Case: Maharaj Kumar Kamal Singh Vs. The Commissioner Of Income-Tax, Bihar &amp; Orissa

1. This is an appeal with the certificate issued by the High Court of Judicature at Patna under S. 66A (2), Income-tax Act (hereinafter called the Act) and it raises a short question of the construction of S. 34 (1) (b) of the Act. This question arises in this way. Proceedings were taken by the Income-tax Officer, Special Circle, Patna, against Maharaja Bahadur Rama Rao Vijaya Prasad Singh, the father of the appellant, to levy income-tax for the year 1945-46. The total income assessed to income-tax by the said order was Rs.1,60,602. This amount included the sum of Rs. 93,604 received by the assessee on account of interest on arrears of rent due to him after deduction of collection charges. It was urged before the Income-tax Officer by the assessee that this amount was not liable to be taxed in view of the decision of the Patna High Court in Kamakshya Narain Singh v. Commissioner of Income-tax, (1946) 14 I T R 673 : (A I R 1947 Pat 115)  . The Income-tax Officer, however, held that, since the department had obtained leave to appeal to the Privy Council against the said decision, the matter was sub judice and so he would not be justified in accepting the assessees contention. In the result, he included the said amount in the total income for the purposes of assessment, but ordered that the realisation of the tax on the said amount should be stayed till the decision of the Privy- Council or 31st March1947, whichever was earlier. This order was passed under S. 25 (3) of the Act on 31st December 19455. As a result of this decision, the Income-tax Officer issued a notice to the assessee under S. 34 of the Act on 25th September 1948. This notice called upon the assessee to file a fresh return as the Income-tax Officer had reason to believe that a part of the assessees income assessable to income-tax for the year ending 31st March 1946, had escaped assessment. It appears that this notice was found to be defective, and so under the provisions of S. 34 as amended, a fresh notice was issued by the officer to the assessee on 18th March 1949. The proceedings thus taken by the officer under S.34 ultimately led to a revised assessment order passed under S. 23 (3) and S. 34 of the Act and the amount of Rs. 93,604 was added to the assessment amount as interest on arrears of rent. This revised assessment order was passed on 30th April 19496. The assessee appealed against this order but the appellate authority dismissed the assessees appeal and confirmed the said order on 26th July 1947. Meanwhile the assessee died and the appellant succeeded to the estate of his deceased father. He then filed an application under S. 66 (1) of the Act requiring the tribunal to refer the question of law raised in the case to the Patna High Court for its opinion. The tribunal rejected this application on 27th February1951. Thereupon the appellant moved the Patna High Court under S. 66 (2) of the Act ; his application was allowed and the tribunal was directed by the High Court on 15th December 1951, to state the case and refer the question of law for its opinion. In compliance with the requisition of the High Court the tribunal by its order passed on 23rd July 1952, submitted a statement of the case and referred to the High Court for its opinion the question of law raised by the appellant.

Reasoning: It is clear that two conditions must be satisfied before the Income Tax Officer can act under S. 34 (1) (b). He must have information in his possession, which, in the context, means that the relevant information must have come into his possession subsequent to the making of the assessment order in question and this information must lead to his belief that income chargeable to income-tax has escaped assessment for any year, or that it has been under-assessed or assessed at too low a rate or has been made the subject of excessive relief under the Act. Two questions are raised by Mr. Sastri under this sub-section in the present appeal. He contends that the relevant information means information as to facts and cannot include the decision of the Privy Council on a point of law; and he argues that, where income has been duly returned for assessment and an assessment order has been passed by the Income Tax Officer, it cannot be said that any income has escaped assessment within S. 34 (1) (b). Thus the appellants case is that both the condition required by S. 34 (1) (b) have not been satisfied and so the order of revised assessment passed against the appellant is illegalWe are not impressed by this argument. If the word information used in any other provision of the Act denotes information as to facts or particulars,that would not necessarily determine the meaning of the said word in S. 34 (1) (b). The denotation of the said word would naturally depend on the context of the particular provisions in which it is used.It is then contended that Ss. 33B and 35 confer ample powers on the specified authorities to revise Income Tax Officers orders and to rectify mistakes respectively and so it would be legitimate to construe the word information in S. 34 (1) (b) strictly and to confine it to information in regard to facts or particulars.This argument also is not valid. If the word information in its plain grammatical meaning includes information as to facts as well as information as to the state of the law, it would be unreasonable to limit it to information as to the facts on the extraneous consideration that some cases of assessment which need to be revised or rectified on the ground of mistake of law may conceivably be covered by Ss. 33B and 3That no doubt is true; but the wide denotation of the word assessment does not really assist the appellant; it only shows that along with the order of assessment which is an important act in the process of taxation other acts and steps adopted in the course of taxation are also included in the word; but it is with this most critical act in the process of taxation with which we are concerned in the present appeal. Then it is urged that the word escaped according to the Oxford English Dictionary means to elude (observations, search, etc); to elude the notice of a person; and the contention is that it is only where income has not been returned for assessment that it can be reasonably said that income has escaped assessment. The dictionary meaning of the word does not support Mr. Sastris contention. According to the same dictionary the word escape also means to get clear away from (pursuit or pursuer); to succeed in avoiding (anything painful or unwelcome);so that judging by the dictionary meaning alone it would be difficult to confine the meaning of the word escape only to cases where no return has been submitted by the assessee. Even if the assessee has submitted a return of his income, cases may well occur where the whole of the income has not been assessed and, such part of the income as has not been assessed can well be regarded as having escaped assessment.In the present case. the rents received by the assessee from his agricultural lands were brought to the notice of the Income Tax Officer ; the question as to whether the said amount can be assessed in law was considered and it was ultimately held that the relevant decision of the Patna High Court which was binding on the department justified the assessees claim that the said income was not liable to be assessed to tax. There is no doubt that a part of the assessees income had not been assessed and, in that sense, it has clearly escaped assessment. Can it be said that, because the matter was considered and decided on the merits in the light of the binding authority of the decision of the Patna High Court, no income has escaped assessment when the said Patna High Court decision has been subsequently reversed by the Privy Council?We see no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted. In our opinion, even in a case where a return has been submitted, if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment.The appellants attempt to put a very narrow and artificial limitation on the meaning of the word escape in S. 34 (1) (b) cannot therefore succeed18. It appears that, in construing the scope and effect of the provisions of S. 34, the High Courts have had occassion to decide whether it would be open to the Income-tax Officer to take action under S. 34 on the ground that he thinks that his original decision in making the order of assessment was wrong without any fresh information from an external source or whether the successor of the Income-tax Officer can act under S. 34 on the ground that the order of assessment passed by his predecessor was erroneous, and divergent views have been expressed on this point. Mr. Rajagopala Sastri, for the respondent, suggested that under the provisions of S. 34 as amended in 1948, it would be open to the Income-tax Officer to act under the said section even if he merely changed his mind without any information from an external source and came to the conclusion that, in a particular case, he had erroneously allowed an assessees income to escape assessment. We do not propose to express any opinion on this point in the present appeal.In the result we hold that the Patna High Court was right in coming to the conclusion that the decision of the Privy Council was information within the meaning of S. 34 (1). (b) and that the said decision justified the belief of the Income-tax Officer that part of the appellants income had escaped assessment for the relevant year.