# MAHARAJADHIRAJ SIR KAMESHWAR SINGH v. THE STATE OF BIHAR

- **Citation:** [1960] 1 S.C.R. 332
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Bench:** S. R. Das, N. H. Bhagwati, M. HrDAYATULLAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/maharajadhiraj-sir-kameshwar-singh-v-the-state-of-bihar-1761
- **Pages:** 17

## Headnote

Agricultural Income-tax-Power of Agricultural Income-tax
Officer-If can revise his own order of exemption-Bihar Agricultural Income-tax Act, I938 (Bihar VII of r938) s. 26.
In his return of agricultural income for the assessment year
1944-45, the appellant showed a sum of Rs. 2,82,192, which he
had paid to the Tekari Raj for two lease-hold properties taken
on Zarpeshgi lease, as one of the items of the total amount of
dednction claimed by him as capital receipt. The Agricultural
Income-tax Officer accepted his claim and exempted the amount
from payment of agricultural income-tax. The Assistant Colljlmissioner of Agricultural Income-tax affirmed the decision.
A
demand notice was issued and the assessee paid two instalments.
Thereafter, the Agricultural Income-tax Officer served on the
assessee a notice under s. 26 of the Bihar Agricultural Incometax Act, 1938, to the effect that income from the said Zarpeshgi
lease had escaped assessment and after he appeared, passed a
S.C.R.
SUPREME COURT REPORTS
333
supplementary assessment order and assessed Rs. 39,512-6-0 as
z959
tax. The assessee appealed. The Commissioner of Agricultural
Income-tax reversed the said decision.
The Province of Bihar Maharajadhiraj
moved the Board of Revenue and the two questions it referred to Sir Kameshwar
the High Court under s. 25(1) of the Act were, (1) whether in the
Singh
facts and circumstan<;es of the case, the Agricultural Income-tax
v.
Officer had jurisdiction to revise his own order under s. 26 of the The· State of Bihar
Act and (2) if so, whether the income from the Zarpeshgi lease
was taxable under the Act. The High Court answered both the
questions in favour of the State of Bihar. Hence this appeal by
the assessee by special leave.
Held, that under s. 26 of the Bihar Agricultural Income-tax
Act, 1938, the Agricultural Income-tax Officer had the power to
revise his own order and assess an item of income which, even
though shown in the return, he had earlier omitted to tax under a.
misapprehension th'at it was not taxable.
The use of the words "any reason " in s. 26 of the Act
made the section wider than s. 34 of the Indian Income-tax ·Act
by dispensing with the conditions which circumscribed the latter
section.
Kamal Singh v. Commissioner of Income-tax, Bihar G Orissa,
A.LR. 1959 S.C. 257, applied.
Messrs. Chatturam H orilram Ltd. v. Commissioner of Incometax, Bihar and Orissa, [1955] 2 S.C.R. 290, distinguished.
Case-law discussed.
Since the appellant had failed to prove his case that the
income in question was income from his money-lending business
or that the payment made to the lessor was not by way of
premium but as a loan, the income from the lease-hold property
which was admittedly agricultural in character, must be held to
be liable to tax under the Act, irrespective of the character of
the recipient.
Crv1L APPELLATE JuRrsmcTION: Civil Appeal No.
254of1954.
Appeal by special lea.ve from the judgment and
order dated February 19, 1952, of the Patna High
Court in Misc. J udl. Case No. 244 of 1949.
B. Sen, S. K . .llfajumdar and I. N. Shroff, for the
appellant.
M. 0. Setalvad, Attorney-General for Irulia, B. K.
Saran and R. C. Prasad, for the respondent.
1959. May 15. The Judgment of the Court was
delivered by
HIDAY AT ULLAH J.-This appeal, with the special HUiayatullah J.
leave of this Court, has been filed by Maharajadhiraja
334
SUPREME COURT REPORTS [1960(1)]
Sir Kameshwar Singh of Darbhanga (hereinafter referred to as the assessee) against the judgment of the
Maharajadhiraj
Sir Kameshwar High Court of Patna dated February 19, 1952, by
I959
Singh
which the High Court answered in the affirmatiye the
v.
following two questions referred to it under s. 25(1) of
T_he State of Biharthe Bihar Agricultural Income-tax Act, 1938:
Hidayalullah j.
(1) "Whether in view of the circumstances of the
case, and particularly the manner in which, after
due consideration, the learned Agricultural lncometax Officer in his first judgment dated the 5th
January

## Text

332
SUPREME COURT REPORTS [1960(1))
r959
having been appointed managing director because of
Th C -. .
his being a promoter of the company and having
e ommissioner
II
k
h
f I
·
El
·
of Income-tax
actua y ta en over t e concern o
nd1a
ectnc
v.
