# MESSRS CHATTURAM HORILRAM LTD v. COMMISSIONI;:R OF INCOME TAX. BIHAR AND ORISSA

- **Citation:** [1955] 2 S.C.R. 290
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** Civil Appeal No. I11come'!f;;· Bihar 38 of 1954
- **Bench:** Vivian Bose, Jagannadhadas, Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/messrs-chatturam-horilram-ltd-v-commissioni-r-of-income-tax-bihar-and-orissa-1494
- **Pages:** 13

## Headnote

Indian IHcorne Tax Act, 1922 (Act XI of 1922), s. 34--Assessn-tcn/ set a...1:ide o·zving to Indian I·•inance Act of 1939 not being in
force during the assessment
year-Indian Finance Act of 1939
b,·ought into force retrospectively by Bihar Regulation IV of 1942Fresh notice under s. 34 issued-Whether such fresh no-lice valid.
The appellant in this appeal had been assessed to Income Tax
which was reduced on appeal but that assessn1ent 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 asscssr11ent y~ar in
Chota Nagpur.
On a reference by the Tribunal the High Court
confirmed the setting aside of this assessment.
By the promulgation
of Bihar Regulation IV of 1942 by the Governor of Bihar (which
wa. a5'ented to by the Governor-General) the Indian Finance Act
of 1939 was brought into force in Chota,·Nagpur retrospectively as
from the 30th March 1939.
On the 8th "February 1944 the Income
l~ax Officer passed an order in pursuance of which a fresh notice
was issued under s. 34 which resulted in the assessment of the ap-.
p:.:llant to incon1~ tax.
1'he question for detcrn1ination in this ap··
peal. \Vas \Vhl'.ther the notice under s. 34 was validly issl1ed.
Held (i) that for the purposes of s. 34 of the !\ct the income,
profits or g:Jins sought to be· assessed were <.:hargcable to jncorne tax
according tu the schcnc of the Act and the provisions of "'· 3 and
4 of the Act;
(ii) that it was a ca~c of chargeable inco1nc escaping a~scssn11."llt
within thL' 1nc<.111ing of s. 34 and was not a· case of mere non-asscss1ncnt of i<1comc tax because the earlier asses~ment proceedings in the
present case had in 'fact been taken but failed to result in a valid
assessment owing to some lacuna which \V,as not attributable to the
assessing authorities.
C.l. T. Bombay v. Sir Ma/wn:ed Yusuf Ismail ([1944] 12 l.T.R.
8), Fazal Dhala v. C./.T., B & 0. ([1944] 12 l.T.R. 341), Raghavalu
Naidu & Sons v. C.I.T., Mddras ([1945] 13 l.T.R. 194), Raia Benoy
K11mar Sahas Roy v. C.l.T.. West Bengal [(1953] 24 !.T.R. 70),
Chatturam v. C.I.T., Bihar ([19471 F.C.R. 116), Whitney v. Commissioners of hland Revem.e r[l926] AC. 37), C.l. T. Bombay &
Adm; '" lOum1d1and Ramdas ([1938] 6 !.T.R. 414 Jt 428). Sir
Rajendranath Mukheriee v. C.I.T., Bengal ((1934] 2 l.T.R. 71),
Madan Mahan Lal v. C.l.T., P11niab ([1935] 3 !.T.R. 438), C.I.T.,
llmnhav v. l'irnjbai N. r:ontractnr ([19:171 5 l.T.R . .138), I<unwar
2 S.C.R.
SUPREME COURT REPORTS
291
Bishwanath Singh v. C.l.T., C.P.
([1942) 10 I.T.R. 322),
Raia
1955
Bahadur Kamakshya
Narain Sin.gh Y· C.l.T.; B., & 0. ([1946) 14 Messrs
Chatturam
I.T.R. 683) and Cbatturam \". C..1.1 ., B. & 0 1.[1946] 14 I.T.R.
Hori/ram Ltd.
695 ), referred to.
v.
