# A-Ward, Sitapur v. Murlidhar Bhagwandas, Lakhimpurkheri

- **Citation:** [1964] 6 S.C.R. 437
- **Court:** Supreme Court of India
- **Decided:** 1964-01-29
- **Bench:** B. P. Sinha, K. SuBBA RAo, Raghubar Dayal, N. Rajagopala Ayyangar, J. R. Mudholkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-ward-sitapur-v-murlidhar-bhagwandas-lakhimpurkheri-3203
- **Pages:** 10

## Headnote

Income Tax-Escaped income-Notice issued for assessment after expiry
of 8 years-If sanction required-Indian
lncom1-tax
Act,
1922
(11 of 1922). ss. 34(i), 34(ii), 34(3) proviso. os amended b1
Act XXV of 1953 and Act XVIl of 1956.
The appellant had issued notice to the respondents under s. 34( I) (a)
of the Income Tax Act, 1922 in respect of an escaped
income
of
Rs. 47,595 for the assessment year 1944-45. The ca.e of tte respondents
was that the, impugned notice was bad because the Income-Tax Officer
proceeded against the respondents without obtaining the necessary sanction of the Central Board of Revenue as required by cl. (iii) of the proviso to s. 34(1) of the Act. The respondents filed a writ petition in the
High Court challenging the notice issued under s. 34( I) of the Act.
The respondents succeeded bofore the High Court.
1964
1. T. Officer,
A-Ward, Sitapur
v.
Murlidhar
Bhagwandas,
Lakhimpurkheri
M11dho/kar J.
1964
January,
29
1964
K. · C. Thomas,
/, T. O/fic<r,
Bombay
..
V. H. Shah
SUPREME COURT REPORTS
Held: (i) The sanction under cl. (iii) of the proviso to s. 34(1)
is, however, necessary only where the notice in question is issued under
cl. (ii) of the proviso.
That is evidently what the legislature meant
when it said "in aDf case falling under cl. (ii)". The words "in any case"
used in cl. (iii) only mean a case in which notice can be issued under
cl. (ii). Such a notice can be issued only when. the escaped income is
of one lakh of rupees and over.
Clause (iii) requires such
!ianction
where the notice is issued under cl. (ii) and when on a construction of
cl. (ii). no notice can be issued with respect to a class of escaped asse:ssments, there can possibly be no requirement of the sanction of the Central Board of Revenue. If a notice is issued by virtue of some other pr~
vision euch as the second proviso to sub-s. (3) of s. 34, it would be a
notice "!n any other cas~" referred to in cl. (iii) of the proviso to
sub·s. (J) o( '· 34 and in such a case the sanction which is required
is only that of the Commissioner. Such a sanction was obtained in
this case and therefore, the notice cannot be said to be bad because
the sanction of the Central Board of Revenue had not been obtained.
In the present case the income which has escaped assessment is below
one lakh of rupees and more than eight years have elapsed since tho
assessment year in respect of which the income is alleged to have escaped
assessment. Clearly, therefore, no notice could issue under cl. (ii).
(ii) The High Court erred in holding that the provisions of the 8Ccond
proviso to s. 34(3) would not apply to a case where the escaped assessment is of an amount less than a lakh of rupees and more than eight
years have elapsed. Apparently, the High Court has overlooked the fact
that the second proviso to sub-s. (3) of s. 34 was amended first by Act
25 of .1953 and then by Act. 18 of 1956. The amendment of 1956 would
govern the whole of s. 34( l) and would consequently include even an
escaped assessment with respect to which limitation is provided in cl.
(ii) of the first proviso to s. 34(1). The result would be the same even
if the case fell to be governed by the Amending Act of 1953, though
not by that of the Amending Act of 1956.
CML APPELLATE JURISDICTION: Civil Appeal No. 688 of
1962.
Appeal by special leave from the judgment and order
dated April l, 1958 of the Bombay High Court in Misc.
Application No. 202 of 1957.
N. D. Karkhanis and R. N. Sachthey, for the appellant.
l. N. Shroff, for the respondents.
January 29, 1964. The Judgment of the Court was
delivered by
Mlldliolkar J.
MuoHoLKAR J.-This is an appeal by special leave
against the judgment of the Bombay High Court in a writ
petition challenging the notice issued under s. 34(1) of the
Indian Income-tax Act, 1922 by the First Income-tax Officer,
6 S.C.R.
SUPREME COURT REPORTS
439
Bombay, who is the appellant before us.
