29 January 1964
Supreme Court


Case number: Appeal (civil) 130 of 1962






DATE OF JUDGMENT: 29/01/1964


CITATION:  1965 AIR  342            1964 SCR  (6) 411  CITATOR INFO :  F          1968 SC 139  (2)  F          1969 SC 340  (1,2)  RF         1970 SC 486  (3)  RF         1971 SC 147  (14,15)  R          1972 SC  83  (12)  F          1973 SC2359  (5,7)  F          1973 SC2434  (7)  R          1973 SC2585  (13)  E          1979 SC1933  (11,12)  F          1980 SC  98  (14)  RF         1981 SC1759  (23)  E          1984 SC 993  (12,14,15,16,19,20,21,26,27)

ACT: Income  Tax-Assessment or reassessment made under  order  or direction   from  higher  authority  must  relate   to   the assessment  of the year under review-Meaning  of  "finding", "direction" and "any person"--Decision of Income-tax officer for a particular year not res judicata for subsequent  year- Indian Income-tax Act, 1922 (11 of 1922), s. 34(3), proviso- Meaning and scope of.

HEADNOTE: The respondent was a firm carrying on business in  different lines.  It was assessed to income-tax under s. 23(4) of  the Income-tax Act, 1922 for the assessment year 1949-50 on  the ground that notices issued under s.     22(2)  and  (4)  had not been complied with.  Later on, that assessment 412 was  cancelled.   However, before the cancellation,  it  was found that an interest income of Rs. 88,737 in the shape  of U.P. Encumbered Estates Act Bonds received by the respondent from  third parties had escaped assessment as  the  assessee failed to disclose the same.  The Income-tax Officer  issued a notice for the assessment year 1949-50 on the ground  that a  sum  of  Rs. 88,737 had escaped assessment  in  the  said assessment  year.  After the cancellation of the  assessment made  under s. 23(4), the Income-tax officer,  ignoring  the notice issued by him under s. 34(1)(a), included that amount



in the fresh assessment made by him for the year 1949-50.The respondent appealed to the Appellate Assistant  Commissioner who  ordered the deletion of the sum of Rs. 88,737 from  the assessment for the year 1949-50 and directed the same to  be included in the assesment for the year ending 1948-49. Pursuant  to  the direction given,  the  Income-tax  Officer served  a notice on the respondent under s. 34(1).   Against that  notice the assessee filed a writ petition in the  High Court  for  quashing the above-mentioned proceeding  on  the ground that these were initiated beyond the time  prescribed by a. 34.  The High Court accepted the petition and  quashed the notice on the ground that it was issued by the appellant beyond  the ordinary period of limitation It also  overruled the contention of the appellant that no period of limitation governed  the notice in as much as the second proviso to  s. 34(3)  was  attracted to the facts of the  case.   The  only direction  which the Appellate Assistant Commissioner  could give  was one which was covered by s. 31 of the Act  and  as the   appeal  before  him  was  confined  to  a   particular assessment  year, the direction must necessarily be  limited to  a matter falling within that year. if the  direction  be treated  as  based  on  a  finding  recorded  by   Appellate Assistant  Commissioner,  that  finding  would  have  to  be disregarded  when applying the proviso.  The appellant  came to this Court by special leave. Held:     (per  B.  P.  Sinha, C.J., K.  Subba  Rao  and  N. Rajagopala Ayyangar JJ.). The proviso to sub-s. (3) of s. 34 of the Indian Incometax Act,  1922  does not save  the  time limit prescribed under sub-s. (1) of s. 34 in respect of  an escaped  assessment of a year other than that which  is  the subject matter of appeal or revision as the case may be  and hence  the  notice under s. 34(1)(a) issued in  the  present case was clearly barred by time. The  jurisdiction  of the High Court or  the  Supreme  Court under  s.  66 or s. 66(b) is a limited one and  is  confined only  to  the  questions referred to  them.   Moreover,  the questions   referred   by   Tribunal   cannot   exceed   its jurisdiction.  Therefore the assessment or reassessment made under  the  said  sections  or Pursuant  to  the  orders  or directions  made thereunder must necessarily relate  to  the assessment  of the year under review, revision or appeal  as the  case may be.  ’Me proviso to sub-s. (3) of s.  34  does not  confer any fresh power upon the Income-tax  Officer  to make  assessment in respect of the escaped  incomes  without any  time  limit.  It only lifts the ban  of  limitation  in respect of certain assessments made under certain provisions of the Act and the lifting of the ban cannot be so construed as to increase the jurisdiction of the tribunal Under the 413 relevant sections.  The lifting of the ban was only to  give effect  to  the orders that may be made  by  the  appellate, revisional  or  reviewing Tribunal within the scope  of  its jurisdiction.  If the intention was to remove the period  of limitation in respect of any assessment against any  person, the  proviso would not have been added as proviso to  sub-s. (3)  which deals with completion of an assessment but  would have been added to sub-s. (1) of s. 34. The word ’finding’ covers only the material questions  which arise  in  a particular case for decision by  the  authority hearing  the. case or the appeal which, being necessary  for passing the final order or giving the final decision in  the appeal,  has  been the subject of  controversy  between  the interested  parties or on which the parties  concerned  have been given a hearing.  The expression ’direction’ refers  to a  direction which the appellate or revisional authority  is



