Appeal No 130 of 1962
Appeal by special leave from the Judgment and decree dated March 17 1959 of the Allahabad High Court in Misc
Writ Petition No 280 of 1958
K N Rajagopal Sastri and R N Sachthey for the appellant Bishan Narain G C Sharma OC Mathur J B Dadachanji and Ravinder Narain for the respondent
A V Vishwanatha Sastri D N Mukherjee and B N Ghosh for the intervener
January 29 1964 Me Judgment of B P Sinha CJ KSubba Rao and N Rajagopala Ayyangar JJ was delivered by Subba Rao J
The dissenting opinion of Raghubar Dayal and Mudholkar JJ was delivered by Mudholkar J SUBBA RAo J
This appeal by special leave raises the question of the construction of the proviso to sub section
3 of section 34 of the Indian Income tax Act 1922 as amended by Act 25 of 1933 hereinafter called the Act
The facts lie in a small compass and they are as follows The respondent is a firm carrying on business in different lines
It was assessed to income tax under section 23 4 of the Act for the assessment year 1949 50 on the ground that the notice issued under sub sections
2 and 4 of section 22 of the Act had not been complied with
On September 27 1955 the said assessment was cancelled under section 27 of the Act
But before the said cancellation it was found that an interest income of Rs 88737 in the shape of UP Encumbered Estates Act Bonds received by him in discharge of 415 the debts due from third parties had escaped assessment as the assessee failed to disclose the same
The Income tax Officer issued a notice under section 34 1 a of the Act for the assessment year 1949 50 on the ground that the said sum of Rs 88737 had escaped assessment in the said assessment year
After the assessment of that year was set aside under section 27 of the Act the Income tax Officer ignoring the notice issued by him under section 34 1a of the Act included that amount in the fresh assessment made by him
The assessee preferred an appeal against that order and that was disposed of by the Appellate Assistant Commissioner on December 4 1957
The Appellate Assistant Commissioner in his order held that the bonds were received by the assessee in the previous accounting year and therefore directed that the sum representing interest on the bonds should be deleted from the assessment for the year ending 1949 50 and included in the assessment for the year ending 1948 49
pursuant to the direction given by the Appellate Assistant Commissioner the Income tax Officer initiated proceedings under section 341 of the Act in respect of the assessment year 1948 49
The notice issued under that section was served on the respondent on December 5 1957
The assessee filed a petition under article 226 of the Constitution in the High Court of Judicature at Allahabad for quashing the said proceedings mainly on the ground that the proceedings were initiated beyond the time prescribed by section 34 of the Act
The High Court accepted the contention and quashed the proceedings initiated by the Income tax Officer
Hence the appeal
The proceedings would be in time if the second proviso to section 343 of the Act could be invoked
The question therefore is what is the true meaning of the terms of the second proviso to section 343 of the Act
It reads Provided further that nothing in this section limiting the time within which any action may be taken or any order assessment or re assessment may be made shall apply to a re assessment made under section 27 or to an assessment or re assessment made on the assessee or any person in consequence of or to give effect to any 416 finding or direction contained in an order under section 31 section 33 section 33A section 33B section 66 or section 66A Prima facie this proviso lifts the ban of limitation imposed by the other provisions of the section in the matter of taking an action in respect of or making an order of assessment or re assessment falling within the scope of the said proviso
The scope of the proviso is confined to an assessment or re assessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under section 31 ie in an appeal before the Assistant Appellate Commissioner under section 33 ie in an appeal before the Tribunal under section 33A ie in a revision before the Commissioner under section 33B ie in a revision before the Commissioner against an order of the Income tax Officer and under sections 66 and 66A ie in a reference to the High Court and appeal against the High Court s order to the Supreme Court
Learned counsel for the appellant contends that the scope of the proviso is only confined to the assessment of the year that is the subject matter of the appeal or the revision as the case may be
Learned counsel for the Department argues that the comprehensive phraseology used in the proviso takes in its broad sweep any finding given by the appropriate authority necessary for the disposal of the appeal or the revision as the case may be and to any direction given by the said authority to effectuate its finding and that the said finding or direction may be in respect of any year or any person
As the phraseology used in the proviso is not clear or unambiguous the question raised cannot be satisfactorily resolved without having a precise appreciation of a brief history of section 34 of the Act culminating in the enactment of the proviso in the present form
Under section 3 of the Act income tax for any year shall be charged in respect of the total income of the previous year of every assessee
Notice under section 22 calling for return of income is the first step in the assessment proceedings
Two types of notices are mentioned in that section namely i the public notice and ii the individual notice Me public notice shall be issued on or before the 1st May of each year and the individual notice may be issued at any 417 time in the course of the assessment year
Income tax proceedings therefore for a particular assessment year have to be initiated in the course of that year
But there may be cases of escaped assessment or under assessment
Section 34 empowers the Income tax Officer to take proceedings under that section both in respect of concealed income and also in bona fide cases where the income has escaped assessment or full assessment
Section 341 a provides for the initiation of assessment proceedings in respect of concealed income and section 341 b for other escaped income Section 341 has been amended from time to time
Under the said section as it originally stood the Income tax Officer was empowered to initiate proceedings at any time within one year of the end of the year in respect whereof the income escaped assessment
By Act 7 of 1939 that section was amended and eight years  limitation from the end of the year was prescribed in respect of concealed income and a limitation of four years for other escaped income
Under Act 48 of 1948 the same periods of limitation were retained but certain conditions were imposed
