# lHf J, T. Officer, A-Ward, Sitapur v. Murlidhar Bhagwandas, Lakhimpurkheri

- **Citation:** [1964] 6 S.C.R. 411
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** B. P. Sinha, K. Subba Rao, Raghubar Dayal, N. Rajagopala Ayyangar, J. R. Mudholkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/lhf-j-t-officer-a-ward-sitapur-v-murlidhar-bhagwandas-lakhimpurkheri-3202
- **Pages:** 27

## Headnote

lncome Tax-Assessment or reassts!ment made under order or direction
from higher authority must relate to the assessment o/ tlae year
under revfcw:....__Mear.ing of "finding", "direction." and "any person''-
Decision of lncome~tax Officer for a particular year not res judicata
for subsequent year-Indian Income-tax Act, 1922 (11 of 1922), s.
34(3), provi•o-M<aning and ico~ of.
The respondent was a firm carrying on business in different Jines. It was
.. sessed lo income-tax under s. 23 ( 4) of tho Income· lax Act, 1922 for
the assessment year 1949-50 on the ground that notices issued under
~. 22(2) aud ( 4) bad not been complied with. Later on, that assessment
1964
January,
29
lHf
J, T. Officer,
A-Ward, Sitapur
v.
Murlidhar
Bhagwandas,
Lakhimpurkheri
412
SUPREME COURT REPORTS
(1964]
was cancelled.
However, before tbc cancellation. ii waa found that ID
interest income of Rs. 88,737 in the shape of U.P. Encumbered Estatea.
Act Bonds received by the respondent from third parties had escaped
assessinent as the assessce failed to disclose the same. The Income-tu
Officer isseed 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 caiJceJlation of the assessment made under s. 23(4), the Incom~
tax Officer, ignoring the notice i~sued by hi1n under s. 34(l)(a). included that amount in the fresh assessment made by him for the }'ear 194910.
The respontlent 2ppcaled to the Appell::te Assistant Commissioner
who ordered the deletion of the sum of Rs. 88,737 from the assessment
for the year 1949-SO and directed the same to be included in th• ass .....
ment for the year ending 1948-49.
Pursu:111t to the direction given, the I:icome.tax Officer sened a
notice on the respondent under s. 34(1). Against that notice the a~esse.s
filed a writ petition in the High Court for quashini; the above·rnentioned
proceeding on the ground that these were initiated beyond the time p,..,_
cribed by s. 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 appel·
lant 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 direc!ion 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 tlirection must
necessarily be limited to a matter falling within that year. If the direction be treated as based on a finding recorded by AppeJiate Assistant
Commissioner, tbot findin& would have to be disregarded when applyiq
the proviso. The appellant came to this Court by special leave.
Held: (po.r B. P.
Sinh•, CJ., K. Subba Rao and N. Rajagopala
Ayyangar JJ.). The proviso to sub·•· (3) of s. 34 of the Indian Incom.,.
tax Act, 1922 dOCll not save the time limit prescribed under sub-s. (1)
ot 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 = was clearly
barred by time.
The jurisdiction of the High Court or the Supreme Court under s. 66
ors. 66(b) is a limited one and is confined only to the questions referred
to them.
Moreover, the questions referred by Tribunal cannot excee4
it.9 jrnisdiction. Therefore the assessment or reassessment made under
fbe said !ections or pursuant to the orders or directions made thereunder
most necessarily relate to the assessment of the year under review, rerision or appeal as the case may be. The proviso to sub-s. (3) of s. 34
does not confer any fresh power upon the lncome--tax Officer to mate
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 A

## Text

_Characters 0–39,959 of 64,021. This is a partial read: ask again with offset=39959 for what follows._

6 S.C.R.
SUPREME COURT REPORTS
411
either with cl. (1) of Art. 15 or cL (2) of Art. 29 to require
1964
the consideration of the castes of persons tto be borne in R. Chilraleklw
mind for determining what are socially and educationally Stat• ofM"Jton
backward classes. It is true that cl. ( 4) of Art, 15 contains
a non-obstante clause with 1the result that power conferred Mudholkar
1.
by that clause can be exercised despite the provisions of
cl. (1) of Art. 15 and cl. (2) of Art. 29.