empowered  to  give  under the  law.   The  expression  "any person"  must be confined to a person  intimately  connected with the assessment of the year under appeal or revision. Held:     per  Raghubar  Dayal  and  J.  R.  Mudholkar   JJ. (dissenting):  That the notice was not in  contravention  of the  provisions of s. 34 and hence could not be  quashed  on that  ground.   When  an  appeal  is  before  an   appellate authority, the whole matter is at large before it and there- fore  when a specific case is put before it by an  assessee, it  has  both  the power as well as the  duty  to  give  its finding  thereon.   The  ground given  by  an  assessee  for claiming a reduction or annulment of assessment may be  that the income upon which he had been assessed was not earned in the  accounting period of the year to which  the  assessment pertained  but  in respect of a specified earlier  or  later year.   The appellate authority is entitled to go  into  the whole question and come to a finding one way or the other. The  finding  of  a tribunal is its conclusion  on  a  point agitated  before  it  and for a conclusion to  amount  to  a finding, it is not necessary that it should be the final and ultimate conclusion. The  contention of respondent that the second proviso to  a. 34(3) enabling a notice to issue only to assessee in respect of  escaped income without limit of time on the ground  that the  appellate authority has made a finding or direction  in the proceeding before it makes a discrimination against such assessee because it does not lift the bar of limitation with regard to other assessees similarly situated but with regard to  whom  no  finding has been made or  direction  given  by appellate  authority, was rejected.  It was held that  prima facie, there was a reasonable basis for the  classification. The  ground on which classification was made had a  rational relationship  with  the  object which  was  intended  to  be achieved by law, ie., to detect and bring to assessment  the escaped income. Commissioner  of Income-tax v. S. M. Chitnavis, (1932)  L.R. 59  I.A.  290,  Sir Kikabhai Premchand  v.  Commissioner  of Income-tax (Central), Bombay, [1954] S.C.R. 219. pt.  Hazart Lal  v.  Income-tax  Officer, Kanpur. (1960)  39  LT.R  26S. Lakshman Prakash v. Commissioner of Income- 414 tax,  U.P.,  (1963) 48 I.L R 705, A.  S.  Khader  Ismail  v. Income-tax Officer, Salem, (1963)48 I.T.R. 16, Simrathmul v. Additional Income-tax Officer, Ootachamund, (1959)36  I.T.R. 41, Brindaban Chandra Basak v. Incometax Officer, (1962)  46 I.T.R. 14, K. C. Thomas, First Income-tax Officer. Bombay v. Vasant Hira Lal Shah [1964] 6 S.C.R. 431, Prashar & Anr.  V. Sasantsen Dwarkadas 49 I.T.R. (S.C.) 1, Kamlapat Hotilal  v. Income-tax Officer, 29 I.T.R. 192, Hiralal Amrit Lal Shah v. K.  C.  Thomas, Income-tax Officer, Bombay, 34  I.T.R.  446, General  Construction and Supply Co. v.  Income-tax  Officer (8th)  C Ward, Bombay, 44 I.T.R. 16, Suraj Mal Mohata &  Co. v. A.  V. Visvanatha Sastri [1955] 1 S.C.R. 448, A.  Thangal Kunju  Mudaliar v. M.  Venkatachalam Potti & Anr.  [1955]  2 S.C.R.  1196  and  Palaji  v.  Income-tax  Officer,  Special Investigation Circle [1962] 2 S.C.R. 983, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 130 of 1962. Appeal  by special leave from the Judgment and decree  dated March  17, 1959, of the Allahabad High Court in Misc.   Writ Petition No. 280 of 1958. K.   N.  Rajagopal  Sastri  and  R.  N.  Sachthey,  for  the



appellant  Bishan Narain, G. C. Sharma, O.C. Mathur,  J.  B. Dadachanji and Ravinder Narain, for the respondent. A.   V. Vishwanatha Sastri, D. N. Mukherjee and B. N. Ghosh, for the intervener. January 29, 1964.  ’Me Judgment of B. P. Sinha C.J., K.Subba Rao and N. Rajagopala Ayyangar JJ., was delivered by   Subba Rao  J.  The  dissenting  opinion  of  Raghubar  Dayal   and Mudholkar  JJ., was delivered by Mudholkar J. SUBBA  RAo  J.-This  appeal  by  special  leave  raises  the question of the construction of the proviso to sub-s. (3) of s. 34 of the Indian Income-tax Act, 1922, as amended by  Act 25 of 1933, hereinafter called the Act. The  facts lie in a small compass and they are  as  follows: The  respondent is a firm carrying on business in  different lines.  It was assessed to income-tax under s. 23 (4) of the Act  for the assessment year 1949-50 on the ground that  the notice issued under sub-ss. (2) and (4) of s. 22 of the  Act had not been complied with.  On September 27, 1955, the said assessment was cancelled under s. 27 of the Act.  But before the said cancellation, it was found that an interest  income of  Rs. 88,737 in the shape of U.P. Encumbered  Estates  Act Bonds received by him in discharge of  415 the  debts due from third parties had escaped assessment  as the  assessee failed to disclose the same.   The  Income-tax Officer  issued a notice under s. 34 (1) (a) of the Act  for the assessment year 1949-50 on the ground that the said  sum of Rs. 88,737 had escaped assessment in the said  assessment year.  After the assessment of that year was set aside under s.  27  of  the Act, the Income-tax  Officer,  ignoring  the notice issued by him under s. 34 (1)(a) of the Act, included that  amount  in  the fresh assessment  made  by  him.   The assessee preferred an appeal against that order and that was disposed  of  by  the Appellate  Assistant  Commissioner  on December  4, 1957.  The Appellate Assistant Commissioner  in his order held that the bonds were received by the  assessee in  the  previous accounting year and,  therefore,  directed that  the sum representing interest on the bonds should  be, deleted from the assessment for the year ending 1949-50  and included  in the --assessment for the year  ending  1948-49. pursuant  to the direction given by the Appellate  Assistant Commissioner  the Income-tax Officer  initiated  proceedings under s. 34(1) of the Act in respect of the assessment  year 1948-49.  The notice issued under that section was served on the  respondent on December 5, 1957.  The assessee  filed  a petition  under  Art. 226 of the Constitution  in  the  High Court  of  Judicature  at Allahabad for  quashing  the  said proceedings, mainly on the ground that the proceedings  were initiated  beyond the time prescribed by s. 34 of  the  Act. The  High  Court  accepted the contention  and  quashed  the proceedings initiated by the Income-tax Officer.  Hence  the appeal. The  proceedings would be in time, if the second proviso  to s.  34(3)  of  the  Act could  be  invoked.   The  question, therefore,  is what is the true meaning of the terms of  the second proviso to s. 34(3) of the Act,.  It reads:               "Provided further that nothing in this section               limiting the time within which any action  may               be  taken,  or any order,  assessment  or  re-               assessment  may be made, shall apply to a  re-               assessment   made  under  s.  27  or   to   an               assessment   or  re-assessment  made  on   the               assessee or any person in consequence of or to               give effect to any               416