Works from Milkhi Ram and others.
The finding in
Kalu Babu Lal this case is that the promotion of the Company and
Chand
the taking over of the concern and the financing of it
Das c. J.
were all done with the help of the joint family funds
and the said B. K. Rohatgi did not contribute anything
out of his personal funds if any. In the circumstances,
we are clearly of opinion that the managing director's
remuneration received by B.K. Rohatgi was, as between
him and the Hindu undivided family, the income of
the latter and should be assessed in its hands.
We,
therefore, set aside the answer given by the High Court
to the second question and answer the same by
saying that the assessment of the whole of the sum of
Rs. 61,282 should be on the assessee Hindu undivided
family.
The result is that this appeal is allowed with
costs here and in the Court below.
I959
May IS·
A ppeaJ, aJ,l,owed.
MAHARAJADHIRAJ SIR KAMESHWAR SINGH
v.
THE STATE OF BIHAR
(S. R. DAS, c .. J., N. H. BHAGWATI and
M. HrDAYATULLAH, ,JJ.)
Agricultural Income-tax-Power of Agricultural Income-tax
Officer-If can revise his own order of exemption-Bihar Agricultural Income-tax Act, I938 (Bihar VII of r938) s. 26.
In his return of agricultural income for the assessment year
1944-45, the appellant showed a sum of Rs. 2,82,192, which he
had paid to the Tekari Raj for two lease-hold properties taken
on Zarpeshgi lease, as one of the items of the total amount of
dednction claimed by him as capital receipt. The Agricultural
Income-tax Officer accepted his claim and exempted the amount
from payment of agricultural income-tax. The Assistant Colljlmissioner of Agricultural Income-tax affirmed the decision.
A
demand notice was issued and the assessee paid two instalments.
Thereafter, the Agricultural Income-tax Officer served on the
assessee a notice under s. 26 of the Bihar Agricultural Incometax Act, 1938, to the effect that income from the said Zarpeshgi
lease had escaped assessment and after he appeared, passed a
S.C.R.
SUPREME COURT REPORTS
333
supplementary assessment order and assessed Rs. 39,512-6-0 as
z959
tax. The assessee appealed. The Commissioner of Agricultural
Income-tax reversed the said decision.
The Province of Bihar Maharajadhiraj
moved the Board of Revenue and the two questions it referred to Sir Kameshwar
the High Court under s. 25(1) of the Act were, (1) whether in the
Singh
facts and circumstan<;es of the case, the Agricultural Income-tax
v.
Officer had jurisdiction to revise his own order under s. 26 of the The· State of Bihar
Act and (2) if so, whether the income from the Zarpeshgi lease
was taxable under the Act. The High Court answered both the
questions in favour of the State of Bihar. Hence this appeal by
the assessee by special leave.
Held, that under s. 26 of the Bihar Agricultural Income-tax
Act, 1938, the Agricultural Income-tax Officer had the power to
revise his own order and assess an item of income which, even
though shown in the return, he had earlier omitted to tax under a.
misapprehension th'at it was not taxable.
The use of the words "any reason " in s. 26 of the Act
made the section wider than s. 34 of the Indian Income-tax ·Act
by dispensing with the conditions which circumscribed the latter
section.
Kamal Singh v. Commissioner of Income-tax, Bihar G Orissa,
A.LR. 1959 S.C. 257, applied.
Messrs. Chatturam H orilram Ltd. v. Commissioner of Incometax, Bihar and Orissa, [1955] 2 S.C.R. 290, distinguished.
Case-law discussed.
Since the appellant had failed to prove his case that the
income in question was income from his money-lending business
or that the payment made to the lessor was not by way of
premium but as a loan, the income from the lease-hold property
which was admittedly agricultural in character, must be held to
be liable to tax under the Act, irrespective of the character of
the recipient.
Crv1L APPELLATE JuRrsmcTION: Civil Appeal No.
254of1954.
Appeal by special lea.ve from the judgment and
order dated February 19, 1952, of the Patna High
Court in Misc. J udl. Case No. 244 of 1949.
B. Sen, S. K . .llfajumdar and I. N. Shroff, for the
appellant.
M. 0. Setalvad, Attorney-General for Irulia, B. K.
Saran and R. C. Prasad, for the respondent.
1959. May 15. The Judgment of the Court was
delivered by
HIDAY AT ULLAH J.-This appeal, with the special HUiayatullah J.
leave of this Court, has been filed by Maharajadhiraja
334
SUPREME COURT REPORTS [1960(1)]
Sir Kameshwar Singh of Darbhanga (hereinafter referred to as the assessee) against the judgment of the
Maharajadhiraj
Sir Kameshwar High Court of Patna dated February 19, 1952, by
I959
Singh
which the High Court answered in the affirmatiye the
v.
following two questions referred to it under s. 25(1) of
T_he State of Biharthe Bihar Agricultural Income-tax Act, 1938:
Hidayalullah j.
