# delivered by Kamal Singh v. Commission1r of l11com1-t11~

- **Citation:** [1959] Supp. 1 S.C.R. 10
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Bench:** Venkatarama Aiyar, Gajendragadkar, A. K. Sarkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/delivered-by-kamal-singh-v-commission1r-of-l11com1-t11-1593
- **Pages:** 18

## Headnote

Income Tax-Re-assessment -
Escaped income -Assessment
order based on statement of law subsequently found to be erroneous--
W hcther assessment can be reopened-" Information",
"Escaped
income", meaning of-Indian Income-tax Act, r922 (XI nf r922),
as amended by Act 48 of r948, s. 34(r)(b).
In respect of the assessment of the appellant to income-tax
the Income-tax Officer excluded the amount of interest on
arrears of rent received by him, in view of the decision of the
Patna High Court in Kamakshya Narain Singh v. Commissioner
of Income-tax, [1946] 14 I. T. R. 673, that this amount was not
liable to be taxed, though an appeal against the said decision
to the Privy Council at the instance of the Income-tax Department was then pending. Subsequently on July 6, 1948, the
Privy Council allowed the appeal and held that interest on
arrears of rent payable in respect of agricultural land was i~ot
agricultural income as it was neither rent nor revenue derived
from land.
As a result of this decision the Income-tax Officer
took proceedings under s. 34 of the Indian Income-tax Act, 1922,
as an1ended, and revised the assessment order by adding the
aforesaid amount, on the footing that the subsequent decision of
the Privy Council was information within the meaning of
s. J4(1)(b) of the Act and that the Income-tax Officer had reason
to believe that a part of the assessee's income had escaped
assessment. It was contended for the appellant that s. 34(1)(b)
was not applicable to the case because (1) the information
referred to in the section means information as to facts and cannot include the ilecision of the Privy Council on a point of law,
(I) S.C.R.
SUPREME COURT REPORTS
11
and (2) where income has been duly returned for assessment and
an assessment order has been passed by the Income-tax Officer,
it cannot be said that any income has escaped assessment within
s. 34(1)(b).
Held, ( l) that the word " information " in s. 34( l )(b) of the
Act includes information as to the true and correct state of the
law and so would cover information as to relevant judicial
decisions; and,
.
(2) that the expression
"has escaped assessment " in
s. 34(1)(b) cannot be given a restricted meaning confining it only
to cases where no return has been submitted by the assessee.
The section is applicable not only where income has not been
assessed owing to inadvertence or oversight or owing to the fact
that no return has been submitted, but also where are turn has
been submitted, but the Income-tax Officer erroneously fails to
tax a part of assessable income.
Rajendra Nath Mukherjee v. Income-tax Commissioner, (1933)
L.R. 61 I. A. IO and Messrs. Chatturam Horliram Ltd. v. Commissioner of Income-tax, Bihar and Orissa, [1955] 2 S.C.R. 290,
distinguished.
Raja Benoy Kumar Sahas Roy v. Commissioner of Income-tax•
West Bengal, [1953] 24 I.T.R. 70, Madan Lal v. Commissioner of
Income-tax, Punjab, [1944] 12 l.T.R. 8 and The Commissioner of
Income-tax v. Raja of Parlakimedi, (1926) I.L.R. 49 Mad. 22,
approved.
Maharaja Bikram Kishore of Tripura v. Province of Assam,
[1949] 17 1.T.R. 220, disapproved.
C1v1L APPELLATE JuRISDICTION:
Civil Appeal No.
297 of 195t>.
Appeal from the judgment and decree dated April 7,
1954, of the Patna High Court in Misc. Judicial Case
No. 327 of 1951.
A. V. Viswanatha Sastri and B. K. Sinha, for the
appellant.
K. N. Rajagopala Sastri, R.H. Dhebar and D. Gupta,
for the respondent.
1958. October I. The Judgment of the Court was
delivered by
Kamal Singh
v.
Commission1r of
l11com1-t11~
(
GAJENDRAGADKAR J.-This is an appeal with the Gajendragadkar ].
certificate issued by the High Court of Judicature at
Patna under s. 66A(2) of the Income-tax Act (hereinafter called the Act) and it raises a short question
of the construction of s. 34(l)(b) of the Act. This
12
SUPREME COURT REPORTS [1959] Supp.
r95s
question arises in this way.
Proceedings were taken
Kamal Singh
by the Income-tax Officer, Special Circle, Patna,
v.
against Maharaja Bahadur Rama Rau Vijaya

## Text

10
SUPREME COURT REPORTS [1959] Supp.
1 95.8
In the result, the appeals are allowed, the decrees
c . d
J( .
1 passed by the High Court are set aside, and those of
~
'
0
"'" •:'.
aima the Courts below are rest-0red, with costs throughout.
Lakshnii A mn1a
V etikatarama
Aiyar j.
October I.
Appeals nllowed.
MAHARAJ KUMAR KAMAL SINGH
11.