But that does
not justify the inference that castes have any relevance in
determining what are socially and educationally backward
communities. As my learned brother bas rightly i;iointed out
the Constitution has used in cl. ( 4) the expression "classes"
and not "castes".
Upon the view which I have taken on the two points I
have discussed the appeals must be allowed and a direction
be issued to the Selection Committee to make the selection
of candidates solely on the basis of the result of P.U.C.
examination. I would allow them with costs here as well
as in the High Court.
ORDER BY COURT
In view of the judgment of the majority, the appeals fail
and are dismissed.
There will be no order as to costs.
INCOME-TAX OFFICER, A-WARD, SITAPUR
v.
MURLIDHAR BHAGWANDAS, LAKHIMPUR KHERl
(B. P. SINHA, C.J., K. SUBBA RAO, RAGHUBAR DAYAL,
N. RAJAGOPALA AYYANGAR AND J. R. MUDHOLKAR JJ.)
lncome Tax-Assessment or reassts!ment made under order or direction
from higher authority must relate to the assessment o/ tlae year
under revfcw:....__Mear.ing of "finding", "direction." and "any person''-
Decision of lncome~tax Officer for a particular year not res judicata
for subsequent year-Indian Income-tax Act, 1922 (11 of 1922), s.
34(3), provi•o-M<aning and ico~ of.
The respondent was a firm carrying on business in different Jines. It was
.. sessed lo income-tax under s. 23 ( 4) of tho Income· lax Act, 1922 for
the assessment year 1949-50 on the ground that notices issued under
~. 22(2) aud ( 4) bad not been complied with. Later on, that assessment
1964
January,
29
lHf
J, T. Officer,
A-Ward, Sitapur
v.
Murlidhar
Bhagwandas,
Lakhimpurkheri
412
SUPREME COURT REPORTS
(1964]
was cancelled.
However, before tbc cancellation. ii waa found that ID
interest income of Rs. 88,737 in the shape of U.P. Encumbered Estatea.
Act Bonds received by the respondent from third parties had escaped
assessinent as the assessce failed to disclose the same. The Income-tu
Officer isseed 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 caiJceJlation of the assessment made under s. 23(4), the Incom~
tax Officer, ignoring the notice i~sued by hi1n under s. 34(l)(a). included that amount in the fresh assessment made by him for the }'ear 194910.
The respontlent 2ppcaled to the Appell::te Assistant Commissioner
who ordered the deletion of the sum of Rs. 88,737 from the assessment
for the year 1949-SO and directed the same to be included in th• ass .....
ment for the year ending 1948-49.
Pursu:111t to the direction given, the I:icome.tax Officer sened a
notice on the respondent under s. 34(1). Against that notice the a~esse.s
filed a writ petition in the High Court for quashini; the above·rnentioned
proceeding on the ground that these were initiated beyond the time p,..,_
cribed by s. 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 appel·
lant 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 direc!ion 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 tlirection must
necessarily be limited to a matter falling within that year. If the direction be treated as based on a finding recorded by AppeJiate Assistant
Commissioner, tbot findin& would have to be disregarded when applyiq
the proviso. The appellant came to this Court by special leave.
Held: (po.r B. P.
Sinh•, CJ., K. Subba Rao and N. Rajagopala
Ayyangar JJ.). The proviso to sub·•· (3) of s. 34 of the Indian Incom.,.
tax Act, 1922 dOCll not save the time limit prescribed under sub-s. (1)
ot 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 = was clearly
barred by time.
The jurisdiction of the High Court or the Supreme Court under s. 66
ors. 66(b) is a limited one and is confined only to the questions referred
to them.