(1) "Whether in view of the circumstances of the
case, and particularly the manner in which, after
due consideration, the learned Agricultural lncometax Officer in his first judgment dated the 5th
January, 1946, had held that the assessee was not
liable to be assessed for the receipt on account of
the zarpeshgi lease, the learned Agricultural Incometax Officer has jurisdiction to revise his own order
under s. 26 of the Act ; and
(2) Whether if he had the jurisdiction to revise
his own order, under section 26 of the Act, the income from the zarpeshgi lease of the assessee was
taxable under the Act."
The facts of the case lie within a very narrow compass. For the assessment year 1944-45 which corresponded to the year of account 1351 Fasli, the assessee
returned Rs. 37,43,520 as his agricultural income.
He
claimed a deduction of Rs. 9,42,137 -3-lOt on account
of land revenue, rent etc., including a sum of
Rs. 2,82,192 shown to have beeu paid to the Tekari
Raj from which two leasehold properties were taken
on zarpeshgi lease by indentures dated August 15, 1931,
and January 31, 1936, respectively. The amount was
sought to be deducted as a capital receipt.
The Agricultural Income-tax Officer of Darbhanga
by his order dated December 28, 1945 accepted this
contention, and exempted the amount from payment
of agricultural income-tax. He observed:
"Out of H,s. 9,42,137-3-lOt claimed on account of
Land Revenue and rent, Rs. 2,82,192 is shown as
payment to Tekari Raj and then taken towards the
realisation of Zarpeshgi Loan to self. I have gone
through the bond of Gaya Zarpeshgi Lease.
This
payment is allowed to the assessee, as it is a capital
income according to the terms of the bond.
At the
S.C.R.
SUPREME COURT REPORTS
335
same time, I think, this amount of Rs. 2,82,192
x959
should be treated as income to Tekari Raj and M aharajtJdhiraj
assessed in Gaya Circle along with other income of Sir Kameshwar
Tekari Raj as it is credited to that Raj by the assessee
Singh
and then set off against the Zarpeshgiloan advanced
v.
to Tekari Raj."
The State of Bihar
The assessment was approved by the Assistant ComHidayatullah J.
missioner of Agricultural Income-tax on January 4,
1946, and on the day following, the Income-tax Officer
passed his formal order and issued a demand notice.
The assessee paid two instalments out of three, when
on March 22, 1946, the Agricultural Income-tax Officer
recorded the following order :-
"It appears that some agricultural income from
Gaya Zarpeshgi lease which should have been taxed
for the year 1944-45 (1351 Fasli) has escaped assessment. Issue notice under section 26 fixing the 20th
May 1947."
After the assessee appeared, a supplementary assessment order was passed and Rs. 39,512-6-0 were assessed as tax on Rs. 2,52,879.
In deciding the matter, the Agricultural Income-tax
Officer gave the following reasons:
" According to the terms of the lease the assessee
is to remain in possession and enjoy the usufruct of
the lands given in lease for a fixed number of years
on payment of an annual thica rent of Rs. 1,000 to
the lessor and thus satisfy himself for the entire
amount of consideration money of the zarpeshgi
lease in question. In fact, by this zarpeshgi lease
the assessee has been given the grant of.lands for a
fixed term on a fixed rent. Whatever income is
derived from these lands during the tenure of this
lease, is the income of the assessee and as such it
should be taxed in the hands of the assessee and not
in the hands of the lessor."
The Agricultural Income-tax Officer purported to act
under s. 26 of the Bihar Agricultural Income-tax Act,
1938 (hereinafter referred to as the Act).
The assessee appealed. The Commissioner of Agricultural Income-tilix reversed the decision. He pointed
336
SUPREME COURT REPORTS [1960(1)]
I959
out that the agricultural income from Tekari Raj proMaharajadhiraj perty was returned by the assessee but was held to be
Sir Kameshwar exempt and thus could not be said to have escaped
Singh
assessment so as to bring the case within s. 26 of the
v.
.
Act. The Province of Bihar (as it was then called)
The State of Bihar moved the Board of Revenue, Bihar which by a
Hidayatullail J. resolution dated February 7, 19.48, referred the two
questions to the High Court of Patna. The Board did
not express any opinion on the two qu~tions. In the
High Court, both the questions were answered in
favour of the State of Bihar. Leave having been
refused by the High Court, the assessee applied for,
and obtained special leave from this Court.