THE COMMISSIONER OF INCOME-'.i'AX, BIHAR
& ORISSA
(VENKATARAMA AIYAR, GAJENDRAGADKAR and
A. K. SARKAR JJ.)
Income Tax-Re-assessment -
Escaped income -Assessment
order based on statement of law subsequently found to be erroneous--
W hcther assessment can be reopened-" Information",
"Escaped
income", meaning of-Indian Income-tax Act, r922 (XI nf r922),
as amended by Act 48 of r948, s. 34(r)(b).
In respect of the assessment of the appellant to income-tax
the Income-tax Officer excluded the amount of interest on
arrears of rent received by him, in view of the decision of the
Patna High Court in Kamakshya Narain Singh v. Commissioner
of Income-tax, [1946] 14 I. T. R. 673, that this amount was not
liable to be taxed, though an appeal against the said decision
to the Privy Council at the instance of the Income-tax Department was then pending. Subsequently on July 6, 1948, the
Privy Council allowed the appeal and held that interest on
arrears of rent payable in respect of agricultural land was i~ot
agricultural income as it was neither rent nor revenue derived
from land.
As a result of this decision the Income-tax Officer
took proceedings under s. 34 of the Indian Income-tax Act, 1922,
as an1ended, and revised the assessment order by adding the
aforesaid amount, on the footing that the subsequent decision of
the Privy Council was information within the meaning of
s. J4(1)(b) of the Act and that the Income-tax Officer had reason
to believe that a part of the assessee's income had escaped
assessment. It was contended for the appellant that s. 34(1)(b)
was not applicable to the case because (1) the information
referred to in the section means information as to facts and cannot include the ilecision of the Privy Council on a point of law,
(I) S.C.R.
SUPREME COURT REPORTS
11
and (2) where income has been duly returned for assessment and
an assessment order has been passed by the Income-tax Officer,
it cannot be said that any income has escaped assessment within
s. 34(1)(b).
Held, ( l) that the word " information " in s. 34( l )(b) of the
Act includes information as to the true and correct state of the
law and so would cover information as to relevant judicial
decisions; and,
.
(2) that the expression
"has escaped assessment " in
s. 34(1)(b) cannot be given a restricted meaning confining it only
to cases where no return has been submitted by the assessee.
The section is applicable not only where income has not been
assessed owing to inadvertence or oversight or owing to the fact
that no return has been submitted, but also where are turn has
been submitted, but the Income-tax Officer erroneously fails to
tax a part of assessable income.
Rajendra Nath Mukherjee v. Income-tax Commissioner, (1933)
L.R. 61 I. A. IO and Messrs. Chatturam Horliram Ltd. v. Commissioner of Income-tax, Bihar and Orissa, [1955] 2 S.C.R. 290,
distinguished.
Raja Benoy Kumar Sahas Roy v. Commissioner of Income-tax•
West Bengal, [1953] 24 I.T.R. 70, Madan Lal v. Commissioner of
Income-tax, Punjab, [1944] 12 l.T.R. 8 and The Commissioner of
Income-tax v. Raja of Parlakimedi, (1926) I.L.R. 49 Mad. 22,
approved.
Maharaja Bikram Kishore of Tripura v. Province of Assam,
[1949] 17 1.T.R. 220, disapproved.
C1v1L APPELLATE JuRISDICTION:
Civil Appeal No.
297 of 195t>.
Appeal from the judgment and decree dated April 7,
1954, of the Patna High Court in Misc. Judicial Case
No. 327 of 1951.
A. V. Viswanatha Sastri and B. K. Sinha, for the
appellant.
K. N. Rajagopala Sastri, R.H. Dhebar and D. Gupta,
for the respondent.
1958. October I. The Judgment of the Court was
delivered by
Kamal Singh
v.
Commission1r of
l11com1-t11~
(
GAJENDRAGADKAR J.-This is an appeal with the Gajendragadkar ].
certificate issued by the High Court of Judicature at
Patna under s. 66A(2) of the Income-tax Act (hereinafter called the Act) and it raises a short question
of the construction of s. 34(l)(b) of the Act. This
12
SUPREME COURT REPORTS [1959] Supp.
r95s
question arises in this way.
Proceedings were taken
Kamal Singh
by the Income-tax Officer, Special Circle, Patna,
v.
against Maharaja Bahadur Rama Rau Vijaya Prasad
Commission" of Singh, the father of the appellant, to levy income-tax
Income-tax
for the year 1945-46. The total income assessed to
income-tax by the said order was Rs. 1,60,602. This
Gajendragadkar f. amount included the sum of Rs. 93,604 received by the
assessee on account of interest on arrears of rent due
to him after deduction of collection charges. It was
urged before the Income-tax Officer by the assessee
that this amount was not liable to be taxed in view of
the decision of the Patna High Court in Kamakshya
Narain Singh v. Commissioner of Income Tax('). The
Income-tax Officer,
however, held that, since the
department had obtained leave to appeal to the Privy
Council against the said decision, the matter was su.b
judice and so he would not be justified in accepting
the assessee's contention. In the result, he included
the said amount in the total income for the purposes
of assessment, but ordered that the realisation of the
tax on the said amount should be stayed till the
decision of t.he Privy Council or March 31, 1947,
whichever was earlier. This order was passed under
s. 23(3) of the Act on December 31, 1945.
