MAHARAJ KUMAR KAMAL SINGH versus THE COMMISSIONER OF INCOME-TAX, BIHAR & ORISSA

8 In the result, the appeals are allowed, the decrees J( . 1 [passed by ][the ][High ][Court ][are ][set aside, ][and ][those ][of ]~ aima the Courts below are rest-0red, with costs throughout.

0. J( . '"'" •:'. aima Lakshnii mn1a

Appeals nllowed.

V etikatarama Aiyar j.

MAHARAJ KUMAR KAMAL SINGH

October I. THE COMMISSIONER OF INCOME-'.i'AX, BIHAR & ORISSA

(VENKATARAMA AIYAR, GAJENDRAGADKAR and A. K. SARKAR JJ.)

Income Tax-Re-assessment -Escaped income -Assessment order based on statement of law subsequently found to be erroneous--W hcther assessment can be reopened-" Information", "Escaped income", meaning of-Indian Income-tax Act, r922 (XI nf r922), as amended by Act 48 of r948, s. 34(r)(b).

In respect of the assessment of the appellant to income-tax the Income-tax Officer excluded the amount of interest on arrears of rent received by him, in view of the decision of the Patna High Court in Kamakshya Narain Singh v. Commissioner of Income-tax, [1946] 14 I. T. R. 673, that this amount was not liable to be taxed, though an appeal against the said decision to the Privy Council at the instance of the Income-tax Depart-ment was then pending. Subsequently on July 6, 1948, the Privy Council allowed the appeal and held that interest on arrears of rent payable in respect of agricultural land was i~ot agricultural income as it was neither rent nor revenue derived from land. As result of this decision the Income-tax Officer took proceedings under s. 34 of the Indian Income-tax Act, 1922, as an1ended, and revised the assessment order by adding the aforesaid amount, on the footing that the subsequent decision of the Privy Council was information within the meaning of s. J4(1)(b) of the Act and that the Income-tax Officer had reason to believe that part of the assessee's income had escaped assessment. It was contended for the appellant that s. 34(1)(b) was not applicable to the case because (1) the information referred to in the section means information as to facts and can-not include the ilecision of the Privy Council on point of law,

(I) S.C.R. SUPREME COURT REPORTS

and (2) where income has been duly returned for assessment and an assessment order has been passed by the Income-tax Officer, it cannot be said that any income has escaped assessment within s. 34(1)(b).

Kamal Singh v. Commission1r of

Held, ( l) that the word " information " in s. 34( l )(b) of the Act includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions; and, .

l11com1-t11~

(2) that the expression

"has escaped assessment " in

s. 34(1)(b) cannot be given restricted meaning confining it only to cases where no return has been submitted by the assessee. The section is applicable not only where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted, but also where are turn has been submitted, but the Income-tax Officer erroneously fails to tax part of assessable income.

Rajendra Nath Mukherjee v. Income-tax Commissioner, (1933) L.R. 61 I. A. IO and Messrs. Chatturam Horliram Ltd. v. Com-missioner of Income-tax, Bihar and Orissa, [1955] 2 S.C.R. 290, distinguished.

Raja Benoy Kumar Sahas Roy v. Commissioner of Income-tax• West Bengal, [1953] 24 I.T.R. 70, Madan Lal v. Commissioner of Income-tax, Punjab, [1944] 12 l.T.R. 8 and The Commissioner of Income-tax v. Raja of Parlakimedi, (1926) I.L.R. 49 Mad. 22, approved.

Maharaja Bikram Kishore of Tripura v. Province of Assam,

[1949] 17 1.T.R. 220, disapproved.

C1v1L APPELLATE JuRISDICTION: Civil Appeal No.

297 of 195t>.

Appeal from the judgment and decree dated April 7,

1954, of the Patna High Court in Misc. Judicial Case No. 327 of 1951.

A. V. Viswanatha Sastri and B. K. Sinha, for the

appellant.

K. N. Rajagopala Sastri, R.H. Dhebar and D. Gupta,

for the respondent.