Section 26 of the Act, under which the Agricultural
Income-tax Officer purported to act is substantially
the same ass. 34 of the Indian Income-tax Act, prior
to its amendment. Necessarily, therefore, the rulings
on the interpretation of the latter section were freely
cited by the contending parties. Section 26 of the Act
reads as follows :
" If for any reason any agricultural income
chargeable to agricultural income-tax has escaped
assessment for any financial year, or has been assessed at too low a rate, the Agricultural Income-tax
Officer may, at any time within one year of the end
of that financial year, serve on the person liable to
pay· agricultural income-tax on such agricultural
income or, in the case of a company, on the principal
officer thereof, " a notice containing all or any of
the requirements which may be included in a notice
under sub-section (2) of section 17, and may proceed
to assess or re-assess such income, 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:
Provided that the tax shall be charged at the rate
at which it would have been charged if such income
had not escaped assessment cir full assessment, as
the case may be. "
For facility of reference, the previous s. 34 before the
amendment in 1948 of the Indian Income-tax Act may
lik11wise be quoted here. It read :
S.C.R.
SUPREME COURT REPORTS
337
" If in consequence of definite information which
x959
has come into his possession the Income-tax Officer
Maharajadhiraj
discovers that income, profits or gains chargeable to Sir Kameshwar
income-tax have escaped assessment in any year,
Singh
or have been under-assessed, or have been assessed
v.
at too low a rate, or have been the subject of exces- The State of Bil""
sive relief under this Act the Income-tax Officer Hidayat-:Z1a1s J.
may, in ~,ny case in which he has reason to believe
that the asseSilee has concealed the particulars of his
income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and
in any other case at any time within four years of
the end of that year, serve on the person liable to
pay tax on such income, profits or gains, or in the
case of a company, on the principal officer thereof, a
notice containing all or any of the requirements
which may be included in a notice under sub-section (2) of section 22, and may proceed to assess or
re-assess such income, profits or gains, 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 :
Provided that the tax shall be charged at the rate
at which it would have been charged had the income,
profits or gains not escaped assessment, or full
assessment, as the case may be: ...... "
The short question is whether income which was
returned but was held to be exempt from tax could be
said to have "escaped assessment" so that the
Agricultural Income-tax Officer could exercise his
powers under s. 26 of the Act to tax it. This question
arising under s. 34 of the Indian Income-tax Act has
been considered on many an occasion by the High
Courts and also by the Privy Council and this Court.
The Patna High Court has correctly pointed out that
the preponderance of opinion is in favour of holding
that such income can be said to have escaped assessment.
The High Court in deciding that the Agricultural
Income-tax Officer had jurisdiction to revise his earlier
assessment referred to the opening words of s. 26,
namely, "for any reason" and observed that it was
43
338
SUPREME COURT REPORTS [1960(1)]
~959
not necessary to give a restricted meaning to the word
"escaped'', and that if an item of income was not
Maharajadhiraj
Sfr Kam.,hwar charged to tax due to a mistake or oversight on the
Singh
part of the taxing authorities, that item could well
v.
come within the term "escaped". According to the
Tll< Stat• of Bihar High Court, the phrase "escaped assessment" was not
-
confined to cases where there had been an inadvertent
HUlayatullah J. omission, but in view of the later part· of the section
"where income ... has been assessed at too low a rate",
included a case where there was a deliberate action.
Learned counsel for the assessee contends that the
generality of the words "any reason " has no bearing
upon the construction of the words " escaped assessment ", that the word " assessment " does not connote
the final determination to tax income but the entire
process by which the result is reached, and that inasmuch as the income was actually returned and held to
be exempt, there was no question of an "escaped
assessment " because it passed through the processing
of income. He also contends that the later part of the
section which deals with assessment at too low a rate
cannot be called in aid to decide when income can be
said to have escaped assessment. He submits that the
section has no application to cases where income is
returned but is held to be not liable to tax and relied
upon the following cases ; M aharaja Bikram K ishore v.
Province of Assam('), Commissioner of Income-tax v.
Dey Brothers('), Madan Mohan Lal v. Commissioner of
Inn:nn,e-tax (3)
(per Dalip Singh, J.) and Chimanram
Moi:l.al (Gold and Silver), Bombay v. Commissioner of
Incorr;~-tax (Central), Bombay(') (per Kania, J., as he
then was).
The learned Attorney-General drew the attention of
the Court to other cases in which the view has been
taken that even if income is returned and deliberately
not charged to tax, the condition required for the
application of the section is fulfilled.
He cited the
following cases in support of his contention : AngloPersian Oil Co. (India) Ltd. v. Commissioner of Incometax ('), P. C. Mullick and D. C. Aich, In re (6), The
(1) [1949] 17 I.T.R. 220.