             finding  or  direction contained in  an  order               under  S. 31, s. 33, s. 33A, s. 33B. s. 66  or               s. 66A." Prima facie this proviso lifts the ban of limitation imposed by  the  other provisions of the section in  the  matter  of taking  an  action  in  respect of or  making  an  order  of assessment or re-assessment falling within the scope of  the said  proviso.  The scope of the proviso is confined  to  an assessment  or  re-assessment made on the  assessee  or  any person  in  consequence of an order to give  effect  to  any finding or direction contained in any order made under s. 31 i.e.,   in   an  appeal  before  the   Assistant   Appellate Commissioner,  under  s. 33 i.e., in an  appeal  before  the Tribunal,  under  s.  33A i.e., in  a  revision  before  the Commissioner,  under s. 33B i.e.. in a revision  before  the Commissioner against an order of the Income-tax Officer, and under ss. 66 and 66A i.e., in a reference to the High  Court and  appeal  against the High Court’s order to  the  Supreme Court.  Learned counsel for the appellant contends that  the scope  of the proviso is only confined to the assessment  of the  year  that is the subject matter of the appeal  or  the revision,  as  the  case may be.  Learned  counsel  for  the Department argues that the comprehensive phraseology used in the  proviso takes in its broad sweep any finding  given  by the appropriate authority necessary for the disposal of  the appeal  or  the  revision, as the case may be,  and  to  any direction  given  by the said authority  to  effectuate  its finding  and  that the said finding or direction may  be  in respect of any year or any person.  As the phraseology  used in  the  proviso is not clear or unambiguous,  the  question raised  cannot be satisfactorily resolved without  having  a precise appreciation of a brief history of s. 34 of the  Act culminating  in the enactment of the proviso in the  present form. Under  s.  3 of the Act, income-tax for any  year  shall  be charged in respect of the total income of the previous  year of every assessee.  Notice under s. 22 calling for return of income is the first step in the assessment proceedings.  Two types of notices are mentioned in that section, namely,  (i) the  public  notice  and (ii) the  individual  notice.   ’Me public  notice shall be, issued on or before the 1st May  of each year and the individual notice may be issued at any 417 time  in  the  course of the  assessment  year.   Income-tax proceedings,  therefore,  for a particular  assessment  year have to be initiated in the course of that year.  But  there may  be  cases of escaped  assessment  or  under-assessment. Section   34  empowers  the  Income-tax  Officer   to   take proceedings under that section both in respect of  concealed income  and  also in bona fide cases where  the  income  has escaped  assessment or full assessment.  Section  34(1)  (a) provides  for  the initiation of assessment  proceedings  in respect  of  concealed  income and s. 34(1)  (b)  for  other escaped income, Section 34(1) has been amended from time  to time.   Under the said section, as it originally stood,  the Income-tax Officer was empowered to initiate proceedings  at any  time within one year of the end of the year in  respect whereof  the  income escaped assessment.  By Act 7  of  1939 that  section was amended and eight years’  limitation  from the  end of the year was prescribed in respect of  concealed income  and  a limitation of four years  for  other  escaped income.   Under  Act  48  of  1948,  the  same  periods   of limitation  were  retained,  but  certain  conditions   were imposed.  By the Finance Act of 1956, it was enacted that in the  case  of  concealed income  the  proceedings  could  be



initiated  at  any  time within 4 years of the  end  of  the relevant  assessment year.  Though no period  of  limitation was  prescribed  in  respect  of  concealed  income,   three conditions  were  imposed, namely, (i)  that  an  Income-tax Officer  shall not issue a notice for any year prior to  the year  ending  on March 31, 1941, (ii) that  if  the  escaped income  was less than rupees one lakh, he shall not issue  a notice  if  8  years have elapsed after the  expiry  of  the relevant  assessment  year,  and (iii) that  unless  he  has recorded his reasons and unless the Central Board of Revenue in any case falling under cl. (2) of the proviso and in  any other  case,  the Commissioner, is satisfied that  for  such reasons  as  recorded it is a fit case for the  issue  of  a notice. Before  1939,  there was no period of  limitation  for  com- pleting the assessment once it had been initiated within the prescribed period of limitation.  But Act 7 of 1939 for  the first time introduced cl. (2) in s. 34 whereunder "no  order of assessment under s. 23 or of assessment or  re-assessment under  sub-section (1) of this section shall be  made  after the 134-159 S. C. 27 418 expiry, in any case to which (c) of sub-section (1) of  sec- tion  28 applies, of eight years, and in any other case,  of four  years  from the end of the year in which  the  income, profits or gains were first assessable".  Section 28 (1) (c) dealt with a case of an assessee concealing the  particulars of   his  income  or  deliberately   furnishing   inaccurate particulars  of  his  income.  Act 23  of  1941  inserted  a proviso  in  s. 34(2) providing that "nothing  contained  in this  sub-section  shall apply to a  re-assessment  made  in pursuance of an order under section 31, section 33,  section 66  or section 66-A", i.e., provisions relating to  appeals, revisions and references: that is to say, if the  assessment made  by  the  Income-tax Officer was set aside  and  a  re- assessment  was  directed to be made, the  said  periods  of limitation would not apply to such reassessment.  Act 48  of 1948 introduced sub-s. (3) in s. 34 in substitution of  sub- s.  (2)  thereof.   Under that  sub-section  the  period  of limitation  prescribed by sub-s. (2) was retained,  and  the proviso  to  s.  34(2) before the  amendment  was  made  the second.  proviso,  with some modifications, to  the  amended sub-s.  (3).   While the scope of the previous  proviso  was confined   only   to   the   completion   of   re-assessment proceedings, the scope of the amended proviso is much  wider in  that it exempts the subject-matter of that proviso  from the operation, of the period of limitation prescribed by the section;  that  is  to  say, it  gives  full  scope  to  the operation of the substantive part of the section  unhampered by the periods of limitation prescribed by sub-ss. (1),  (2) and  (3)  of s. 34 of the Act.  While the  previous  proviso lifted  the ban only in regard to the period  of  limitation prescribed  for  the completion of the assessment,  the  new proviso lifted the ban even in respect of the initiation  of proceedings under s. 34 (1) of the Act.  It follows that  if a  matter fell within the terms of the proviso, there  would be  no  period  of limitation for initiating  an  action  or making  an  assessment or reassessment in  respect  of  that matter.   Briefly stated, the said proviso is a  proviso  to the  entire  s.  34.  We shall consider  the  scope  of  the proviso  at  a later stage of our judgment.  Then  came  the Finance Act of 1956.  It amended s. 34 (1) and introduced  a proviso  to  the  said sub-section, which  we  have  noticed earlier.   That  proviso,  while  removing  the  period   of



limitation in respect of concealed income, imposed 419 some  conditions  in  respect thereof,  but  the  four--year period of limitation in respect of other escaped income  was retained.   We  are not concerned in this  appeal  with  the subsequent amendments. The history of the section gives us the following background to  the proviso under consideration.  Broadly stated,  under s.  34, as it existed in 1956, (i) there was no  time  limit for initiating proceedings under s. 34(1) in respect of con- cealed  income, but such initiation could be made only  sub- ject to the conditions laid down in the proviso to s. 34(i); (ii)  in the case of other escaped income,  the  proceedings could not be initiated after the expiry of 4 years from  the end  of the relevant assessment year; (iii)  the  assessment proceedings  once  commenced shall be completed  within  the period of limitation prescribed under s. 34(3); and (iv)  to a case to which the proviso to s. 34(3) applies, there is no period  of limitation either for initiating the  proceedings under  s.  34  or for completing  the  assessment  commenced either under s. 23 or under s. 34(1). With  this  background  let us give a  closer  look  to  the relevant  terms  of  the proviso.  The  first  part  of  the proviso  released  the  operation of the  proviso  from  the restriction  imposed by s. 34 only in respect of  the  time- limit  within which any action may be taken or any order  of assessment or re-assessment may by made.  It means that  the proviso  continues to be subject to the  other  restrictions imposed  under the section and it cannot override  the  said provisions in that regard.  Under the proviso, the period of limitation  will not apply to a re-assessment made under  s. 27 or to an assessment or re-assessment made on the assessee or  any  person in consequence of or to give effect  to  any finding  or direction contained in an order under s. 31,  s. 33,  s.  33B,  s.  66 or s. 66A of  the  Act.   It  was  not contended, nor was it possible to contend, that by reason of the  reference  to  the  said  provisions  the  powers   and jurisdiction  conferred  on  the  respective.   authorities, tribunals  or  courts referred to therein were  enlarged  or modified by a’ reference in the proviso or that the  proviso could  be  read  or construed  as  amending  those  sections conferring  on  those bodies wider or  different  powers  or jurisdiction.  Learned counsel for the department  expressly disclaimed any such submission.  Therefore, the scope  of the proviso cannot ordinarily exceed the scope  of the  jurisdiction conferred on an authority under  the  said provisions.   It is not, and cannot be, disputed that  under the  Income-Lax  Act, year is the unit of  assessment.   The Judicial  Committee in Commissioner of Income-tax v.  S.  M. Chitnavis(1) pointed out :               "For  the  purpose  of  computing  the  yearly               profits  and  gains, each year is  a  separate               self-contained  period,  time,  in  regard  to               which  profits  earned  or  losses   sustained               before its commencement are irrelevant." This  Court  in Sir Kikabhai Premchand  v.  Commissioner  of Income-tax (Central), Bombay(1) accepted this legal position when it said:                "..........  for  income-tax  purposes,  each               year is a self-contained accounting period and               we  can only take into  consideration  income,               profits  and gains made in that year  and  are               not concerned with potential profits which may               be made in. another year any -more than we are               with losses which may occur in the future."