Commissio11er of

## Text

1955
Aμrif 18
29G
SUPREME COURT REPORTS
[1955]
MESSRS CHATTURAM HORILRAM LTD.
v.
COMMISSIONI;:R OF INCOME TAX. BIHAR
AND ORISSA.
[VIVIAN BOSE,
JAGANNADHADAS and SINHA JJ.]
Indian IHcorne Tax Act, 1922 (Act XI of 1922), s. 34--Assessn-tcn/ set a...1:ide o·zving to Indian I·•inance Act of 1939 not being in
force during the assessment
year-Indian Finance Act of 1939
b,·ought into force retrospectively by Bihar Regulation IV of 1942Fresh notice under s. 34 issued-Whether such fresh no-lice valid.
The appellant in this appeal had been assessed to Income Tax
which was reduced on appeal but that assessn1ent 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 asscssr11ent y~ar in
Chota Nagpur.
On a reference by the Tribunal the High Court
confirmed the setting aside of this assessment.
By the promulgation
of Bihar Regulation IV of 1942 by the Governor of Bihar (which
wa. a5'ented to by the Governor-General) the Indian Finance Act
of 1939 was brought into force in Chota,·Nagpur retrospectively as
from the 30th March 1939.
On the 8th "February 1944 the Income
l~ax Officer passed an order in pursuance of which a fresh notice
was issued under s. 34 which resulted in the assessment of the ap-.
p:.:llant to incon1~ tax.
1'he question for detcrn1ination in this ap··
peal. \Vas \Vhl'.ther the notice under s. 34 was validly issl1ed.
Held (i) that for the purposes of s. 34 of the !\ct the income,
profits or g:Jins sought to be· assessed were <.:hargcable to jncorne tax
according tu the schcnc of the Act and the provisions of "'· 3 and
4 of the Act;
(ii) that it was a ca~c of chargeable inco1nc escaping a~scssn11."llt
within thL' 1nc<.111ing of s. 34 and was not a· case of mere non-asscss1ncnt of i<1comc tax because the earlier asses~ment proceedings in the
present case had in 'fact been taken but failed to result in a valid
assessment owing to some lacuna which \V,as not attributable to the
assessing authorities.
C.l. T. Bombay v. Sir Ma/wn:ed Yusuf Ismail ([1944] 12 l.T.R.
8), Fazal Dhala v. C./.T., B & 0. ([1944] 12 l.T.R. 341), Raghavalu
Naidu & Sons v. C.I.T., Mddras ([1945] 13 l.T.R. 194), Raia Benoy
K11mar Sahas Roy v. C.l.T.. West Bengal [(1953] 24 !.T.R. 70),
Chatturam v. C.I.T., Bihar ([19471 F.C.R. 116), Whitney v. Commissioners of hland Revem.e r[l926] AC. 37), C.l. T. Bombay &
Adm; '" lOum1d1and Ramdas ([1938] 6 !.T.R. 414 Jt 428). Sir
Rajendranath Mukheriee v. C.I.T., Bengal ((1934] 2 l.T.R. 71),
Madan Mahan Lal v. C.l.T., P11niab ([1935] 3 !.T.R. 438), C.I.T.,
llmnhav v. l'irnjbai N. r:ontractnr ([19:171 5 l.T.R . .138), I<unwar
2 S.C.R.
SUPREME COURT REPORTS
291
Bishwanath Singh v. C.l.T., C.P.
([1942) 10 I.T.R. 322),
Raia
1955
Bahadur Kamakshya
Narain Sin.gh Y· C.l.T.; B., & 0. ([1946) 14 Messrs
Chatturam
I.T.R. 683) and Cbatturam \". C..1.1 ., B. & 0 1.[1946] 14 I.T.R.
Hori/ram Ltd.
695 ), referred to.
v.
Commissio11er of
CIVIL APPELLATE JURISDICTION: Civil Appeal No. I11come'!f;;· Bihar
38 of 1954.
alld
ssa
Appeal from the Judgment and Decree dated the
14th day of March 1951 of the High Court of Judicature at Patna in M.J.C. No. 230 of 1949.
