BHANJI BAGAWANDAS v. COMMISSIONER OF INCOME-TAX, MADRAS July 18, 1967 (J. C. SHAH, S. M. SIKRI AND V. R.\MASWAMI, JJ.) Indian Income-tax Act (11 of 1922), ss. 34 and 66(1)-Income Tax (Amendment) Act, 1959, S .. 2-Appellate Assistant Cl?fflmissioner holding that cash CTedit appeanng on first day of accaunttng year not ta:table in assessment year 1949-llO-Order whether amo~nts to find· ing that it is taxable in 1948-49-S. 34(3) second promao whether attracted-Notice under s. 34('1) (a) for 1948-49 issued in 1958-Limi- tation whether to be considered in the light of Amending, Act of C 1959-Hiah Court in reference whether can consider effect of Amend· ing A'Ct when question not directlii referred.
There was a cash credit In November 13, 1947, In the capital, account of the Appellant assessee whose accounting period was from November 13, 1947 to November l, 1948. The Income-tax Officer assessed the said credit as income from undis· closed sources In the- assessment for the assessment year 1949-50. The D Appellate Assistant Commissioner relying on CJ.T. v. Darolia & SOM. (27 I.T.R, 515) held that the amount was not taxable in the assess· ment year 1949-50. The Income-tax Officer thereupon assessed the amount in 1948-49 after having issued in November 1958 a notice under s. 34(1) (a) of the Indian Income-tax Act, 1922. He rejected the appellant's contention that notice under the said section was time- barred. In appeal the Appellate Assistant Commissioner held that in the earlier appeal there was no finding that the credit represented g
the assessee's income or that it should be assessed in the year 1948-49 and that consequently the notice under s. 34 issued in November 1958 was not saved by the second proviso to s. 34(3) of the Act: The appeal filed by the Revenue was allowed by the Tribunal and in reference the Madras High Court relying on its own ruling in A.S. Khader Ismail v. Income-ta,x Officer, (47 I.T.R. 16) upheld the order of the Tribunal. ')'he appellant came to this Court and rel!led on this Court's decision m Income-Tax. Of/ic~r A-Ward Si~apur v. Murlidhar
Bhaawandas r (52 I.T .R. 335) m which the aforesaid Madras decision had been over- ruled. The Revenue urged that in answering the reference the effect of s., 2 of !he Incom.e-tax (Amendment) Act 1959 must be taken into c?ns1derabon. To this the appellant objected that the point was out- sT1~eb the scope of the questions of law referred by the Anpellate ri unal to the High Court.
HELD: (i) The view taken by the Madras High Court as to the G scope ?f !he word 'finding' in A. S. Khader lsmail's case and follow- ed b.Y it m the present case had been overruled by this Court Ac-
cord1;1'gly the department could not take advantage of the ~e d ;>rov1so to s. 34(3). [20E-F] con 52 I.~~R~1;;:~p~der, A-Ward Sitaiiur v. Murlidhar Bh~'awan Das, (ii) Ho'!"ever, the impact of s. 2 of the Amending Act of 1959 h d B to be considered before the reference could be
ro a Altho~gh the qu!-'Stion had not been raised befofe tf::r tri~~~wjred. thi; High Court 1t was only an aspect of the quest'o of I' ·~ t' or \\'.hich had bee1,1 referred. All that s. 66(1) re uire : n 1m1 a 10n
!Ion of. law wh1~h is referred to the High Co~rt a~d,swb~aL tfhe qHu.es-h Court is to decide must be the question which was · eb fig m issue e ore SUP!llllB COURT BEPOBTS (1988) 1 8.C.L
the Tribunal When the question itself was under issue there is no & further limitation imposed by the section that the refe!'ence should be lilnited to those aspects of the question which had been ar8Ued before the Tribunal and it will be an over-refinement of the poaition to hold that each aspect of a question is itself a distinct queation for the purpose of s. 66(1) of the Act. [22B-DJ
C.I.T. Bombay v. Scindia Steam Navigation Co. Ltd. 42 I.T.R. 589, applied. Onkarma! Mehra; v. CJ.T., Bombay-1, 36 1.T.R. 369, and S. C. Prashar v. V asantsen Dwarkadas, 49 I. T.R. l, 'referred to. [On the above view the case was remanded to the High Court for examining the question of law referred to it after considering the impact of tlU! Amendment Act of 1959.)
CIVIL APPELLATE. JURISDICl'ION: Civil Appeal No. 1984 of O 1966. Appeal from the judgment and order dated January 2. 1964 of the Madras High Court in T.C. NO'. 153 of 1962. S. Swaminathan and R. Gopalakrishnan, for the appellant.
