Case: K. C. Thomas, First Income-Tax Officer, Bombay Vs. Vasant Hiralal Shah &amp; Ors

(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 (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 :xx xx xxProvided further that nothing contained 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 reassessment 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 33-A, Section 33B, Section 66 or Section 66-A."The second proviso to S. 34(3) 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 higher Income-tax authority.5. 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 34(1) (a) the second proviso to Section 34(3) has to be restored. Section 34(3) 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 34(1) (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 34(1). 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 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 amendment. 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 Central Board of Revenue has applied its mind to the question to the issue of the notice."It would appear that the view of the High Court was that the provisions of the second proviso to S. 34 (3) 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-sec. (3) of S. 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 sub-section 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 S. 34(1) and would consequently include even an escaped assessment with respect to which limitation is provided in cl. (ii) of the first proviso to Section 34(1). 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. We may add that the amendment of 1953 took effect from April 1, 1953 and that of 1956 from April 1, 1956.6. Apart from the view expressed by the learned Judges as regards the effect of the changes made in S. 34 (1) with the provisos we have set out earlier a view which we have held is not correct - they did not further consider the proper construction to be placed on the second proviso to S. 34 (3) of the Act on which the validity of the impugned notice to the respondents must ultimately be decided.7. As we have pointed out earlier, at the beginning of the judgment, the learned Judges confined their attention practically only to the construction of proviso (iii) to S. 34(1) which was decided in favour of the respondents and did not permit them to argue the other points raised by them. We do not the purpose 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.8. For the reasons stated above, the decision of the High Court is clearly wrong.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It would appear that the view of the High Court was that the provisions of the second proviso to S. 34 (3) 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-sec. (3) of S. 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 thusfurther that nothing contained in this sub-section 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 Sectionthe 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 S. 34(1) and would consequently include even an escaped assessment with respect to which limitation is provided in cl. (ii) of the first proviso to Section 34(1). 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. We may add that the amendment of 1953 took effect from April 1, 1953 and that of 1956 from April 1, 1956.6. Apart from the view expressed by the learned Judges as regards the effect of the changes made in S. 34 (1) with the provisos we have set out earlier a view which we have held is not correct - they did not further consider the proper construction to be placed on the second proviso to S. 34 (3) of the Act on which the validity of the impugned notice to the respondents must ultimately be decided.7. As we have pointed out earlier, at the beginning of the judgment, the learned Judges confined their attention practically only to the construction of proviso (iii) to S. 34(1) which was decided in favour of the respondents and did not permit them to argue the other points raised by them. We do not the purpose 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.8. For the reasons stated above, the decision of the High Court is clearly wrong.