(2) [1936] 4 l.T.R. 209.
(3) [1935] 3 l.T.R. 438,
(4) (1942) I.L.R. i943 Bom. 206.
(5) [1933] l l.T.R. 129.
(6) [1940] 8 l.T.R. 236.
S.C.R.
SUPREME COURT REPORTS
339
Commissioner of Income-tax v. Raja of Parlakimedi (1)
.r959
OhimanramMoti Lal (Gold and Silver), Bombay v. OomMaharajadhiraj
missioner of Income-tax (Central), Bombay (2) and Madan
Sir J(ameshwar
Mohan Lal v. Commissioner of Income-tax (3). The
Singh
learned Attorney-General also relied strongly upon a
v.
recent decision of this Court in Kamal Singh v. Commis- The State of Bilitw
sioner of Income-tax, Bihar and Orissa ('), where
ft
f 11 h
h
Hidayatullali ].
Gajendragadkar, J., a er a review o a
t e aut orities, held thats .. 34 of the Indian Income-tax Act was
applicable to a. case where an item of income was
returned but deliberately and after consideration, was
held to be not liable to tax. Learned counsel for the
assessee contends that the point was left open in that
case, and refers to Messrs. Chatturam Horilram Ltd. v.
Commissioner of Income-tax, Bihar and Orissa(5) as
having held the contrary.
Before referring to the other authorities of the High
Courts, it will be proper to see if the two cases-of the
Supreme Court are in point or not, and if so, which of
them. In Kamal Singh's case('), the point arose under
the following circumstances. The father of the appellant in that case was assessed to income-tax for the
year 1945-46. The total income assessed to incometax was Rs. 1,00,000 which included a sum of Rs. 93,604
received by him on account of interest on arrears of
:rent due to him after deduction of collection charges.
It was urged before the Income-tax Officer that this
interest was not assessable to income-tax being agricultural income, in view of the decision of the Patna
High Court in Kamakshya Narain Singh v. Commissioner of Income-tax (6).
The Income-tax Officer did
not accept this contention on the ground that an
appeal was pending against the Patna High Court's
decision, before the Privy Council. On appeal, the
-
Appellate Assistant Commissioner
held that the
Income-tax Officer was bound to follow the decision of
the High Court, and he set aside the order and directed
the Income-tax Officer to make a fresh assessment.
The Income-tax Officer thereupon deducted the amount
(1) (1926) I.L.R. 49 Mad. 22.
(4) A.LR. 1959 S.C. 257.
(2) (1942) I.L.R. 1943 Born. 206.
(5) [1955] 2 S.C.R. 290.
(3) [1935] 3 I.T,R. 438.
(6) [1946] 14 I.T.R. 67J.
340
SUPREME COURT REPORTS (1960(1)]
z959
and brought only the remaining income (after some
Maharajadhiraj minor adjustments) to tax. His order was passed on
s;, I<am'5hwar August 20, I 946. In the year 1948, the Privy Council
Singh
reversed the Patna High Court's decision. The judgv.
.
ment of the Privy Council is reported in Commissioner
Tlte Stat• ofB•h•'of Income-tax v. Kamakshya Narain Singh('). The
Hi4ayatullah J. Income-tax Officer then issued a notice under s. 34 of
the Indian Income-tax Act, and after hearing the party
assessed the sum of Rs. 93,604.
After sundry procedure which it is not necessary to
detail, the matter reached this Court, and the question
which was before it was" 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."
Two questions were involved. The first was whether
the word " information " was wide enough to include
knowledge about.the state of the law or about a decision on a point of law. With that point we are not
concerned in this case. The second was, when income
could be said to have escaped assessment. Emphasis
was laid on the word "assessment " in the arguments,
and it was contended that it denoted not merely the
order of assessment, but included " all steps taken for
the purpose of levying of tax and during the process
of taxation. " It was also contended that '; escaped "
meant that the income must have eluded observation,
search etc., or, in other words, eluded the notice of the
Income-tax Officer. Gajendragadkar, J., however, did
not confine the phrase to such a narrow meaning. He
observed;
"Even if the assesse 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,
....
the rents received by the assessee 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
(1) [1948] 16 I.T.R. 325.
S.C.R.
SUPREME COURT REPORTS
341
the department justified the assessee's claim tha.t the
x959
said income was not liable to be assessed to tax. Maharajadlliraj
There is no \ioubt that a part of the assessee's
Sir Kameshwar
income had not been assessed and, in that sense, it
Singh
has clearly escaped assessment. Can it be said that,
v.
because the matter was considered and decided on The State 0! Bihar
the merits in the light of the binding authority of
the decision of the Patna High Court, no income ha!'
escaped assessment when the said Patna High Court
decision has been subsequently reversed by the
Privy Council? We see n<1 justification for holding
that cases of income ei:lcaping assessment must
always be cases where· income has not been assessed
owing to inadvertence or oversight or owing to the
fact that no return has been submitted. In .our
opinion, even in a case where a return has been
submitted, if the Income-tax Officer erroneously fails
to tax a part of assessable income, it is a case where
the said part of the income has escaped assessment.
