AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1959 (5) TMI 13
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....der under section 26 of the Act ; and (2) Whether if he had the jurisdiction to revise his own order, under section 26 of the Act, the income from the zarpeshgi lease of the assessee was taxable under the Act." The facts of the case lie within a very narrow compass. For the assessment year 1944-45 which corresponded to the year of account 1351 Fasli, the assessee returned Rs. 37,43,520 as his agricultural income. He claimed a deduction of Rs. 9,42,137-3-10 1/2 on account of land revenue, rent etc., including a sum of Rs. 2,82,192 shown to have been paid to the Tekari Raj from which two leasehold properties were taken on zarpeshgi lease by indentures dated August 15, 1931, and January 31, 1936, respectively. The amount was sought to be deducted as a capital receipt. The Agricultural Income-tax Officer of Darbhanga by his order dated December 28, 1945, accepted this contention, and exempted the amount from payment of agricultural income-tax. He observed : "Out of Rs. 9,42,137-3-10 1/2 claimed on account of land revenue and rent, Rs. 2,82,192 is shown as payment to Tekari Raj and then taken towards the realisation of zarpeshgi loan to self. I have gone through the bond of Gaya....
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.... resolution dated February 7, 1948, referred the two questions to the High Court of Patna. The Board did not express any opinion on the two questions. In the High Court, both the questions were answered in favour of the State of Bihar. Leave having been refused by the High Court, the assessee applied for, and obtained, special leave from this court. Section 26 of the Act, under which the Agricultural Income-tax Officer purported to act is substantially the same as section 34 of the Indian Income-tax Act, prior to its amendment. Necessarily, therefore, the rulings on the interpretation of the latter section were freely cited by the contending parties. Section 26 of the Act reads as follows : "If for any reason any agricultural income chargeable to agricultural income-tax has escaped assessment for any financial year, or has been assessed at too low a rate, the Agricultural Income-tax Officer may, at any time within one year of the end of that financial year, serve on the person liable to pay agricultural income-tax on such agricultural income or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included i....
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....id to have escaped assessment. The High Court in deciding that the Agricultural Income-tax Officer had jurisdiction to revise his earlier assessment referred to the opening words of section 26, namely, "for any reason" and observed that it was not necessary to give a restricted meaning to the word "escaped", and that if an item of income was not charged to tax due to a mistake or oversight on the part of the taxing authorities, that item could well come within the term "escaped". According to the High Court, the phrase "escaped assessment" was not confined to cases where there had been an inadvertent omission, but in view of the later part of the section "where income . . . has been assessed at too low a rate", included a case where there was a deliberate action. Learned counsel for the assessee contends that the generality of the words "any reason" has no bearing upon the construction of the words "escaped assessment", that the word "assessment" does not connote the final determination to tax income but the entire process by which the result is reached, and that inasmuch as the income was actually returned and held to be exempt, there was no question of an "escaped assessment"....
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....x being agricultural income, in view of the decision of the Patna High Court in Kamakshya Narain Singh v. Commissioner of Income-tax. The Income-tax Officer did not accept this contention on the ground that an appeal was pending against the Patna High Court's decision, before the Privy Council. On appeal, the Appellate Assistant Commissioner held that the Income-tax Officer was bound to follow the decision of the High Court, and he set aside the order and directed the Income-tax Officer to make a fresh assessment. The Income-tax Officer thereupon deducted the amount and brought only the remaining income (after some minor adjustments) to tax. His order was passed on August 20, 1946. In the year 1948, the Privy Council reversed the Patna High Court's decision. The judgment of the Privy Council is reported in Commissioner of Income-tax v. Kamakhaya Narayan Singh. The Income-tax Officer then issued a notice under section 34 of the Indian Income-tax Act, and after hearing the party assessed the sum of Rs. 93,604. After sundry procedure which it is not necessary to detail, the matter reached this court, and the question which was before it was "whether in the circumstances of the case,....
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....aped assessment. The appellant's attempt to put a very narrow and artificial limitation on the meaning of the word 'escape' in section 34(1)(b) cannot therefore succeed." The assessee seeks to distinguish that case on the ground that this court laid down the law in the special circumstances where a new interpretation to the law was given, and that it was not a case of the Income-tax Officer changing his mind. He contends that there was at least some information which had come to the Income-tax Officer, on which his subsequent action could be rested. The learned counsel argued that Gajendragadkar, J., had expressly left the question open, where there was no information but the Income-tax Officer merely changed his mind without any information from an external source. Reference in this connection is made to the following observations in the judgment : "It appears that, in construing the scope and effect of the provisions of section 34, the High Courts have had occasion to decide whether it would be open to the Income-tax Officer to take action under section 34 on the ground that he thinks that his original decision in making the order of assessment was wrong without any fresh inf....
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.... the approval by their Lordships of the observations of Rankin, C. J., in In re Lachhiram Basantlal that : "Income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessees' income which have not yet terminated in a final assessment thereof." Their Lordships held that the expression "has escaped assessment" should not be read as equivalent to "has not been assessed" because so to do "gives too narrow a meaning to the word 'assessment' and too wide a meaning to the word 'escaped.'" That those observations were related to the facts then before their Lordships is clear from the following passage : "To say that the income of Burn & Co., which in January, 1928, was returned for assessment and which was accepted as correctly returned, though it was erroneously included in the assessment of Martin & Co. has 'escaped' assessment in 1927-28 seems to their Lordships an inadmissible reading ... Their Lordships find it sufficient for the disposal of the appeal to hold, as they do, that the income of Burn & Co. did not 'escape assessment' in the year 1927-28 within the meaning of section 34." It was in the context of the pendency of ....
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.... issued against him under section 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 a case of chargeable income escaping assessment within the meaning of section 34 and was not a case of mere non-assessment of income-tax. So far as the decision is concerned, it is in substance inconsistent with the argument raised by Mr. Sastri. He, however, relies on the observations made by Jagannadhadas, J., that 'the contention of the learned counsel for the appellant that the escapement from assessment is not to be equated to non-assessment simpliciter 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 assessment proceedings had been taken they had failed to result in a valid assessment owing to some lacuna other than that attributable to the assessing authorities 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 section 34 can be invoked. We ....
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....ars. These are the tests to apply to find out whether the transaction was one of zarpeshgi lease or a lease with a mortgage. See Mulla's Transfer of Property Act, 4th Edition, page 352. The learned counsel for the assessee in his careful argument took us through the two documents and endeavoured to prove that the relation of debtor and creditor subsisted between the parties. He referred us to clause 4, which embodies a provision entitling the lessee to deduct 12 1/2 per cent. of the gross aggregate amount payable by the mokarraridars as expenses of collection and other charges incidental thereto after payment of rent reserved to the "lessor" and to appropriate to himself the remainder. He submitted that the payment to the lessor was not a premium but a loan and the intention was that the lessee or creditor would be thus repaid. The clause by itself may admit of diverse constructions, and possibly one such construction may be the one suggested, but that is not the true purport of the clause read in the context of the rest of the instrument. To interpret this clause the instrument must be read as a whole, and when so viewed, it is found that it provides for an exemption of the le....