Against this order the assess~e preferred an appeal
before
the Appellate Assistant Commissioner of
Income-tax, Patna. On May 8, 1946, the appellate
authority held that the Income-tax Officer was bound
to follow the decision in the case of Kamakshya Narain
Singh (su.pra) (1) and so, he set aside the order under
appeal in regard to the amount of Rs. 93,604 and
directed the Income-tax Officer to make fresh assessment. He also observed that it was not clear as to
what portion of the said amount was interest on
arrears of agricultural rents and what portion related
to interest on arrears of non-agricultural rents. The
Income Tax Officer was accordingly directed to determine the latter amount and to levv tax on it.
Pursuant to this appellate order the Income-tax
Officer made a fresh assessment under ss. 23(3) and 31
of the Act on August 20, 1946.
By this order the
(1) [1946] 14 I.T.R. 673.
·-
>
(1) S.C.R.
SUPREME COURT REPORTS
13
total amount of income liable to tax was determined
z95S
after deducting the whole of the amount of Rs. 93,604
Kamal Singh
from it. Some other minor reductions were also
v.
allowed in compliance with the appellate order. The Commission., of
department did not challenge either the appellate
lllcome-tax
order or the subsequent order passed by the Income-
.
tax Officer in pursuance of the said appellate order.
Ga1end•agadkar f.
Subsequently, on July 6, 1948, the appeal preferred
by the department to the Privy Council against the
decision of the Patna High Court in Kamakshya
Narain Singh's case (1) was allowed and it was held
that interest on arrears of rent payable in respect of
agricultural land is not agricultural income for it is
neither rent nor revenue derived from land.
As a res'ult of this decision, the Income-tax Officer
issued a notice to the a.ssessee under s. 34 of the Act
on September 25, 1948. This notice called upon the
assessee to file a fresh return as the Income-tax Officer
had reason to believe that a part of the assessee's
income assessable to income-tax for the year ending
March 31, 1946, had escaped assessment. It appears
that" this notice was found to be defective, and so
under the provisions of s. 34, as amended, a fresh
notice was issued by the officer to the assessee on
March 18, 1949.
The proceedings thus taken by the
officer under s. 34 ultimately led to a revised assessment order passed under s. 23(3) and s. 34 of the
Act and the amount of Rs. 93,604 was added to the
assessment amount as interest on arrears of rent.
This revised assessment order was passed on April 30,
1949.
The assessee appealed against this order but the
appellate authority dismissed the assessee's appeal and
confirmed the said order on July 26, 1949.
He held
that the subsequent decision of the Privy Council in
the case of Kamakshya Narain Singh (supra) (1) was
information within the meaning of els. (a) and (b) of.
s. 34(1) and that the Income-tax Officer had reason
to believe that a part of the assessee's inconi.e had
escaped assessment. The assessee then moved the
Income-tax Appellate Tribunal; but on August 21,
(1) [1948] 16 I.T.R. 325.
14
SUPREME COURT REPORTS
[1959] Supp.
1958
1950, the tribunal confirmed the order passed by the
Kamat Siugh
appellate authority and dismissed the assessee's appeal.
v.
It was held that the provisions of s. 34 as amended in
Commi«iorn of 1948 arplied to the case and that the decision of the
Incom.-ta.c
Privy Council brought it within the purview of sub-
.
-
s. (l)(b) of s. 34.
Ga;endragodkar J.
Meanwhile the assessee died and the appellant,
succeeded to the estate of his deceased father.
He
then filed <tn application under s. 66(1) of the Act
requiring the tribunal to refer the question of law
raised in the case to the Patna High Court for its
opinion. The tribunal rejected this application on
:February 27, 1951. Thereupon the appellant moved
the Patna High Court under s. 66(2) of the Act; his
application was allowed and the tribunal was directed
by the High Court on December lfi, 1951, to state the
case and refer the question of law for its opinion. In
compliance with the requisition of the High Court the
tribunal by its order passed on July 23, 1952, submitted a statement of the case and referred to the High
Court for its opinion the question of law raised by the
appellant. The question thus raised is: "Whether in
the circumstances of the case the assessment order
under s. 34 of the Act of the interest on arrears of rent
is legal ? " On April 7, 1954, this reference was heard
by V. Ramaswamy and C. P. Sinha JJ. of the Patna
High Court and the question was answered by them
in favour of the department. The appellant then
applied for and obtained a certificate from the Patna
High Court on September 13, 1954.
The High Court
has certified under s. 66A, sub.cl. (2), of the Act that
the case raises a question of law of a substantial kind
and is otherwise a fit case for appeal to this court.
That, is how the present appeal has come before us;
and the question which it raises for our decision is
about the true construction of s. 34(l)(b) of the Act.
Section 34 of the Act has been amended in 1939 and
in 1948. It is conceded by Mr. Viswanatha Sastri,
for the appellant, that the present case is governed by
the section as it was amended in 1948.
This amended
s. 34, sub-s. (1), deals with cases of income escaping
ll,ssessment in two clauses. Clause (a) covers cases
' '
I
(1) S.C.R.