1958. October I. The Judgment of the Court was delivered by

GAJENDRAGADKAR J.-This is an appeal with the Gajendragadkar ]. certificate issued by the High Court of Judicature at Patna under s. 66A(2) of the Income-tax Act (herein-after called the Act) and it raises short question of the construction of s. 34(l)(b) of the Act. This

r95s question arises in this way. Proceedings were taken Kamal Singh by the Income-tax Officer, Special Circle, Patna, v. against Maharaja Bahadur Rama Rau Vijaya Prasad Commission" of Singh, the father of the appellant, to levy income-tax Income-tax for the year 1945-46. The total income assessed to income-tax by the said order was Rs. 1,60,602. This Gajendragadkar f. amount included the sum of Rs. 93,604 received by the assessee on account of interest on arrears of rent due to him after deduction of collection charges. It was urged before the Income-tax Officer by the assessee that this amount was not liable to be taxed in view of the decision of the Patna High Court in Kamakshya Narain Singh v. Commissioner of Income Tax('). The Income-tax Officer, however, held that, since the department had obtained leave to appeal to the Privy Council against the said decision, the matter was su.b judice and so he would not be justified in accepting the assessee's contention. In the result, he included the said amount in the total income for the purposes of assessment, but ordered that the realisation of the tax on the said amount should be stayed till the decision of t.he Privy Council or March 31, 1947, whichever was earlier. This order was passed under s. 23(3) of the Act on December 31, 1945. Against this order the assess~e preferred an appeal before the Appellate Assistant Commissioner of Income-tax, Patna. On May 8, 1946, the appellate authority held that the Income-tax Officer was bound to follow the decision in the case of Kamakshya Narain Singh (su.pra) ([1]) and so, he set aside the order under appeal in regard to the amount of Rs. 93,604 and directed the Income-tax Officer to make fresh assess-ment. He also observed that it was not clear as to what portion of the said amount was interest on arrears of agricultural rents and what portion related to interest on arrears of non-agricultural rents. The Income Tax Officer was accordingly directed to deter-mine the latter amount and to levv tax on it. Pursuant to this appellate order the Income-tax Officer made fresh assessment under ss. 23(3) and 31 of the Act on August 20, 1946. By this order the (1) [1946] 14 I.T.R. 673.

(1) S.C.R. SUPREME COURT REPORTS

total amount of income liable to tax was determined z95S after deducting the whole of the amount of Rs. 93,604 Kamal Singh from it. Some other minor reductions were also v. allowed in compliance with the appellate order. The Commission., of department did not challenge either the appellate lllcome-tax order or the subsequent order passed by the Income-. tax Officer in pursuance of the said appellate order. Ga1end•agadkar Subsequently, on July 6, 1948, the appeal preferred by the department to the Privy Council against the decision of the Patna High Court in Kamakshya Narain Singh's case ([1]) was allowed and it was held that interest on arrears of rent payable in respect of agricultural land is not agricultural income for it is neither rent nor revenue derived from land.

Ga1end•agadkar f.

As res'ult of this decision, the Income-tax Officer issued notice to the a.ssessee under s. 34 of the Act on September 25, 1948. This notice called upon the assessee to file fresh return as the Income-tax Officer had reason to believe that part of the assessee's income assessable to income-tax for the year ending March 31, 1946, had escaped assessment. It appears that" this notice was found to be defective, and so under the provisions of s. 34, as amended, fresh notice was issued by the officer to the assessee on March 18, 1949. The proceedings thus taken by the officer under s. 34 ultimately led to revised assess-ment order passed under s. 23(3) and s. 34 of the Act and the amount of Rs. 93,604 was added to the assessment amount as interest on arrears of rent. This revised assessment order was passed on April 30, 1949.

The assessee appealed against this order but the appellate authority dismissed the assessee's appeal and confirmed the said order on July 26, 1949. He held that the subsequent decision of the Privy Council in the case of Kamakshya Narain Singh (supra) (1) was information within the meaning of els. (a) and (b) of. s. 34(1) and that the Income-tax Officer had reason to believe that part of the assessee's inconi.e had escaped assessment. The assessee then moved the Income-tax Appellate Tribunal; but on August 21,

(1) [1948] 16 I.T.R. 325.

