TaxTMI 
TaxTMI 
1957 (12) TMI 21
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....for the application of section 34. Action was accordingly taken and the income determined at Rs. 7,008 which now included Rs. 3,000 under the head "business". This second assessment was set aside on appeal and fresh notices under sections 22(2) and 34 were issued and the proceedings resulted in the income being computed at Rs. 41,833. The appeal to the Appellate Assistant Commissioner was unsuccessful. Before the Appellate Assistant Commissioner, a number of objections were taken, among them being the applicability of section 34, the illegality of assessment under section 34, and the invalidity of the notices themselves. But when the matter came before the Tribunal attention was confined only to one point whether the Department was right in travelling beyond the scope of the notice which according to the assessee was restricted to the item of Rs. 17,800 which had escaped assessment, and in roping the other items as well (such for example as income from a trust), which came to their notice in the course of the examination. 5. The Tribunal, on the facts placed before them in the view that in law section 34 would be applicable only to the particular item which had set in motion the....
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....te Assistant Commissioner, who, by his order dated 11th March, 1946, rejected it. This order was challenged in appeal before the Appellate Tribunal, which, by its order dated 7th August, 1950, determined the assessable income at Rs. 21,814 as against Rs. 41,833. The relevant paragraph from the order of the Tribunal reads as under: "So far as the assessment for 1939-40 is concerned, the notice under section 34 was issued in respect of a particular item of concealment, which amounted to Rs. 17,800. The enhancement, therefore, should not have gone beyond the item in dispute. The only addition that could have been made to the quantum determined in the original assessment was Rs. 17,800. The assessable income is, therefore, determined at Rs. 21,814 as against Rs. 41,833." In the result, the appeal was partly allowed. The Commissioner of Income-tax then presented an application requiring the Tribunal to refer to the High Court a question of law, which he thought arose from the order of the Tribunal relating to the assessment year 1939-40. The Tribunal in its order of reference, dated 17th July, 1951, ....
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....income-tax for the year ending 31st March, 1940, has...... (b) been under-assessed...... I therefore propose to reassess the said income that has... (b) been under-assessed,........ I hereby require you to deliver to me not later than 24th June, 1941, or within 30 days of the receipt of this notice a return in the attached form of your total income and total world income assessable for the said year ending 31st of March, 1940. Income-tax Officer, 'B' Ward." Section 34 of the Indian Income-tax Act has had a chequered history and the Legislature has been amending it from time to time. Prior to the amending Act of 1939, section 34 of the Act read as under: "If for any reason income, profits or gains chargeable to income-tax has escaped assessment in any year or has been assessed at too low a rate, the Income-tax Officer may, at any time within one year 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 requirement....
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....preciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 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-section..." As indicated abo....
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.... "definite information", (ii) "discovers" and (iii) "such income, profits or gains." The real meaning and import of these terms in their context will help in finding a correct answer to this reference. In general, the term "information" means the act or process of informing, communication, or reception, of knowledge. It may be knowledge acquired directly as by observation or study, or derived inferentially, or from communication from others. The first condition, before machinery under section 34 can be put into operation, is definite knowledge regarding escapement, coming into possession of the Income- tax Officer at the time when intimation is sent to the assessee. What is "definite information" must, in the nature of things, differ with the circumstances of each case. A precise and all-embracing definition so as to cover all situations and exigencies cannot be attempted. The object of the Legislature in insisting upon "definite information" being in the possession of the Income-tax Officer, before an action was taken under section 34, was to protect the assessee from harassment, which in all likelihood would result, if action was taken on the basis of mere suspicion, gossip or....
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....In its primary and abstract sense, the word "discovers" indicates detection as the result of uncovering, revealing or laying open to view what was hidden, concealed or unknown. It is in this restricted sense, that the assessee wants us to interpret the word "discovers" in this section. But words do not always retain their abstract or primary definitions, and their meanings vary in accordance with the contextual use. It is very often the secondary meanings, which acquire more extensive recognition, and receive ready comprehension. Besides section 34, the word "discover" has occurred in taxation statutes in England. Section 52 of the Taxes Management Act, 1880, reads: "If the surveyor discovers that any properties or profits chargeable to the duties have been omitted from first assessments, or that any person so chargeable has not made a full and proper or any return, or has not been charged to the said duties, or has been under-charged in the said first assessments, or has obtained and been allowed from and in such first assessments any allowance, deduction, abatement or exempti....
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....judgment of the Court of Appeal, in fact remarked, that he saw no reason to dissent from the decision of the Divisional Court as to the meaning of the word "discovers" occurring in section 52 of the Taxes Management Act: vide Rex v. Kensington Income Tax Commissioners*. In Rex v. Commissioners of Taxes for St. Giles and St. George, Bloomsbury (ex parte Hooper)**, Lord Reading, C.J., approved of the meaning of the word "discovers" in Rex v. Kensington Income Tax Commissioners*, and was of the view, that the "surveyor discovers when he honestly arrives at the conclusion based upon the material then before him." In Williams v. Trustees of W.W. Grundy*** the same view was taken of the meaning of the word "discovers" occurring in section 125 of the Income-tax Act, 1918. This section was similarly worded as section 52 of the Taxes Management Act, 1880. Section 125 runs: "(1) If the surveyor discovers-that any properties or profits chargeable to tax have been omitted from the first assessments; or...... then the surveyor shall amend the assessment and assess the person liable to the full amount......." Finlay, J., after citing the above quoted passage from the judgment of B....