By the Finance Act of 1956 it was enacted that in the case of concealed income the proceedings could be initiated at any time within 4 years of the end of the relevant assessment year
Though no period of limitation was prescribed in respect of concealed income three conditions were imposed namely i that an Income tax Officer shall not issue a notice for any year prior to the year ending on March 31 1941 ii that if the escaped income was less than rupees one lakh he shall not issue a notice if 8 years have elapsed after the expiry of the relevant assessment year and iii that unless he has recorded his reasons and unless the Central Board of Revenue in any case falling under cl
2 of the proviso and in any other case the Commissioner is satisfied that for such reasons as recorded it is a fit case for the issue of a notice
Before 1939 there was no period of limitation for com pleting the assessment once it had been initiated within the prescribed period of limitation
But Act 7 of 1939 for the first time introduced cl
2 in section 34 whereunder no order of assessment under section 23 or of assessment or re assessment under sub section 1 of this section shall be made after the 134 159 section C 27 418 expiry in any case to which c of sub section 1 of sec tion 28 applies of eight years and in any other case of four years from the end of the year in which the income profits or gains were first assessable
Section 28 1 c dealt with a case of an assessee concealing the particulars of his income or deliberately furnishing inaccurate particulars of his income
Act 23 of 1941 inserted a proviso in section 342 providing that nothing contained in this sub section shall apply to a re assessment made in pursuance of an order under section 31 section 33 section 66 or section 66 A ie provisions relating to appeals revisions and references that is to say if the assessment made by the Income tax Officer was set aside and a re assessment was directed to be made the said periods of limitation would not apply to such reassessment
Act 48 of 1948 introduced sub section
3 in section 34 in substitution of sub section 2 thereof
Under that sub section the period of limitation prescribed by sub section
2 was retained and the proviso to section 342 before the amendment was made the second
proviso with some modifications to the amended sub section
While the scope of the previous proviso was confined only to the completion of re assessment proceedings the scope of the amended proviso is much wider in that it exempts the subject matter of that proviso from the operation of the period of limitation prescribed by the section that is to say it gives full scope to the operation of the substantive part of the section unhampered by the periods of limitation prescribed by sub sections
1 2 and 3 of section 34 of the Act
While the previous proviso lifted the ban only in regard to the period of limitation prescribed for the completion of the assessment the new proviso lifted the ban even in respect of the initiation of proceedings under section 34 1 of the Act
It follows that if a matter fell within the terms of the proviso there would be no period of limitation for initiating an action or making an assessment or reassessment in respect of that matter
Briefly stated the said proviso is a proviso to the entire section 34
We shall consider the scope of the proviso at a later stage of our judgment
Then came the Finance Act of 1956
It amended section 34 1 and introduced a proviso to the said sub section which we have noticed earlier
That proviso while removing the period of limitation in respect of concealed income imposed 419 some conditions in respect thereof but the four year period of limitation in respect of other escaped income was retained
We are not concerned in this appeal with the subsequent amendments
The history of the section gives us the following background to the proviso under consideration
Broadly stated under section 34 as it existed in 1956 i there was no time limit for initiating proceedings under section 341 in respect of con cealed income but such initiation could be made only sub ject to the conditions laid down in the proviso to section 34i ii in the case of other escaped income the proceedings could not be initiated after the expiry of 4 years from the end of the relevant assessment year iii the assessment proceedings once commenced shall be completed within the period of limitation prescribed under section 343 and iv to a case to which the proviso to section 343 applies there is no period of limitation either for initiating the proceedings under section 34 or for completing the assessment commenced either under section 23 or under section 341
With this background let us give a closer look to the relevant terms of the proviso
The first part of the proviso released the operation of the proviso from the restriction imposed by section 34 only in respect of the time limit within which any action may be taken or any order of assessment or re assessment may by made
It means that the proviso continues to be subject to the other restrictions imposed under the section and it cannot override the said provisions in that regard
Under the proviso the period of limitation will not apply to a re assessment made under section 27 or to an assessment or re assessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31 section 33 section 33B section 66 or section 66A of the Act
It was not contended nor was it possible to contend that by reason of the reference to the said provisions the powers and jurisdiction conferred on the respective
authorities tribunals or courts referred to therein were enlarged or modified by a  reference in the proviso or that the proviso could be read or construed as amending those sections conferring on those bodies wider or different powers or jurisdiction
Learned counsel for the department expressly disclaimed any such submission
Therefore the scope of the proviso cannot ordinarily exceed the scope of the jurisdiction conferred on an authority under the said provisions
It is not and cannot be disputed that under the Income Lax Act year is the unit of assessment
The Judicial Committee in Commissioner of Income tax vs section M Chitnavis1 pointed out  For the purpose of computing the yearly profits and gains each year is a separate self contained period time in regard to which profits earned or losses sustained before its commencement are irrelevant This Court in Sir Kikabhai Premchand vs Commissioner of Income tax Central Bombay1 accepted this legal position when it said   for income tax purposes each year is a self contained accounting period and we can only take into consideration income profits and gains made in that year and are not concerned with potential profits which may be made in
another year any more than we are with losses which may occur in the future
 Indeed the decision of an Income tax Officer given in a particular year does not operate as res judicata in the matter of assessment of the subsequent years