1958 1950, the tribunal confirmed the order passed by the Kamat Siugh appellate authority and dismissed the assessee's appeal. v. It was held that the provisions of s. 34 as amended in Commi«iorn of 1948 arplied to the case and that the decision of the Incom.-ta.c Privy Council brought it within the purview of sub-. -s. (l)(b) of s. 34. Ga;endragodkar J. Meanwhile the assessee died and the appellant,

Meanwhile the assessee died and the appellant, succeeded to the estate of his deceased father. He then filed <tn application under s. 66(1) of the Act requiring the tribunal to refer the question of law raised in the case to the Patna High Court for its opinion. The tribunal rejected this application on :February 27, 1951. Thereupon the appellant moved the Patna High Court under s. 66(2) of the Act; his application was allowed and the tribunal was directed by the High Court on December lfi, 1951, to state the case and refer the question of law for its opinion. In compliance with the requisition of the High Court the tribunal by its order passed on July 23, 1952, submit-ted statement of the case and referred to the High Court for its opinion the question of law raised by the appellant. The question thus raised is: "Whether in the circumstances of the case the assessment order under s. 34 of the Act of the interest on arrears of rent is legal ? " On April 7, 1954, this reference was heard by V. Ramaswamy and C. P. Sinha JJ. of the Patna High Court and the question was answered by them in favour of the department. The appellant then applied for and obtained certificate from the Patna High Court on September 13, 1954. The High Court has certified under s. 66A, sub.cl. (2), of the Act that the case raises question of law of substantial kind and is otherwise fit case for appeal to this court. That, is how the present appeal has come before us; and the question which it raises for our decision is about the true construction of s. 34(l)(b) of the Act. Section 34 of the Act has been amended in 1939 and in 1948. It is conceded by Mr. Viswanatha Sastri, for the appellant, that the present case is governed by the section as it was amended in 1948. This amended s. 34, sub-s. (1), deals with cases of income escaping ll,ssessment in two clauses. Clause (a) covers cases

(1) S.C.R. SUPREME COURT REPORTS

where income has escaped assessment by reason of the 1958 omission or failure on the part of the assessee to make return of his income under s. 22. We are not Kamal Singh concerned with this clause. Clause (b) of s. 34(1) commis;ion., of provides inter alia that· "notwithstanding that there Incom1-1ax has been no omission or failure as mentioned in cl. (a) on the part of the assessee, if the Income-tax Officer Gajeudragadkar J. has, in consequence of information in his possession, reason to believe that income, profits or gains charge-able to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low rate, or have been made the subject of excessive relief under the Act, or that excessive loss or deprecia-tion allowance have been computed, he may, at any time within four years of the end of that year serve on the assessee notice containing all or any of the requirements, which may be included in notice under sub-s. (2) of s. 22, and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a. notice issued under that sub-sec-tion ". It is clear that two conditions must be satisfied before the Income-tax Officer can act under s. 34(l)(b). He must have information in his possession, which, in the context, means that the relevant information must have come into his possession subsequent to the ma.king of the assessment order in question and this information must lead to his belief that income charge-able to income-tax has escaped assessment for any year, or that it has been under-assessed or assessed a.t too low a. rate or has been made the subject of excessive relief under the Act. Two questions are raised by Mr. Sastri under this sub-section in the present appeal. He contends that the relevant information means infor-mation as to facts and cannot include the decision of the Privy Council on point of law ; and he argues that, where income has been duly returned for assessment and an assessment order has been passed by the Income-tax Officer, it cannot be said that any income has escaped assessment within s. 34(l)(b). Thus the appellant's 0[ase is ][that ][both the conditions required ][by ][s. 34(l)(b) ]

have not been satisfied and so the order of revised \ assessment passed against the appellant is illegal. against the appellant is illegal. the appellant is illegal. appellant is illegal. is illegal.

'95[8 ]