SUPREME COURT REPORTS
15
where income has escaped assessment by reason of the
1958
omission or failure on the part of the assessee to make
a return of his income under s. 22.
We are not
Kamal Singh
concerned with this clause.
Clause (b) of s. 34(1) commis;ion., of
provides inter alia that· "notwithstanding that there
Incom1-1ax
has been no omission or failure as mentioned in cl. (a)
on the part of the assessee, if the Income-tax Officer Gajeudragadkar J.
has, in consequence of information in his possession,
reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any
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 that excessive loss or depreciation allowance have been computed, he may, at any
time within four years of the end of that year serve
on the assessee a notice containing all or any of the
requirements, which may be included in a notice under
sub-s. (2) of s. 22, and may proceed to assess or
reassess 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 sub-section ". It is clear that two conditions must be satisfied
before the Income-tax Officer can act under s. 34(l)(b).
He must have information in his possession, which, in
the context, means that the relevant information must
have come into his possession subsequent to the
ma.king of the assessment order in question and this
information must lead to his belief that income chargeable to income-tax has escaped assessment for any
year, or that it has been under-assessed or assessed a.t
too low a. rate or has been made the subject of excessive
relief under the Act. Two questions are raised by
Mr. Sastri under this sub-section in the present appeal.
He contends that the relevant information means information as to facts and cannot include the decision of
the Privy Council on a point of law ; and he argues that,
where income has been duly returned for assessment
and an assessment order has been passed by the Incometax Officer, it cannot be said that any income has escaped
assessment within s. 34(l)(b). Thus the appellant's
0ase is that both the conditions required by s. 34(l)(b)
16
SUPREME COURT REPORTS
(1959) Supp.
'958
have not been satisfied and so the order of revised
Kamal Singh
assessment passed against the appellant is illegal.
v.
It is not disputed that,, according to its strict literal
Comminioner nf meaning, the word" information" may include knowIncome-ta.<
ledge even about a state of the law or a deci8ion on a
.
-
point of law.
The argument, however, is that the
G•J••d••c .. dk•• J. context requires that the word "information" should
receive a narrower construction limiting it to facts or
factual material as distinguished from information as
to the true state of the law.
In support of thi"
argument l\fr. Sastri referred to the marginal notes of
ss. 19A and 20A as well as the provisions of s. 22(3)
and s. 28 and urged that the information contemplated
by these provisions is information as to facts or particulars and has no reference to the state of law or to
any quest.ion of law; and so the said word in
s. 34(l)(b) should be construed to mean only factual
information. We are not impressed by this argument.
If the word "information" used in any other provision
of the Act denotes information as to facts or particulars, that would not necessarily determine the
meaning of the said word in s. 34(l)(b). The denotation of the said word would naturally depend on the
context of the particular provisions in which it is used.
It is then contended that ss. 33B and 35 confer ample
powers on the specified authorities to revise Incometax Officer's orders and to rectify mistakes respectively
and so it would be legitimate to construe the word
"information" ins. 34(1)(b) strictly and to confine it
to information in regard to facts or particulars. This
argument also is not valid. If the word "information"
in its plain grammatical meaning includes information
as to facts as well as information as to the state of the
law, it would be unreasonable to limit it to information
as to the facts on the extraneous consideration that
some cases of assessment which need to be revised or
rectified on the ground of mistake of law may conceivably be covered by ss. 33B and 35.
Besides, the
application of these two sections is subject to the limitations prescribed by them; and so the fact that the
said sections confer powers for revision or rectification
would not be relevant and material in construing
\
(1) S.C.R.
SUPREME COURT REPORTS
17
s. 34{l)(b). The explanation to s. 34 also does not
1958
assist the appellant.
It is true that under the
explanation production before the Income-tax Officer
Kamal Singh
of account books or other evidence from which material Co•nmis;;.,.., of
facts could with due diligence ha. ve been discovered
Income-ta"
by the Income-tax Officer would not necessarily a.mount
to disclosures within the meaning of the said section ; Gajendragadkar /.
but we do not see how this can have any bearing on the
construction of cl. (b) ins. 34(1). On the other hand, one
of the cases specifically mentioned ins. 34(l)(b) necessarily postulates that the word "information " must
have reference to information as to law. Where, in consequence of information in his possession, the Incometa.x Officer has reason to believe that income has been ·
assessed at too low a rate, he is empowered to revise
the assessment; and there can be no doubt that the
belief of the Income-tax Officer that any given income
has been assessed at too low a rate may in many cases
be due to information about the true legal position in
the matter of the relevant rates. If the word "infor-
.mation " in reference to this class of cases must necessarily include information as to law, it is impossible to
accept the argument that, in regard to tho other cases
falling under t.he same provision, the same word should
have a narrower and a more limited meaning. We
would accordingly hold that the word " information "
ins. 34(l)(b) includes information as to the true and
correct state of the law and so would cover information
as to relevant judicial decisions. If that be the ~rue
position, the argument that the Income-tax Officer
'was not justified in treating the Privy Council decision
in question as information within s. 34(l)(b) cannot be
accepted.