Moreover, the questions referred by Tribunal cannot excee4
it.9 jrnisdiction. Therefore the assessment or reassessment made under
fbe said !ections or pursuant to the orders or directions made thereunder
most necessarily relate to the assessment of the year under review, rerision or appeal as the case may be. The proviso to sub-s. (3) of s. 34
does not confer any fresh power upon the lncome--tax Officer to mate
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 bl
so construed as to increase the jurisdiction of the tribunal under Ille
6 S.C.R.
SUPREME COURT REPORTS
413
~levant sections. The lifting of the ban was only to give effect to the
orders that may be made by the appellate, revisional or reviewing Tribu·
nal within the scope of its jurisdiction. If the intention wu 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 belln added to
.Ub·S. (I) 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 tbc
final decision in the appeal, has been the subject of contrOTerny between
the interested partie!:I: or on which the parties concerned have been given
• hearing.
The expression 'direction' refm to a
direction which the
appellate or revisivnal authority is empowered to give under the law. The
expression "any person"' must be confined to a person intimately connect·
ed 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 provisionl of 1. 34 and
hence could not b~ quashed on that gr~und~ Whcri an appeal is before
an appeHate authority, the whofe ..matter is at large before it and therefore when a specific case is put bef6re it by an assessee, it lias both the
power as welt as the duty to give its finding thereon. The ground given
by an e1ssessee 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
1964
I. T. Offica.
A-Wlll'd, Si1-
"·
M urlld1""
Bhagwandal,
LIZkhlmpurkhm
entitled to go into the whole question and come to a finding one way or
'
the other.
Thc-fin:Jirig ·af 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 e. 34(3)
enabling a notice to issue only to P.Ssesscc 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 assessec 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 rojected, 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, i.e., lo detect and bring to assessment the escaped income.
Comminioner of Income-tax v. S. M. Chitnavi1, (1932) L.R. 59 I.A.
290, Sir Kikabhai Premchand •· Commi<1ioner of lncom .. tax (Ctntral),
Som~ay, [' 954) S.C.R. 219. Pr. Bazar! Lal v. Income-tax Officer, Kanpur,
(1960) 39 LT.R. 26$, L1Zk1/unan PraktUll •· Commiuioner of Incom,.
414
SUPREME COURT REPORTS
1964
tax, UP., (1963 J 48 J.T.R. 70S, A. S. Khader Ismail v. lncomt-la:t Of!ic.rl T
Otfi
Salem, (1963)48 l.T.R. 16, Simrathmul v. Additional Income-ta:< Officer,
.A.:W,;,d, sft":i,,,, Ootachamund, (1959)36 l.T.R. 41, Brindaban Chandra Bosak v. lncomeY.
tax Officer, ( 1962) 46 I.T.R. 14, K. C. Thomas, First Income-tax Officer.
Mutlldhu
Bombay v. Vasant Hira Lal Shah [1964] 6 S.C.R. 431, Prashar & Anr. v.
:.::tf."and":k 1 Sasantsen Dwarkadas 49 I.T.R. (S.C.) 1, Kamlapat Hotilal v. Income-tax
•mpur
'
Of!icer, 29 l.T.R. 192, Hiralal Amrit Lal Shah v. K. C. Thomas, Income·
lax Officer, Bombay, 34 I.'f,R. 4 ... 6, General Construction and Supply Co.
v. lncon1e-tax Officer (Bth) C !-Yard, Bombay, 44 I.T.R. 16, Suraj l\1al
Mohata & Co. v. A. V. V.isvanatha
Sastri [1955] 1 S.C.R. 448, A.
Thangal Kunju Mudaliar v. M. Venkatachalam Patti & Anr. ;[1955] 2
S.C.R. l 196 and Palaji v. lnco1ne-tax Officer, Special Investigation Circle
[1962] 2 S.C.R. 983, referred to.