Indeed,  the  decision of an Income-tax Officer given  in  a particular  year  does not operate as res  judicata  in  the matter   of  assessment  of  the  subsequent   years.    The jurisdiction  of the tribunals in the hierarchy  created  by the  Act is no higher than that of the  Income-tax  Officer. It is also confined to the year of assessment.  Under s.  27 of the Act, the Incometax Officer cancels the  best-judgment assessments  made by him if the assessee shows that  he  was prevented by sufficient cause from making the returns  under s.  22  of  the  Act.  Section 31  prescribes  the  mode  of disposal by an Assistant Appellate Commissioner of an appeal preferred  to  him:  the  appeal  before  him  is  certainly confined to an assessment year; after hearing the appeal, he can either confirm, reduce, enhance or annul the assessment; he can set aside the (1)(1932) L. R. 59 I. A. 290. 297. (2) [1954] S. C. R. 219, 222. 421 assessment and direct the Income-tax Officer to make a fresh assessment.   The  various  sub-sections  of  that   section describe in detail the orders or directions that can be made or  issued  by him in respect of various  matters;  but,  no power  is  conferred  on  him to  make  an  order  or  issue directions  in respect of an assessment of a year which  was not the subject-matter of the appeal.  It may, therefore, be held on a construction of the provisions of s. 31, that  the jurisdiction  of  the Appellate  Assistant  Commissioner  is strictly  confined to the assessment orders of a  particular year  under appeal.  Section 33, inter alia, deals  with  an appeal  to the Tribunal against the order of  the  Appellate Assistant Commissioner under s. 31; and s. 33B confers power of  revision  on the Commissioner against an  order  of  the Income-tax  Officer.   The  jurisdiction  of  the  Appellate Tribunal  or  the  Revisional Tribunal,  as  the  provisions indicate,  is confined only to the subject-matter  which  is under  appeal  or revision.  The jurisdiction  of  the  High Court  or  the Supreme Court under s. 66 or s. 66B,  as  the case may be, is far more limited and it is confined only  to the  questions  referred to them.  Obviously  the  questions referred by the Tribunal cannot exceed its jurisdiction.  It is, therefore, manifest that assessment or re-assessmentmade under   the  said  sections  or  pursuant  to   the   orders ordirections made thereunder must necessarily relate to  the assessment  of  the year under review, revision  or  appeal, as  the case may be.  It is important to remember  that  the proviso does not confer any fresh power upon the  Income-tax Officer  to make assessments in respect of  escaped  incomes without any time-limit.  It only lifts the ban of limitation in  respect  of  certain  assessments  made  under   certain provisions  of the Act and the lifting of the ban cannot  be so  construed  as  to  increase  the  jurisdiction  of   the Tribunals  under the relevant sections.  The lifting of  the ban  was only to give effect to the orders that may be  made by  the appellate, revisional or reviewing  tribunal  within the  scope  of its jurisdiction.  If the  intention  was  to remove the period of limitation in respect of any assessment against any person, the proviso would not have been added as a  proviso  to  sub-s.  (3)  of  s.  34,  which  deals  with completion  of an assessment, but would have been  added  to sub-s. (1) thereof. 422 Now,  let  us  scrutinize the expressions  on  which  strong reliance  is placed for the contrary conclusion.  The  words relied upon are "section limiting the time", ",any  person", "in  consequence  of  or to give effect to  any  finding  or



direction".    Pointing  out that before the  amendment  the word  "subsection was in the proviso but it was replaced  by the   expression  "section",  it  is  contended  that   this particular amendment will be otiose if it is confined to the assessment  year under appeal, for it is said that under  no circumstances the Income-tax Officer would have to  initiate proceedings  for the said year pursuant to an order made  by an  Appellate  Assistant Commissioner.  This  contention  is obviously  untenable.  The Appellate Assistant  Commissioner or  the Appellate Tribunal may set aside the  notice  itself for  one  reason or other and in that event  the  Income-tax Officer  may have to initiate the proceedings once again  in which  case  s.  34(1) will be  attracted.   The  expression "finding  or  direction",  the argument  proceeds,  is  wide enough to take in at any rate a finding that is necessary to dispose   of  the  appeal  or  directions  which   Appellate Assistant  Commissioners  have in practice been  issuing  in respect of assessments of the years other than those  before them  in appeal.  What does the expression "finding" in  the proviso  to sub-s. (3) of s. 34 of the Act mean?   "Finding" has not been defined in the Income-tax Act.  Order XX, r.  5 of the Code of Civil Procedure reads:               "In  suits in which issues have  been  framed,               the Court shall state its finding or decision,               with the reasons therefor, upon each  separate               issue, unless the finding upon any one or more               of  the issues is sufficient for the  decision               of the suit." Under  this Order, a "finding" is, therefore, a decision  on an  issue  framed in a suit.  The second part  of  the  rule shows  that  such a finding shall be one which  by  its  own force or in combination with findings on other issues should lead  to the decision of the suit itself.  That is  to  say, the finding shall be one which is necessary for the disposal of  the  suit.  The scope of the meaning of  the  expression "finding" is considered by a Division Bench of the Allahabad High Court in 423 Pt. Hazari Lal v. Income-tax Officer, Kanpur(1)  There,  the learned Judges pointed out:               "The word "finding’, interpreted in the  sense               indicated   by  us  above,  will  only   cover               material questions which arise in a particular               case for decision by the authority hearing the               case or the appeal which, being necessary  for               passing  the final order or giving the,  final               decision  in the appeal, has been the  subject               of controversy between the interested  parties               or  on which the parties concerned  have  been               given a hearing." We  agree  with this definition of "finding".   But  a  Full Bench  of  the  same  High  Court  in  Lakshman  Prakash  v. Commissioner  of  Income-tax, U.P. (2)  construed  the  word "finding"  in  a  rather comprehensive  way.   Desai,  C.J., speaking for the Court, observed:               "A  finding is nothing but what one  finds  or               decides  and  a decision on  a  question  even               though not absolutely necessary or not  called               for is a finding." If that be the correct meaning, any finding on an irrelevant or  extraneous  matter would be a finding.   That  certainly cannot be the intention of the Legislature.  The Madras High Court  also  in A. S. Khader Ismail v.  Income-tax  Officer, Salem(3)  gave  a  very wide interpretation  to  that  word, though it did not go so far as the Full Bench of the Allaha-