In the writ
petition various grounds were urged by the respondent in
support of the content

## Text

6 S.C.R.
SUPREME COURT REPORTS
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 wii.1 stand 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 tbe respondent.
ORDER BY COURT
In view of the judgment of the majority, the appeal fails
and is dismissed with costs.
K. C.
THOMAS,
FIRST INCOME-TAX OFFICER,
BOMBAY
v.
VASANT HIRALAL SHAH & ORS.
(B. P. SINHA, C.J., K. SuBBA RAo,
RAGHUBAR DAYAL,
N. RAJAGOPALA AYYANGAR AND J. R. MUDHOLKAR JJ.)
Income Tax-Escaped income-Notice issued for assessment after expiry
of 8 years-If sanction required-Indian
lncom1-tax
Act,
1922
(11 of 1922). ss. 34(i), 34(ii), 34(3) proviso. os amended b1
Act XXV of 1953 and Act XVIl of 1956.
The appellant had issued notice to the respondents under s. 34( I) (a)
of the Income Tax Act, 1922 in respect of an escaped
income
of
Rs. 47,595 for the assessment year 1944-45. The ca.e of tte respondents
was that the, impugned notice was bad because the Income-Tax Officer
proceeded against the respondents without obtaining the necessary sanction of the Central Board of Revenue as required by cl. (iii) of the proviso to s. 34(1) of the Act. The respondents filed a writ petition in the
High Court challenging the notice issued under s. 34( I) of the Act.
The respondents succeeded bofore the High Court.
1964
1. T. Officer,
A-Ward, Sitapur
v.
Murlidhar
Bhagwandas,
Lakhimpurkheri
M11dho/kar J.
1964
January,
29
1964
K. · C. Thomas,
/, T. O/fic<r,
Bombay
..
V. H. Shah
SUPREME COURT REPORTS
Held: (i) The sanction under cl. (iii) of the proviso to s. 34(1)
is, however, necessary only where the notice in question is issued under
cl. (ii) of the proviso.
That is evidently what the legislature meant
when it said "in aDf case falling under cl. (ii)". The words "in any case"
used in cl. (iii) only mean a case in which notice can be issued under
cl. (ii). Such a notice can be issued only when. the escaped income is
of one lakh of rupees and over.
Clause (iii) requires such
!ianction
where the notice is issued under cl. (ii) and when on a construction of
cl. (ii). no notice can be issued with respect to a class of escaped asse:ssments, there can possibly be no requirement of the sanction of the Central Board of Revenue. If a notice is issued by virtue of some other pr~
vision euch as the second proviso to sub-s. (3) of s. 34, it would be a
notice "!n any other cas~" referred to in cl. (iii) of the proviso to
sub·s. (J) o( '· 34 and in such a case the sanction which is required
is only that of the Commissioner. Such a sanction was obtained in
this case and therefore, the notice cannot be said to be bad because
the sanction of the Central Board of Revenue had not been obtained.
In the present case the income which has escaped assessment is below
one lakh of rupees and more than eight years have elapsed since tho
assessment year in respect of which the income is alleged to have escaped
assessment. Clearly, therefore, no notice could issue under cl. (ii).
(ii) The High Court erred in holding that the provisions of the 8Ccond
proviso to s. 34(3) would not apply to a case where the escaped assessment is of an amount less than a lakh of rupees and more than eight
years have elapsed. Apparently, the High Court has overlooked the fact
that the second proviso to sub-s. (3) of s. 34 was amended first by Act
25 of .1953 and then by Act. 18 of 1956. The amendment of 1956 would
govern the whole of s. 34( l) and would consequently include even an
escaped assessment with respect to which limitation is provided in cl.
(ii) of the first proviso to s. 34(1). The result would be the same even
if the case fell to be governed by the Amending Act of 1953, though
not by that of the Amending Act of 1956.
CML APPELLATE JURISDICTION: Civil Appeal No. 688 of
1962.
Appeal by special leave from the judgment and order
dated April l, 1958 of the Bombay High Court in Misc.
Application No. 202 of 1957.
N. D. Karkhanis and R. N. Sachthey, for the appellant.
l. N. Shroff, for the respondents.
January 29, 1964. The Judgment of the Court was
delivered by
Mlldliolkar J.
MuoHoLKAR J.-This is an appeal by special leave
against the judgment of the Bombay High Court in a writ
petition challenging the notice issued under s. 34(1) of the
Indian Income-tax Act, 1922 by the First Income-tax Officer,
6 S.C.R.
SUPREME COURT REPORTS
439
Bombay, who is the appellant before us.