Mahabir Prasad, Advocate-Genernl for the State
of Bihar (R.J. Bahadur and S. P. Varma. with him), for
the appellant.
C.K. Daphtary, Solicitor-General for India (Porus
A. Mehta and P.G. Gokhale, with him), for the respondent.
1955. April 18. The Judgment of the Court
was delivered ·by
JAGANNADHADAS J.-This is
an appeal by the
assessee on leave granted under section 66-A of the
Indian
Income-Tax
Act. The assessee
by name
Chatturam Horilram Ltd., who is the appellant before us, is a private limited company carrying on in
Chota Nagpur the business of exporting mica for sale
to foreign countries. The assessment in question is
for the year 1939-40 and the accounting year is the
calendar year 1938. These proceedings were initiated
on a notice issued to the assessee under section 34 of
the Indian Income-tax Act,
1922, (Act XI of 1922)
(hereinafter referred to as ·the Act). It is the apolicability of this section to the facts of this case that
is the· sole matter for consideration in this
appeal.
The circumstances under which the above mentioned
notice under section 34 was issued are as follows. The
appellant had nreviously been assessed to tax on an
income of Rs. 1.09,200 for the same year 1939-40 by
an order dated the 22nd December, i 939. which was
rednced on appeal by Rs. 31J15. That assessment
was set aside by the Income-Tax Appellate Tribunal
on the 28th March, 1942. on the ground that the
Indian Finance Act of 1939 was not in force during
292
SUPREME COURT REPORTS
[1955]
1955
the assessment year 1939-40 in Chota Nagpur, which
Me.ms .c1ia1111ram was a partially-excluded area. On a reference by the
Hori/ram Ltd.
Tribunal at the instance of the Income-tax authoricommis~ioner of ties. the High Court of Patna agreed wfrh this \iew
Jwomr 111.;. Bi11ar and pronounced on the 30th September.
1943, its
anti ?:•ssa
judgment confirming the setting aside of the assessJacamradhadasJ. ment. Meanwhile, the Governor of Bihar promulgated
Bihar Regulation IV of 1942, which was assented to
by the Governor-General on the 30th June. 1942.
By this Regulation, the Indian Finance Act of
1939
(along with Finance Acts of other years with which
we are not concerned) was brought into force in
Chota Nagpur retrospectively as from the 30th March
1939. The relevant portion of the Regulation was in
the following terms.
'The Indian Finance Act, 1939, shall be deemed
to have come into fore in
the area to which
this
Regulation extends on the 30th day of March, 1939".
On the 8th February, 1944, the Income-tax Officer
passed an order as follows :
"Due to recent judgment of the High Court the
assessment under section 23(3) stands cancelled and
with it the notice under section 34 issued in this case
becomes ineffective and is withdrawn. Assessee derives income from mica mining and dealing, moneylending, mining rents and non-agricultural sources of
zamindary, and this has escaped assessment in
its
entirety. Issue notice under section 22(2) read with
section 34 again to file a return of income in the
prescribed form and within the prescribed time, and
inform the assessee that the original notice under
section 34 has been cancelled".
It. may be mentioned, in passing, that the notice
under section 34 which is referred to in the above
order as having become ineffective and as, therefore,
withdrawn was a prior one which was issued on the
8th July, 1941, i.e., during the pendency of the assessee's appeal relating to the earlier assessment before
the Income-tax Appellate Tribunal. It is
not quite
clear from
the record in
what circumstances
that
notice came to be issued. But it looks probable tJiat
it retires to certain items appearin~ in the nrrounts ns
2 S.C.R.
SUPREME COURT REPORTS
293
cash•credits to the tune of four lakhs which, as will
1955
appear presently, were treated in the later proceed- Messrs -C''-
.
1 d ·
·
h
b
f
r1attura111
mgs as concea e mcome m t e a sence o any proHorilram Ltd.
per
explanation
by assessee.