bad  High  Court.   Ramachandra Iyer J.,  as  he  then  was, speaking for the Court, observed that the word "finding"  in the  proviso  must  be given a wide significance  so  as  to include not only findings necessary for the disposal of  the appeal but also findings which were incidental to it.   With respect,  this interpretation also is inconsistent with  the well-known   meaning  of  that  expression  in   the   legal terminology.   Indeed,  learned counsel for  the  respondent himself  will  not  go  so far, for  he  concedes  that  the expression "finding" cannot be (1)  (196O) 39 I. T. R. 265, 272    (2) (1963) 48 I.  T.  R. 705, 718.        (3) (1963) 48 I.T.R. 16. 424 any  incidental  finding,  but  says  that  it  must  be   a conclusion on a material question necessary for the disposal of  the appeal, though it need not necessarily conclude  the appeal.  This concession does not materially differ from the definition  we  have given, but the difference lies  in  the application  of that definition to the finding given in  the present  case.   A "finding", therefore, can  be  only  that which is necessary for the disposal of an appeal in  respect of  an  assessment  of a  particular  year.   The  Appellate Assistant  Commissioner may hold, on the evidence, that  the income  shown  by  the assessee is 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 is that that income does not belong to the  relevant year.   He may incidentally find that the income belongs  to another  year, but that is not a finding necessary  for  the disposal  of an appeal in respect of the year of  assessment in question.  The expression "direction" cannot be construed in vacuum, but must be collated to the directions which  the Appellate  Assistant  Commissioner  can give  under  s.  31. Under that section he can give directions, inter alia, under s.  31  (3) (b), (c) or (e) or s. 31  (4).   The  expression "directions"  in  the  proviso  could  only  refer  to   the directions  which  the Appellate Assistant  Commissioner  or other tribunals can issue under the powers conferred on  him or  them under the respective sections.  Therefore, the  ex- pression "finding" as well as the expression "direction" can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment  of the year in question and the direction is a direction  which the  appellate or revisional authority, as the case may  be, is, empowered to give under the sections mentioned  therein. The  words "in consequence of or to give effect to"  do  not create  any difficulty, for they have to be  collated  with, and  cannot enlarge, the scope of the finding  or  direction under  the proviso.  If the scope is limited  as  aforesaid, the  said  words also must be related to the  scope  of  the findings and directions. The  words "any person’, it is said, conclude the matter  in favour of the Department.  The expression "any person"in its widest connotation may take in any person whether  connected or not with the assessee, whose income for any 425 year has escaped assessment; but this construction cannot be accepted,   for   the   said   expression   is   necessarily Circumscribed  by  the scope of the  subject-matter  of  the appeal  or  revision, as the case may be.  That is  to  say, that  person must be one who would be liable to be  assessed for  the  whole or a part of the income that went  into  the assesment  of  the  year under appeal or  revision.   If  so construed,  we must turn to s. 31 to ascertain who  is  that person  other than the appealing assessee who can be  liable



to  be assessed for the income of the said assessment  year. A  combined  -eading  of s. 30(1) and s. 31(3)  of  the  Act indicates  the cases where persons other than the  appealing assessees  might  be  affected  by  orders  passed  by   the Appellate  Commissioner.  Modification or setting  aside  of assessment  made on a firm, joint Hindu family,  association of persons, for a particular year may affect the  assessment for  the  said year on a partner or partners  of  the  firm, member  or  members  of the Hindu undivided  family  or  the individual,  as the case may be. lit such cases  though  the latter  are  not  eo nomine parties  to  the  appeal,  their assessments depend upon the assessments on the former.   The said  instances are only illustrative.  It is not  necessary to  pursue  the matter further.  We would,  therefore,  hold that the expression "any person" in the setting in which  it appears must be confined to a person intimately connected in the  aforesaid sense with the assessment of the  year  under appeal. We shall now briefly touch upon the conflict of decisions on the  question.  The Full Bench of the Allahabad’ High  Court in Lakshman Prakash’s case(1) overruled the decision of  the Division  Bench  in Pt.  Hazari Lal’s case (2).  A  Division Bench of the Madras High Court consisting of Rajagopalan and Balakrishna Ayyar JJ., in Simrathmull v. Additional  Income- tax  Officer, Ootacamund(3), took the same view as the  Full Bench  of  the Allahabad High Court  in  Lakshman  Prakash’s case(4).   But a Division Bench of the Calcutta High  Court, consisting  of  Bose C.J., and Mookerjee  J.,  in  Brindaban Chandra  Basak v. Income-tax Officer(4), though it  had  not finally expressed any opinion (1)  [1963] 48 I.T.R. 705, 718. (2)  [1960] 39 I.T.R. 265, 272. (3)  (1959) 36 I. T. R. 41. (4)  (1962) 46 I. T. R. 14. 426 on  that, was inclined to accept the view expressed  by  the Division  Bench of the Allahabad High Court in  Pt.   Hazari Lal’s   case(1).   We  have  gone  through   the   decisions carefully.   For the reasons given by us, we agree with  the view  expressed by the Division Bench of the Allahabad  High Court in Pt.  Hazari Lal’s case(2) on the interpretation  of the proviso to sub-s. (3) of s. 34 of the Act. In  the  result, we hold that the said provision  would  not save the time-limit prescribed under sub-s’ (1) of s. 34  of the Act in respect of an escaped assessment of a year  other than  that which is the subject-matter of the appeal or  the revision,  as the case may be.  It follows that  the  notice under s. 34(1) (a) of the Act issued in the present case was clearly barred by limitation. In this view no other question arises for our consideration. In the result, the appeal fails and is dismissed with costs. MUDHOLKAR  J.-This  is an appeal by special leave  from  the judgment  of the Allahabad High Court in the  writ  petition under  Art. 226 of the Constitution quashing a notice  under s.  34(1) of the Indian Income-tax Act, 1922 issued  by  the appellant, Income-tax Officer, A Ward Sitapur on December 5, 1957 against respondent No. 4. The relevant facts are briefly these: For  the assessment year 1949-50, correspondiria  to  Samvat year  2005, the appellant made an ex-parte assessment  under s. 23(4) of the Act on November 13, 1953 which he later  set aside  under s. 27 of the Act.  Before that he had issued  a notice to the respondent firm under s. 314(1) (a) of the Act in respect of the same assessment  year on the ground that a sum of Rs. 88,737 representing interest alleged to have been