The next question that remains to be considered is
in regard to the other condition
prescribed by
s. 34(l)(b). When can income be said to have escaped
assessment? Mr. Sastri argued that the word "assessment " does not mean only the order of assessment,
but it includes all steps taken for the purpose of levying the tax and during the process of taxation. That
no doubt is true ; but the wide denotation of the word
3
18
SUPREME COURT REPORTS
[1959] Supp.
"assessment" does not really assist the appelln,nt; it •
J(amal Singh
only shows that along with the order of assessment
which is an important act in the process of taxation,
commission" of other acts and steps adopted in the course of taxation
v.
Income-tax
are also included in the word ; but it is with this
" most critical act in the process of taxation " with
Gajendragadkur .J. which we are concerned in the present appeal. Then
it is urged that the word "escaped" according to the
Oxford English Dictionary means "to elude (observations, search, etc.); to elude the notice of a person";
'
and the contention is that it is only where income has
not been returned for assessment that it can be reasonably said that income has escaped assessment.
'fhe
dictionary meaning of the word does not support
Mr. Sastri's contention. According to the same dictionary the word " escape " also means " to get clear
away from (pursuit or pursner); to succeed in avoiding
(anything painful or unwelcome)"; so that judging by
the dictionary meaning alone it would be difficult to
confine the meaning of the word " escape " on! y to
cases where no return has been submitted by the
assessee. Even if the assessec has submitted a return
of his income, cases may well occur where the whole
of the income has not been assessed and such part of
the income as has not been assessed can well be
regarded as having escaped assessment. In the present
case, interest on arrears of rent received by the assessec
from his agricultural lands were brought to the notice
of the Income-tax Officer ; the question as to whether
the said amount can be assessed in law was considered
and it was ultimately held that the· relevant decision
of the Patna High Court which was binding on the
department justified the a.ssessee's claim that the said
income was not liable t-0 be assessed to tax. There is
no doubt that a part of the assessee's income had not
been assessed and, in that sense, it has clearly escaped
assessment. Can it be said that, because the matter
was considered and decided on the merits in the light
of the binding authority of the decision of the Patna
High Court, no income has escaped assessment when
the said Patna High Court decision has been subHequently reversed by the Privy Council ? We see no
(1) S.C.R.
SUPREME COURT REPORTS
19
justification for holding that cases of income escaping
r95a
• assessment must always be cases where income ha.s not
Kumnl Singh
been assessed owing to inadvertence or oversight or
v.
owing to the fact that no return ha.s been submitted. In Commissioner of
our opinion, even in a case where a. return ha.s been
Iticome-la:<
submitted, if the Income-tax Officer erroneously fails to
.
-
ta.x a pa.rt of assessable income, it is a case where the Ga1endragadkar f.
said pa.rt of the income has escaped assessment. The
appellant's attempt to put a very narrow and artificial
~ limitation on the meaning of the word "escape " in
s. 34(l)(b) cannot therefore succeed.
Mr. Sastri, however, argues that the narrow construction of the expression " has escaped assessment "
for which he contends has been approved by the Privy
Council in Rajendranath
Mukherjee v. Income-tax
Commissioner (1).
He relies more particularly on the
observation ma.de in the judgment in this case that
"the fact thats. 34 requires a notice to be ser-ved ca.Hing
-~
for a return of income which has escaped assessment
strongly suggests that income which has already been
duly returned for assessment cannot be said to have
'escaped' assessment within the statutory meaning".
In order to appreciate the effect of this observation it
would be necessary to examine the material facts in
the case and the specific points raised for the decision
of the Privy Council. It appears tllat, in 1930 the
Income-tax Officer had made an asfessment order on
Burn & Co., which was an unregistered firm, assessing
•
them to income-tax and sup~r-ta.x for the year 192728 under the Act. The individual partners of Burn &
Co., who were the appellants before the Board, contended that it was not competent to the officer to
make the impugned assessment on the firm after the
expiry on March 31, 1928, of the year in respect of
which the assessment was made. The Commissioner
of Income-tax met this plea by referring to th6 other
relevant facts which explained the delay in making
" the assessment order. Towards the end of 1926-27,
the partners of the registered firm of Martin & Co.,
had purchased the business and aRsets of Burn & Co.
This transaction was effected not on behalf of the firm
(1) (1933)_ 61 I.A. IO, 16.
20
SUPREME COURT REPORTS [1959] Supp.
,958
of Martin & Co., but by the partners of the firm as
.
.
individuals. In April 1927, the Income-tax Officer of
1'"'""1 Singh
District I issued a notice to Burn & Co., under s. 22(2)
c0 .,,,,;,:;0ne1 of calling for a return of their total income for the year
·
Income-tax
ending March 31, 1927, with a view to assessing them
for the year 1927-28.
A similar notice was issued by
Gajendmgodkar ] ·the Income-tax Officer of District II. 'Vlwn these
notices were issued bot.h the officers did not know that
the business of Burn & Co., had been bought by the
partners of Martin & Co.
