1968 PLP 673 (PTD)

6. The Departmental Representative suggests the following questions to be framed: "(a) Whether, on the facts and in the circumstances of the case the re‑assessment made under section 34 of the Act on February 14, 1957, was correct in law?" Or, in the alternative: "(b) Whether, by reason of, the omission of the assessee to include in his return of income the surplus made by him on the Cawnpore Electric debenture stock and M. & S. M. Railway stock, the Income‑tax Officer was not justified in issuing notice under section 34(1)(a)?" or "(c) Whether the Income‑tax Officer was not justified in issuing notice under section 34(1)(a) inasmuch as the assessee had not returned the amount of Rs. 31,065 representing the surplus made by him on redemption of Cawnpore Electric debenture stock and M. & S. M. Railway stock as taxable income in his return of income dated September 12, 1952?" In our opinion, the question framed by us in paragraph 5 above is broad enough to bring out the exact issue between the parties. We, therefore, do not accept the suggestion.

7. At the suggestion of the Departmental. Representative copies of accounts of the sterling securities and of the partners for the relevant year are made annexures collectively marked "C" hereto forming part of the case. The further suggestions that the Income‑tax Officer's notes alongside the copies be also made annexures is however not accepted by us. N. A. Palkivala with Dwarkadas for the Assesses: G. N Joshi with R. J. Joshi for the Commissioner. V. S. DESAI, J.‑The short question which arises for determi nation on this reference under section 66(1) of the Indian Income‑tax Act, 1922, is whether the re‑assessment order made on the assessee under section 34 was barred by time. 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. & S. M. Rail way stock and Cawnpore Electric debenure 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 assess ment 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 ascer tained and the figures are as dictated by you and subject to the letter 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 assesses 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 Is, 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 re‑assessment 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 assesses, 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 reassess ment order before the Appellate Assistant Commissioner it was contended by the assessee that the re‑assessment 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. & 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 Appel late 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 reassess ment 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 initia tion 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 proceed ings could be said to have been initiated under sec tion. 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 re‑assessment proceedings could not be justified under section 34(1)(a), but they could be regarded as having been initiated under section 34(1)(6). It accepted the Depart ment's contention that the provisions of section 28(1)(c) were attracted in the present case and, consequently, the reassess ment 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 re‑assessment made under section 34 of the Act on February 14, 1957, was valid and in accordance with the law?" Now, the reassessment order was made in respect of the income, profits and gains which were first assessable in the assessment year 1951‑52, for which the relevant previous year was the calendar year 1950. The notice under section 34 was served on the assessee on the 4th February, 1956, and the re‑assessment order was made on the 14th February 1957. It will thus be seen that the re‑assessment order was made after the expiry of the four years from the end of the year in which the income, profits and gains were first assessable and it was also made after the expiry of one year from the date of the service of notice under section 34 on the assessee. Now, if the initiation of the proceedings was under section 34(1)(a), there was no question of limitation either in the initiation of the proceedings or in the making of an order of re‑assessment. If the initiation of proceedings, however, was under section 34(1)(b), the proceed ings had to be initiated within four years of the end of the assessment year in which the income, profits and gains were first assessable. In the present case, the assessment year was 1951‑52 and, therefore, four years for the initiation of pro ceedings under section 34(1)(6) extended up to 31st March 1956. The notice given in the present case was issued on the 31st January 1956, and served on the assessee on the 4th February 1956. The initiation of proceedings, therefore, was within the time allowed under section 34(1)(6). It was, however, argued on behalf of the assessee that even though the proceedings could be regarded as having been initiated within time under section 34(1)(b) in the present case, the Income‑tax Officer had no jurisdiction to make an assessment order on the date on which he made it, namely, 14th February 1957, as the said date was beyond the period prescribed under section 34(3). The Tribunal did not accept this contention of the assessee, because it took the view that the case attracted the application of section 28 (1) (c) and, therefore, the order fell in the excepted category to which the four years' period did not apply. Section 34(3) reads as follows: "34 (3) No order of assessment or re‑assessment, other than an order of assessment under section 23 to which clause (c) of subsection (1) of section 28 applies or an order of assessment or re‑assessment in cases falling within clause (a) of sub section (1) or subsection (1‑A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable: Provided that where a notice under clause (b) of subsection (1) has been issued within the time therein limited, the assessment or re‑assessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if at the time of the assessment or re‑assessment the four years aforesaid have already elapsed." Now, this provision fixes the period of making an order of assessment or re‑assessment at four years except in the three categories specified in the said section. The three categories which are excepted from the operation of four years rule are (1) an order of assessment under section 23 to which clause (c) of subsection (1) of section 28 applies ; (2) an order of assessment or re‑assessment in cases falling within clause (a) of subsection (1) of section 34 ; and (3) an order of assessment or re‑assessment in cases falling within subsection (1‑A) 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 of reassess ment. 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 an order of assessment but of re‑assessment, 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), it is not a case of re‑assessment 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 orders of assessment or re assessment under subsection (1‑A) 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 re‑assessment. 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 re‑assessment passed by the Income‑tax Officer is clearly barred by time. Mr. Joshi, for the Revenue, has, however, argued that the conclusion of the Tribunal that the initiation of the proceedings in the present case was not justified under section 34(1)(a) is not correct. He has contended that on the facts and in the circum stances of the case the proceedings of re‑assessment initiated in the present case could be regarded as having validly been under section 34(1)(a) and, therefore, the order of re‑assessment passed by the Income‑tax Officer is not affected by the bar of limitation. Now, the conclusion of the Tribunal that the proceedings in the present case could not be justified under section 34(1)(a) is based on its finding of fact; that the assessee had not failed or omitted to disclose fully and truly all material facts necessary for its assessment at the time of the original assessment in respect of the entire amount of the surplus both on the Cawnpore Electric Debenture Stock as well as M. & S. M. Railway Stock. If the finding of fact cannot be disturbed or interfered with, the conclusion drawn by the Tribunal therefrom is unavoidable and unassailable. Mr. Joshi wanted to argue that the finding of fact arrived at by the Tribunal was vitiated inasmuch as there was no material on record in support thereof. We cannot enter tain this argument in the absence of any question having been raised as to whether there was any material on the record to justify the said finding. Mr. Joshi has argued that the question as is framed on the present reference would involve challenge to the said finding of the Tribunal. We do not agree with this submission of Mr. Joshi. The scope of the question as is framed on the present reference and which we are asked to consider is on the basis of the facts found by the Tribunal and relates to whether, in the present proceedings, which were initiated under section 34(1)(b), the order of re‑assessment passed is within time by reason of the fact that section 28(1)(c) is attracted to the case. This would also be clear from the questions which were sug gested for being framed by the Departmental Representative to the Tribunal as contained in paragraph 6 of the statement of the case. In the view that we are taking, our answer to the question, referred to us by the Tribunal is, in the negative. The assessee will get its costs from the Department. Question answered in the negative.