This
prior
notice Comm· v:
,,
.
34 h
.
b
. hd
h
b
tsstoner o1
under section
, avmg een wit
rawn, as no ear- Income tax, Bihar
ing on the question at issue before US in this appeal
and Orissa
and has not been relied on by either side. In pursu- JagannadhaJ/ts J.
ance of the order dated the 8th February, 1944, quoted
above, a fresh notice under section 34 of the Act was
issued to the appellant on the 12th February, 1944.
The income of the assessee-company was thereupon
determined at a sum of Rs. 4,86,351, which on appeal
tO the Assistant Commissioner, was reduced by Rs.
11,187. Out of this amount a sum of Rs. 4,04,618
related to two items of cash-credits appearing in the
name of the partners of the Company which in the
absence of any satisfactory explanation, was treated
by the Income-tax authorities as secreted profits of
the Company. Before the Income-tax Appellate Tribunal two points were raised. ( 1) Whether the notice
dated the 12th February, 1944, under section 34 of
the Act was validly issued. (2) Whether the Incometax authorities were right in holding that the cashcredit items were secret profits. 'Both the points were
decided against the assessee. On the assessee's application to refer both the points for the decision of the
High Court, the Tribunal declined to make a reference as regards the second point but referred the
first for the opinion of the ·Court in the following
terms:
"Whether in the circumstances of the case, the
notice issued on 12-2-1944 under section 34 of the
Indian Income-tax Act was validly issued for the
assessment year 1939-40?"
The question was answered against the assessee by the
High Court arid hence this appeal before us.
The
assessee attempted to reopen the second question relating to secret profits before the High Court but the
learned Judges declined to allow it to be canvassed,
since the Tribunal did not refer the question to them.
W ~ are, therefore, concerned in this appeal only with
the question relating to the validity of the notice
38-q SCJ/ND/32
294
SUPREME COURT REPORTS
[1955]
1955
issued on the 12th February, 1944, under section 34
Messrs
chatt•ram of the Act. It is obvious that if this notice is found
Hori/ram Ltd.
to be invalid the assessee would get relief for the enCommis;ioner of tire amount including the amount of secret profits.
Income tax, Bjhar
and Orissa
Jag, n ladhadas J.
The answer to the question which arises for
consideration in this appeal depends on a correct appreciation of the requirements of section 34 of the
Act. Now, it has to be mentioned that section 34 of
the Act, as it originally stood in the Act of 1922, was
amended by Act VII of 1939 and this was in turn
amended by Act XLVIII of 1948. At the relevant
date, i.e., for the assessment year 1939-40, section 34
(1) as amended by Act VII of 1939 (and before its
amendment in 1948) was in force. It was as follows:
"If in consequence of definite information which
has come into his possession the Income-tax Officer
discovers that income, profits or gains chargeable to
income-tax have escaped assessment in any year, (or
have been under-a~sessed, or have been. assessed at
too low a rate. or have been the subject of excessive
relief under this Act) the Income-tax Officer may, (in
any case in which he has reason to believe that the
assessee 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 iμ
a notice under sub-section (2) of section 22, and ma v
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".
·
Omitting from the above sub-section those portions
which are inapplicable to the facts of the present case·
-marked out within brackets-it may be seen that
the facts which require to be established for the validity of the notice under this sub-section are (J) the
income, profits or gains sought to be assessed should
be chargeable to income-tax and have escaped assess-
-
2 S.C.R.
SUPREME COURT REPORTS
295
ment in any year, and
(2) the Income-tax Officer
1955
should have discovered it in consequence of definite Messrs
Ch 11
information which has
come
into his
possession.
Hori/ram °£,d.am
The contention of the learned counsel for the appelcommls~ion
1
lant is that, with reference to the facts of this case, Income tax .• ~ih~r
none of these conditions can be said to have been
andOrissa ·
satisfied. It is urged that the income sought to be Jacannadhadas J.
assessed under these proceedings was not, as a fact,
chargeable to income-tax during the assessment year
1939-40. It is said that in any case there can be no
question of the income having escaped assessment because, as a fact, the income-tax authorities did proceed to assess the income and that what happened is
that the proceedings became infructuous by reason of
the High Court having pronounced them to be void.
