Appeal No 688 of 1962
Appeal by special leave from the judgment and order dated April 1 1958 of the Bombay High Court in Misc
Application No 202 of 1957
N D Karkhanis and R N Sachthey for the appellant
I N Shroff for the respondents
January 29 1964
The Judgment of the Court was delivered by MUDHOLKAR J
This is an appeal by special leave against the judgment of the Bombay High Court in a writ petition challenging the notice issued under section 341 of the Indian Income tax Act 1922 by the First Income tax Officer 439 Bombay who is the appellant before us
In the writ petition various grounds were urged by the respondent in support of the convention that the notice was bad in law
The High Court however dealt with only one of those contentions accepted it and did not permit the respon dents  counsel Mr Mehta to put forward the other conten tions urged in the writ petition by the respondents
The appellant had issued notice to the respondents under section 341a of the Income tax Act in respect of an escaped income of Rs 47595 for the assessment year 1944 45
This notice was issued by him on March 27 1957
On behalf of the respondents it is contended that the notice was bad because though it was in respect of an amount of less than Rs 1 lakh it was issued after the expiry of the assessment year and that the sanction of the Central Board of Revenue for issuing that notice had not been obtained by the Income tax Officer as required by cl
iii of the proviso to section 341 of the Act
It is not disputed before us that the case falls under section 341a
That provision reads thus 1 If a the Income tax Officer has reason to believe that by reason of the omission of failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year income profits or gains chargeable to income tax have escaped assessment for that year or have been under assessed or assessed at too low a rate or have been made the subject of excessive relief under the Act or excessive loss or depre ciation allowance has been computed or he may in cases falling under clause a at any time 
serve on the assessee a notice containing all or any of the require ments which may be included in a notice under sub section 2 of section 22 and may proceed 440 to assess or re assess 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 subsection We have quoted only the relevant portion
Then follows the first proviso which runs thus  provided that the Income tax Officer shall not issue a notice under clause a of sub section 1 i for any year prior to the year ending on the 31st day of March 1941 ii for any year if eight years have elapsed after the expiry of that year unless the income profits or gains chargeable to income tax which have escaped assessment or have been underassessed or assessed at too low a rate or have been made the subject of excessive relief under this Act or the loss or depreciation allowance which has been computed in excess amount to or are likely to amount to one lakh of rupees or more in the aggregate either for that year or for that year and any other year or years after which or after each of which eight years have elapsed not being a year or years ending be fore the 31st day of March 1941 iii for any year unless he has recorded his reasons for doing so and in any case falling under clause ii unless the Central Board of Revenue and in any other case the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice It will thus be seen that where the Income tax Officer has reason to believe that due to any act of the assessee a full and accurate declaration was not made by the assessee for any year with the result that part of his income has escap ed assessment for that year the Income tax Officer may issue a notice under cla at any time
441 The respondents  contention before the High Court was that the notice was bad because it had not complied with the two conditions laid down in the proviso to section 341
Adverting to this contention the High Court has observed thus Before the amendment of this section which was in force on the 27th March 1957 the period of limitation of eight years was provided with regard to the issue of notices under Section 341 a and a period of four years for cases falling under Section 341b By the amendment the period of limitation was removed and the Legislature provided that if the case fell under Section 341 a a notice can be served at any time
But while removing any bar of limitation the Legislature provided some safeguards for the assessee and these safeguards were three in number and they were set out in the proviso
The first safeguard was that a notice shall not be issued for any year prior to the year ending on the 31st day of March 1941 the second safeguard was that if eight years had elapsed then the notice should not be issued for an escaped income which aggregated to less than one lakh of rupees and the third safeguard was that the Central Board of Revenue had to be satisfied on reasons to be recorded that this was a fit case for the issue of a notice which was for a period beyond eight years
Now admittedly this notice is for an amount which is less than a lakh of rupees and admittedly the Central Board of Revenue has not considered this matter at all
Therefore there does not seem to be any answer to the contention put forward by the petitioner
 The High Court is right in saying that a notice cannot be issued where the income which has escaped assessment is less than a lakh of rupees and where more than eight years have elapsed from the assessment year
To this however 442 there is one exception and that is where the matter would fall to be governed by the second proviso to section 343
To this aspect we will however come little later