Veda Vylll'a, A. N. Kirpal, R. N. Sachthey and S. P. Nayar, D for the respondent. The Judgment of the Court was delivered by J.-This appeal is brought from the judgment of the Madras High Court dated January Z, 1964 in Tax Case
No. 153 of 1962. The asessment year involved in this appeal is-1948-49, the correspondin'g previous year being the financial year 1947-48. For the accounting period from November J 3, 1947 to November I, I 948 which was the corresponding previous year for the assess- ment year 1949-50 there was shown a credit of Rs. 25,000 in the capital account of the appellant. On November 13,
1947, this P amount was credited in the books of the appellant. On October 30, I 948 this amount was transferred to the account of one Amrithlal. Ranchoodas, the father-in-law of the appellant. The Income-tax Officer included the said amount as income of the appellant from undisclcsed sources in the assessment for the assessment year 1949-50. On appeal to the Appellate Assistant G Commissioner the appellant contended that the amount could not be included in the assessment year 1949-50 because the credit appeared prior to March 31. 1948. The Appellate Assistant Com- missioner allowed the appeal holding that the credit came into the books of the appellant cm November 13, 1947, i.e., in the financial year 1947-48 which is the previous year for the
assessment year 1948-49. On this finding, the Appellate Assistant R Commissioner deleted the addition of Rs. 25,000 from the assess- ment of the appellant for the year 1949-50. In doing so, the Appel- late Assistant Commissioner followed the decision in C.l.T. v. llAGAW.&lill.&111, C,t,T, (~
A P. Dwolia cl Son.v('). Consequently, on November 3, 1958 the In- come-tax Officer issued a notice under s. 34(1)(a) of the Income. tax Act, 1922, (hereinafter referred to as the. 'Act') to the a~l
lant for the assessment year 1948-49. By his order dated April 20, 1959 he rejected the contention of the appellant that the assess- ment was barred by limitation and assessed the sum of Rs. 25,000 1 as income from other sources. The appellant took the matter in appeal to the Appellate Assistant Commissioner who, by his order dated February 23. 1960. allowed the ·appeal. He took the view that there was no finding in the order of the Appellate Assistant Commissioner that the credit represented the income of the appel- lant or that the same credit should be assessed in the assessment year 1948-49. He further held that the netice under s. 34 issued on 3, 19S8 was bad in Jaw and was not saved by the
second proviso to s. 34(3) of the Act. The Commissioner of Income- tft preferred an appeal against the order of the Appellate Assis- tant · Commissionc:i' to the Income-tax Appellate Tribunal which allowed the appeal, holding that "the order of the Appellate Assis- tant Commissioner in the appeal against th.e assessment for 1949- D SO should be taken to contain a finding that the sum of Rs. 25,000 represented income of the assessee to be considered in the as,<1ess- ment year 1948-49". At the instance of the appellant the Appellate Tribunal referred the following questions of law for the opinion of the High Court under s. 66(1) of the Act:
"(l) Whether on the facts and in the circumstances of the case. the proceedings initiated against the assessee for IAe assessment year .1948-49 under section 34 and the assesament for the said· year are bilrred by limitation and hence not lawful?
(2/ Whether the proceedings initiated against the assessee for the assessment year 1948-49 under section 34 and the. assessment made under section 34 for the assessment year 1948-49 Could be justified in law as for the purpose
of giving effect to a finding or directions in the order of the Appellate Assistant Commissioner in I.T.A. No. 134 of 1958-59? (3) Whether on the facts and in the circumstances of the
case. the assessment made is saved from the bar of limi· talion under the second proviso to section 34(3)?" By its judgment dated January 2. 1964, the High Court answered the qtlestions in favour of the respondent and against the appel- lant. 'The High Court followed an earlier decision in A.S. Khader. ~ Ismail v. Income tax Officer('), in which it had held that the word "finding" in the proviso to s. 34(3) of the Act must be given a (I) 2'I I.T.B. 5111.
(2) '7 I.T~ 16. SUPRllJIB COUl\T llBPOl\T8 [1968] 1 S.0.11. wide significance so as to include not only findings necessary A for the disposal of the appeal but it would apply to cases where it is held that the income in question was in respect of an earlier year which was not the subject-matter of the appeal before the appellate authority.
On behalf of the appellant Mr. Swaminathan put forward the B. argument that the decision of the High Court is contrary to the view taken by this Court in lncome-/ax Officer, A-Ward, Sitapur v. Murlidliar Bhagwan Das(') in which it was held that the expres- sions "finding" and "direction", in the second proviso to s. 34(3), meant respectively, a inding necessary for giving relief in respect of the assessment for the.year in question, and a direction which the appellate or revisional authority, as the case may be, was cm- c powered to give under the sections mentioned in that proviso. A "finding", therefore, could only be that which was necessary for the disposal of an appeal in respect of an assessment of a particu- lar year. The Appellate Assistant Commissioner might hold, on the evidence, that the income shown by the assessee was not the in- come for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context D was that the income did not belong to the relevant year. He might incidentally find that the income belonged to another year, but that was not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. It was further held that the second proviso to s. 34(3) did not save the time-limit prescribed under s. 34()) in respect of an escaped assessment of a year other E than that which was the subject-matter of the appeal or revision. as the case may be, and accordingly the notice issued under s. 34(1) (a) in that case was barred by limitation and was not saved by the second proviso to s. 34(3). In the course of its judgment this Court overruled the judgment of the Madras High Court in A. S. Kha- der Ismail v. Income-tax Officer('). It follows therefore that the view taken by the High Court in the present case is not correct in 1 law and must be overruled.