Subsequently this transaction was brought to the knowledge of the income-tax
authorities whereupon Burn & Co.'s file was transferred by the _officer dealing with District II, and in
February 1928, an assessment order was made on
Martin & Co., in respect of the combined incomes
returned by Martin & Co., and Burn & Co., on the
footing that the business of Burn & Co., had become a
branch of Martin & Co.
Martin & Co., appealed
against this assessment and their appeal was allowed
by the High Court in May 1930. It was held that an
income of a registered firm cannot, for the purpose of
the Act, be aggregated with the income of an unregistered tirm but that the income of each must be separately assessed irrespective of the fact that the persons
interested in the profits of both concerns are the same.
In consequence of this decision, the assessment made.
on Martin & Co., was amended by the elimination
therefrom of the income returned by Burn & Co., and
in November 1930, an assessment was made on Burn
& Co., on their irrcome as returned by them in January 1928. It was this assessment which was the
subject-matter of the appeal before the Privy Council.
It would thus be noticed that the principal question
which the appellants raised before the Privy Council
was : \Vhether the assessment made under s. 23(1) on
the appellants in November 1930 for the year 1927-28
was a legal assessment? The argument was that, on
a true construction of the Income-tax Act, it was obligatory on the Income-tax Officer to complete the
assessment proceedings within the year of assessment,
and in the event of such assessment not being so completed the only remedy open to the
i~come-tax
(1) 8.C.R.
SUPREME COURT REPORTS
21
authorities was to proceed under s. 34. This argument
i958
• was repelled by the Privy Council.
Their Lordships
ld h
h
h
. .
/(omni Singh
· he
t at neit er s. 23 nor any ot er express prov1s10n
v.
of the Act limited the time within which an assessment commissioner of
must be made.
They then examined the other arguIncome-ta.v
ment urged by the appellants that s. 34 implied a . .
-
prohibition against the making of an assessment after(•111•nd•agadkar J.
the expiry of the tax year. In dealing with this argument, s. 34 was construed and it was observed that the
~ argument sought to put upon the word " assessment "
too narrow a meaning, and upon the word "escaped"
too wide a meaning. It was in this connection that
their Lordships approved of the observation made by
Rankin C. J. in Re: Lachhiram Basantlal (1) that
•· ..... .income has not escaped assessment if there are
pending at the time proceedings for the assessment of
the assessee's income which have not yet ,terminated
in a final assessment thereof". In other words, the
• ·-,)o
conclusion of the Privy Council was that so long as
assessment proceedings are pending against an assessee and no final order has been passed thereon, it
would be premature to suggest that any income of the
assessee has escaped assessment. It is only after the
final order levying the tax has been passed by the
Income-tax Officer that it would be possible to predicate that any part of the assessee's income has escaped
assessment. In the result their Lordships held that
" since proceedings pursuant to the notice issued
against the appellants under s. 22(2) had been pending
'and no order had been passed against the appellants
in the said proceedings, it would not be possible to
accept their argument that the Income-tax Officer
should have taken action against them in respect of
the income for the relevant year under s. 34 of the
Act". If this decision is considered in the light of the
. relevant facts and the nature of the argument raised
before the Privy Council by the appellants, it would
be difficult to accept the contention that, according to
). the Privy Council, s. 34 would be inapplicable
wherever notice under s. 22(2) has been issued against
an assessee, a return has been submitted by him and
(1) (1930) LL.R. 58 Cal. 909, 912.
22
SUPREME COURT REPORTS [1959] Supp.
'958
a. final. order has been passed by the Income-tax
Kamal Si•gh
Officer in the said assessment proceedings. To say
"·
that, so long as the assessment proceedings are
Commission" of pending, it is impossible to assume that any income has
I••ome-1•.•
escaped assessment is very much different from saying
-
that income cannot be said to have escaped assessG•j••d••g•dA•• J. ment wherever assessment proceedings have been
taken and a final order has been passed on them. We
must, therefore, hold that this decision does not
support Mr. Sastri's contention about the inapplicability of s. 34 in the present case.
In this connection it may be relevant to refer to the
decision of the Calcutta High Court in Re : Lachhiram
Basantlal (supra) (1) because, as we have already
pointed out, the statement of the law made by Rankin
C. J. in regard to the effect of s. 34 of the Act in this
case has been expressly approved by the Privy
Council in the case· of Rajendra Nath Mukherjee
(supra)('). While dealing with the assessees' argument
that the order of assessment was invalid since it had
been passed more than one year after the expiry of
the relevant financial year and that the Income-tax
Officer might have acted under ~. 34, Rankin C. J.
stated that income cannot be said to have escaped
assessment except in the case where an assessment
has beeu made which does not include the income. It
is tr·ue that this observation is obiter but it is fully
consistent with the subsequent statement of the law
made by the learned Chief Justice which has received
the approval of the Privy Council.
