Bhanji Bagawandas v. Commissioner of Income-tax, Madras
~. J.-This appeal is brought from the judgment of
the Madras High Court dated January Z, 1964 in Tax Case
No. 153 of 1962. E
The asessment year involved in this appeal is-1948-49, the
correspondin'g previous year being the financial year 1947-48. For
the accounting period from November J 3, 1947 to November I,
I 948 which was the corresponding previous year for the assess
ment year 1949-50 there was shown a credit of Rs. 25,000 in the
capital account of the appellant. On November 13, 1947, this P
amount was credited in the books of the appellant. On October
30, I 948 this amount was transferred to the account of one
Amrithlal. Ranchoodas, the father-in-law of the appellant. The
Income-tax Officer included the said amount as income of the
appellant from undisclcsed sources in the assessment for the
assessment year 1949-50. On appeal to the Appellate Assistant G
Commissioner the appellant contended that the amount could not
be included in the assessment year 1949-50 because the credit
appeared prior to March 31. 1948. The Appellate Assistant Com
missioner allowed the appeal holding that the credit came into
the books of the appellant cm November 13, 1947, i.e., in the
financial year 1947-48 which is the previous year for the
assessment year 1948-49. On this finding, the Appellate Assistant R
Commissioner deleted the addition of Rs. 25,000 from the assess
ment of the appellant for the year 1949-50. In doing so, the Appel
late Assistant Commissioner followed the decision in C.l.T. v.
llAGAW.&lill.&111, C,t,T, (~ J,) 19
A P. Dwolia cl Son.v('). Consequently, on November 3, 1958 the In
come-tax Officer issued a notice under s. 34(1)(a) of the Income.
tax Act, 1922, (hereinafter referred to as the. 'Act') to the a~l
lant for the assessment year 1948-49. By his order dated April 20,
1959 he rejected the contention of the appellant that the assess
ment was barred by limitation and assessed the sum of Rs. 25,000
1 as income from other sources. The appellant took the matter in
-, appeal to the Appellate Assistant Commissioner who, by his order
dated February 23. 1960. allowed the ·appeal. He took the view
that there was no finding in the order of the Appellate Assistant
Commissioner that the credit represented the income of the appel
lant or that the same credit should be assessed in the assessment
year 1948-49. He further held that the netice under s. 34 issued on
G ~ 3, 19S8 was bad in Jaw and was not saved by the
second proviso to s. 34(3) of the Act. The Commissioner of Income
tft preferred an appeal against the order of the Appellate Assis
tant · Commissionc:i' to the Income-tax Appellate Tribunal which
allowed the appeal, holding that "the order of the Appellate Assis
tant Commissioner in the appeal against th.e assessment for 1949-
D SO should be taken to contain a finding that the sum of Rs. 25,000
represented income of the assessee to be considered in the as,<1ess
ment year 1948-49". At the instance of the appellant the Appellate
Tribunal referred the following questions of law for the opinion of
the High Court under s. 66(1) of the Act:
I'
"(l) Whether on the facts and in the circumstances of
the case. the proceedings initiated against the assessee for
IAe assessment year .1948-49 under section 34 and the
assesament for the said· year are bilrred by limitation and
hence not lawful?
(2/ Whether the proceedings initiated against the assessee
for the assessment year 1948-49 under section 34 and
the. assessment made under section 34 for the assessment
year 1948-49 Could be justified in law as for the purpose
of giving effect to a finding or directions in the order of
the Appellate Assistant Commissioner in I.T.A. No. 134
of 1958-59?
(3) Whether on the facts and in the circumstances of the
case. the assessment made is saved from the bar of limi·
talion under the second proviso to section 34(3)?"
By its judgment dated January 2. 1964, the High Court answered
the qtlestions in favour of the respondent and against the appel
lant. 'The High Court followed an earlier decision in A.S. Khader.
~ Ismail v. Income tax Officer('), in which it had held that the word
"finding" in the proviso to s. 34(3) of the Act must be given a
(I) 2'I I.T.B. 5111. (2) '7 I.T~ 16.
SUPRllJIB COUl\T llBPOl\T8 [1968] 1 S.0.11.
wide significance so as to include not only findings necessary A
for the disposal of the appeal but it would apply to cases where
it is held that the income in question was in respect of an earlier
year which was not the subject-matter of the appeal before the
appellate authority.
On behalf of the appellant Mr. Swaminathan put forward the B.
argument that the decision of the High Court is contrary to the
view taken by this Court in lncome-/ax Officer, A-Ward, Sitapur
v. Murlidliar Bhagwan Das(') in which it was held that the expres
sions "finding" and "direction", in the second proviso to s. 34(3),
meant respectively, a inding necessary for giving relief in respect
of the assessment for the.year in question, and a direction which
the appellate or revisional authority, as the case may be, was cm- c
powered to give under the sections mentioned in that proviso. A
"finding", therefore, could only be that which was necessary for
the disposal of an appeal in respect of an assessment of a particu-
lar year. The Appellate Assistant Commissioner might hold, on the
evidence, that the income shown by the assessee was not the in
come for the relevant year and thereby exclude that income from
the assessment of the year under appeal. The finding in that context D
was that the income did not belong to the relevant year. He might
incidentally find that the income belonged to another year, but that
was not a finding necessary for the disposal of an appeal in respect
of the year of assessment in question. It was further held that the
second proviso to s. 34(3) did not save the time-limit prescribed
under s. 34()) in respect of an escaped assessment of a year other E
than that which was the subject-matter of the appeal or revision.
as the case may be, and accordingly the notice issued under s. 34(1)
(a) in that case was barred by limitation and was not saved by the
second proviso to s. 34(3). In the course of its judgment this Court
overruled the judgment of the Madras High Court in A. S. Kha-
der Ismail v. Income-tax Officer('). It follows therefore that the
view taken by the High Court in the present case is not correct in 1
law and must be overruled.