It is also contended that there is no question of discovery of any relevant fact or information, because
the non-assessment of the income of the ass'essee fot
the period in question was in spite of all the information relating to the income of the assessee having
been previously furnished and being in the possession
of tl_ie Income-tax Officer as would appear from the
order of the Officer dated the .22nd December, 1939.
It is convenient to deal with this last objection in the
first instance.
It may be true that all the information relating to
the relevant income of the assessee which is now
sought to be taxed was in the possession of the Income-tax Officer in the year 1939 itself when the
return was submitted in compliance with the notice
under section 22(2) of the Act then issued. But what
was required under section 340) was not merely
fresh information as to the income that escaped assessment but information as to the fact of escapement
from assessment of the chargeable income. In the
present case the income-tax authorities proceeded to
assess the appellant in the normal way during the
assessment vear 1930-40 itself. Those
proceedings
became infructuous, by virtue of the decision of the
Income-tax Appellate Tribunal and the decision of
the High Court confirming it, which disclosed that the
Indian Finance Act of 1939 was not in operation in
39-8 SCI{ND/S2
296
SUPREME COURT REPORTS
[19551
1955
the relevant area at the relevant period and
that in
Messrs
c1w1turam the absence thereof no valid assessment could be
Harif,·o "Ltd.
made. The fact
therefore
that the income of the
\'
'
'
.
.
cam1111.nio11er "! appellant for the relevant year remamed without any
I11comc wx: Biko· valid assessment emerged only on the High Court
""'1 Onssa
finally giving its decision that the assessment pro-
.Tagmmadtuulas .1. ceedings previously taken were
invalid. If. in the
circumstances, there was "escapement of
chargeable
income from assessment"-a question to be dealt with
presently-there can be no doubt that this fact can
be reasonably said to have been discovered by the
Income-tax Officer only when he got definite information as to (I) the passing of the Bihar Regulation IV
of 1942 applying the Indian Finance Act of 1939
retrospectively for the relevant accounting period.
and (2) the judgment of the High Court pronouncing
prior proceedings to be invalid.
It is knowledge of
both these facts, together, that would, with reference
to the circumstances of the present case.
constitute
the discovery of the relevant fact in consequence of
definite information
received
by
the
Income-tax
Officer. The information as to both these facts taken
together could only be after the decision of the High
Court on the 30th September, 1943. As already stated,
the notice under section 34(1), whose
validity is
in
question, was based on the order of the Income-tax
Officer dated the '8th February, 1944, after the judgment of the High Court was pronounced. That order
which has been extracted above, shows clearly that it
was in consequence of the judgment of the High Court
in the background of the promulgation
of Regula-.
ti on IV of 1942 that fresh action under section 34( I)
was being initiated.
A number of cases IC.l.T. Bombay v. Sir Mahomed
Yusuf Ismail(');
Faw/ Dhala v. C.l.T., B & 0. I');
Raglwvalu Naidu & Sons v. C.l.T .. Madras<'); and
Raja Benoy Kumar Sahas Roy v. C.l.T .. West Hengall'))
have been cited before us to show how the phrase
"definite information" and the word "discovery" used
in this section have been interpreted by the various
(I) [1944J 12 l-T.R. R.
(31 [1945 13 1.T.R. 194.
(2) f1944] 12 I.TR. 341.
(4) [1953] 14 1.T.R. 70.
•
2 S.C.R.
SUPREME COURT REPORTS
297
High Courts. It is unnecessary to deal with these
IY55
cases at any length. There is here no question as to ,\f,,,,.1rs c1ia1111ram
any new subjective facts such as change· of opinion
Horilr11111 Ltd.
. .
"·
consequent on a correct appreciation of law by the Co111111i.11io11cr qf
very same. or another. or higher officer that is pressad 11"'0111'' tax. Bi!uir.