But before that what we must consider is the view of the High Court that the sanction of the Central Board of Revenue was also necessary
Under cl
iii of the proviso to section 341 a notice can issue only if the Central Board of Revenue is satisfied with the reasons recorded by the Income tax Officer for issuing a notice
For convenience we are describing this process as sanction of the Central Board of Revenue
The sanction under this clause is however necessary only where the notice in question is issued under cl
ii of the proviso
That is evidently what the Legislature meant when it says in any case falling under clause ii
For cl
ii has to be read with the opening words of the proviso Provided that the Income tax Officer shall not issue a notice under clause a of sub section 1
So read it will be clear that the words in any case used in cl
iii only mean a case in which notice can be issued under cl
Such a notice can be issued only when the escaped income is of one lakh of rupees and over
It was however contended by Mr Shroff that cl
ii of the proviso dealt not only with the escaped assessment of one lakh of rupees and over but also with assessments which were less than one lakh of rupees and that therefore even in the present case the sanction of the Central Board of Revenue was required
By excluding action with respect to escaped assessment of less than one lakh of rupees cl
ii can in one sense be regarded as dealing with escaped assessments of this kind
But it would be wrong to say that because of this cl
iii requires the obtaining of the sanction of the Central Board of Revenue for a notice to be issued with respect to it
As already pointed out cl
iii requires such sanction where the notice is issued under cl
ii and when on a construction of cl
ii no notice can be issued with respect to a class of escaped assessments there can possibly be no requirement of the sanction of the Central Board of Revenue
If a notice is issued by virtue of some other provision such as the second proviso to sub section
3 of section 34 it would be a notice in any other case referred to in cl
iii of the proviso to sub section 1 of section 34 and in such a case the sanction which is 443 required is only that of the Commissioner
Such a sanction was obtained in this case and therefore the notice cannot be said to be bad because the sanction of the Central Board of Revenue has not been obtained
Now we will come to the other aspect of the matter
Limitation is no doubt placed upon the power of the Income tax Officer by cl
ii of the first proviso which says that if eight years have elapsed after the expiry of that year no such notice can issue unless the income which has escaped assessment is likely to amount to one lakh of rupees or more
Here admittedly the income which has escaped assessment is below one lakh of rupees and more than eight years have elapsed since the assessment year in respect of which the income is alleged to have escaped assessment
Clearly therefore no notice could issue under cl
The answer given by the Income tax Officer however is that limitation is taken away by the second proviso to sub section
3 of section 34
We would quote section 343 and the second proviso to it
They 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 sub section 1 or sub section 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 further that nothing contained in this seetion 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 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 33A section 33B section 66 or section 66A 444 The second proviso to section 343 could be pressed in aid by the Income tax Officer because in issuing the notice he was giving effect to a direction contained in the order of a nigher Income tax authority
Dealing with this matter the High Court has observed as follows in its judgment Now when there was a limitation of eight years under section 341a the second proviso to Section 343 has to be resorted
Section 343 had to be resorted to by the Income tax Department if it wanted to issue a notice after the period of limitation and a notice after eight years in a case falling under section 341 a could only be issued provided it was a result of a direction contained in an order passed by an Income tax Authority
But by reason of the recent amendment the question of limitation does not arise but the Legislature has provided certain safeguards as already pointed out
Therefore whether a notice is issued as a result of a direction contained in any order of an Income tax Authority or not if it is a notice which is issued beyond eight years the notice must satisfy the conditions laid down in the proviso to Section 341
Therefore the result is that in some respects the law has been made more rigorous against the assessee and in other respects it has been made more lenient
Before the amendment a notice could be issued after eight years in respect of any escaped income whatever the amount provided the notice was issued to give effect to a direction contained in an order of an Income tax Authority
Now a direction is not necessary for the issue of a notice
But as against that an assessee whose escaped income is not a lakh of rupees is completely protected and even though there may be a direction contained in an order of an Income tax Authority no notice can be issued 445 against the assessee if the escaped income is less than a lakh of rupees
Therefore on the one hand the assessee whose escaped income is less than a lakh of rupees is now put in a better position than he was before the amend ment