On behalf of the respondent, however, Mr. Veda Vyasa con
tended that in answering the reference the effect of s. 2 of the In
come-tax (Amencjment) Act <Act I of 1959) must be taken into
consideration ~nd in view of the amendment made by that section 0 of the amending Act the questions referred to the High Court m~t
be answered riecessarily against the appellant. Section 2 of the
Amendment Act, 1959 inserted in s. 34 of the Act a new sulH!ec
tion (4) which provides:
"A notice under clause (a) of sub-section (I) may be
issued at any time notwithstanding that at the time of B
the issue of the notice. the period of eight years specified
(') li2 I.T.R. SU. (~ n r:r ..R. 16.
B4G.!.WANDA8 "· 0.1.T. (Ramaswami, J.)
A in that sub-section before its amendment. by clause (a)
of section 18 of the Finance Act, 1956 (18 of 1956), had
expired in respect of the year to which the notice rela'l.Cll.
Section 4 of the Amending Act, 1959 read as follows: .
"No notice issued under clause (a) of sub-section
(1) of section 34 of the principal Act at any time before
B the commencement of this Act and no assessment, re
asseiSment or settlement made or other. proceeding taken
in consequence of such notice shall be called in question
in any court, tribunal or other authority merely on the
ground that at the time the notice was issued or at the
time the assessment or re-assessment was made the time
c within which such notice should have been issued or the
assessment or re-assessment should have been made under
that section as in force before its amendment by clause
(a) of section 18 of the Finance Act, 1956 (18 of 1956),
had expired."
21
Mr. Veda Vyasa ,referred to the decision of the Bombay High
D Court in Onkarmal Meghraj v. C.J.T .. Bombay-1.{') in which it was
held that there was nothing in s. 2 or 4 of the Amendment Act
of 1959 to restrict the terms of the words "at any time" occurring
ins. 4 of that Act as meaning "at any time after April 1, 1956",
viz., the date on which the amendments made by the Finance Act,
1956, came into force and there was nothing in the provisions of
E the Amendment Act of 1959 which limited the retrospective
operation of s. 4. It was also held that since the enactment of the
Amendment Act of 1959 a notice issued after April 1, 1956, for
reopening an assessment, by virtue of s. 4, could not be ~itted
to be called in que&tion on the ground that the notice" was not
issued within the period prescribed by the unamended s. 34(l)(a).
On behalf of the respondent reference was also made to the deci-
r sion of this Court in S. C. Prashar v. Vasantsen Dwarkadas,(') in
which it was held that s. 4 of the Amendment Act, 1959 operated
on and validated notices issued under s. 34(l)(a) as amended in
1948 even ,earlier than April 1, 1956, in other words, in respect of
assessment years prior to March 31, t956, and therefore notices
issued under s. 34(1)(a) of the Income-tax Act before April l, 1956,
could not be challenged on the ground that they were issued
G beyond the time limit of eight years from the respective assess
ment years prescribed by the 1948 amendment. On behalf of the
appellant Mr. Swaminathan raised the objection that the point was
not taken up by the respondent in the Bigh Court. nor wai there
any reference to it in the statement of the case filed by the respond
ent. It was also contended that the point raised was outside the
B scope or' the questions of law referred by the Appellate Tribunal
to the High Court. We do not think there is any substance in the
('l 811 I.TJ\. 3119. (')CO LT.& I,
8~ OOUBT Ul'OllTS [11188] I 1.0.11.
objection raised on behalf of the appellant. One of the questions .A
referred to the High Court is "whether on the facts and in the
circumstances of the case, the assessment made is saved from the
bar of limitation under the second proviso to section 34(3)?" It
is true that the impact of the Amending Act, 1959 (Act I of 1959)
was not raised before the' Appellate Tribunal or before the High
Court, but it is not a separate question by itself and is only an B
aspect of the question of limitation which has already been refer
red by the Appellate Tribunal to the High Court. As pointed out
in CJ.T. Bombay v. Scindia Steam Navigation Co. Ltd.,(') the ques
tion of Jaw referred to the High Court untler s. 66 may be a simple
one having its impact on one point, or it might be,a complex one,
involving more than one aspect and requiring to be tackled from
different standpoints. All that section 66(1) requires is that the ll
question of law which is referred to the High Court and which
the-High Court is to decide must be the question which was in
issue before the Tribunal. Where the question itself was under issue,
there is no further limitation imposed by the section that the
reference should be limited to those aspects of the question which
had been argued before the Tribunal, and it will be an over-refine.. J)
ment of the position to hold that each aspect of a question is itself
a distinct question for the purpose of s. 66()) of the Act. In our
opinion, the argument of the respondent with regard to the legal
effect of the Amending Act of 1959 (Act 1 of 1959) is within the
frame-work of the question already referred to the High Court and
it is therefore competent to this Court, in a case of this descrip- E
lion, to allow a new contention to be advanced.
It is, however, necessary that the ~ase should be remanded
to the High Court for examining the question of law referred to
it after considering the impact of the Amending Act of 1959 (Act
l of 1959).
For these reasons we allow . this appeal. set aside the judg
ment of the High Court dated January 2, 1964 and remand the
case to it for farther hearing and answering the reference in the
light of the Income-tax Amending Act I of 1959. In the circum
stances of the case we direct that the respondent should pay the
cost of this appeal in this Court.
Y. P.
Appeal allowei.
r