Kamal Singh assessment passed against the appellant is illegal. against the appellant is illegal. the appellant is illegal. appellant is illegal. is illegal. v. It is not disputed that,, according to its strict literal Comminioner nf meaning, the word" information" may include know-Income-ta.< ledge even about state of the law or deci8ion on . -point of law. The argument, however, is that the G•J••d••c .. dk•• J. context requires that the word "information" should receive narrower construction limiting it to facts or factual material as distinguished from information as to the true state of the law. In support of thi" argument l\fr. Sastri referred to the marginal notes of ss. 19A and 20A as well as the provisions of s. 22(3) and s. 28 and urged that the information contemplated by these provisions is information as to facts or parti-culars and has no reference to the state of law or to any quest.ion of law; and so the said word in s. 34(l)(b) should be construed to mean only factual information. We are not impressed by this argument. If the word "information" used in any other provision of the Act denotes information as to facts or parti-culars, that would not necessarily determine the meaning of the said word in s. 34(l)(b). The denota-tion of the said word would naturally depend on the context of the particular provisions in which it is used. It is then contended that ss. 33B and 35 confer ample powers on the specified authorities to revise Income-tax Officer's orders and to rectify mistakes respectively and so it would be legitimate to construe the word "information" ins. 34(1)(b) strictly and to confine it to information in regard to facts or particulars. This argument also is not valid. If the word "information" in its plain grammatical meaning includes information as to facts as well as information as to the state of the law, it would be unreasonable to limit it to information as to the facts on the extraneous consideration that some cases of assessment which need to be revised or rectified on the ground of mistake of law may conceiv-ably be covered by ss. 33B and 35. Besides, the application of these two sections is subject to the limi-tations prescribed by them; and so the fact that the said sections confer powers for revision or rectification would not be relevant and material in construing

(1) S.C.R. SUPREME COURT REPORTS

s. 34{l)(b). The explanation to s. 34 also does not 1958 assist the appellant. It is true that under the explanation production before the Income-tax Officer Kamal Singh of account books or other evidence from which material Co•nmis;;.,.., of facts could with due diligence ha. ve been discovered Income-ta" by the Income-tax Officer would not necessarily a.mount to disclosures within the meaning of the said section ; Gajendragadkar /. but we do not see how this can have any bearing on the construction of cl. (b) ins. 34(1). On the other hand, one of the cases specifically mentioned ins. 34(l)(b) neces-sarily postulates that the word "information " must have reference to information as to law. Where, in con-sequence of information in his possession, the Income-ta.x Officer has reason to believe that income has been · assessed at too low rate, he is empowered to revise the assessment; and there can be no doubt that the belief of the Income-tax Officer that any given income has been assessed at too low rate may in many cases be due to information about the true legal position in the matter of the relevant rates. If the word "infor-.mation " in reference to this class of cases must neces-sarily include information as to law, it is impossible to accept the argument that, in regard to tho other cases falling under t.he same provision, the same word should have narrower and more limited meaning. We would accordingly hold that the word " information " ins. 34(l)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions. If that be the ~rue position, the argument that the Income-tax Officer 'was not justified in treating the Privy Council decision in question as information within s. 34(l)(b) cannot be accepted.

The next question that remains to be considered is in regard to the other condition prescribed by s. 34(l)(b). When can income be said to have escaped assessment? Mr. Sastri argued that the word "assess-ment " does not mean only the order of assessment, but it includes all steps taken for the purpose of levy-ing the tax and during the process of taxation. That no doubt is true ; but the wide denotation of the word

[1959] Supp.

"assessment" does not really assist the appelln,nt; it • J(amal Singh only shows that along with the order of assessment v. which is an important act in the process of taxation, commission" of other acts and steps adopted in the course of taxation Income-tax are also included in the word ; but it is with this " most critical act in the process of taxation " with Gajendragadkur .J. which we are concerned in the present appeal. Then it is urged that the word "escaped" according to the Oxford English Dictionary means "to elude (observa-tions, search, etc.); to elude the notice of person"; and the contention is that it is only where income has not been returned for assessment that it can be reason-ably said that income has escaped assessment. 'fhe dictionary meaning of the word does not support Mr. Sastri's contention. According to the same dictio-nary the word " escape " also means " to get clear away from (pursuit or pursner); to succeed in avoiding (anything painful or unwelcome)"; so that judging by the dictionary meaning alone it would be difficult to confine the meaning of the word " escape " on! y to cases where no return has been submitted by the assessee. Even if the assessec has submitted return of his income, cases may well occur where the whole of the income has not been assessed and such part of the income as has not been assessed can well be regarded as having escaped assessment. In the present case, interest on arrears of rent received by the assessec from his agricultural lands were brought to the notice of the Income-tax Officer ; the question as to whether the said amount can be assessed in law was considered and it was ultimately held that the· relevant decision of the Patna High Court which was binding on the department justified the a.ssessee's claim that the said income was not liable t-0 be assessed to tax. There is no doubt that part of the assessee's income had not been assessed and, in that sense, it has clearly escaped assessment. Can it be said that, because the matter was considered and decided on the merits in the light of the binding authority of the decision of the Patna High Court, no income has escaped assessment when the said Patna High Court decision has been sub-Hequently reversed by the Privy Council ? We see no

