KHIMCHAND AMARCHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE short question which arises for determination on this reference under section 66(1) of the Indian Income -tax Act, 1922, is whether the reassessment order made on the assessee under section 34 was barred by time.

(2.) THE assessee is a firm of share and stock brokers and it also has its own business of dealing in shares and securities. During the previous year relating to the assessment year 1951 -52, the assessee firm obtained a surplus of Rs. 31,065 on the redemption of certain sterling securities which it had held as stock -in -trade consisting of M. and S. M. Railway stock and Cawnpore Electric debenture stock. For the assessment year 1951 -52, in the return which the assessee filed, the taxable income shown by it was Rs. 71,399 which did not include the aforesaid amount of Rs. 31,065. It appears that the Income -tax Officer, however was aware of the said surplus from the information which was laid before him on the record of the case. The assessment order for this year was made by the Income -tax Officer sometime in March, 1954, on the income of Rs. 71,399. Subsequent thereto, as a result of certain discussions between the Income -tax Officer and the assessee's representative with regard to the liability to tax of the said amount of Rs. 31,065 the assessee at the instance of the Income -tax Officer filed a fresh return of income for the assessment year 1951 -52 on the 5th February, 1955. In this return again, the assessee declared a sum of Rs. 71,399 as its taxable income and added a note : 'The income is as ascertained and the figures are as dictated by you and subject to the letter of date of our accountants.' The supplementary assessment was thereafter made by the Income -tax Officer on the 12th February, 1955, including the amount of Rs. 31,065 in the assessable income. Against this order of assessment, the assessee appealed to the Appellate Assistant Commissioner on the ground that the order was bad since a notice under section 34 had not been issued before making the said assessment. This contention was accepted by the Appellate Assistant Commissioner and that assessment order was set aside. Thereafter, a fresh notice under section 34 was issued by the Income -tax Officer to the assessee on the 31st January, 1956, and it was served on the assessee on the 4th February, 1956. In response to the said notice, the assessee submitted a return in which again he declared its taxable income at Rs. 71,399 and added a note that it was 'subject to our letter dated February 18, 1956'. In section D of the return, the assessee stated that the surplus of redemption amounts received from M.& S.M. Railway stock and Cawnpore Electric debenture stock was of Rs. 31,065. The reassessment was completed by the Income -tax Officer on 14th February, 1957 on a total income of Rs. 1,02,464 which was made up of Rs. 71,399 stated as its taxable income by the assessee, plus Rs. 31,065 the amount of the surplus. In the assessment order, the Income -tax Officer stated that it was made in pursuance of a notice issued under section 34(1)(a), although the notice which was issued did not, in fact, state that it was under section 34(1)(a). In the appeal against the reassessment order before the Appellate Assistant Commissioner it was contended by the assessee that the reassessment under section 34(1)(a) was not justified as the assessee had not failed or omitted to disclose fully and truly all material facts necessary for its assessment at the time of original assessment. The Appellate Assistant Commissioner accepted this contention in regard to the facts relating to a part of the surplus which constituted the surplus made on Cawnpore Electric debenture stock, but not in regard to the remainder which was in respect of M. and S.M. Railway stock. Before the Tribunal the assessee contended that the initiation of the proceedings under section 34(1)(a) was not justified as the assessee had not failed or omitted to disclose fully and truly the material facts necessary for its assessment at the time of its original assessment in respect of the entire surplus and not only in respect of a part thereof as held by the Appellate Assistant Commissioner. It was further contended that even if the reassessment proceedings were regarded as having been initiated under section 34(1)(b), the order of reassessment made was barred by time, inasmuch as it had been made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable and also beyond one year from the date on which the service of notice under section 34 had been made on the assessee. On the other hand, the contention of the department was that the initiation of the proceedings was justified under section 34(1)(a) and therefore the order made was not barred by limitation. In the alternative, the department contended that the proceedings could be said to have been initiated under section 34(1)(b), but the four years' period of limitation under section 34(3) did not apply since the provisions of section 28(1)(c) were attracted to the case. The tribunal held that the initiation of the reassessment proceedings could not be justified under section 34(1)(a), but they could be regarded as having been initiated under section 34(1)(b). It accepted the department's contention that the provisions of section 28(1)(c) were attracted in the present case and, consequently, the reassessment order passed by the Income -tax Officer could be made even after the period of four years, and it was not barred by time. It accordingly dismissed the assessee's appeal. On an application made by the assessee under section 66(1), the Tribunal then drew up the statement of the case and referred to this court the following question : 'Whether, on the facts and in the circumstances of the case, the reassessment made under section 34 of the Act on February 14, 1957, was valid and in accordance with the law ?'

(3.) NOW , this provision fixes the period of making an order of assessment or reassessment at four years except in the three categories specified in the said section. The three categories which are expected from the operation of four years rule are : (1) an order of assessment under section 23 to which clause (c) of sub -section (1) of section 28 applies; (2) an order of assessment or reassessment in cases falling within clause (a) of sub -section 34; and (3) an order of assessment or reassessment in cases falling within sub -section (1A) of section 34. Now, the present case does not fall in any of these three categories. It is not an order of assessment, but an order reassessment. If it was an order of assessment, then by reason of the conclusion of the Tribunal that the provisions of section 28(1)(c) are attracted in the case, it could have fallen in the first category. Since, however, it is not and order of assessment but of reassessment, it would not come within that category. On the finding of the Tribunal that the notice could not be justified under section 34(1)(a). Therefore, it does not fall in the second category also. It admittedly does not fall in the third category which relates to order of assessment or reassessment under sub -section (1A) of section 34. Mr. Palkhivala for the assessee argued that the conclusion of the Tribunal that the provisions of section 28(1)(c) are attracted in the present case is not correct. It is not, however, necessary to deal with that contention, because, even if the said conclusion of the Tribunal were correct, it would have been only relevant if the order was an order of assessment and not of reassessment. In our opinion, therefore, on the conclusions of fact arrived at by the Tribunal that the initiation of the proceedings in the present case was not justified under section 34(1)(a), but could only be regarded as under section 34(1)(b), the order of reassessment passed by the Income -tax Officer is clearly barred by time.