The jurisdiction of the tribunals in the hierarchy created by the Act is no higher than that of the Income tax Officer
It is also confined to the year of assessment
Under section 27 of the Act the Incometax Officer cancels the best judgment assessments made by him if the assessee shows that he was prevented by sufficient cause from making the returns under section 22 of the Act
Section 31 prescribes the mode of disposal by an Assistant Appellate Commissioner of an appeal preferred to him the appeal before him is certainly confined to an assessment year after hearing the appeal he can either confirm reduce enhance or annul the assessment he can set aside the 11932 L R 59 I A 290 297
2  222
421 assessment and direct the Income tax Officer to make a fresh assessment
The various sub sections of that section describe in detail the orders or directions that can be made or issued by him in respect of various matters but no power is conferred on him to make an order or issue directions in respect of an assessment of a year which was not the subject matter of the appeal
It may therefore be held on a construction of the provisions of section 31 that the jurisdiction of the Appellate Assistant Commissioner is strictly confined to the assessment orders of a particular year under appeal
Section 33 inter alia deals with an appeal to the Tribunal against the order of the Appellate Assistant Commissioner under section 31 and section 33B confers power of revision on the Commissioner against an order of the Income tax Officer
The jurisdiction of the Appellate Tribunal or the Revisional Tribunal as the provisions indicate is confined only to the subject matter which is under appeal or revision
The jurisdiction of the High Court or the Supreme Court under section 66 or section 66B as the case may be is far more limited and it is confined only to the questions referred to them
Obviously the questions referred by the Tribunal cannot exceed its jurisdiction
It is therefore manifest that assessment or re assessmentmade under the said sections or pursuant to the orders ordirections made thereunder must necessarily relate to the assessment of the year under review revision or appeal as the case may be
It is important to remember that the proviso does not confer any fresh power upon the Income tax Officer to make assessments in respect of escaped incomes without any time limit
It only lifts the ban of limitation in respect of certain assessments made under certain provisions of the Act and the lifting of the ban cannot be so construed as to increase the jurisdiction of the Tribunals under the relevant sections
The lifting of the ban was only to give effect to the orders that may be made by the appellate revisional or reviewing tribunal within the scope of its jurisdiction
If the intention was to remove the period of limitation in respect of any assessment against any person the proviso would not have been added as a proviso to sub section
3 of section 34 which deals with completion of an assessment but would have been added to sub section
1 thereof
422 Now let us scrutinize the expressions on which strong reliance is placed for the contrary conclusion
The words relied upon are section limiting the time any person in consequence of or to give effect to any finding or direction
Pointing out that before the amendment the word subsection was in the proviso but it was replaced by the expression section it is contended that this particular amendment will be otiose if it is confined to the assessment year under appeal for it is said that under no circumstances the Income tax Officer would have to initiate proceedings for the said year pursuant to an order made by an Appellate Assistant Commissioner
This contention is obviously untenable
The Appellate Assistant Commissioner or the Appellate Tribunal may set aside the notice itself for one reason or other and in that event the Income tax Officer may have to initiate the proceedings once again in which case section 341 will be attracted
The expression finding or direction the argument proceeds is wide enough to take in at any rate a finding that is necessary to dispose of the appeal or directions which Appellate Assistant Commissioners have in practice been issuing in respect of assessments of the years other than those before them in appeal
What does the expression finding in the proviso to sub section
3 of section 34 of the Act mean Finding has not been defined in the Income tax Act
Order XX r 5 of the Code of Civil Procedure reads In suits in which issues have been framed the Court shall state its finding or decision with the reasons therefor upon each separate issue unless the finding upon any one or more of the issues is sufficient for the decision of the suit Under this Order a finding is therefore a decision on an issue framed in a suit
The second part of the rule shows that such a finding shall be one which by its own force or in combination with findings on other issues should lead to the decision of the suit itself
That is to say the finding shall be one which is necessary for the disposal of the suit
The scope of the meaning of the expression finding is considered by a Division Bench of the Allahabad High Court in 423 Pt
Hazari Lal vs Income tax Officer Kanpur1 There the learned Judges pointed out The word finding  interpreted in the sense indicated by us above will only cover material questions which arise in a particular case for decision by the authority hearing the case or the appeal which being necessary for passing the final order or giving the final decision in the appeal has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing
 We agree with this definition of finding
But a Full Bench of the same High Court in Lakshman Prakash vs Commissioner of Income tax UP 2 construed the word finding in a rather comprehensive way
Desai CJ speaking for the Court observed A finding is nothing but what one finds or decides and a decision on a question even though not absolutely necessary or not called for is a finding
 If that be the correct meaning any finding on an irrelevant or extraneous matter would be a finding
That certainly cannot be the intention of the Legislature
The Madras High Court also in A section Khader Ismail vs Income tax Officer Salem3 gave a very wide interpretation to that word though it did not go so far as the Full Bench of the Allaha bad High Court
Ramachandra Iyer J as he then was speaking for the Court observed that the word finding in the proviso must be given a wide significance so as to include not only findings necessary for the disposal of the appeal but also findings which were incidental to it
With respect this interpretation also is inconsistent with the well known meaning of that expression in the legal terminology
Indeed learned counsel for the respondent himself will not go so far for he concedes that the expression finding cannot be 1 196O  272 2 1963 48 I T R 705 718