(1) S.C.R. SUPREME COURT REPORTS

justification for holding that cases of income escaping r95a • assessment must always be cases where income ha.s not Kumnl Singh been assessed owing to inadvertence or oversight or v. owing to the fact that no return ha.s been submitted. In Commissioner of our opinion, even in case where a. return ha.s been Iticome-la:< submitted, if the Income-tax Officer erroneously fails to . -ta.x pa.rt of assessable income, it is case where the Ga1endragadkar f. said pa.rt of the income has escaped assessment. The appellant's attempt to put very narrow and artificial ~ limitation on the meaning of the word "escape " in s. 34(l)(b) cannot therefore succeed.

Mr. Sastri, however, argues that the narrow con-

struction of the expression " has escaped assessment " for which he contends has been approved by the Privy Council in Rajendranath Mukherjee v. Income-tax Commissioner ([1]). He relies more particularly on the observation ma.de in the judgment in this case that "the fact thats. 34 requires notice to be ser-ved ca.Hing for return of income which has escaped assessment strongly suggests that income which has already been duly returned for assessment cannot be said to have 'escaped' assessment within the statutory meaning". In order to appreciate the effect of this observation it would be necessary to examine the material facts in the case and the specific points raised for the decision of the Privy Council. It appears tllat, in 1930 the Income-tax Officer had made an asfessment order on Burn & Co., which was an unregistered firm, assessing them to income-tax and sup~r-ta.x for the year 1927-28 under the Act. The individual partners of Burn & Co., who were the appellants before the Board, con-tended that it was not competent to the officer to make the impugned assessment on the firm after the expiry on March 31, 1928, of the year in respect of which the assessment was made. The Commissioner of Income-tax met this plea by referring to th6 other relevant facts which explained the delay in making " the assessment order. Towards the end of 1926-27, the partners of the registered firm of Martin & Co., had purchased the business and aRsets of Burn & Co. This transaction was effected not on behalf of the firm (1) (1933)_ 61 I.A. IO, 16.

,958 of Martin & Co., but by the partners of the firm as . . individuals. In April 1927, the Income-tax Officer of 1'"'""1 Singh District I issued notice to Burn & Co., under s. 22(2) c0 .,,,,;,:;0ne1 of calling for return of their total income for the year · Income-tax ending March 31, 1927, with view to assessing them for the year 1927-28. similar notice was issued by Gajendmgodkar ] ·the Income-tax Officer of District II. 'Vlwn these notices were issued bot.h the officers did not know that the business of Burn & Co., had been bought by the partners of Martin & Co. Subsequently this transac-tion was brought to the knowledge of the income-tax authorities whereupon Burn & Co.'s file was trans-ferred by the _officer dealing with District II, and in February 1928, an assessment order was made on Martin & Co., in respect of the combined incomes returned by Martin & Co., and Burn & Co., on the footing that the business of Burn & Co., had become branch of Martin & Co. Martin & Co., appealed against this assessment and their appeal was allowed by the High Court in May 1930. It was held that an income of registered firm cannot, for the purpose of the Act, be aggregated with the income of an unregis-tered tirm but that the income of each must be sepa-rately assessed irrespective of the fact that the persons interested in the profits of both concerns are the same. In consequence of this decision, the assessment made. on Martin & Co., was amended by the elimination therefrom of the income returned by Burn & Co., and in November 1930, an assessment was made on Burn & Co., on their irrcome as returned by them in Janu-ary 1928. It was this assessment which was the subject-matter of the appeal before the Privy Council. It would thus be noticed that the principal question which the appellants raised before the Privy Council was : \Vhether the assessment made under s. 23(1) on the appellants in November 1930 for the year 1927-28 was legal assessment? The argument was that, on true construction of the Income-tax Act, it was obli-gatory on the Income-tax Officer to complete the assessment proceedings within the year of assessment, and in the event of such assessment not being so com-pleted the only remedy open to the i~come-tax

