BALDEV SINGH Vs. THE COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference under Section 66 of the Income -tax Act arises out of the following facts. The Assessee in this case is Sardar Baldev Singh, and the accounting year is 1948 -49. The Assessee gave a return of his income comprising his salary as Minister of the Central Government and dividends received by him from a business concern. The income given in the return was Rs. 45,779. On 19th January, 1953, the Income -tax Officer, while assessing the income of private limited company, Messrs Indra Singh and Sons (Private), Limited at Calcutta, took steps under Section 23 -A of the Income -tax Act. He wished to include a sum of Rs. 3,94,475 as the deemed income of the Assessee, Sardar Baldev Singh. On 3rd March, 1954, a notice under Section 34(1)(b) was served upon the Assessee. Two other notices served on 12th March, 1954 and 23rd March, 1954, followed. Shortly after this on 10th May, 1954, the Assessee filed a return and included in this return the deemed income of Rs. 3,94,474 and added it to the income already declared. The Income -tax Officer assessed the Assessee on the basis of this return in November, 1954. An appeal filed by the Assessee to the Appellate Assistant Commissioner was dismissed on 23rd November, 1955, and an appeal to the Appellate Income -tax Tribunal also failed on 18th June, 1956. Thereafter an application was made by the Assessee to the Appellate Income -tax Tribunal for the statement of the case and three points of law arising out of the order passed in appeal have been referred to us. These questions are - -

(2.) SUBSEQUENTLY an application was made on behalf of the Assessee for permission to raise two further law points which, it was alleged, also arose out of the order of the Appellate Income -tax Tribunal but had not been referred by it to us for opinion. One of the points was intimately related to the questions already referred, and the other raised the question of the vires of Section 23 -A. We allowed these questions of law also to be raised before us. Therefore, two additional questions are also before us for our opinion - -

(3.) WHEN , however, we come to examine the provisions of Section 34(1)(b), we find that it is not a case of naked or unfettered discretion having been given to the Income -tax Officer. The pith and substance of the section is that the Income -tax Officer is empowered to take action in every suitable case in which there is reason to believe that income has escaped assessment. Since Section 34 comes into play when the Assessee has not disclosed the whole or part of his income, it is inevitable that the Income -tax Officer should have the right to examine the nature and worth of the information received by him. He is bound to do so and then decide whether a prima facie case for issuing notice under Section 34 is or is not made out. His discretion must be exercised according to the usually recognised judicial principles. It cannot be said, therefore , that he has been given unfettered discretion in this matter and that he can take action in accordance with his caprice rather than on reasonable grounds; although the decision is to be arrived at subjectively, there is an objective guide provided by the section. He can only act if he receives information which leads him to believe that some income of an individual has escaped assessment. He is bound to enquire into the nature of the information received by him and then act accordingly. It was argued before us that the protection given by the section is illusory. There is no case here of any classification, reasonable or otherwise. The Income -tax Officer is bound to act in every case in which he believes that prima facie grounds for taking action exist. The word 'may' in this section is to be construed as 'must' because it is clearly the intention of this section that in every case in which action ought to be taken, the Income -tax Officer should take action.