3 424 any incidental finding but says that it must be a conclusion on a material question necessary for the disposal of the appeal though it need not necessarily conclude the appeal
This concession does not materially differ from the definition we have given but the difference lies in the application of that definition to the finding given in the present case
A finding therefore can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year
The Appellate Assistant Commissioner may hold on the evidence that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal
The finding in that context is that that income does not belong to the relevant year
He may incidentally find that the income belongs to another year but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question
The expression direction cannot be construed in vacuum but must be collated to the directions which the Appellate Assistant Commissioner can give under section 31
Under that section he can give directions inter alia under section 31 3 b c or e or section 31 4
The expression directions in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other tribunals can issue under the powers conferred on him or them under the respective sections
Therefore the ex pression finding as well as the expression direction can be given full meaning namely that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority as the case may be is empowered to give under the sections mentioned therein
The words in consequence of or to give effect to do not create any difficulty for they have to be collated with and cannot enlarge the scope of the finding or direction under the proviso
If the scope is limited as aforesaid the said words also must be related to the scope of the findings and directions
The words any person  it is said conclude the matter in favour of the Department
The expression any personin its widest connotation may take in any person whether connected or not with the assessee whose income for any 425 year has escaped assessment but this construction cannot be accepted for the said expression is necessarily Circumscribed by the scope of the subject matter of the appeal or revision as the case may be
That is to say that person must be one who would be liable to be assessed for the whole or a part of the income that went into the assesment of the year under appeal or revision
If so construed we must turn to section 31 to ascertain who is that person other than the appealing assessee who can be liable to be assessed for the income of the said assessment year
A combined eading of section 301 and section 313 of the Act indicates the cases where persons other than the appealing assessees might be affected by orders passed by the Appellate Commissioner
Modification or setting aside of assessment made on a firm joint Hindu family association of persons for a particular year may affect the assessment for the said year on a partner or partners of the firm member or members of the Hindu undivided family or the individual as the case may be
lit such cases though the latter are not eo nomine parties to the appeal their assessments depend upon the assessments on the former
The said instances are only illustrative
It is not necessary to pursue the matter further
We would therefore hold that the expression any person in the setting in which it appears must be confined to a person intimately connected in the aforesaid sense with the assessment of the year under appeal
We shall now briefly touch upon the conflict of decisions on the question
The Full Bench of the Allahabad  High Court in Lakshman Prakash s case1 overruled the decision of the Division Bench in Pt
Hazari Lal s case 2
A Division Bench of the Madras High Court consisting of Rajagopalan and Balakrishna Ayyar JJ in Simrathmull vs Additional Income tax Officer Ootacamund3 took the same view as the Full Bench of the Allahabad High Court in Lakshman Prakash s case4
But a Division Bench of the Calcutta High Court consisting of Bose CJ and Mookerjee J in Brindaban Chandra Basak vs Income tax Officer4 though it had not finally expressed any opinion 1  718
2  272
3 4 426 on that was inclined to accept the view expressed by the Division Bench of the Allahabad High Court in Pt
Hazari Lal s case1
We have gone through the decisions carefully
For the reasons given by us we agree with the view expressed by the Division Bench of the Allahabad High Court in Pt
Hazari Lal s case2 on the interpretation of the proviso to sub section
3 of section 34 of the Act
In the result we hold that the said provision would not save the time limit prescribed under sub s  1 of section 34 of the Act in respect of an escaped assessment of a year other than that which is the subject matter of the appeal or the revision as the case may be
It follows that the notice under section 341 a of the Act issued in the present case was clearly barred by limitation
In this view no other question arises for our consideration
In the result the appeal fails and is dismissed with costs
MUDHOLKAR J This is an appeal by special leave from the judgment of the Allahabad High Court in the writ petition under article 226 of the Constitution quashing a notice under section 341 of the Indian Income tax Act 1922 issued by the appellant Income tax Officer A Ward Sitapur on December 5 1957 against respondent No 4
The relevant facts are briefly these For the assessment year 1949 50 correspondiria to Samvat year 2005 the appellant made an ex parte assessment under section 234 of the Act on November 13 1953 which he later set aside under section 27 of the Act
Before that he had issued a notice to the respondent firm under section 3141 a of the Act in respect of the same assessment year on the ground that a sum of Rs 88737 representing interest alleged to have been earned by the firm during that year had escaped assessment in the assessment made under section 2314
After however fresh proceedings were taken under section 23 3 by the appellant consequent upon his order under section 27 he proceeded to include in the assessment a sum of Rs 88737 which was alleged to have escaped assessment in the notice earlier issued under section 341 a and made an assessment 1 196348ITR705718
427 order on January 31 1957
Against this order the respon dent preferred an appeal before the Appellate Assistant Commissioner in which he urged two main grounds and the one accepted by the Appellate Assistant Commissioner was that the aforesaid amount of interest was received by the firm in the accounting period of the previous assessment year and not in that of the assessment year 1949 50
Upon this view the Appellate Assistant Commissioner reduced the assessment and observed as follows in his order  I therefore hold that the amount in dispute should be deleted from the assessment for 1949 50 and that instead the Income tax Officer should take steps to assess the wnount for the assessment year 1948 49 Treating this as a direction or finding of the Appellate Authority the appellant issued the impugned notice dated December 5 1957 under section 341 a