The assessee whose escaped income is more than a lakh of rupees is put in a worse position because he can be proceeded against even without a direction contained in an order of an Income tax Authority provided the Cen tral Board of Revenue has applied its mind to It would appear that the view of the High Court was that the provisions of the second proviso to section 343 would not apply to a case where the escaped assessment is of an amount less than a lakh of rupees and more than eight years have elapsed
Apparently the High Court has overlooked the fact that the second proviso to sub section
3 of section 34 was amended first by Act 25 of 1953 and then by Act 18 of 1956
As it stood prior to these amendments it read thus Provided further that nothing contained in this subsection shall apply to a re assessment made under section 27 or in pursuance of an order under section 31 section 33
section 33A section 33B section 66 or section 66A By the amendment of 1953 for the words sub section the words section limiting the time within which any action may be taken or any order assessment or re assessment may be made were substituted
By the amendment of 1956 it now stands as already quoted by us
If the proviso in its present form applies here it would govern the whole of section 341 and would consequently include even an escaped assessment with respect to which limitation is provided in cl
ii of the first proviso to section 341
The result in our opinion
would be the same even if the case were to fall to be governed by the Amending Act of 1953 though not by that of the Amending Act of 1956 446 We may add that the amendment of 1953 took effect from April 1 1953 and that of 1956 from April 1 1956
Apart from the view expressed by the learned Judges as regards the effect of the changes made in section 341 with the provisos we have set out earlier a view which we have held is not correct they aid not further consider the proper construction to be placed on the second proviso to section 343 of the Act on which the validity of the impugned notice to the respondents must ultimately be decided
As we have pointed out earlier at the beginning of the judgment the learned Judges confined their attention prac tically only to the construction of proviso iii to section 341 which was decided in favolur of the respondents and did not permit them to argue the other points raised by them
We do not propose to decide these other points particularly for the reason that the parties are not agreed as to what precisely were the contentions which were raised for argument
For the reasons stated above the decision of the High Court is clearly wrong
We therefore allow the appeal set aside the order of the High Court and remit the matter to it for the consideration of the other points which were raised before it by the respondents but upon which they were not heard
As regards costs we think that they should abide the result of the appeal before the High Court
Appeal allowed and cave remanded


Summary:
The appellant had issued notice to the respondents under section 341 of the Income Tax Act 1922 in respect of an escaped income of Rs 47595 for the assessment year 1944 45
The case of the respondents was that the impugned notice was bad because the Income Tax Officer proceeded against the respondents without obtaining the necessary sanction of the Central Board of Revenue as required by cl
iii of the proviso to section 341 of the Act
The respondents filed a writ petition in the High Court challenging the notice issued under section 341 of the article The respondents succeeded before the High Court
438 Held i The sanction under cl
iii of the proviso to section 341 is however necessary only where the notice in question is issued under cl
ii of the proviso
That is evidently what the legislature meant when it said in any case failing under cl
ii
The words in any case used in cl
iii only mean a case in which notice can be issued under cl
Such a notice can be issued only when the escaped income is of one lakh of rupees and over
Clause iii requires such sanction where the notice is issued under cl
ii and when on a construction of cl
ii no notice can be issued with respect to a class of escaped assessments there can possibly be no requirement of the sanction of the Central Board of Revenue
If a notice is issued by virtue of some other provision sub as the second proviso to sub section
3 of section 34 it would be a notice in any other case referred to in cl
iii of the proviso to sub section 1 of section 34 and in such a case the sanction which is required is only that of the Commissioner
Such a sanction was obtained in this case and therefore the notice cannot be said to be bad because the sanction of the Central Board of Revenue had not been obtained
In the present case the income which has escaped assessment is below one lakh of rupees and more than eight years have elapsed since the assessment year in respect of which the income is alleged to have escaped assessment
Clearly therefore no notice could issue under cl
ii The High Court erred in holding that the provisions of the second proviso to section 343 would not apply to a case where the escaped assessment is of an amount less than a lakh of rupees and more than eight years have elapsed
Apparently the High Court has overlooked the fact that the second proviso to sub section
3 of section 34 was amended first by Act 25 of 1953 and then by Act
18 of 1956
The amendment of 1956 would govern the whole of section 341 and would consequently include even an escaped assessment with respect to which limitation is provided in cl
ii of the first proviso to section 341
The result would be the same even if the case fell to be governed by the Amending Act of 1953 though not by that of the Amending Act of 1956