In the writ
petition various grounds were urged by the respondent in
support of the contention that the notice was bad in law.
The High Court, however, dealt with only one of those
contentions, accepted it, and
did not permit the respondents' counsel Mr. Mehta to put forward the other contentions urged in the writ petition by the respondents.
The appellant had issued
notice to the
respondents
under s. 34(1Xa) of the Income-tax Act in respect of an
escaped income of Rs. 47,595 for the
assessment
year
1944-45.
This notice was issued by him on March 27,
1957. On behalf of the respondents, it is contended that
the notice was bad becaμse, though it was in respect of an
amount of less than Rs. 1 lakh it was issued after the expiry of the assessment year and that the sanction of the
Central Board of Revenue for issuing that notice had not
been obtained by the Income-tax Officer as required by cl.
(iii) of the proviso to s. 34(1) of the Act. It is not disputed
before us that the case falls under s. 34(l)(a). That provision reads thus:
"(1) If-
(a) the Income-tax Officer has reason to believe that
by reason of the omission of 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, or have been
under-assessed, or assessed at too low a rate,
or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or ....
he may in cases falling under clause (a) at any time
. . . . . . serve on the assessee . • . . .
a notice containing all or any of the require·
ments which may be included in a notice under
sub-section (2) of section 22 and may proceed
1964
K. c. noma1.
f. T. O(fictr,
Bombay
v.
JI. H. Shah
.lludholkar J.
1964
K. c. Thomas,
J, T. Officer,
Bombt11
·1.
Y. H. Shoh
M11dholkar J.
SUPREME COURT REPORTS
[ 1gt,4]
to assess or re-assess such income, profits
or
gains or recompute the
loss or depreciation
allowance; and the provisions of this Act shall,
so far as may be, apply accordingly as if the
notice were a notice issued under that
subsection:"
We have quoted only the relevant portion. Then follows
the first proviso which runs thus:
"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 or have been underassessed or assessed at too low a rate or have
been made the subject of excessive relief under
this Act, or the loss or depreciation allowance
which has been computed in excess, amount to,
or are likely to amount to, one lakh of rupee5
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;
(iii) for any year, unless he has recorded his reasons
for doing so, and, in any case falling
under
clause (ii), unless the Central Board of Revenue, and, in any other case, the Commis.sioner,
is satisfied on such reasons recorded that it is
a fit case for the issue of such notice:"
It will thus be seen that where the Income-tax Officer has
reason to believe that due to any act of the assessee a full
and accurate declaration was not made by the assessee for
any year, with the result that part of his income has escaped assessment for that year, the Income-tax Officer may
issue a notice under cl.(a) at any time.
ti S.C.R.
SUPREME COURT REPORTS
441
The respondents' contention before the High Court was
that the notice was bad because it had not complied with
the two conditions laid down in the proviso to s. 34(1).
Adverting to this contention the High Court has observed
thus:
"Before the amendment of this section which was in
force on the 27th March, 1957 the period of
limitation of eight years was provided with regard to the issue of notices under Section 34(1)
(a) and a period of four years for cases falling
under Section 34(1)(b).
By the
amendment
tne period of limitation was removed and the
Legislature provided that if the case fell under
Section 34(1) (a) a notice can be served at any
time. But while removing any bar of limitation, the Legislature provided some safeguards
for the assessee and these
safeguards
were
three in number· and they were set out in the
proviso. The first safeguard was that a notice
shall not be issued for any year prior to the
year ending on the 31st day of March 1941;
the second safeguard was that if eight years
had elapsed then the notice should not be issued for· an escaped income which aggregated to
less than one lakh of rupees; and the
third
safeguard was that the Central Board of Revenue had to be satisfied on reasons to be recorded that this was a fit case for the issue of a no·
tice, which was for a period
beyond
eight
years. Now, admittedly, this notice is for an
amount which is less than a lakh of rupees and
admittedly the Central Board of Revenue has
not consider~d this matter at all.
Therefore,
there does not seem to be any answer to the
contention put forward by the petitioner."
The High Court is right in saying that a notice cannot
De
issued where the income which has escaped assessment
1s
less than a lakh of rupees and where more than eight years
have elapsed from the assessment year. To this, however,
1964
K. C. Thomas,
[. T. Officer,
Bombay
v.
V. H. Shah
Mudlrolkar I.