i~come-tax

authorities was to proceed under s. 34. This argument i958 • was repelled by the Privy Council. Their Lordships . . /(omni Singh · he ld t at neit er s. 23 nor any ot er express prov1s10n v. of the Act limited the time within which an assessment commissioner of must be made. They then examined the other argu-Income-ta.v ment urged by the appellants that s. 34 implied . . -prohibition against the making of an assessment after(•[11]1•nd•agadkar J. the expiry of the tax year. In dealing with this argu-ment, s. 34 was construed and it was observed that the ~ argument sought to put upon the word " assessment " too narrow meaning, and upon the word "escaped" too wide meaning. It was in this connection that their Lordships approved of the observation made by Rankin C. J. in Re: Lachhiram Basantlal (1) that •· ..... .income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessee's income which have not yet ,terminated in final assessment thereof". In other words, the conclusion of the Privy Council was that so long as assessment proceedings are pending against an asses-see and no final order has been passed thereon, it would be premature to suggest that any income of the assessee has escaped assessment. It is only after the final order levying the tax has been passed by the Income-tax Officer that it would be possible to predi-cate that any part of the assessee's income has escaped assessment. In the result their Lordships held that " since proceedings pursuant to the notice issued against the appellants under s. 22(2) had been pending 'and no order had been passed against the appellants in the said proceedings, it would not be possible to accept their argument that the Income-tax Officer should have taken action against them in respect of the income for the relevant year under s. 34 of the Act". If this decision is considered in the light of the . relevant facts and the nature of the argument raised before the Privy Council by the appellants, it would be difficult to accept the contention that, according to ). the Privy Council, s. 34 would be inapplicable wherever notice under s. 22(2) has been issued against an assessee, return has been submitted by him and

(1) (1930) LL.R. 58 Cal. 909, 912.

'95[8 ]a. final. order has been passed by the Income-tax Kamal Si•gh Officer in the said assessment proceedings. To say "· that, so long as the assessment proceedings are Commission" of pending, it is impossible to assume that any income has I••ome-1•.• escaped assessment is very much different from saying -that income cannot be said to have escaped assess-G•j••d••g•dA•• J. ment wherever assessment proceedings have been taken and final order has been passed on them. We must, therefore, hold that this decision does not support Mr. Sastri's contention about the inapplic-ability of s. 34 in the present case. In this connection it may be relevant to refer to the decision of the Calcutta High Court in Re : Lachhiram Basantlal (supra) ([1]) because, as we have already pointed out, the statement of the law made by Rankin C. J. in regard to the effect of s. 34 of the Act in this case has been expressly approved by the Privy Council in the case· of Rajendra Nath Mukherjee (supra)('). While dealing with the assessees' argument that the order of assessment was invalid since it had been passed more than one year after the expiry of the relevant financial year and that the Income-tax Officer might have acted under ~. 34, Rankin C. J. stated that income cannot be said to have escaped assessment except in the case where an assessment has beeu made which does not include the income. It is tr·ue that this observation is obiter but it is fully consistent with the subsequent statement of the law made by the learned Chief Justice which has received the approval of the Privy Council.

Mr. Sastri has also relied on the decision of this

Court in Messrs. Ohatturam Horliram Ltd. v. Commis-sioner of Inc0me-taa:, Bihar & Ori8sa (') in support of his construction of s. 34. In Oha.tturam's case (supra)(') the assessee had been assessed to income-tax which was reduced on appeal and was set aside by the Income-tax Appellate Tribunal on the ground that the Indian Finance Act of 1939 was not in force during the assessment year in Chota Nagpur. On reference the decision of the tribunal was upheld by the High (1) (1930) I.LR. 58 Cal. 909, 9n. (2) (1933) 61 I.A. ro, 16. (3) r1955} 2 S.C.R. 290.