On behalf of the respondent, however, Mr. Veda Vyasa con- tended that in answering the reference the effect of s. 2 of the In- come-tax (Amencjment) Act <Act I of 1959) must be taken into consideration ~nd in view of the amendment made by that section 0 of the amending Act the questions referred to the High Court m~t be answered riecessarily against the appellant. Section 2 of the Amendment Act, 1959 inserted in s. 34 of the Act a new sulH!ec- tion (4) which provides:
"A notice under clause (a) of sub-section (I) may be issued at any time notwithstanding that at the time of the issue of the notice. the period of eight years specified li2 I.T.R. SU.
(~ n r:r ..R. 16. B4G.!.WANDA8 "· 0.1.T. (Ramaswami, J.) in that sub-section before its amendment. by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired in respect of the year to which the notice rela'l.Cll. Section 4 of the Amending Act, 1959 read as follows: .
"No notice issued under clause (a) of sub-section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, re- asseiSment or settlement made or other. proceeding 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
c within which such notice should have been issued or the assessment or re-assessment should have been made under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956),
had expired." Mr. Veda Vyasa ,referred to the decision of the Bombay High D Court in Onkarmal Meghraj v. C.J.T .. Bombay-1.{') in which it was held that there was nothing in s. 2 or 4 of the Amendment Act of 1959 to restrict the terms of the words "at any time" occurring ins. 4 of that Act as meaning "at any time after April 1, 1956", viz., the date on which the amendments made by the Finance Act, 1956, came into force and there was nothing in the provisions of E the Amendment Act of 1959 which limited the retrospective operation of s. 4. It was also held that since the enactment of the Amendment Act of 1959 a notice issued after April 1, 1956, for reopening an assessment, by virtue of s. 4, could not be ~itted to be called in que&tion on the ground that the notice" was not issued within the period prescribed by the unamended s. 34(l)(a). On behalf of the respondent reference was also made to the deci- r sion of this Court in S. C. Prashar v. Vasantsen Dwarkadas,(') in which it was held that s. 4 of the Amendment Act, 1959 operated on and validated notices issued under s. 34(l)(a) as amended in 1948 even ,earlier than April 1, 1956, in other words, in respect of assessment years prior to March 31, t956, and therefore notices issued under s. 34(1)(a) of the Income-tax Act before April l, 1956, could not be challenged on the ground that they were issued G beyond the time limit of eight years from the respective assess- ment years prescribed by the 1948 amendment. On behalf of the appellant Mr. Swaminathan raised the objection that the point was not taken up by the respondent in the Bigh Court. nor wai there any reference to it in the statement of the case filed by the respond- ent. It was also contended that the point raised was outside the B scope or' the questions of law referred by the Appellate Tribunal to the High Court. We do not think there is any substance in the ('l 811 I.TJ\. 3119.
(')CO LT.& I, 8~ OOUBT Ul'OllTS [11188] I 1.0.11. objection raised on behalf of the appellant. One of the questions .A referred to the High Court is "whether on the facts and in the circumstances of the case, the assessment made is saved from the bar of limitation under the second proviso to section 34(3)?" It is true that the impact of the Amending Act, 1959 (Act I of 1959) was not raised before the' Appellate Tribunal or before the High Court, but it is not a separate question by itself and is only an B aspect of the question of limitation which has already been refer- red by the Appellate Tribunal to the High Court. As pointed out in CJ.T. Bombay v. Scindia Steam Navigation Co. Ltd.,(') the ques- tion of Jaw referred to the High Court untler s. 66 may be a simple one having its impact on one point, or it might be,a complex one, involving more than one aspect and requiring to be tackled from different standpoints. All that section 66(1) requires is that the ll question of law which is referred to the High Court and which the- High Court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal, and it will be an over-refine.. J) ment of the position to hold that each aspect of a question is itself a distinct question for the purpose of s. 66()) of the Act. In our opinion, the argument of the respondent with regard to the legal effect of the Amending Act of 1959 (Act 1 of 1959) is within the frame-work of the question already referred to the High Court and it is therefore competent to this Court, in a case of this descrip- E lion, to allow a new contention to be advanced.
It is, however, necessary that the ~ase should be remanded to the High Court for examining the question of law referred to it after considering the impact of the Amending Act of 1959 (Act l of 1959).
For these reasons we allow . this appeal. set aside the judg- ment of the High Court dated January 2, 1964 and remand the case to it for farther hearing and answering the reference in the light of the Income-tax Amending Act I of 1959. In the circum- stances of the case we direct that the respondent should pay the cost of this appeal in this Court.
Y. P. Appeal allowei. r