The respondent immediately moved the High Court for quashing the aforesaid notice
The High Court quashed the notice on the ground that it was issued by the appellant beyond the ordinary period of limitation overruling the appellant s contention that no period of limitation governed the notice inas much as the second proviso to section 343 of the Act was attracted to the facts of the case
The High Court in doing so purported to follow its own decision in Pt
Hazari Lal vs The Income tax Officer Disti
II Kanpur1
Briefly stated the view taken by the High Court is that the only direction which the Appellate Assistant Commissioner can competently give is one which is covered by section 31 of the Act and that since the appeal before him was confined to a particular assessment year the direction must also be necessarily limited to a matter falling within that year
The High Court further held that if the direction be treated as based on a finding recorded by the Appellate Assistant Commissioner that finding will have to be disregarded when applying the proviso
The correctness of the view taken by the High Court is challenged before us on behalf of the appellant
1 Civil Misc
2227 of 1956
428 The relevant part of section 343 and the second proviso thereto run thus No order of assessment or reassessment other than an order of assessment under section 23 to which clause c of sub section 1 of section 28 applies or an order of assessment or reassessment in cases falling within clause a of subsection 1 or sub section 1A 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 further that nothing contained in this section limiting the time within which any action may be taken or any order assessment or reassessment may be made shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any per son in consequence of or to give effect to any finding or direction contained in an order under section 31 section 33 section 33A section 33B section 66 or section 66A This is how the provision stands as from April 1 1956 and it is not disputed before us that it is the amended provision which would apply to the present case
What is however contended on behalf of the respondent is that the only issue before an Income tax Officer in every case being the assessment for a particular year and no other year the direction or finding contemplated by the second proviso which the Appellate Authority could make must necessarily be limited to that year alone
The alternative contention is that if the second proviso is so construed as to permit of a direction or finding being made with respect to any other year it is ultra vires being violative of article 14 of the Constitution
It was further contended that since the amount in this case is below one lakh of rupees the second proviso will not apply
As regards the last point we may advert to our judgment delivered today in K C Thomas First Income tax Officer Bombay vs Vasant Hiralal Shah1 in which we have 1  429 negatived a similar contention
For the reasons given there we reject the argument of learned counsel for the respondent
Coming to the first contention of the respondent it is no doubt true that the whole scheme of the Income tax Act is to confine the assessment pursuant to the notice given under section 22 to a particular year and particular year alone and in the proceeding before him he is bound to confine himself to the income of that year
If income in previous years has escaped assessment he has no power to bring it to assessment along with the income of a subsequent year
The only power which he has for bringing such income to assessment is to resort to the provisions of section 341 and issue a separate notice with respect to it to the assessee and the Appellate Assistant Commissioner of Income tax hear ing an appeal from an order of assessment made by the Income tax Officer is in no better position in this matter than the Income tax Officer
All that is perfectly true
But the question which we have to consider is whether the wide language employed by the legislature in enacting the second proviso should not be given its natural meaning
This proviso removes the bar of limitation enacted by section 341 and its first two provisos not only with respect to the assessee but with respect to any person in certain circumstances
No doubt this Court has recently held in section C Prashar  Anr
vs Vasantsen Dwarkadas  ors1 that the proviso in so far as it removes the bar of limitation with respect to persons other than the assessee is invalid as it infringes the provisions of article 14 of the Constitution
That however is a question apart
What we have to consider is the legislative intent and for ascertaining it it is legitimate to look also at that part of the enactment which has been held to be invalid
By permitting the Appellate Authority to make a finding or give a direction with respect to a person other than the assessee the Legislature has made it abundantly clear that for bringing escaped income to assessment the bar of limitation would not apply provided there is a finding or direction of the Appellate Authority that a particular item of income had escaped assessment and may therefore be brought to assessment
Under the operative portion of section 341 the Income tax Officer is empowered to give notice 1 1964 1 SCR 29 430 to an assessee in respect of escaped assessment
He can issue such notice under cl
a thereof where income has escaped assessment due to any conduct on the part of the assessee and in such a case he can issue a notice at any time
Certain restrictions however have been placed upon his power by the first proviso to sub section
1 of section 34 one of which is the period of limitation of eight years with respect to income of less than a lakh of rupees
The second proviso to sub section
3 is a proviso to the whole of section 34 and would consequently apply to a case falling under section 341 a
The restrictions placed by the enacting provisions of section 343 would not as made clear in the second proviso apply to such a case
Thus the proviso in terms says that when a notice is issued under section 341 a no question of limitation would arise when such notice is issued in pursuance of a direction or finding of an appellate authority
Since the proceeding in pursuance of a notice under section 34 is necessarily independent of the assessment proceedings under section 22 with respect to a particular year the proviso in question need not be so interpreted as to be limited to a direction made by the Appellate Authority while dealing with an appeal for that particular year
The fact that certain income has escaped assessment may come to the notice of an Appellate Authority in any case and it clearly appears to be the intention of the Legislature to require an Income tax Officer to take cognizance of it in the circumstances stated in the proviso