Mr. Sastri has also relied on the decision of this
Court in Messrs. Ohatturam Horliram Ltd. v. Commissioner of Inc0me-taa:, Bihar & Ori8sa (') in support of
his construction of s. 34. In Oha.tturam's case (supra)(')
the assessee had been assessed to income-tax which
was reduced on appeal and was set aside by the
Income-tax Appellate Tribunal on the ground that the
Indian Finance Act of 1939 was not in force during
the assessment year in Chota Nagpur. On a reference
the decision of the tribunal was upheld by the High
(1) (1930) I.LR. 58 Cal. 909, 9n.
(2) (1933) 61 I.A. ro, 16.
(3) r1955} 2 S.C.R. 290.
....
.(
..
(1) S.C.R. SUPREME COURT REPORTS
23
Court. Subsequently the Governor of Bihar promulr9ss
gated the Bihar Regulation IV of 1942 and thereby
brought into force the Indian Finance Act of 1939 in
J(amal Singh
v.
Uhota Nagpur retrospectively as from March 30, 1939. Commissioner of
This ordinance was assented to by the GoveruorIncome-tax
General. On February 8, 1944, the Income-tax Officer
.
-
passed an order in pursuance of which proceedings Ga;endragadkar .f.
were taken against the assessee under the provisions
of s. 34 and they resulted in the assessment of the
assessee to income-tax. The contention which was
raised by the assessee in his appeal to this Court was
that the notice issued against him under s. 34 was
invalid. This Court held that the income, profits or
gains sought to be assessed were chargeable to incometax and that it was a case of chargeable income escaping assessment within the meaning of s. 34 and was
not a case of mere non-assessment of income-tax. So
far as the decision is concerned, it is in substance inconsistent with the argument raised by Mr. Sastri. He,
however, relies on the observations made by .fagannadhadas J. that "the contention of the learned
counsel for the appellant t,hat the escitpement from
assessment is not to be equated to non-assessment
sirnpliciter is not without force " and he points out
that the reason given by the learned judge in support
of the final decision was that though earlier assessment proceedings had been taken they had failed to
result in a valid assessment owing to some lacuna
other than that attributable to the assessing authorities notwithstanding the chargeability of income to
the tax. Mr. Sastri says that it is only in cases where
income can be shown to have escaped assessment
owing to some lacuna other than that attributable to
the assessing authorities that s. 34 can be invoked.
We do not think t,J1at a fair reading of the jndgment
can lead to this conclusion.
The observations on
which reliance is placed by .Mr. Sastri have naturally
been made in reference to the facts with which the
Court was dealing and they must obviously be read in
the context of those facts. It would be unreasonable
to suggest that these observations were intended to
confine the application of s. 34 only to eases where
24
SUPREME COURT REPORTS [1959] Supp.
z958
income escapes assessment owing to reasons other
than those attributable to the assessing authorities.
Kamal Singh
v.
Indeed Jagannadhadas J. has taken the precaution
Commissioner of of adding that it was unnecessary to lay down what
Income-lax
exactly constitutes escapement from a3sessment and
. -
that it would be sufficient to place their decision on
G•J••dragadkar J. the narrow ground to which we have just referred.
We are satisfied that this decision is of no assistanue
to the appellant's case.
It appears that the constri1ction of s. 34 ha.s led to
a divergence of judicial opinion in the High Courts of
this country, and so it would be necessary to refer
briefly to the decisions to which our attention was
invit~d in this appeal. In Madan Lal v. Commi8sioner
of I. T., Punjab (1), the majority decision of the Full
Bench of the Lahore High Court held that s. 34 of the
Act, as it stood then, was· not confined to cases where
income had not been returned at all. It applied also
to cases where an item of income is included in the
return ma.de by the assessee but is left unassessed by
the Income-tax Officer, or, if assessed in the first instance, the assessment is cancelled by any appellate or
revisional authority. Din l\folrnmm:td J. who delivered the majority judgment has expressed his agreement
with the opinion of Coutts Trotter C. J. in The Commissioner of Income-tax v. Raja of Parl,akimedi (') that
the words "escaped assessment" apply even "to cases
where the Income-tax Officer has deliberately adopted
an erroneous construction of the Act as much as to a
case where an officer has not considered the matter at
all, but simply omitted the assessable property from
his view and from his assessment··.
The next case which has been oited before us is the
decision of the Bombay High Court in The Commissioner of Income-tax, Bombay v. Sir Mahomed Yusuf
Ismail (3). In this case Beaumont C. J. construed
the word " definite information " in s. 34 and h<!ld
that in order to take action under the said sectio11,
there must be some information as to a fact which
leads the Income-tax Officer to discover that income
(1) [1935] 3 l.T.R. 438.
(2) (1926) 49 Mad. 22, 28.
(3) [1944] 12 I.T.R. 8.
...
)
(1) S.C.R. SUPH.EME COURT REPORTS
25
has escaped assessment or has been under-assessed.
'fhe learned Uhief Justice, however, added that the
Ka111al Singh
fact mav be as to the state of the law, for instance,
v.
that a c"ase has been overruled or that a statute has commissioner of
been passed which has not been brought. to the attenIncome-tax
tion of the J ucome-tax Officer. Chagla J. who deliver-
.