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....aped assessment, or have been under-assessed, or have been the subject of excessive relief, he may at any time......serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section 13, and may proceed to assess or reassess the amount of such profits liable to excess profits tax and the provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section." The controversy in that case was, whether on the facts found, the Excess Profits Tax Officer could be held to have discovered that there had been grant of excessive relief. The contention of Mr. Kolah, counsel for the appellants--which did not find favour with their Lordships--was, that discovery, for the purpose of section 15 of the Act, must be of facts which were in existence during the chargeable accounting period, and that facts which came into existence subsequent to the chargeable accounting period could under no circumstances be made the basis for reassessment of the profits of that period. On behalf of the Commissioner of Excess Profits Tax, the Attorney-General contended, that the words, "if the Excess Pr....
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....ts and circumstances on which assessment had been made or relief granted.........................." From the above discussion, I am persuaded to conclude, that the language of section 34 of the Act has not in any manner crippled or fettered the powers of the Income-tax Officer regarding the receiving of "definite information" in consequence of which any escapement of income, profits, or gains has been discovered. The words "definite information" and "discovers" in this context do not bear any rigid, or narrow etymological meaning, but are to be interpreted in their broad and generally accepted sense. The only restriction in using the words "definite information" which the framers of section 34 had in view, as it emerged after the passing of the amending Act of 1939, was to prevent the Income-tax Officers from making assessments blindly and officiously or on the basis of rumours, gossips or vague apprehensions. The Income-tax Officer was not called upon to discover the exact quality or quantity of the omission; it was sufficient if he found that there had been some omission, and it would be immaterial if it was greater or smaller than he had supposed it to be. It would be no less....
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....te provided that: "Within 10 days after the execution of the assignment the assignor shall also make and file in the office of said clerk a correct inventory of his assets and a list of his creditors, stating the place of residence of each such creditor and the amount due to each, which inventory and list shall each be verified by his oath, and have affixed a certificate of the assignee that the same is correct according to his best knowledge and belief, and failure to make and file such inventory and list shall render such assignment void, but no mistake therein shall invalidate such assignment or affect the right of any creditor." The controversy in that case was in relation to the use of the word "such" in the sentence "and failure to make and file such inventory and list shall render such assignment void." The Supreme Court of Wisconsin held, that according to the natural, reasonable and grammatical construction, the word "such" referred only to a correct inventory of assets and list of creditors, without any reference whatever to the oath of the assignor or the certificate of the assigne....
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....reof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. Now, 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 liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay." In Cockerline & Co. v. Commissioners of Inland Revenue** the above quotation from the judgment of Lord Dunedin was cited with approval by Lord Hanworth, M.R., who also associated himself with the following passage from the unreported decision of the Court of Appeal dated 3rd November, 1926, in Williams v. Henry Williams from the judgment of Sargant, L.J.: "I cannot see that non-assessment prevents the incidence of the liability, though the amount of deduction is not ascertained until assessment. The liability is imposed by the charging section............ The subsequent provisions as to as....
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.... a statute in a manner so as to suppress the mischief and advance the remedy. Even where usual meaning of the language falls short of the whole object of the legislature, the more extended meaning may be attributed to the words if they are susceptible of it, but, of course, without straining the language so as to avoid inclusion of plainly omitted cases. It is well to remember that section 34, while being part of a taxing Act, does not impose any charge on the subject ; it concerns itself with the machinery of the assessment, and according to canons of interpretation that construction should be preferred, which makes the machinery workable. Therefore, section 34 is to be read in aid and not in derogation of the charging section. In Commissioner of Income-tax v. Mahali Ram Ramji Das [1940] 8 I.T.R. 442, at 448, their Lordships of the Privy Council expressed themselves in the following words: "The section, although it is part of taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that....
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....ection 34 seems to be to inform the taxpayer, after the receipt of definite information, that there was escapement of his income from assessment, and that he was being given an opportunity to satisfy the Income-tax authorities as to his correct income for purposes of proper quantification. In support of his contention, Mr. Sibal relies upon the following passage occurring at page 805 of The Law and Practice of Income-tax by Kanga and Palkhivala, 3rd Edition: "Where a notice has been given to the assessee under this section in respect of certain items of escaped income, the Income-tax Officer cannot make an additional assessment in respect of fresh items of income under other heads, which were not covered by the notice at all, nor can the Appellate Assistant Commissioner assess such fresh items of the income for the first time in appeal." From what follows, this does not appear to be a correct statement of law. The first authority that the learned counsel for the assessee has cited is Chimanram Motilal v. Commissioner of Income-tax [1943] 11 I.T.R. 44. But this decision does not sustain his argument at all. The question in that case was: ....
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.... and direct the Income-tax Officer to make a fresh assessment including a fresh item of income after the period of limitation prescribed in section 34 has expired?" From the clear language and tenor of the two questions reproduced above, it would be clear, that they bear no similarity either to the question under reference, or to the facts of this case. The above questions were answered in the negative. The passage relied upon by the assessee's learned counsel in the judgment is quoted below in extenso containing the two sentences, to which our pointed attention was drawn: "It is obvious that under this section no income, if it has escaped, can be touched after the period of limitation prescribed therein. On the one hand, this section arms the Income-tax Officer with a special power to rectify his mistakes and to save the exchequer from any loss accruing from his negligence and on the other it protects the assessee against the arbitrary use of this section and sets a limit of time within which such mistakes can be rectified. Again, this section is confined to the items of income tha....