earned  by the firm during that year had escaped  assessment in  the  assessment made under s. 23(14).   After,  however, fresh  proceedings  were  taken  under  s.  23  (3)  by  the appellant  consequent  upon  his  order  under  s.  27,   he proceeded  to include in the assessment a sum of Rs.  88,737 which  was alleged to have escaped assessment in the  notice earlier issued under s. 34(1) (a) and made an assessment (1)  (1963)48I.T.R.705,718.  427 order  on January 31, 1957.  Against this order the  respon- dent  preferred  an appeal before  the  Appellate  Assistant Commissioner in which he urged two main grounds and the  one accepted  by the Appellate Assistant Commissioner  was  that the aforesaid amount of interest was received by the firm in the  accounting period of the previous assessment  year  and not in that of the assessment year 1949-50.  Upon this view, the Appellate Assistant Commissioner reduced the  assessment and observed as follows in his order :               "I, therefore, hold that the amount in dispute               should  be  deleted from  the  assessment  for               1949-50  and  that,  instead,  the  Income-tax               Officer should take steps to assess the wnount               for the assessment year 1948-49." Treating  this  as a direction or finding of  the  Appellate Authority,  the appellant issued the impugned  notice  dated December  5,  1957  under  s.  34(1)  (a).   The  respondent immediately moved the High Court for quashing the  aforesaid notice.   The  High Court quashed the notice on  the  ground that it  was  issued by the appellant  beyond  the  ordinary period    of   limitation,   overruling   the    appellant’s contention that no  period of limitation governed the notice inas- much as the second proviso to s. 34(3) of the Act  was attracted to the facts of the case.  The High Court in doing so  purported to follow its own decision in Pt.  Hazari  Lal v.  The Income-tax Officer, Disti.  II, Kanpur(1).   Briefly stated,  the view taken by the High Court is that  the  only direction  which  the Appellate Assistant  Commissioner  can competently give is one which is covered by s. 31 of the Act and  that  since  the appeal before him was  confined  to  a particular  assessment  year,  the direction  must  also  be necessarily  limited to a matter falling within  that  year. The High Court further held that if the direction be treated as  based on a finding recorded by the  Appellate  Assistant Commissioner, that finding will have to be disregarded  when applying the proviso.  The correctness of the view taken  by the  High  Court is challenged before us on  behalf  of  the appellant. (1) Civil Misc.  Writ. 2227 of 1956. 428 The relevant part of s. 34(3) and the second proviso thereto run thus:               "No order of assessment or reassessment, other               than  an  order of assessment under s.  23  to               which clause (c) of sub-section (1) of section               28  applies  or  an  order  of  assessment  or               reassessment  in cases falling  within  clause               (a)  of subsection (1) or sub-section (1A)  of               this section shall be made after the expiry of               four  years from the end of the year in  which               the  income,  profits  or  gains  were   first               assessable: Provided  further  that nothing contained  in  this  section limiting  the time within which any action may be  taken  or any  order,  assessment or reassessment may  be  made  shall apply  to  a  reassessment made under section 27  or  to  an



assessment or reassessment made on the assessee or any  per- son  in consequence of or to give effect to any  finding  or direction  contained in an order under section  31,  section 33, section 33A, section 33B, section 66 or section 66A." This  is how the provision stands as from April 1, 1956  and it  is  not  disputed  before us  that  it  is  the  amended provision  which would apply to the present case.  What  is, however,  contended on behalf of the respondent is that  the only issue before an Income-tax Officer in every case  being the assessment for a particular year and no other year,  the direction  or  finding contemplated by  the  second  proviso which the Appellate Authority could make must necessarily be limited  to that year alone.  The alternative contention  is that if the second proviso is so construed as to permit of a direction  or finding being made with respect to  any  other year,  it is ultra vires being violative of Art. 14  of  the Constitution.  -  It was further contended  that  since  the amount in this case is below one lakh of rupees, the  second proviso will not apply. As  regards  the last point we may advert  to  our  judgment delivered  today in K. C. Thomas, First Income-tax  Officer, Bombay v. Vasant Hiralal Shah(1) in which we have  (1) [1964] 6 S.C.R. 437. 429 negatived  a  similar  contention.  For  the  reasons  given there,  we  reject the argument of learned counsel  for  the respondent. Coming  to the first contention of the respondent, it is  no doubt true that the whole scheme of the Income-tax Act is to confine the assessment pursuant to the notice given under s. 22 to a particular year and particular year alone and in the proceeding before him he is bound to confine himself to  the income  of  that  year.  If income  in  previous  years  has escaped  assessment,  he  has  no  power  to  bring  it   to assessment along with the income of a subsequent year.   The only  power  which  he  has  for  bringing  such  income  to assessment  is to resort to the provisions of s.  34(1)  and issue  a separate notice with respect to it to the  assessee and the Appellate Assistant Commissioner of Income-tax hear- ing  an  appeal  from an order of  assessment  made  by  the Income-tax  Officer is in no better position in this  matter than  the Income-tax Officer.  All that is  perfectly  true. But  the question which we have to consider is  whether  the wide  language employed by the legislature in  enacting  the second  proviso  should not be given  its  natural  meaning. This  proviso  removes the bar of limitation enacted  by  s. 34(1)  and its first two provisos not only with  respect  to the  assessee  but with respect to "any person"  in  certain circumstances.  No doubt, this Court has recently held in S. C. Prashar & Anr. v. Vasantsen Dwarkadas & ors.(1) that  the proviso  in so far as it removes the bar of limitation  with respect to persons other than the assessee, is invalid as it infringes  the  provisions of Art. 14 of  the  Constitution. That,  however,  is  a  question apart.   What  we  have  to consider is the legislative intent, and for ascertaining it, it is legitimate to look also at that part of the  enactment which  has  been  held to be  invalid.   By  permitting  the Appellate  Authority to make a finding or give  a  direction with  respect  to  a  person other  than  the  assessee  the Legislature  has made it abundantly clear that for  bringing escaped  income to assessment the bar ,of  limitation  would not  apply provided there is a finding or direction  of  the Appellate  Authority that a particular item ,of  income  had escaped  assessment  and  may,  therefore,  be  brought   to assessment.   Under the operative portion of s.  34(1),  the