Tim appellant's attempt to put a very narrow and
artificial limitation on the meaning of the word
'escape' ins. 34(l)(b) cannot therefore succeed."
The assessee seeks to distinguish that case on the
ground that this Court laid down the law in the special
circumstances where a new interpretation to the law
was given, and that it was not a case of the Incometax Officer changing his mind. He contends that there
was at least some information which had come to the
Income-tax Officer, on which his subsequent action
could be rested. The learned counsel argued that
Gajendragadkar, J., had expressly left the question
open, where there was no information but the Incometax Officer merely changed his mind without any
information from an external source. Reference in this
connection is made to the following observations in the
judgment:
"It appears that, in construing the scope and
effect of the provisions of s. 34, the High Courts
have had occasion to decide whether it would be
open to the Income-tax Officer to take action under
s. 34 on the ground that he thinks that his original
decision in making the order of assessment was
Hidayalullah ].
'959
Maharajadhiraj
Sir Ka,neshwar
Si11gh
v.
Tlae Stale of Bihar
Hidayalullah ] .
342
SUPREME COURT REPORTS [1960(1))
wrang without any fresh information from a.n
external source · or whether the successor of the
Income-tax Officer can act under s. 34 on the ground
that the order of assessment passed by his predecessor was erroneous, and divergent views have been
expressed on this point. Mr.. Rajagopala Sastri, for
the respondent, suggested that under the provisions
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, in 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."
We may say at once that the words of s. 26 of the
Act do not involve possessing of or coming by some
fresh information. The section says :
" If for any reason any agricultural income
chargeable to agricultural income-tax has escaped
assessment for any financial year ..... ,the Agricultural Income-tax Officer ...... may proceed to
assess ...... such income ...... "
The use of the words "any reason" which are of wide
import dispenses with those conditions by which
s. 34 of the Indian Income-tax Act is circumscribed.
The point which was thus left over by Gajendragadkar, J., cannot arise in the context of the Act we a.re
dealing with.
In view of this clear opinion, it is hardly necessary
for us to consider again the cases which preceded the
decision of this Court. The most important of them
are considered in the judgment of Gajendragadkar, J.
Most of the cases are also considered in the judgment
of Harries, C. J., and Mukherjea, J. (as he then was) in
Maharaja Bikram Kishore v. Province of Assam (1). In
all the cases where a contrary view was taken, reliance
was placed upon the decision of the Privy Council in
Rajerulra Nath Mukerjee v. Income-tax Commissioner(')
particularly a passage wherein it was observed :
(1) [1949] 17 I.T.R. 220.
(2) (1933) L.R. 61I.A.10. 16.
S.C.R.
SUPREME COURT REPORTS
343
"The fact that s. 34 requires a notice to be served
z959
calling for a return of income which had escaped M aharajadltfraj
assessment strongly suggests that income which has Sir Kameshwar
already been duly returned for assessment cannot
Singh
be said to have 'escaped' assessment within the
v.
statutory meaning."
The State of Biltar
The facts of the case were entirely different. The Hidayatullalt 1.
income was returned, and was not yet processed when
the notice under s. 34 was issued. The key to the case
is furnished by the approval by their Lordships of the
observations of Rankin, C.J., in In re: Lachhiram
Basan{lal (1) that:
"Incom~ has not escaped assessment if there are
pending at the time proceedings for the assessment
of the assessees' income which have not yet terminated in a final assessment thereof."
Their Lordships held that the expression "has escaped
assessment" should not be read as equivalent to "has
not been assessed" because so to do "gives too narrow
a meaning to the word 'assessment' and too wide a
meaning to the word 'escaped'."
That those observations were related to the facts
then before their Lordships is clear from the following
passage:
" To say that the income of Burn & Co., which
in January, 1928, was returned for assessment and
which was accepted as correctly· returned, though
it was erroneously included in the assessment of
Martin & Co., has 'escaped' assessment in 1927-28
seems to their Lordships an inadmissible reading .....
Their Lordships find it sufficient for the disposal
oft.he appeal to hold, as they do that the income of
Burn & Co., did not 'escape assessment' in the year
1927-28 within the meaning of s. 34."