.
,
.
.
'
""'
and 01'!ssa
lllto service as bringing about ''definite information"
---
and "discovery". We are quite clear that the pro- Jatwuradizadas J.
mulgation of the Regulation and the decision
of the
High Court are objective facts, information regarding
which became
available to the Income-tax Oflicer
when he passed the order dated the 8th February.
1944, and it is only when these facts came to
l';is
knowledge, that the Income-tax Officer can be said to
have discovered that chargeable income escaped
assessment in the relevant year.
The main question that requires consideration in
this case is whether. on the facts, it can be said that
"income chargeable to income-tax has escaped assessment in the relevant year". The contention
of the
learned counsel for the appellant is that during the
relevant year 1939-40 the income was not chargeable
to tax as a [act and that the retrospective operation of
the Finance Act for the relevant year by virtue of a
later legislation does not make a difference for this
purpose. To decide this question it is necessary
to
have a clear idea of the scheme of the Income-tax Act
and its correlation to the Finance Act of each year.
The Income-tax Act is a standing piece of legislation
which provides the entire machinery for the levy
of
income-tax. The Finance Act of each year imposes
the obligation for the payment of a determinate sum
for each such year calculated with reference to that
machinery. As has been pointed out by the Federal
Court in Chatturam v. C./.T., Bihar(') quoting from
the judgment of Lord Dunedin in Whitney v. Commissioners of Inland Revenue(') "there are three stages in
the imposition of a tax. There is the declaration of
liability, that is the part of the statute which
determines what persons in respect of what property are
ell [1947] F.C.R ll6a1 126.
(2) [1926) A.C 37.
298
SUPREME COURT REPORTS
[1955]
!955
liable. Next, there is tht;) assessment.
Liability does
Messrs
Cllatturam not depend on assessment. That,
eX hypothesi, has
Hori/ram Ltd.
already been· fixed. But assessment particularises the
Commis;!o11er. ef exact sum which a person liable has to pay. Lastly,
111<;;::',f 'J:;,_!har come the methods of recovery if the person taxed
-
does not voluntarily pay". The same idea has been
Jagannadhadas 1· expressed in slightly different language by Lord Romer
in the judgment of the Privy Council reported
in
C./.T., Bombay
& Aden v. Khemchand Ramdas(').
Chapter III of the Income-tax Act headed "Taxable
Inc0me" contains
the
various
provisions
with
reference to which taxable income is determined. The
tax is leviable under section 3 and is in respect of the
total income of an assessee in the previous year. The
total income is defined in section 2, sub-section (15).
The application of the Act to the total income in the
hands of an assessee is governed by sections 4, 4-A
and 4-B and is determined with reference to concepts
relating to residence, receipt and accrual, as indicated
therein. Section 3, under which the actual charge of
income-tax arises, is as follows :
"Where any Central Act ena1.:ts that income-tax
shall be charged for any year at any rate or rates,
tax at that rate or those rates shall be charged for
that year in
accordance with, and subject to the
provisions of, this Act in respect of the total income
of the previous year of every individual, Hindu undivided family, company and local authority, and of
every firm and other association of persons or the
partners of the firm or the members of the association
individually''.
It is by virtue of this se~tion that the actual levy of
the tax and the rates at which the tax has to be
computed is determined each year
by the annual
Finance Acts. Thus, under the scheme of the Incometax Act, the income of an assessee attracts the quality
of taxability with reference to the standing provisions of the Act but the payability and the quantification of the tax depend on the passing and applica-,
tion of the annual Finance Act. Thus, income is
chargeable to tax independent of the passing of the
(I) (1938) 6 I.T.R. 414 at 428.