1964
K. c.
T/ioma..~1
I. T. Officer,
Bon1bny
v.
V. H. 5/iah
M11dirolkar J.
442
SUPREME COURT REPORTS
[1g64]
there is one exception and that is where the matter would
fall to be governed by the second proviso to s. 34(3). To
this aspect we will, however, come little later. But before
that what we must consider is the view of the High Court
that the sanction of the Central Board of Revenue was a!>O
necessary.
Under cl. (iii) of the proviso to s. 34(1) a notice
can issue only if the Central Board of Revenue is satisfied
with the reasons recorded by the Income-tax Officer for
issuing a notice.
For convenience we are describing this
process as sanction of the Central Board of Revenue. The
sanction under this clause is, however, necessary only where
the notice in question is issued under cl. (ii) of the proviso.
That is evidently what the Legislature meant when it says
"in any case falling under clause (ii)". For, cl. (ii) has to
be read with the opening words of the proviso: "Provided
that the Income-tax Officer shall not issue a notice under
clause (a) of sub-section (1)".
So read it will be clear that
the words "in any case" used in cl. (iii) only mean a case in
which notice can be issued under cl. (ii).
Such a notice
can be issued only when the escaped income is of one lakh
of rupees and over. It was, however, contended by Mr.
Shroff that cl. (ii) of the proviso dealt not only with the
escaped assessment of one lakh of rupees and over but also
with assessments which were less than one Iakh of rupee'
and that, therefore, even in the present case the sanction of
the Central Board of Revenue was required. By excluding
action with respect to escaped assessment of less than one
lak.h of rupees, cl. (ii) can, in one sense, be regarded as dealing with escaped assessments of this kind. But it would be
wrong to say that because of this, cl. (iii) requires the obtaining of the sanction of the Central Board of Revenue
for a notice to be issued with respect to it.
As already
pointed out, cl. (iii) requires such sanction where the notice is issued under cl. (ii) and when on a construction of cl.
(ii), no notice can be issued with respect to a class of escaped assessments, there can possibly be no requirement of
the sanction of the Central Board of Revenue. If a notice
is issued by virtue of some other provision such as
the
second proviso to sub-s. (3) of s. 34, it would be a notice
"in any other case" referred to in cl. (iii) of the proviso to
sub-s. (1) of s. 34 and in such a case the sanction which Is
6 S.C.R.
SUPREME COURT REPORTS
443
required is only that of the Commissioner.
Such a sanction was obtained in this case and, lherefore, the notice
cannot be said to be bad because the sanction of the Central Board of Revenue has not been obtained. Now, we
will come to the other aspect of the matter.
1964
K. C. Thoma.s,
/. T. Officer,
Bombay
v.
Y. H. Shah
Limitation is no doubt placed upon the power of the Mudholkar J.
Income-tax Officer by cl. (ii) of the first proviso which says
that if eight years have elapsed after the expiry of that yeai
no such notice can issue unless the income which has escaped assessment is likely to amount to one lakh of rupees or
more.
Here admittedly
the income which has escaped
assessment is below one lakh of rupees and more than eight
years have elapsed since the assessment year in respec; of
which the income is alleged to have escaped assessment.
Clearly, therefore no notice could issue under cl. (ii).
Th~
answer given by the Income-tax Officer, ·however, is that
limitation is taken away by the second proviso to sub-s. (3)
of s. 34. We would quote s. 34(3) and the second proviso
to it. They run thus:
"No order of assessment or reassessment, other than
an order of assessment under section 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
sub-section (1) or sub-section (1 A) 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 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 section 31, section 3 3, section
33A, section 33B, section 66 or section 66A."
1964
K. C. Thomas,
I. T. Officer,
Bombay
v.
V. H. Shah,
Mudholkar J.
444
SUPREME COURT REPORTS
[1g64]
The second proviso to s. 34(3) could be presied in aid
Dy the Income-tax Officer because in issuing the notice he
was giving effect to a direction contained in the order of a
nigher Income-tax authorit}r.
Dealing w]th this matter the High Court has observed
as follows in its judgment:
"Now, when there was a limitation of eight years
under section 34(1)(a) the second proviso
to
Section 34(3) has to be
resorted.