It was in the context of the pendency of assessment
proceedings that the remarks were made, and the
matter is decisively cleared of any doubt by the following passage :
" It may be that if no notice calling for a return
under s. 22 is issued within the tax year then s. 34
(1) (1930) I.L.R. 58. Cal 909, 912.
344
SUPREME COURT REPORTS [1960(1))
I959
provides the only means available to the Crown of
Maharajodhiraj
remedying the omission, but that is a different
Sir Kameshwar
matter."
Singh
In our opinion, the error in the cases relied upon by
T • s
v. 1 8 ,._ the assessee arises in using the dicta in the above case,
ne tate o
inur h
.
.
·
_
s orn of the context m whrnh they were made and
Hidayat~llah J. applying them to facts, where they cannot. The
judgment of Gajendragadkar, J., has dealt with the
matter, if we may say so respectfully, very adequately
and we do not consider it necessary to cover the same
ground again. The preponderance of opinion in the
High Courts is also to accept the contrary view, and
we think rightly.
The learned counsel for the assessee argued that the
decision of this Court in Messrs. Chatturam Horilram
Ltd. v. Commissioner of Income-tax, Bihar & Orissa(')
discloses a different view, and that we should follow it
in preference to the later view of Gajendragadkar, J.
We do not think that in the case last cited the point
was the same. The same case was relied upon before
the Bench of Venkatarama Aiyar, Gajendragadkar
and Sarkar, JJ., and Gajendragadkar, J., distinguished
it. This is what he observed :
'
" Mr. Sastri has also relied on the decision of
this Court in Mesbrs. Chatturam Horilram Ltd. v.
Commissioner of Income-tax, Bihar &: Orissa (1) in
support of his construction of s. 34. In Chatturam's
case(') the assessee had been assessed to income-tax
which was reduct>d 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 Court. Subsequently the Governor of
Bihar promulgated the Bihar Regulation IV of
1942 and thereby brought into force the Indian
Finance Act of 1939, in Chota Nagpur retrospectively as from March 30, 1939. This ordinance was
assented to by the Governor-General. On February 8,
1944, the Income Tax Officer passed an order in
pursuance of which proceedings were taken against
(1) '[1955] 2 S.C.R. 290.
$.C.R.
SUPREME COURT REPORTS
345
the assessee under the p:i;ovisions of s. 34 and they
r959
resulted in the assessment of the assessee to incomeM aharajadhiraj
tax. The contention which was raised by the Sir Kameshwar
assessee in his appeal to this Court was that the
Singh
notice issued against him under s. 34 was invalid.
v.
This Court held that the income, profits or gains The State of Bihar
sought to be assessed were chargeable to income-tax
and that it was a case of chargeable income escapHidayatullah f.
ing 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
Jagannadhadas, J., that 'the contention of the
learned counsel for the appellant that the escapement from assessment is not to be equated to nonassessment simpliciter is not without force ' and he
points out that the reason given by the learned
Judge in support of the final decisions 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 that a fair reading of the judgment can lead
to this conclusion. The observations on which
reliance is placed by Mr. Sastri have naturally been
ma.de 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 cases where
income escapes assessment owing to reasons other
than those attributable to the assessing authorities.
Indeed Jaga.nnadhadas, J., has taken the precaution
of adding that it was unnecessary to lay down )"hat
exactly constitutes escapment from assessment and
that it would be sufficient to place their decision on
44
346
SUPREME COURT REPORTS [1960(1))
zu9
the. narrow ground to whiGh we have just referred.
We are satisfied that this decision is of no assistance
M aha1ajadhiYaj
h
))
,
,,
s;. Kameshwar
to t e appe ant s case.
Singh
For the reasons we have given, we are of opinion
v.
.
that the Agricultural Income-tax Officer was compeThe State of Bihar tent under s. 26 of the Act to assess an item of income
Hi4ayatullah J. which he had omitted to tax earlier, even though in
the return that income was included and the Agricultural Income-tax Officer then thought that it was
exempt. The answer given by the High Court was
therefore correct.
This brings us to the second question. The income
was received from the leasehold properties, and was
agricultural income. The contention of the assessee
is that it may he agricultural income in the hands of
the Tekari Raj but in his hands it was capital receipt
and in repayment of the loan of about Rs. 17,00,000
paid to Rani Bhuwaneshwari Kuer. The State of
Bihar, however, denies that there was a loan or a
mortgage at all. The assessee, it is contended, was
placed in possession for a number of years on a rent
of Rs. 1,000 per year and the amount paid was premium and not a loan.