CIVIL APPELLATE JURISJ;llCT!ON: 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 Nar4in, G. C. Sharma, O.C. Mathur, /. B.
Dadachanji and Ravinder Narain, for the respondent.
A. Y. Yishwanatha Sastri, D. N. Mukherjee and B. N.
Ghosh, for the intervener.
January 29, 1964. The Judgment of B. P. Sinha C.J.,
IC. Subba Rao and N. Rajagopala Ayyangar JJ., was delivered by Subba Rao J. The dissenting opinion of Ragbubar
Dayal and Mudholkar JJ., was delivered by Mudholkar J .
.SltbN Boo J.
SullBA R.Ao J.-This appeal by special leave raises the
question of the construction of the proviso • ., sub-s. ( 3) of
s. 34 of the Indian Income-tax Act, 1922, as amended by
Act 2S of 1933, hereinafter called the Act.
The facts lie in a small compass and they ate as follows:
The respondent is a firm can'}'ing 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
in'teiest income of Rs. 88,737 in the shape of U.P. Encum- '
bered &tales Act Boiids received by him in discharge of
-
6 S.C.R.
SUPREME COURT REPORTS
415
the debts due from third parties had escaped assessment as
1964
the assessee failed to disclose the same. The Income-tax • 1. T. Of/ictr,
Officer issued a notice under s. 34 ( 1 )(a) of the Act for A-Word, Sitopur
the assessment year 1949-50 on the ground that the said
Murlidhar
sum of Rs. 88,737 had escaped assessment in the said assessBhagwandtu,
ment year. After the assessment of that year was set aside
Lakhlmpurkh4n
under s. 27 of the Act, the Income-tJx Officer, ignoring the
Subba Rao I.
notice i>s1.ed by him under s. 34( 1 l (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 giv~n 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 ~erved
on the respondent on December S, 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, mairily on the ground that the proceedings
were ~itiated 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
ICCODd proviso to s. 34(3) of the Act. It reads:
"Provided further that nothing in this section limit·
ing the time within which any action may bo
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 ot
to-auessment made on the assessee or any person in consequmce of or to give effect to ant
1964
I. T. Officer,
.A-Ward, Sitapur
...
Murlidhar
Bhagwandas,
Lakhimpurkheri
lubba Rao /.
416
SUPREME COURT REPORTS
[1g64]
finding or directiOn contained in an order lll!der
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 r~pect of or making an order of assessment
or re-assessment falling within the scope of the said proviso.
The scope of the proviso is confinedl 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 appe.al 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 subjectmatter of the appeal or the revision, as the case may be.
Learned counsel for the Department argues that the comprehensive ·phraseology used in the pro"'.iso 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 o~ 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
<if 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.
The
public: notice shall be issued on or before the 1st May of
each year and the individual notice may be issued at any
-
6 S.C.R.
SUPREME COURT REPORTS
417
time in the course of the
assessment year.
Income-tax
1964
proceedings, therefore, for a particular assessment year have . 1. r. Ofl«r,
to be initiated in the course of that year.
But there may be A-Ward, Sitopw
cases of escaped assessment or under-assessment.
Section
Murlklhar
34 empowers the Income-tax Officer to take proceedings
f.,.'kf;",:;!";;,.,,
under that section both in respect of concealed income and
also in bona fide cases where the income has escaped assessSxbba R• 1.
ment or full assessment.
Section 34 ( 1 )(a) provides for
the initiation of assessment proceedings in respect of concealed income and s. 34(l)(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 arid 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 completing 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 asseisment under s. 23 or of assessment or re-assessment
under sub-section ( 1) of this section shall be made after tht
134-159 s. c~27
SUPREME COURT REPORTS
1964
expiry, in any case to which ( c) of sub-section (1) of sec-
. 1. r. Offic••·
tion 28 applies, of eight years, and in any other case, of four
. A-Ward, Sitapur years from the end of the year in which the income, profits
MurTidhar
or gains were first assessable". Section 28 ( 1) ( c) dealt with
Bha~anda•, . a case of an assessee concealing the particulars of his income
Lakhimpurkhw or deliberately furnishing inaccurate particulars of his inSubka Rao 1.
come.
