Case: N. Kt. Sivalingam Chettiar Vs. Commissioner of Income Tax, Madras

In proceedings for assessment ofx against one Ramnathan Chettiar, the appellant, who will be called " the assessee ", claimed that he had deposited Rs. 10, 000 with Ramnathan Chettiar out of Rs. 16, 000 brought by him when he returned to India from Malaya on March 21, 1946. Thex Officer started proceedings against the assessee for assessment of tax under section 34 of thex Act for the assessment year, and brought to tax Rs. 16, 000 as income from undisclosed sources. In appeal, the Appellate Assistant Commissioner modified the order and held that Rs. 10, 000 deposited with Ramnathan Chettiar alone were taxable in the year of assessment. In the course of his order dated November 25, 1957, he observed      " If there was a sum of Rs. 6, 000 it could only be treated as income arising in the previous year for the assessment year4. In the meanwhile, action was commenced by thex Officer on October 23, 1958, under section 34(1)(a) of thex Act for assessment of the income of the assessee for the year, consequent upon the finding recorded by the Appellate Assistant Commissioner in proceedings for assessment of the assessees income relating to the year. The assessee pleaded that as eight years had elapsed since the end of the assessment year and the amount involved was less than Rs. 1 lakh, no proceeding for assessment of income could be initiated under section 34(1)(a) of thex Act for the assessment year. This plea was rejected by the departmental authorities and the Tribunal. They held that the proceeding for assessment initiated pursuant to the finding of the Appellate Assistant Commissioner in the earlier proceeding was saved by the second proviso to section 34(3) of thex Act. The High Court, at the hearing of the reference, also accepted that view. The High Court observed" What the second proviso to section 34(3) contemplates is a different period of account of the same assessee or a different assessee:Proviso (2) to section 34(3) enacts an exception to that provisionn (1) to section 34) and it enables a reassessment to be made in such cases, if it arises 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. A plain reading of the section would show that thex Officer can commence proceedings if there had been a finding by the authority concerned under any one of the sections mentioned above."

Reasoning: 5. In our judgment, the High Court was in error in holding that a finding or direction by an appellate authority in an order relating to assessment of one year may warrant the avoidance of the bar of limitation under section 34(1) of the Act against initiation of proceedings for assessment for another assessment year against the same assessee or against another assesseeA " finding " therefore may only be that which was 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 was 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 the income did not belong to the relevant year. He may incidentally find that the income belonged to another year, but that is not a finding necessary for, the disposal of an appeal in respect of the year of assessment in questionCounsel for the Commissioner contends that the principle of Murlidhar Bhagwan Dass case does not govern the present case, because in that case proceedings for assessment were commenced in consequence of or to give effect to an express direction of the Appellate Assistant Commissioner, and it was held by this court that a direction not necessary for the disposal of the appeal in respect of the assessment of the year in question before him was inoperative to remove the bar of limitation. Counsel says that, where a mere finding is recorded by the appellate or revisional authority different considerations arise and the bar of limitation prescribed by section 34 would be removed if a proceeding be commenced for assessment in consequence of or to give effect to the finding. This argument has, in our judgment, no force