The documents in question are two. They are
plainly indentures of lease between the Rani and the
assessee. From these documents it is clear that in
consideration of a pa.yment of Rs. 17,16,000 the lessee
was placed in possession of the leasehold property for
28 years. There is no express term which makes the
sum a loan returnable either by repayment or by the
enjoyment of the usufruct. There is no interest fixed
or right of redemption granted. There is no provision for any personal liability in case any amount
remained outstanding at the end of the term of 28
years. These are the tests to apply to find out
whether the transaction was one of zarpeshgi lease
or a lease with a mortgage. See Mulla's Transfer of
Property Act, 4th Edition, page 352.
The learned counsel for the assessee in his careful
argument took us through the two documents and
endeavoured to prove that the relation of debtor and
creditor subsisted between the parties. He referred
S.C.R.
SUPREME COURT REPORTS
347
us to cl. 4, which embodies a provision entitling the
rg59
lessee to deduct 12! per cent. of the grm1s aggregate
amount payable by the mokarraridars as expenses of Maharajadhiraj
h
1 h
Sir Kameshwar
collection and other c arges incidenta t ereto after
Singh
payment of rent reserved to the 'lessor' and to apv.
propriate to himself the remainder. He submitted The state of Bihar
that the payment to the lessor was not a premium
_
but a loan and the intention was that the lessee Hidaya1 .. 1lah J.
or creditor would be thus repaid.
The clause by itself may admit of diverse constructions, and possibly one such construction may be the
one suggested, but that is not the true purport of the
clause read in the context of the rest of the instrument.
To interpret this clause the instrument must be read as
a whole, and when so viewed, it is found that it provides for an exemption of the lessor from the liability
for collection charges. It places beyond doubt that
the collection charges were not to be debited to the
lessor but were to be borne by the lessee. Unless such
a provision was included in the instrument, it might
have been a matter of some dispute as to who was to
be responsible for this expenditure.
The learned counsel for the assessee next drew our
attention to the last clause of the instrument of Janu.
a.ry 31, 1936. That, however, was a special covenant,
and the provision therein was in relation to matters
not covered by the instrument.
That the income from this leasehold property which
was land, would fall within the definition of " agricultural income " was not seriously contested before us.
The case of the assessee rests tipon the claim that this
was a money.lending transaction and the receipts
represented a capital return. If, however, the payment to the lessor was premium and not a loan, the
income, being agricultural, from these leasehold pro.
perties was assessable under the Act. We are of
opinion that it was so, and that the Agricultural Income-tax Officer was right when he assessed it to
agricultural income-tax. The income was not the
income of money-lending, and this does not depend
upon the character of the recipient.
The Thika.
348
SUPREME COURT REPORTS [1960(1)]
r959
pro~ts were clearly agricultural income being actually
M•h•••i•dhir•i derived from land. The answer to the question by
Sir Kameshwar the High Court was thus correct.
Singh
The result is that the appeal must fa.ii, and it is
v.
accordingly dismissed with costs.
The Slate of Bihar
·
-
Appeal dismissed.
Hidayalullah ].
I959
Mayz5.
GUEST, KEEN, WILLIAMS PRIVATE LTD.
v.
P. J. STERLING AND OTHERS
(B. P. SINHA, P. B. GAJENDRAGADKAR and
K. N. WANCHOO, JJ.)
Industrial Dispute-Fixation of age of superannuation of
employees-If a question of law-Standing order, if open to modification-Principle of acquiescence
and
estoppel-ApplicabilityI ndustrial Disputes (Appellate Tribunal) Act, I950 (48 of Ig50).
s. 7(I)(a)-Industrial Employment (Standing Orders)' Act, Ig46
(XX of Ig46), s. 7.
The appellant company in enforcement of a standing order,
framed under the Industrial Employment (Standing Orders) Act,
r946 (XX of r946), against which the respondent had preferred
no appeal, compulsorily retired 47 of its workmen at the age of 55.
A dispute was raised by the workmen as to the validity of such
retirement and the three questions referred to the Tribunal for
adjudication were, (r) whether f"!rced retirement of workmen at
55 was justified, (2) what relief were the workmen entitled to on
retirement and (3) supposing the forced retirement of the workmen in question was justified, to what relief would they be
entitled. It was urged on behalf of the respondents that the age
of superannuation fixed by the standing order should apply only
to new entrants and in the case of old ones the age should be
sixty with option to them to continue even thereafter. The
Labour Appellate Tribunal on appeal, in reversal of the findings
of the Industrial Tribunal, held that the Standing Order in
question could not bar adjudication as to the propriety of the
system of forced retirement, that in view of the admitted fact
that there was no fixed age of retirement in the appellant's
concern before the Standing Order, it could not be enforced
against workmen recruited prior to it and by its award directed
that the workmen who had been compulsorily retired should be
reinstated on refunding what they had received in the shape of
gratuity and Provident Fund dues. It was urged by way of
preliminary objections on behalf of the appellant that (r) the