Case: Income-Tax Officer, Award, Sitapur  Vs. Murlidhar Bhagwandas, Lakhimpur Kheri

1959 Mad 328 ) in 1963-47 ITR 16 (Mad) and held that the word "finding" in the proviso to S. 34(3) 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-tax" Officer 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 S. 34(3) would apply to such a case. The view taken by the High Court is in our judgment correct.24. Thus in our view upon a construction of the relevant provision we have no doubt that the notice was not in contravention of the provisions of S. 34 of the Income-tax Act and could not be quashed on that ground.25. The question then remains whether the second proviso below S. 34 (3) is bad as offending Art. 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 Mohta and Co. v. A. V. Viswanatha Sastri, 1955-1 SCR 448 : (AIR 1954 SC 545 ) and 1963-49 ITR (SC) 1: (AIR 1963 SC 1356 ), In the first case it was held that both S. 34 of the Income-tax Act and sub-s. (4) of S. 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 latter Act is substantially more prejudicial and more drastic to the assessee than the procedure under the former Act and that therefore, sub-s. (4) of S. 5 of the former Act in so far as it affects the persons proceeded against thereunder is void as offending the provisions of Art. 14 of the Constitution. On the analogy of this case learned counsel contends that the second proviso to S. 34(3) 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 year from the year in which they could have been assessed to tax on such 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 putting under 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 of 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 bring to assessment the escaped income.(See for example A. Thangal Kunju Musaliar v. M. Venkatachalam Potti, ((S) AIR 1956 SC 246 ) where a further classification of war profiteers 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 v. Income-tax Officer, Special Investigation Circle, Akola, (AIR 1962 SC 123 ) where it has been pointed out that the two tests of permissible classification under Art. 14 (a) are that the classification must be founded on an intelligible differentia and (b) that the differentia must be reasonably connected with the object of the legislation, and that where they are satisfied by a statute, it does not violate Art. 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 Art. 14.The precise question which we have before us does not appear to have been the subject of decision in the case. We are, therefore, unable to accept the contention of learned counsel.26. 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 will stand 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.

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

Explanation:
0[ds]It may, therefore, be held on a construction of the provisions of S. 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 of the order of the Appellate Assistant Commissioner under S. 31: and S. 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 S. 66 or S. 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-assessment 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. 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 section. 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-s. (3) of S. 34 which deals with completion of an assessment, but would have been added to sub-s. (1) thereof.In the result, we hold that the said proviso would not save the time limit prescribed under sub-s. (1) of S. 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 S. 34 (1) (a) of the Act issued in the present case was clearly barred by limitation.