2 S.C.R.
SUPREME COURT REPORTS
299
Finance Act but until the Finance Act is passed no
JY55
tax can be actually levied. A comparison of sections Messrs
c11111111ram
3 and 6 of the Act shows that the Act recognises the
Hori/ram Ltd.
distinction
between
chargeability
and
the actual Con11nissio11er of
operation of the charge
Section 6 says "save as Income tax: Bihar
·
.
and Orissa
otherwise provided by this Act, the following heads
-
of income, profits and gains, shall be chargeable to Jagannadhadas 1·
income-tax in the manner hereinafter appearing, etc."
while section 3, as already quoted above,
says that
"where any Central Act enacts that income-tax shall
be charged for any year at any rate or rates, tax at
that rate or those rates, shall be charged for that year,
etc." Though, no doubt, sections 3 and 4 are the
charging sections in the Act as pointed out in Chatturam v. C./.T., Bihar(') at page 125, the wording of
section 3 assumes the pre-existence of chargeable income as indicated in section 6.
Hence, according to
fhe scheme of the Act the quality of chargeability of
any income is independent
of the
passing
of the
Finance Act.
In this view, therefore, though, as
a
fact, on account of the Finance Act not having been
extended to the relevant area during the year 1939-40,
legal authority was then lacking for the quantilication of the tax and impositio11 of the liability therefor, the income of the assessee for the relevant year
was nonetheless chargeable to tax at the time. in the
sense explained above. Indeed, it, can also be sc:id
that the very fact of Regulation IV of 1942, having
brought the Finance Act of 1939 into operation
retrospectively, in this area,
has factually
brought
about. in any case,
the chargeability
of the
tax
during that very year. The relevant portion
of the
Regula ti on says that "the Indian Finance Act of 1939
shall be deemed to have come into force in the area
to which this Regulation extends .on the 30th day of
March, 1939".
By virtue of this deeming provision
the Indian Finance Act of 1939 must be c:ssumed
even factually to have come into operation on
the
date specified and the tax must be taken to have become chargeable in that very year, though the actual
liability for payment could not arise until proper and
~l) [1947) F.C.R. 116.
300
SUPREME COURT REPORTS
[1955]
1955
valid steps are taken for quantification of the tax.
Messrs -Chatturam The contention, therefore, of the appellant that the
Hori/ram Ltd.
income was not chargeable to tax in the year l 93"9-40
Commis;ioner ~r cannot be accepted.
J11come tax, Bih(Jr
and Orissa
Jagannadhadas J.
The next question that arises is whether the income, though chargeable to tax in the year, can be
said to have ~scaped assessment in the relevant year.
The argument of the learned counsel for the appellant
is that since assessment proceedings had in fact been
taken during the year 1939-40 by an order of assessment dated the 22nd December,
1939, it cannot be
said
that the
income
"escaped" assessment.
He
urges that what happened· was that,
in
spite of
assessment having been made, the assessment proceedings became infructuous on account of the decision of the Income-tax
Appellate Tribunal
setting
aside the same and High Court agreeing with it. He
contends that, in the circumstances, this is no more
than a failure of the assessment proceedings but that
it is not an escapement from assessment. He relied
upon the Privy Council case in Sir Raje11dranath
Mukherjee v. C.l.T., Bengal('), where their Lordships
say that "the expression 'has' escaped assessment"
cannot be read as equivalent to 'has
not been
assessed"' and
that "such
a reading
gives
too
narrow a meaning to the word 'assessment' and
too wide
a meaning
to
the word
'escaped"'.
Learned counsel for the respondent relies
on a
number of subsequent cases of the
various High
Courts
(Madan Mohan
Lal v. C.l.T..
Punjab(');
C.l.T., Bombay v.
Pirojbai N. Contractor("); and
Kunwar Bishwanath Singh v.
C.l.T., C.P.(')) which
have explained this decision of the Privy Council anu
pointed· out that the particular passage in that judgment which is relied. upon had reference to the facts
of that case, viz., the proceedings by way of initial
assessment being still pending.
While no doubt the
Privy Council case is thus distinguishable, the contention of the learned counsel for the appellant that the
escapement from assessment is not to be equated to
(1) [1934] 21.T.R. 71 at 77.
(3) [1937] 5 I.T.R. 338.