Court. Subsequently the Governor of Bihar promul-r9ss gated the Bihar Regulation IV of 1942 and thereby brought into force the Indian Finance Act of 1939 in J(amal Singh v. Uhota Nagpur retrospectively as from March 30, 1939. Commissioner of This ordinance was assented to by the Goveruor-Income-tax General. On February 8, 1944, the Income-tax Officer . -passed an order in pursuance of which proceedings Ga;endragadkar .f. were taken against the assessee under the provisions of s. 34 and they resulted in the assessment of the assessee to income-tax. The contention which was raised by the assessee in his appeal to this Court was that the notice issued against him under s. 34 was invalid. This Court held that the income, profits or gains sought to be assessed were chargeable to income-tax and that it was case of chargeable income escap-ing assessment within the meaning of s. 34 and was not case of mere non-assessment of income-tax. So far as the decision is concerned, it is in substance in-consistent with the argument raised by Mr. Sastri. He, however, relies on the observations made by .fagan-nadhadas J. that "the contention of the learned counsel for the appellant t,hat the escitpement from assessment is not to be equated to non-assessment sirnpliciter is not without force " and he points out that the reason given by the learned judge in support of the final decision was that though earlier assess-ment proceedings had been taken they had failed to result in valid assessment owing to some lacuna other than that attributable to the assessing authori-ties notwithstanding the chargeability of income to the tax. Mr. Sastri says that it is only in cases where income can be shown to have escaped assessment owing to some lacuna other than that attributable to the assessing authorities that s. 34 can be invoked. We do not think t,J1at fair reading of the jndgment can lead to this conclusion. The observations on which reliance is placed by .Mr. Sastri have naturally been made in reference to the facts with which the Court was dealing and they must obviously be read in the context of those facts. It would be unreasonable to suggest that these observations were intended to confine the application of s. 34 only to eases where

z958 income escapes assessment owing to reasons other Kamal Singh than those attributable to the assessing authorities. v. Indeed Jagannadhadas J. has taken the precaution Commissioner of of adding that it was unnecessary to lay down what Income-lax exactly constitutes escapement from a3sessment and . -that it would be sufficient to place their decision on G•J••dragadkar J. the narrow ground to which we have just referred. We are satisfied that this decision is of no assistanue to the appellant's case.

It appears that the constri1ction of s. 34 ha.s led to divergence of judicial opinion in the High Courts of this country, and so it would be necessary to refer briefly to the decisions to which our attention was invit~d in this appeal. In Madan Lal v. Commi8sioner of I. T., Punjab ([1]), the majority decision of the Full Bench of the Lahore High Court held that s. 34 of the Act, as it stood then, was· not confined to cases where income had not been returned at all. It applied also to cases where an item of income is included in the return ma.de by the assessee but is left unassessed by the Income-tax Officer, or, if assessed in the first in-stance, the assessment is cancelled by any appellate or revisional authority. Din l\folrnmm:td J. who deliver-ed the majority judgment has expressed his agreement with the opinion of Coutts Trotter C. J. in The Com-missioner of Income-tax v. Raja of Parl,akimedi (') that the words "escaped assessment" apply even "to cases where the Income-tax Officer has deliberately adopted an erroneous construction of the Act as much as to case where an officer has not considered the matter at all, but simply omitted the assessable property from his view and from his assessment··.

The next case which has been oited before us is the decision of the Bombay High Court in The Commis-sioner of Income-tax, Bombay v. Sir Mahomed Yusuf Ismail ([3]). In this case Beaumont C. J. construed the word " definite information " in s. 34 and h<!ld that in order to take action under the said sectio11, there must be some information as to fact which leads the Income-tax Officer to discover that income (1) [1935] 3 l.T.R. 438. (2) (1926) 49 Mad. 22, 28.

(3) [1944] 12 I.T.R. 8.

(1) S.C.R. SUPH.EME COURT REPORTS

has escaped assessment or has been under-assessed. ) 'fhe learned Uhief Justice, however, added that the Ka111al Singh fact mav be as to the state of the law, for instance, v. that c"ase has been overruled or that statute has commissioner of been passed which has not been brought. to the atten-Income-tax tion of the J ucome-tax Officer. Chagla J. who deliver-. -ed concurring judgment was inclined to hold that G·•;rnd"';:adka• J. the word "information " in the section must be con-fined onl,v to information as to facts or particulars and cannot include information as to law. In his opinion, "a mistake of law or misunderstanding of the provi-sions of the law iH not covered by the language of the section as amended in 1939 ". It may be pointed out that in coming to this conclusion t.he learned judge appears to have relied on the observations ofRowlatt J. in Anderton and Halstead Ltd. v. Birrell ([1]) that "the word 'discove1·' in s. 125 of the English Act docs not include mere change of opinion on the same facts and figures upou the same question of account-a.ncy, being question of opinion". Incidentally, we ma.y observe that this statement of the law by Mr. J m;tice H,owlatt appears to have been overruled by the Court of Appeal in Commercial Structures Ltd. v. R. A. Briggs ([2]).Soon after the decision of the Bombay High Court was reported the same question was raised before the Madras High Court in Raghavalu Naidu &1 Sons v. OommiBsioner of Income-tax, Madras ([3]). Leach C. J. who delivered the judgment of the court agreed with the construction whi6h had been put on the expression "definite information " by the Bombay High Court on the ground that " it is very desirable to avoid conflict on such a· question". He, however, added that in view of the opening words of the amend-ed section as it was amended in 1939, the word " discovers" means something more than 'has reason Lo believe' or' satisfies himself' and that consequently -., it would not be right to regard the English decisions on the meaning of the word "discovers" in s. 125 of