Income-tax Officer is empowered to give notice  (1) [1964] 1 S.C.R. 29. 430 to  an assessee in respect of escaped -assessment.   He  can issue  such  notice under cl. (a) thereof where  income  has escaped  assessment  due to any conduct on the part  of  the assessee  and  in such a case he can issue a notice  at  any time.  Certain restrictions, however, have been placed  upon his  power by the first proviso to sub-s. (1) of s. 34,  one of  which  is the period of limitation of eight  years  with respect to income of less than a lakh of rupees.  The second proviso to sub-s. (3) is a proviso to the whole of s. 34 and would  consequently apply to a case falling under  s.  34(1) (a).  The restrictions placed by the enacting provisions  of s.  34(3)  would not, as made clear in the  second  proviso, apply to such a case.  Thus, the proviso in terms says  that when  a notice is issued under s. 34(1) (a), no question  of limitation  would  arise  when  such  notice  is  issued  in pursuance  of  a  direction  or  finding  of  an   appellate authority.   Since the proceeding in pursuance of  a  notice under  s.  34 is necessarily independent of  the  assessment proceedings  under s. 22 with respect to a particular  year, the proviso in question need not be so interpreted as to  be limited to a direction made by the Appellate Authority while dealing  with an appeal for that particular year.  The  fact that  certain income has escaped assessment may come to  the notice of an Appellate Authority in any case and it  clearly appears to be the intention of the Legislature to require an Income-tax   Officer  to  take  cognizance  of  it  in   the circumstances stated in the proviso. It  is, however, contended that the power of  the  Appellate Authority  to make a direction or finding in any appeal  be- fore  it is confined to matters specified in s. 31 and  that upon a proper construction of that provision, a direction or finding with respect to income of any particular year  other than the one with respect to which there is an appeal before it,  cannot be competently made by the Appellate  Authority. In  support of this contention reliance is placed up on  the decisions  in  Kamlapat Motilal v.  Income-tax  Officer  and anr.(1),  Hiralal Amritlal Shah v. K. C. Thomas,  Income-tax Officer, Bombay (2) ; Pt.  Hazari Lal v. Income-tax Officer, Dist. II Kanpur(3); Brindaban Chandra Basak v. Income-tax (1) (1956) 29 I. T. R. 192.      (2) (1958) 34 I. T. R. 446.  (3) (196O) 39 I. T. R. 265. 431 Officer(1).    In  the  first  of these  cases  the  learned judges have observed :               "In  our opinion the powers of  the  Appellate               Tribunal under section 3 3 (4) are limited  to               the passing of such order as it thinks fit  to               make in the proceedings which are then  before               it  on appeal, and in our judgment it  has  no               power  under this section to pass an order  or               give   directions   with  reference   to   the               proceedings  of  an  earlier  year  which  are               concluded." We may point out that s. 33 (4) only refers to a finding  or direction made by an Appellate Authority and does not itself confer any power on an Appellate Authority to make a finding or direction.  Indeed, s. 34 deals with entirely a different aspect, that of empowering an Income-tax Officer to bring to assessment  escaped  income, and ha(; no  concern  with  the powers  of  an Appellate Authority.   The  provisions  which deals with the powers of an Appellate Authority is s. 31 and it  is  with that provision that we must  concern  ourselves



primarily.   The next case is not strictly relevant to  this point.   But the third one which is again a decision of  the Allahabad High Court has proceeded to construe s. 31 of  the Act and we, therefore, have to consider it.  After observing that  the  scope of the orders which can be  passed  by  the Appellate  Authority  under s. 31 the  learned  Judges  have observed: "The very fact that the Appellate Assistant Commissioner  of Income-tax,  when  making  an order  under  section  31,  is dealing with an appeal filed by an assessee in respect of an assessment order indicates the scope of his jurisdiction  to give findings and to make consequential orders: The  various orders, which an Appellate Assistant Commissioner of Income- tax can make, are detailed in section 31(3) though there  is no  detailed  provision  about the  findings  which  he  can record.  It appears to us, however, that, (1)  (1962) 46 I. T. R. 14. 432 from the very nature of the jurisdiction which an  Appellate Assistant  Commissioner  of  Incometax  exercises,  it  must follow  that his power of recording findings is  limited  to matters  which he is called upon to decide when  passing  an order in appeal in conformity with the details laid down  in section 31(3).  Any order passed by him, which is beyond the scope   of  section  31(3),  would  be  an   order   without jurisdiction  and, similarly, any finding recorded  by  him, which  is not necessary for the purpose of making  an  order covered   by   s.  31(3),  would  be   a   finding   without jurisdiction.  Further’ when applying the second proviso  to section 34(3) of the Income-tax Act, the Income-tax  Officer is  only competent to take into account orders which are  in conformity with the provisions of section 31(3) and findings which are necessary for passing those orders.  Orders, which are outside the scope of section 31(3) or findings which are not at all necessary for making such orders, cannot be taken into  account by the Income-tax Officer for the  purpose  of relying on the second proviso to section 34(3) which we  are now considering." (p. 271) - The  learned  Judges have proceeded to hold  that  the  word "finding" must be given the same meaning as that in the Code of  Civil Procedure, that is. a decision of the  Court.   In other words, they seem to hold that a finding means only the final conclusion in the case.  In support of this conclusion they  placed  reliance  upon  S.  C.  Prashar  v.  Vasantsen Dwarkadas(1). Section 31(3) of the Act confers certain express powers upon the  Appellate  Authority,  one of  which  is  to  ’confirm. reduce, enhance or annul the assessment.  This power can  be exercised only after the Appellate Authority arrives at some conclusions  on  facts.  Thus, if an assessee  wants  to  be exonerated from tax with respect to a particular item of  (1) (1956) 2 I. T. R 857 433 income and sets out the grounds on which he bases his  claim for exoneration the Appellate Authority has to consider them and arrive at its findings with regard to them before it can reduce or annul the assessment.  It would follow, therefore, that  the  power  to confirm, reduce, enhance  or  annul  an assessment  is implicit in the power of giving  findings  on the grounds on which a claim is made for one or the other of these results by the department or the assesee.  No  express mention  of  such power was required in s. 31(3).   When  an appeal is before an Appellate Authority the whole matter  is at large before it and, therefore, when a, specific case  is put  before it by an assessee it has both the power as  well