(2) [19.15] 3 1.T.R. 438.
(4) [1942] 10 I.T.R. 322.
2S.C.R.
SUPREME COURT REPORTS
301
non-assessment simpliciter is not without force. Here
1955
again, it is unnecessary to lay down what exactly Me.1·srs ·---c,;a11ma111
constitutes "escapement from
assessment". Fot the
Horilr~m Ltd.
purpose of the present case it appe1rs to us sufficient Co111111issio11er_ of_
to say that, where earlier assessment proceedings had li
11;,;;/' ;),';:,~'
1
""
in fact been taken but failed to result in
a valid as-
• - -- / /
sessment owing to some lacuna other than that attrib- .tac.""w.ti"''"" · ·
utable to the assessing
authorities,
notwithstanding
the chargeability of income to the tax, it would be a
case of chargeable income escaping assessment and not
a case of mere non-assessment of income-tax. The proceedings for assessment in the present case have failed
to result in a valid
assessment by virtue of a legal
lacuna, viz., the fact of the Indian Finance Act
of
1939 not liaving been extended to the relevant area
for the relevant assessment year. Learned counsel for
the appellant suggests that the failure of the assessment proceedings in this case must be taken to have
been due to the lapse of the income-tax authorities.
It is said that inasmuch as Regulation IV of 1942 was
actually passed during the pendency of the reference
in the High Court in respect of the prior proceedings,
the result would have been different, if the Regulation
had been brought to the notice of the High Court.
There is, however, no reason to think so. The High
Court's jurisdiction was only to answer the particular
question that was referred to it by
the Income-tax
App~Jlate Tribunal and it is extremely doubtful whether they could have taken notice of a
subsequent
legislation and answered a different question. Learned
coun.<:el for the appellant also urged that in any case
the deeming provision enacted in Regulation
IV of
1942, may be taken to have validated the assessment
proceedings previously taken in the year 1939 r,nd at
hest to have restored the assessment order passed by
the Income-tax Officer on the 22nd December, 1939.
and confirmed by the Assistant Commissioner.
But
thi~ overlooks the fact that the order had in fact been
set aside hy the Income-tax Appellate Tribunal and
th;it the setting aside was
confirmed hy the High
Ccmt on the reference made to it.
Admittedly the
Rc.~wb!ion w::is
passed
after the decision of the
302
SUPREME COURT REPORTS
[1955]
1955
Income-tax Appellate Tribunal. Notwithstanding that
Mes.m ·-c:;,11,wam the Regulation IV of 1942 purported to be retrospecHor;Jr,011 Ltd.
live, it cannot have the effect of effacing the result
cam1111 ,~iooer of brought about by the
decisi~n of the
Income-tax
Jwome 10.r. 1wwr Appellate Tribunal and the High Court on reference,
and nm"'
unless there are clear and express words to tha\
'
.laga1111adiiad11s .1. effect. It might have been quite a different matter,
if by the date of the Regulation the assessment proceedings themselves were still pending,
as in fact
happened with reference
to assessment
proceedings
in this area, in respect of a number of assessees for
the subsequent assessment year, 1940-41, which were
pending by the date of the relevant Regulation and
were continued up to their termination. They were
held to be valid both by the High Court and by the
Federal Court when challenged by the assessees: (See
Raja Ba!iadur Kamakshya Narain Singh v. C./.T,
R & 0. ('); Chatturam v. C.l.T., R & 0. ('): as also
Chatturnm v. C.l.T., Bihm· ('). It follows.
therefore,
that, in our view, the income of the assessee chargeable to income-tax escaped assessment in the relevant
vcar 1939-40. The High Court was, therefore, ri!(ht
in answering as it did the question referred to it.
Thr appeal accordingly fails and is,dismissed with
costs.
(11(1946)14 l.T.R G83.
i2) (1946) 14 l.T.R. G95.
(3) 1947 F.C.R. 116a11'.Y;.
MG!PCBE-S -!-& llC!/ND/82-20-6·83-IOOO.