It is however contended that the power of the Appellate Authority to make a direction or finding in any appeal be fore it is confined to matters specified in section 31 and that upon a proper construction of that provision a direction or finding with respect to income of any particular year other than the one with respect to which there is an appeal before it cannot be competently made by the Appellate Authority
In support of this contention reliance is placed up on the decisions in Kamlapat Motilal vs Income tax Officer and anr1 Hiralal Amritlal Shah vs K C Thomas Income tax Officer Bombay 2  Pt
Hazari Lal vs Income tax Officer Dist
II Kanpur3 Brindaban Chandra Basak vs Income tax 1 2 3 196O 431 Officer1
In the first of these cases the learned judges have observed  In our opinion the powers of the Appellate Tribunal under section 3 3 4 are limited to the passing of such order as it thinks fit to make in the proceedings which are then before it on appeal and in our judgment it has no power under this section to pass an order or give directions with reference to the proceedings of an earlier year which are concluded
 We may point out that section 33 4 only refers to a finding or direction made by an Appellate Authority and does not itself confer any power on an Appellate Authority to make a finding or direction
Indeed section 34 deals with entirely a different aspect that of empowering an Income tax Officer to bring to assessment escaped income and ha no concern with the powers of an Appellate Authority
The provisions which deals with the powers of an Appellate Authority is section 31 and it is with that provision that we must concern ourselves primarily
The next case is not strictly relevant to this point
But the third one which is again a decision of the Allahabad High Court has proceeded to construe section 31 of the Act and we therefore have to consider it
After observing that the scope of the orders which can be passed by the Appellate Authority under section 31 the learned Judges have observed The very fact that the Appellate Assistant Commissioner of Income tax when making an order under section 31 is dealing with an appeal filed by an assessee in respect of an assessment order indicates the scope of his jurisdiction to give findings and to make consequential orders The various orders which an Appellate Assistant Commissioner of Income tax can make are detailed in section 313 though there is no detailed provision about the findings which he can record
It appears to us however that 1 432 from the very nature of the jurisdiction which an Appellate Assistant Commissioner of Incometax exercises it must follow that his power of recording findings is limited to matters which he is called upon to decide when passing an order in appeal in conformity with the details laid down in section 313
Any order passed by him which is beyond the scope of section 313 would be an order without jurisdiction and similarly any finding recorded by him which is not necessary for the purpose of making an order covered by section 313 would be a finding without jurisdiction
Further  when applying the second proviso to section 343 of the Income tax Act the Income tax Officer is only competent to take into account orders which are in conformity with the provisions of section 313 and findings which are necessary for passing those orders
Orders which are outside the scope of section 313 or findings which are not at all necessary for making such orders cannot be taken into account by the Income tax Officer for the purpose of relying on the second proviso to section 343 which we are now considering p 271 The learned Judges have proceeded to hold that the word finding must be given the same meaning as that in the Code of Civil Procedure that is
a decision of the Court
In other words they seem to hold that a finding means only the final conclusion in the case
In support of this conclusion they placed reliance upon section C Prashar vs Vasantsen Dwarkadas1
Section 313 of the Act confers certain express powers upon the Appellate Authority one of which is to confirm
reduce enhance or annul the assessment
This power can be exercised only after the Appellate Authority arrives at some conclusions on facts
Thus if an assessee wants to be exonerated from tax with respect to a particular item of 1 433 income and sets out the grounds on which he bases his claim for exoneration the Appellate Authority has to consider them and arrive at its findings with regard to them before it can reduce or annul the assessment
It would follow therefore that the power to confirm reduce enhance or annul an assessment is implicit in the power of giving findings on the grounds on which a claim is made for one or the other of these results by the department or the assesee
No express mention of such power was required in section 313
When an appeal is before an Appellate Authority the whole matter is at large before it and therefore when a specific case is put before it by an assessee it has both the power as well as the duty to give its finding thereon
The ground given by the assessee for claiming a reduction or annulment of assessment may well be that the income upon which he has been assessed was not earned in the accounting period of the year to which the assessment pertains but in respect of a specified earlier or later year
The Appellate Authority is entitled to go into the whole question and come to a finding one way or the other whether the income was earned in the year in which it was alleged by the assessee to have been earned or in the year with respect to which he has been assessed by the Income tax Officer
To give a finding on this question would be obligatory upon the Appellate Authority and his duty to give a finding must necessarily be referable to the provisions of section 313
We cannot accept the view of the Allahabad High Court that the word finding occurring in section 343 is susceptible of only one meaning and that is that ascertainable from the Code of Civil Procedure
The finding of a tribunal is its conclusion on a point agitated before it and for a conclusion to amount to a finding it is not necessary that it should be the final and ultimate conclusion
We are therefore unable to accept the view taken by the Allahabad High Court
The last mentioned case does not decide the matter finally
But there the learned Judges have expressed a preference for the view taken by the Allahabad High Court as against that taken by the Madras High Court in K Simrathmull vs Additional Income tax Officer Ootacamund1
In that case a similar argument to that urged before us and before the 11959 134 159 section C28 434 Allahabad High Court was advanced
Dealing with it the learned Judges have observed To support this argument no authority was cited and it appear to us to be completely untenable