as  the duty to give its finding thereon.  The ground  given by  the  assessee for claiming a reduction or  annulment  of assessment  may  well be that the income upon which  he  has been assessed was not earned in the accounting period of the year  to which the assessment pertains but in respect  of  a specified earlier or later year.  The Appellate Authority is entitled to go into the whole question and come to a finding one way ’or the other, whether the income was earned in  the year  in which it was alleged by the assessee to  have  been earned  or  in the year with respect to which  he  has  been assessed  by the Income-tax Officer.  To give a  finding  on this  question  would  be  obligatory  upon  the   Appellate Authority and his duty to give a finding must necessarily be referable  to the provisions of s. 31(3).  We cannot  accept the view of the Allahabad High Court that the word "finding" occurring  in s. 34(3) is susceptible of only  one  meaning, and  that  is  that ascertainable from  the  Code  of  Civil Procedure.  The finding of a tribunal is its conclusion on a point agitated before it and for a conclusion to amount to a finding it is not necessary that it should be the final  and ultimate  conclusion.  We are, therefore, unable  to  accept the  view  taken  by the Allahabad  High  Court.   The  last mentioned  case  does not decide the  matter  finally.   But there the learned Judges have expressed a preference for the view taken by the Allahabad High Court as against that taken by  the  Madras High Court in K. Simrathmull  v.  Additional Income-tax  Officer, Ootacamund(1).  In that case a  similar argument to that urged before us and before the (1)(1959) 36 I. T R. 41. 134-159 S. C.28. 434 Allahabad  High  Court was advanced.  Dealing  with  it  the learned Judges have observed:               "To  support  this argument no  authority  was               cited  and  it appear to us to  be  completely               untenable.   When an assessment is   made  and               either the Department or the assessee appeals,               the whole matter would be before the Assistant               Commissioner, and, no express provision  would               be necessary to enable him to give  directions               in  respect  of a matter already  before  him.               This would apply also to the Commissioner  and               the Income-tax Appellate Tribunal." (p. 47) They then explained the reason for an express provision like the  one  contained  in  s. 34(3)  by  saying  that  it  was necessary to have such provision so as to enable the Income- tax  Officer  to  take  action in  pursuance  of  a  finding recorded  or  direction  given  by  an  Apellate  Authority. Finally they observed:               "To  construe  the proviso in  the  manner  in               which  Mr.  Subbarya Aiyar invited  us  to  do               would be to make that proviso otiose." With  these observations we concur.  This decision has  been followed  by the Bombay High Court in, General  Construction and  Supply  Co.,  v.  Income-tax  Officer  (8th)  C.  Ward, Bombay(1). The  same  High  Court  has reaffirmed  the  view  taken  in Simrathmull’s  case(1) in A. S. Khader Ismail v.  Income-tax Officer,  Salem(2) and held that the word "finding"  in  the proviso to s. 34(3) must be given a wide significance so  as to  include not only findings necessary for the disposal  of the appeal but also findings which are incidental to it  and would  include  its conclusion as to whether the  income  in question in the appeal was not received during the, year  to which  the  appeal relates.  Upon this view the  High  Court



held that if in pursuance of such a finding, the  Income-tax Officer  proceeds to investigate afresh as to in which  year the  income  was  received, the  action  of  the  Income-,ax Officer (1) (1962) 44 I. T. R. 16. (2)  (1959) 36 I. T. R. 41. (3) (1963) 47 I. T. R. 16. 435 would  still be the result of or the logical consequence  of the  finding arrived at for the purpose of the  disposal  of the appeal and the proviso to s. 34(3) would apply to such a case.   The view taken by the High Court is in our  judgment correct. Thus  in  our  view  upon a  construction  of  the  relevant provisions  we  have  no doubt that the notice  was  not  in contravention  of the provisions of s. 34 of the  Income-tax Act and could not be quashed on that ground. The  question then remains whether the second proviso  below s.  34(3) is bad as offending Art. 14 of  the  Constitution. In  support  of this contention reliance is  placed  by  Mr. Bishan  Narain for the respondent on the decisions  of  this Court in Suraj Mall Mohata & Co. v. A. V. Visvanatha  Sastri & anr. (1) and S. C. Prashar & anr. v. Vasantsen Dwarkadas & ors. (2).  In the first case it was held that both s. 34  of the Income-tax Act and sub-s. (4) of s. 5 of the Taxation on Income  (Investigation Commission) Act, 1947, deal with  all persons   who  have  similar  characteristics  and   similar properties,  that the procedure prescribed in the later  Act is  substantially more prejudicial and more drastic  to  the assessee  than the procedure under the former Act and  that, therefore, sub-s. (4) of s. 5 of the former Act in so far as it affects the persons proceeded against thereunder is  void as offending the provisions of Art. 14 of the  Constitution. On  the analogy of this case learned counsel  contends  that the  second proviso to s. 34(3) enabling a notice  to  issue only  to  an assessee in respect of escaped  income  without limit of time on the ground that an Appellate Authority  has made  a  finding or direction in the  proceeding  before  it makes  a discrimination against such an assessee because  it does  not  lift the bar of limitation with regard  to  other assessees,  similarly  situate, but with regard to  whom  no finding  has  been made or direction given by  an  Appellate Authority.   No  doubt, persons whose  income  have  escaped assessment,  and the fact that they have escaped  assessment has not been discovered till after the lapse of eight  years from the year in which they could have been assessed to  tax on such (1) [1955] 1 S. C. R. 448.    (2) [1964] I S. C. R. 29. 436 income, can be placed in one class.  But surely it does  not follow  that  even  in that class there can  be  no  further classification.  The legislature in enacting the  particular provision  has  made a further or  a  sub-classification  by puttinunder  one head those whose assessments have  come  up for scrutiny before an Appellate Authority and with  respect to whose escaped assessment a judicial finding or  direction is  made by the Appellate Authority and under  another  head other assessees whose escaped income was not detected by the Appellate  Authority and with respect to which  no  judicial finding   or  -direction  was,  therefore,  made   by   such authority.   There  is  a real difference  between  the  two categories  of assessees.  Prima facie there  is  reasonable basis for the sub-classification and the grounds on which it is made, that is, discovery by a higher Income-tax Authority and a judicial finding or direction made with respect to the



fact by it.  These grounds have a rational relationship with the  object  which was intended to be achieved by  the  law. that  is.  to  detect and brine to  assessment  the  escaped income.  (See  for example A. Thangal Kunju Musaliar  v.  M. Venkitachalam   Potti   &   anr.   (1)   where   a   further classification  of war porfiteers into those who had  evaded substantial amount of income-tax and those whose evasion was not of a substantial amount was upheld.) We can find nothing in  the  decision upon which reliance is placed  which  runs counter  to  our  view.  On the other  hand  we  find  ample support from the decision in Balaji v. Income. tax  Officer, Special  Investigation Circle (2) where it has been  pointed out  that the two tests of permissible classification  under Art.  14 are (a) that the classification must be founded  on an  intelligible  differentia and (b) that  the  differentia must be reasonably connected with the object of the legisla- tion,  and  that where they are satisfied by a  statute.  it does  not violate Art. 14 of the Constitution.   As  regards the  other decision relied upon, it is sufficient  to  point out that the majority of the learned Judges have only struck down  that  part of the proviso which enables  a  notice  to issue "to any person" on the ground that it is violative  of Art.  14. The precise question which we have before us  does not  appear  to have been the subject of  decision  in  that case.  We (1) [1955] 2 S.C.R. 1196.   (2) [1962] 2 S.C.R. 983 437 are,  therefore, unable to accept the contention of  learned counsel. For the foregoing reasons we allow the appeal and quash  the writ  of  certiorari issued by the High Court.   It  may  be mentioned  that in the absence of a stay of  proceedings  by the  High Court the Income-tax Officer has actually made  an assessment   in   pursuance   of   the   impugned    notice. That assessment willstand unless it is modified or  annulled in any proceeding permitted by law.  Costs of the appeal and the  petition  before the High Court will be  borne  by  the respondent.                        ORDER BY COURT In  view of the judgment of the majority, the  appeal  fails and is dismissed with costs.