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 o( 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 fo!Iows 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
6 S.C.R.
SUPREME COURT REPORTS
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
subseauent amendments.
The history of the section gives us the following hack·
ground 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 concealed income, but such initiation could be made only subject to the conditions laid down in the proviso to s. 34 (1);
(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 direc·
tion 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 referei:ice to the
said provisions the powers and jurisdiction conferred on the
respectivr. auth_orities, 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
express!·~ disclaimed any such submission.
Therefore, the
1964
_ I. T. OIJic.r,
A.· Ward,- Sitapur
v.
Murlidhar
BhagwandaJ,
Lakhimpurkherl
Subba Rao J.
420
SUPREME COURT REPORTS
[1964]
scope of the proviso cannot ordinarily exceed the scope of
!!!!_
the jurisdiction conferred on an authority under the said
1. T.
Officer,
provisions. It is not, and cannot be disputed that under
.A-Ward, Sitapur th I
ta A t
·
h
· ' f
Th
. v.
e ncome- x
c , year rs t e umt o
assessment.
e
Murlidhar
Judicial Committee in Commissioner of Income-tax v. S. M.
Bhag'!'anda.J,
Chitnavis(') pointed out ·
Lakhimpurkhtrl
•
Suhba Rao I.
"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
lncome-tG..< (Central), Bombay(') accepted this legal position when it said:
" ........ for income-tax purposes, each year is a
solf-coiitained 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 loss~
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 mattec
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 Comrrussioner ot an appeal preferred to him: the
appe~l 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
(1932) L. R. 59 I. A. 290, 297.
(') [I9l~I s. C.R. 219, :122.
. ti S.C.R.
SUPREME COURT REPORTS
421
assessment and direct the Income-tax Officer to make a fresh
1964
assessment.
The various sub-sections of that section describe
/. T. Officer,
·
·1 h
d"
·
h
A-Ward, Sitapur
m detru t e orders or Irect1ons t at can be made or issued
v.
by him in respect of various matters; but, no power is conMurlidhar
ferred on him to make an order or issue directions in respect Lafi.~'::;u~nd':i.eri
of an assessment of a year which was not the subject-matter
of the appeal. It may, therefore, be held on a construction
Subba Rao J.
of the provisions of s. 31, that the jurisdiction of the Appellate Assistant Commissioner ii strictly cruifined
to
the
assessment orders of a particular year nnder 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-assessment made under the said sections or pursuant to
the orders or directions made thereunder must necessarilv
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 comp!etion
of an 11S1essment, but would have been added to sub-s. ( 1)
thereof.
SUPREME COURT REPORTS
1964
Now, let us scrutinize the expressions on which strong
I. T.
Offi~er,
reliance is placed for the contrary conclusion. The words
A·Ward,v Sitapur relied upon are "section limiting the time", ".any person", "in
Murlidhar
consequence of or to give effect to any finding or direction".
, -kBhhagwandKash. . Pointing out that before the amendment the word "sub-
"""'
1mpur
ari
.
,,
.
th
.
secl!on was m
e proviso but it was replaced by the
Subba Rao I.
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 th.at 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 i'~ues
is sufficient for the decision of the suit."
Under tfils 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
65.C.R.
SUPREME COURT REPORTS
423
Pt. Hazari Lal v. Income-tax Officer, Kanpur(').
There,
the learned Judges pointed out:
"The word "finding", interpreted i.n 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
pwties 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. (') 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(') gave a very wide interpretation to that won1,
though it did not go so far as the Full Bench of thP Allahabad High Court. Ramachandra lye· J ., as he then was,
speaking for the Court, observed tha: :he w0rd "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 be concedes that the expression "finding" cannot be
(1) (1960) 39 I. T. R. 265, 272.