When an assessment is made and either the Department or the assessee appeals the whole matter would be before the Assistant Commissioner and no express provision would be necessary to enable him to give directions in respect of a matter already before him
This would apply also to the Commissioner and the Income tax Appellate Tribunal p 47 They then explained the reason for an express provision like the one contained in section 343 by saying that it was necessary to have such provision so as to enable the Income tax Officer to take action in pursuance of a finding recorded or direction given by an Apellate Authority
Finally they observed To construe the proviso in the manner in which Mr Subbarya Aiyar invited us to do would be to make that proviso otiose
 With these observations we concur
This decision has been followed by the Bombay High Court in General Construction and Supply Co vs Income tax Officer 8th C Ward Bombay1
The same High Court has reaffirmed the view taken in Simrathmull s case1 in A section Khader Ismail vs Income tax Officer Salem2 and held that the word finding in the proviso to section 343 must be given a wide significance so as to include not only findings necessary for the disposal of the appeal but also findings which are incidental to it and would include its conclusion as to whether the income in question in the appeal was not received during the year to which the appeal relates
Upon this view the High Court held that if in pursuance of such a finding the Income tax Officer proceeds to investigate afresh as to in which year the income was received the action of the Income ax Officer 1 2 3 435 would still be the result of or the logical consequence of the finding arrived at for the purpose of the disposal of the appeal and the proviso to section 343 would apply to such a case
The view taken by the High Court is in our judgment correct
Thus in our view upon a construction of the relevant provisions we have no doubt that the notice was not in contravention of the provisions of section 34 of the Income tax Act and could not be quashed on that ground
The question then remains whether the second proviso below section 343 is bad as offending article 14 of the Constitution
In support of this contention reliance is placed by Mr Bishan Narain for the respondent on the decisions of this Court in Suraj Mall Mohata  Co vs A V Visvanatha Sastri  anr
1 and section C Prashar  anr
vs Vasantsen Dwarkadas  ors
In the first case it was held that both section 34 of the Income tax Act and sub section
4 of section 5 of the Taxation on Income Investigation Commission Act 1947 deal with all persons who have similar characteristics and similar properties that the procedure prescribed in the later Act is substantially more prejudicial and more drastic to the assessee than the procedure under the former Act and that therefore sub section
4 of section 5 of the former Act in so far as it affects the persons proceeded against thereunder is void as offending the provisions of article 14 of the Constitution
On the analogy of this case learned counsel contends that the second proviso to section 343 enabling a notice to issue only to an assessee in respect of escaped income without limit of time on the ground that an Appellate Authority has made a finding or direction in the proceeding before it makes a discrimination against such an assessee because it does not lift the bar of limitation with regard to other assessees similarly situate but with regard to whom no finding has been made or direction given by an Appellate Authority
No doubt persons whose income have escaped assessment and the fact that they have escaped assessment has not been discovered till after the lapse of eight years from the year in which they could have been assessed to tax on such 1  2 1964 I section C R 29
436 income can be placed in one class
But surely it does not follow that even in that class there can be no further classification
The legislature in enacting the particular provision has made a further or a sub classification by puttinunder one head those whose assessments have come up for scrutiny before an Appellate Authority and with respect to whose escaped assessment a judicial finding or direction is made by the Appellate Authority and under another head other assessees whose escaped income was not detected by the Appellate Authority and with respect to which no judicial finding or direction was therefore made by such authority
There is a real difference between the two categories of assessees
Prima facie there is reasonable basis for the sub classification and the grounds on which it is made that is discovery by a higher Income tax Authority and a judicial finding or direction made with respect to the fact by it
These grounds have a rational relationship with the object which was intended to be achieved by the law
that is
to detect and brine to assessment the escaped income
See for example A Thangal Kunju Musaliar vs M Venkitachalam Potti  anr
1 where a further classification of war porfiteers into those who had evaded substantial amount of income tax and those whose evasion was not of a substantial amount was upheld We can find nothing in the decision upon which reliance is placed which runs counter to our view
On the other hand we find ample support from the decision in Balaji vs Income
tax Officer Special Investigation Circle 2 where it has been pointed out that the two tests of permissible classification under article 14 are a that the classification must be founded on an intelligible differentia and b that the differentia must be reasonably connected with the object of the legisla tion and that where they are satisfied by a statute
it does not violate article 14 of the Constitution
As regards the other decision relied upon it is sufficient to point out that the majority of the learned Judges have only struck down that part of the proviso which enables a notice to issue to any person on the ground that it is violative of article 14
The precise question which we have before us does not appear to have been the subject of decision in that case
We 1  2  437 are therefore unable to accept the contention of learned counsel
For the foregoing reasons we allow the appeal and quash the writ of certiorari issued by the High Court
It may be mentioned that in the absence of a stay of proceedings by the High Court the Income tax Officer has actually made an assessment in pursuance of the impugned notice
That assessment willstand unless it is modified or annulled in any proceeding permitted by law
Costs of the appeal and the petition before the High Court will be borne by the respondent
ORDER BY COURT In view of the judgment of the majority the appeal fails and is dismissed with costs


Summary:
The respondent was a firm carrying on business in different lines
It was assessed to income tax under section 234 of the Income tax Act 1922 for the assessment year 1949 50 on the ground that notices issued under section 222 and 4 had not been complied with