-
ed a concurring judgment was inclined to hold that G·•;rnd"';:adka• J.
the word "information " in the section must be confined onl,v to information as to facts or particulars and
cannot include information as to law. In his opinion,
"a mistake of law or misunderstanding of the provisions of the law iH not covered by the language of the
section as amended in 1939 ". It may be pointed out
that in coming to this conclusion t.he learned judge
appears to have relied on the observations ofRowlatt J.
in Anderton and Halstead Ltd. v. Birrell (1)
that
"the word 'discove1·' in s. 125 of the English Act
docs not include a mere change of opinion on the same
facts and figures upou the same question of accounta.ncy, being a question of opinion". Incidentally, we
ma.y observe that this statement of the law by
Mr. J m;tice H,owlatt appears to have been overruled by
the Court of Appeal in Commercial Structures Ltd. v.
R. A. Briggs (2).
Soon after the decision of the Bombay High Court
was reported the same question was raised before the
Madras High Court in Raghavalu Naidu &1 Sons v.
OommiBsioner
of Income-tax,
Madras (3).
Leach
C. J. who delivered the judgment of the court agreed
with the construction whi6h had been put on the
expression "definite information " by the Bombay
High Court on the ground that " it is very desirable
to avoid conflict on such a· question". He, however,
added that in view of the opening words of the amended section as it was amended in 1939, the word
" discovers" means something more than 'has reason
Lo believe' or' satisfies himself' and that consequently
-., it would not be right to regard the English decisions
on the meaning of the word "discovers" in s. 125 of
( 'l [ 1~3z I r K. B. •il•
(~) [19.~9) Ii I.T.R. 5upplement 30.
(3) [1945j 13 I.T.R. 1% 197.
4
26
SUPREME COURT REPORTS [1959] Supp.
io58
the English Ad as being in point. He also ma<le it
.
.
clear that in following the Bombay decision they did
f< amol Singh
.
1
]
h d fi "t . ,.
t"
t
J
t
v.
not imp y t iat t e e 111 e miorma wn mus re ate o
commisoioner of a pure question of fact because it was impossible to
1>1cww-1ax
lay down a rule to cover all cases in which this section
can be invoked.
Gajendrngadka' f ·
In the Calcutta High Court, conflicting views have
been expressed on this point.
In Maharaja Bikram
K ishore of . Tripy,ra v. Province of Assam (1 ), Harries
C. J. and Mukherjea J. had to deal with the construction of s. 30 of the Assam Agricultural Incomer.ax Act (Assam IX of 1939) which corresponds to s. 34
of the Act. They held that where a certain income
has been included in his return by the assessee but
was not assessed on the ground that it was not assessable, it cannot be treated as income which has escaped assessment and reassessed under s. 30 of the
Assam Agricultural Income-tax Act. In his judgment
the learned Chief Justice has mentioned that the
earlier decisions of the Calcutta. High Court were no
doubt against the contentions of the appellant but he
took the view that the question was really concluded
by the decision of the Privy Council in Rajendra Nath
llfukherjee's case (supra)('). The Privy Council decision
was read by the learned Chief Justice as supporting
the view that s. 34 would be inapplicable to cases
where income has been returned, assessment proceedings have been taken and a final order of assessment
has been passed by the In~iome-tax Officer against the
assessee.
We have already pointed out that the decision of the Privy Council does not support this yiew.
In Raja Benoy Kumar Saha~ Roy v. Commissioner of
I. T., West Bengal('), Chakravartti C. J. and Lahiri J.
have taken a contrary view.
They have held that
information as to the true state or meaning of the law
derived freshly from an external source of authoritative character is definite information within the meaning of s. 34.
It appears that, in construing the scope and effect
of the provisions of s. 34, the High Courts have had
(1) [1949] 17 l.T.R. 220.
(2) (1933) 61 I.A. 10. 16.
(3) [1953] 24 l.T.R. 70.
(
'
,. .
(1) S.C.R.
SUPREME COURT REPORTS
27
oc0asion to decide whether it would he open to the
1958
Income-tax Officer to take action und<'r s. 34 on the
ground that he thinks that his original decision in
r:amal Singh
making the order of assessment was wrong without Commis~·ioner of
any fresh information from an external source or
Income-ta:.
wliether the successor of the Income-fax Otlicer can
act under s. 34 on the ground that tlw order of asfleSfl- G"jendrngadkar 1.
ment passed by his predecessor was erroneous, and
divergent views have been expressed on this point.
Mr. R.ajagopala Sastri, for the respondent, suggested
that under the proYiflions of s. 34 as amended in 1948,
it would be open to the Income-tax Officer to act
under the said section even if he merely changed his
mind without any information from an external source
and came to the conclusion that, iu a particular case,
he had erroneously allowed an assessee's income to
escape assessment. We do not propose to express any
opinion on this point in the present appeal.
In the
result we hold that the Patna High Court was right in
coming to the conclusion that the decision of the Privy
Cou·ncil was information within the meaning of s. 34
(l)(b) and that the said decision justified the belief of
the Income-tax Officer that part of the appellant's
income had escaped assessment for the relevant year.
The appeal accordingly fails aud must be dismissed
with costs.
Appeal dismissed.