Section
34 ( 3) had to be resorted to by the Income-tax
Department if it wanted to issue a notice after
the period of limitation,
and a notice atter
eight years in a case falling under section 34( l)
(a) ci;mld only be issued provided it was a result of a direction contained in an order passed by an Income-tax Authority. But by reason of the recent amendment the question of
!imitation does not arise, but the Legislature
has provided certain safeguards as already pointed out. Therefore, whether a notice is issued
as a result of a direction contained in any order
of an Income-tax Authority or not, if it is a
notice which is issued beyond eight years the
notice must satisfy the conditions laid down in
the proviso to Section 34(1). Therefore, the result
is that in some respects the Jaw has been made
more rigorous against the assessee; and in other
respects it has been made more lenient. Before
the amendment a nqtice could be issued after
eight years in respect of any escaped income,
whatever the amount, provided the notice was
issued to give effect to a direction contained in
an order of an Income-tax Authority. Now a
direction is not necessary for the issue of a notice.
But as against that an assessee whose
escaped income is not a lakh of rupees is completely protected and even though there may
be a direction contained in an order of an In-,
come-tax Authority no notice
can be issued
6 S.C.R.
SUPREME COURT REPORTS
445
against the assessee if the escaped income is
less than a Iakh of rupees.
Therefore, on the
one hand, the assessee whose escaped income
is less than a Iakh of rupees is now put in a better position than he was before the
amendment.
The assessee whose escaped income is
more than a lakh of rupees is put in a worse
position because he can be proceeded against
even without a direction contained in an order
of an Income-tax Authority provided the Central Board of Revenue has applied its mind to
the question of the issue of the notice."
It would appear that the view of the High Court was that
the provisions of the second proviso to s.- 34(3) would not
apply to a case where the escaped assessment is of an
amount
less than a Iakh of rupees and more than eight
years have elapsed.
Apparently, the High Court has overlooked the fact that the second proviso to sub-s. (3) of s. 34
was amended first by Act 25 of 1953 and then by Act 18
of 1956. As it stood prior to these amendments it read
thus:
"Provided further that nothing contained in this subsection shall apply to a re-assessment
made
under section 27 or in pursuance of an order
under section 31, section 33. section 33A, section 33B. section 66 or section 66A."
By the amendment of 1953, for the words "sub-section",
the words "section limiting the time within which any action may be taken or any order, assessment or re-assessment may be made" were substituted. By the amendmenr
of 1956 it now stands as already quoted by us. If the proviso in its present form applies here it would govern the
whole of s. 34(1) and would consequently include even an
escaped assessment with respect to which limitation is provided in cl. (ii) of the first proviso to s.
34(1).
The result, in our opinion. would be the same even
if the
case were to fall to be governed by the Amending Act of
1953, though not by that of the Amending Act of 1956.
1964
K. c. Thoma.z.
/. T. Officer,
Bombay
v.
V. H. %ah
Mudholkar J.
1964
K. C. Thomas.
1. T. Officer,
Bombay
v.
V. H. Shah
Mudho/kor J.
1964
Ja1iuary,
29
SUPREME COURT REPORT-S
We may add that the amendment of 1953 took effect from
April I, 1953 and that of 1956 from April 1, 1956.
Apart from the view expressed by the learned Judges
as regards the effect of the changes made in s. 34( 1) with
the provisos we have set out earlier a view which we have
held is not correct-they did not further consider the proper construction to be placed on the second proviso to s.
34 ( 3) of the Aot on whlch the validity of the impugned notice to the respondents must ultimately be decided.
As we have pointed out earlier, at the beginning of the
judgment, the learned Judges confined their attention practically only to the construction of proviso (iii) to s. 34(1)
which was decided in favour of the respondents and did not
permit them to argue the other points raised by them. We
do not propose to decide these other points, particularly
for the reason that the parties are not agreect as to what pre-'
cisely were the contentions which were raised for argument.
For the reasons stated above, the decision of the High
Court is clearly wrong.
We, therefore, allow the appeal,
set aside the order of the High Court and remit the matter
to it for the consideration of the other points which were
raised before it by the respondents but upon which they
were not heard. As regards costs we think that they should
abide the result of the appeal before the High Court.
Appeal allowed and case remanded,
GODAVARI SHAMRAO PARULEKAR
v.
STA TE OF MAHARASHTRA AND OTHERS
(P. B. GAJENDRAGADKAR, A. K. SARKAR, K. N. WANCHOO,
K. C. DAS GUPTA AND N. RAJAGOPALA AYYANGAR, JJ.).
Detention under Preventive Detention Act, 1950-0rder revoked by the
State Government-Re-arrest under Defence of India Rules-Validity
-Proper a~thority for passing order of detention-Allocation of