Later on that assessment 412 was cancelled
However before the cancellation it was found that an interest income of Rs 88737 in the shape of UP Encumbered Estates Act Bonds received by the respondent from third parties had escaped assessment as the assessee failed to disclose the same
The Income tax Officer issued a notice for the assessment year 1949 50 on the ground that a sum of Rs 88737 had escaped assessment in the said assessment year
After the cancellation of the assessment made under section 234 the Income tax officer ignoring the notice issued by him under section 341a included that amount in the fresh assessment made by him for the year 1949 50The respondent appealed to the Appellate Assistant Commissioner who ordered the deletion of the sum of Rs 88737 from the assessment for the year 1949 50 and directed the same to be included in the assesment for the year ending 1948 49
Pursuant to the direction given the Income tax Officer served a notice on the respondent under section 341
Against that notice the assessee filed a writ petition in the High Court for quashing the above mentioned proceeding on the ground that these were initiated beyond the time prescribed by a 34
The High Court accepted the petition and quashed the notice on the ground that it was issued by the appellant beyond the ordinary period of limitation It also overruled the contention of the appellant that no period of limitation governed the notice in as much as the second proviso to section 343 was attracted to the facts of the case
The only direction which the Appellate Assistant Commissioner could give was one which was covered by section 31 of the Act and as the appeal before him was confined to a particular assessment year the direction must necessarily be limited to a matter falling within that year
if the direction be treated as based on a finding recorded by Appellate Assistant Commissioner that finding would have to be disregarded when applying the proviso
The appellant came to this Court by special leave
Held per B P Sinha CJ K Subba Rao and N Rajagopala Ayyangar JJ
The proviso to sub section
3 of section 34 of the Indian Incometax Act 1922 does not save the time limit prescribed under sub section
1 of section 34 in respect of an escaped assessment of a year other than that which is the subject matter of appeal or revision as the case may be and hence the notice under section 341a issued in the present case was clearly barred by time
The jurisdiction of the High Court or the Supreme Court under section 66 or section 66b is a limited one and is confined only to the questions referred to them
Moreover the questions referred by Tribunal cannot exceed its jurisdiction
Therefore the assessment or reassessment made under the said sections or Pursuant to the orders or directions made thereunder must necessarily relate to the assessment of the year under review revision or appeal as the case may be Me proviso to sub section
3 of section 34 does not confer any fresh power upon the Income tax Officer to make assessment in respect of the escaped incomes without any time limit
It only lifts the ban of limitation in respect of certain assessments made under certain provisions of the Act and the lifting of the ban cannot be so construed as to increase the jurisdiction of the tribunal Under the 413 relevant sections
The lifting of the ban was only to give effect to the orders that may be made by the appellate revisional or reviewing Tribunal within the scope of its jurisdiction
If the intention was to remove the period of limitation in respect of any assessment against any person the proviso would not have been added as proviso to sub section
3 which deals with completion of an assessment but would have been added to sub section
1 of section 34
The word finding  covers only the material questions which arise in a particular case for decision by the authority hearing the case or the appeal which being necessary for passing the final order or giving the final decision in the appeal has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing
The expression direction  refers to a direction which the appellate or revisional authority is empowered to give under the law
The expression any person must be confined to a person intimately connected with the assessment of the year under appeal or revision
Held per Raghubar Dayal and J R Mudholkar JJ
dissenting That the notice was not in contravention of the provisions of section 34 and hence could not be quashed on that ground
When an appeal is before an appellate authority the whole matter is at large before it and there fore when a specific case is put before it by an assessee it has both the power as well as the duty to give its finding thereon
The ground given by an assessee for claiming a reduction or annulment of assessment may be that the income upon which he had been assessed was not earned in the accounting period of the year to which the assessment pertained but in respect of a specified earlier or later year
The appellate authority is entitled to go into the whole question and come to a finding one way or the other
The finding of a tribunal is its conclusion on a point agitated before it and for a conclusion to amount to a finding it is not necessary that it should be the final and ultimate conclusion
The contention of respondent that the second proviso to a 343 enabling a notice to issue only to assessee in respect of escaped income without limit of time on the ground that the appellate authority has made a finding or direction in the proceeding before it makes a discrimination against such assessee because it does not lift the bar of limitation with regard to other assessees similarly situated but with regard to whom no finding has been made or direction given by appellate authority was rejected
It was held that prima facie there was a reasonable basis for the classification
The ground on which classification was made had a rational relationship with the object which was intended to be achieved by law ie to detect and bring to assessment the escaped income
Commissioner of Income tax vs section M Chitnavis 1932 LR 59 IA 290 Sir Kikabhai Premchand vs Commissioner of Income tax Central Bombay pt
Hazart Lal vs Income tax Officer Kanpur
Lakshman Prakash vs Commissioner of Income 414 tax UP  A section Khader Ismail vs Income tax Officer Salem 196348 ITR 16 Simrathmul vs Additional Income tax Officer Ootachamund 195936 ITR 41 Brindaban Chandra Basak vs Incometax Officer  K C Thomas First Income tax Officer
Bombay vs Vasant Hira Lal Shah  Prashar  Anr
V Sasantsen Dwarkadas 49 ITR SC 1 Kamlapat Hotilal vs Income tax Officer  Hiralal Amrit Lal Shah vs K C Thomas Income tax Officer Bombay  General Construction and Supply Co vs Income tax Officer 8th C Ward Bombay  Suraj Mal Mohata  Co vs A V Visvanatha Sastri   A Thangal Kunju Mudaliar vs M Venkatachalam Potti  Anr  and Palaji vs Income tax Officer Special Investigation Circle   referred to