( 'l [ 1~3z I r K. B. •il• (~) [19.~9) Ii I.T.R. 5upplement 30. (3) [1945j 13 I.T.R. 1% 197.

io58 the English Ad as being in point. He also ma<le it . . clear that in following the Bombay decision they did f< amol v. Singh not imp y t . 1 ] iat t fi 111 "t . miorma ,. t" wn mus re t J ate t o commisoioner of pure question of fact because it was impossible to 1>1cww-1ax lay down rule to cover all cases in which this section can be invoked.

In the Calcutta High Court, conflicting views have been expressed on this point. In Maharaja Bikram K ishore of . Tripy,ra v. Province of Assam (1 ), Harries C. J. and Mukherjea J. had to deal with the con-struction of s. 30 of the Assam Agricultural Income-r.ax Act (Assam IX of 1939) which corresponds to s. 34 of the Act. They held that where certain income has been included in his return by the assessee but was not assessed on the ground that it was not assess-able, it cannot be treated as income which has escap-ed assessment and reassessed under s. 30 of the Assam Agricultural Income-tax Act. In his judgment the learned Chief Justice has mentioned that the earlier decisions of the Calcutta. High Court were no doubt against the contentions of the appellant but he took the view that the question was really concluded by the decision of the Privy Council in Rajendra Nath llfukherjee's case (supra)('). The Privy Council decision was read by the learned Chief Justice as supporting the view that s. 34 would be inapplicable to cases where income has been returned, assessment proceed-ings have been taken and final order of assessment has been passed by the In~iome-tax Officer against the assessee. We have already pointed out that the deci-sion of the Privy Council does not support this yiew. In Raja Benoy Kumar Saha~ Roy v. Commissioner of I. T., West Bengal('), Chakravartti C. J. and Lahiri J. have taken contrary view. They have held that information as to the true state or meaning of the law derived freshly from an external source of authorita-tive character is definite information within the mean-ing of s. 34.

Gajendrngadka' ·

It appears that, in construing the scope and effect

of the provisions of s. 34, the High Courts have had

(1) [1949] 17 l.T.R. 220. (2) (1933) 61 I.A. 10. 16. (3) [1953] 24 l.T.R. 70.

oc0asion to decide whether it would he open to the 1958 Income-tax Officer to take action und<'r s. 34 on the ground that he thinks that his original decision in r:amal Singh making the order of assessment was wrong without Commis~·ioner of any fresh information from an external source or Income-ta:. wliether the successor of the Income-fax Otlicer can act under s. 34 on the ground that tlw order of asfleSfl- G"jendrngadkar 1. ment passed by his predecessor was erroneous, and divergent views have been expressed on this point. ,. . Mr. R.ajagopala Sastri, for that under the proYiflions of the s. 34 respondent, suggested as amended in 1948, it would be open to the Income-tax Officer to act under the said section even if he merely changed his mind without any information from an external source and came to the conclusion that, iu particular case, he had erroneously allowed an assessee's income to escape assessment. We do not propose to express any opinion on this point in the present appeal. In the result we hold that the Patna High Court was right in coming to the conclusion that the decision of the Privy Cou·ncil was information within the meaning of s. 34 (l)(b) and that the said decision justified the belief of the Income-tax Officer that part of the appellant's income had escaped assessment for the relevant year. The appeal accordingly fails aud must be dismissed with costs.

Appeal dismissed.