(') (1963) 48 I. T. R. 705, 718.
(') (1963) 48 I.T.R. 16.
1964
I. T. O/finr,
A-Ward, $itapw
...
MurUdhar
Bhagwandal,
Lakhlmpurkherf
Subbo Roa I.
SUPREME COURT REPORTS
1964
any incidental finding, but says that it must be a conclusion
I. T. Officer,
on a material question necessary for the disposal of the
4.-Ward, Sitapur appeal, though it need not necessarily conclude the appeal.
Muriidhar
This concession does not materially differ from the definition
La
Bhak. hf1':"and~h· • we have given, but the difference lies in the application of
impur. '" th
d fi · ·
h find"
·
· th
at e mtion to t .e
mg given m
e present case.
A
Subu Raa I.
''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
direc;tions which the Appellate Assistant Commissioner can
give under s. 31. Under that section he can give directions,
inter a/ia, 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 expression "finding" as well as the expression. "direction" can
be given full meaning, namely, that the findin~ 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.
TI1e
words "in consequence of or to give effect to" do illOt 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 c0nnotation may take in any peNon, whether
connected or not with the assessee, whose income for any
6 S.C.R.
SUPREME COURT REPORTS
425
1964
year has escaped assessment; but this con~truction cannot be
accepted, for the said expression is necessarily ~ircumscribcd . 1. T.O/licn-,
by the scope of the subject-matter of the appeal or revision, A-Ward, Sitapur
as the case may be.
That is to say, that person rr:ust be one
Murlidhar
who would be liable to be assessed for the whole or a part
Bh;:rand"tkrt
of the income tliat went into the assesment of the ye.qr under
La •mpur
appeal or revision. If so construed, we must turn to s. 31
Subba Rao 1.
to ascertain who is that person other than the
appealing
assessee who can be liable to be assessed for the income ot
the said assessment year.
A co~bined reading 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 μarticuhr year
may affect the assessment for the said ye.ar on a partner or
partners of the firm, member or members of the Hindu undivided family or the individual, as the case may be.
Iu
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(') overruled the decision
of
the Division Bench in Pt.
Hazari
Lat's case(').
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('). 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('), though it had not finally expressed any opinion
( 1) [1963) 48 I.T.R. 705, 718.
(') (1959) 36 I. T. R. 41.
(') [1960139 I.T.R. 265, 272.
(') (1962) 46 I. T. R. 14.
426
SUPREME COURT REPORTS
[1g64]
1964
on that, was inclined to accept the view expressed by tnc
1. T.
Officer,
Division Bench of the Allahabad High Court in Pt. Hazari
A-Ward, Sitapur Lal's case('). We have gone through the decisions carefully.
MurTidhar
For the reasons given by us, we agree with the view
Bhagwandas,.
expressed by the Division Bench of the Allahabad High
Lakh,mpurkhm
C rt · p
H
· L l'
(')
th ·
·
h
Subba Rao 1.
ou m I.
azarz a s case
on
e mterpretahon of t e
proviso to sub-s. ( 3) of s. 34 of the Act.
In the result, we hold that the said proviso would not
save the time-limit prescribed under sub-s. ( 1) of s. 34 of
the Act in respect of an escaped assessmcDt of a year other
than that which is the subject-matter of the r.ppcal 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
ckarly barred by limitation.
In this view no other question anses for our consideration.
In the result, the appeal fails and is dismissed with costs.
lludholkar
1.
MUDHOLKAR J.-This is an appeal l:Jy 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, corresponding 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. 34( 1 J
la) 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 ( 4).
After, however, fresh proceedings were t~ken 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) 48 I. T. R. 705, 718.
6 S.C.R.
SUPREME COURT REPORTS
order on January 31, 1957.
Against this order the respondent 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.