any               court, tribunal or other 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 reassessment 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." 395 The  learned  counsel for the State quite rightly  does  not rely  on  Section 34 (4) of the Act to validate  the  notice because  this contemplate a notice issued after  the  coming into force of the 1959 Act. It  seems to us that Section 4 of the Amending Act  of  1959 does not save the notice under Section 34 (1) (a) issued  on July 9, 1958.  In this case we are concerned with an  income less  than  1  lac mentioned in Section  34  as  amended  by Finance,  Act, 1956.  It is no doubt true, as urged  by  the learned counsel for the Revenue, that the first sentence  of Section  4 includes all notices issued under Clause  (a)  of sub-section (1) of Section 34 of the Act at any time  before the  commencement of the 1959 Act and the notice dated  July 9, 1958 falls within this description.  But in our view  the section  does  not  save such notices  from  attack  on  all grounds whatsoever; the only ground which cannot be taken to attack  the validity of the notice is that at the  time  the notice was issued the period prescribed under Section 34 (1) (a),  as in force before its amendment by Section 18 of  the Finance  Act,  1956,  had expired.   Is  the  assessee  then raising  this ground ? It seems to us that he is not.   What he  is saying is that a notice under Section 34 (1) (a),  as amended  by the Finance Act of 1956, could have been  issued under  that  Act in respect of the assessment  year  1948-49 till  April 1, 1957, and when the Finance Act of  1956  came into  force  he  came to be governed by the  8  year  period prescribed by the Act as amended by the 1956 Act and not the 8 year period prescribed by the Act as it existed before the amendments made in, 1956.  Accordingly the assessee’s ground of  attack is that the 8 years prescribed by Section  34  as amended  after  1956  have  expired and  not  that  8  years prescribed  by  Section 34 before its amendment  by  Finance Act, 1956 have expired.  In our view the stand taken by  the assessee is correct.  We are supported in the view we have taken by certain obser- vation  of Sarkar, J., as he then was, in S. C. Prashar,  1. T.  C. v. Vasantsen Dwarkadas (1).  The Court in  that  case was not concerned with assessment years in respect of  which a notice could be issued under Section 34 (1) (a) of the Act as amended by the Finance Act of 1956, but the present  case was visualised by Sarkar, J., in that case.  He observed : "So though Section 4 of the 1959 Act freed a notice from the bar  of  limitation  in respect of it imposed  by  the  1948 amendment,   it  did  not  altogether  do  away   with   all prescriptions of time.  In spite of Section 4, a notice con- templated by it would be subject to the prescription of (1)  [1964] 1 S. C. R. 29, 90.               396 time  as to its issue under the 1939 Act, and may be,  under Section  34 as it stood before the 1939 amendment.   If  the

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notice was issued after the 1956 amendment it would also  be subject  to  the prescription as to time  provided  by  that amendment. (emphasis supplied.). Then  it  was  said that if Section 4 applied  to  a  notice issued  more  than eight years after the year in  which  the income escaped assessment but before the 1956 amendment came into  force in a case where the escaped income of  the  year was less than Rs. 1,00,000 the position would be curious.  A notice  issued  in a similar case after the  1956  amendment would be bad under Section 34 as it then stood and Section 4 could not save it for it saved notices only from the  effect of the 1948 amendment.  The position then would be that in a case  involving  the same amount of escaped income  for  the same year, a notice issued before 1956 amendment and invalid under  the  1948  amendment would be validated  and  a  more recent  notice  equally invalid under both the  earlier  and present laws would remain invalid.  Assume that the position is some-, what curious or incongruous.  But that seems to me to  be the result of the words used.  For all we  know  that might  have been intended.  However strange, if at  an.  the result may be, I do not think the Courts can alter the plain meaning of the language of the statute only on the ground of incongruity  if  there is nothing in the words  which  would justify  the  alteration.  As I have said earlier,  in  this case there is nothing to justify the alteration of the plain meaning." We  agree with the observations of the learned Judge. as  we have said, this Court was not concerned with a case governed by  period of limitation as prescribed in 1956  and  accord- ingly we do not find it necessary to refer to the  reasoning of the other learned Judges. Accordingly we set aside the judgment of the High Court  and answer  the question in favour of the assessee,  with  costs throughout.   V.P.S.      Appeal  allowed. 397