Bhanji Bagawandas vs Commissioner Of Income-Tax, Madras on 18 July, 1967 Equivalent citations: 1968 AIR 139, 1968 SCR (1) 17, AIR 1968 SUPREME COURT 139, 1968 (1) SCJ 135, 1967 2 ITJ 799, 1968 (1) SCWR 837, 1 SCR 17, 67 ITR 18 Author: V. Ramaswami Bench: V. Ramaswami, J.C. Shah, S.M. Sikri PETITIONER: BHANJI BAGAWANDAS Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, MADRAS DATE OF JUDGMENT: 18/07/1967 BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. SIKRI, S.M. CITATION: 1968 AIR 139 1968 SCR (1) 17 ACT: Indian Income-tax Act (11 of 1922), ss. 34 and 66(1)-Income Tax (Amendment) Act, 1959, S. 2-Appellate Assistant Commissioner holding that cash credit appearing on first day of accounting year not taxable in assessment year 1949-50- Order whether amounts to finding that it is taxable in 1948- 49-S. 34(3) second proviso whether attracted-Notice under s. 34(1) (a) for 1948-49 issued in 1958-Limitation whether to be considered in the light of Amending, Act of 1959-High Court in reference whether can consider effect of Amending Act when question not directly referred. HEADNOTE: There was a cash credit in November 13, 1947, in the Bhanji Bagawandas vs Commissioner Of Income-Tax, Madras on 18 July, 1967  1 capital, account of the Appellant assessee whose accounting period was from November 13, 1947 to November 1, 1948. The Income-tax Officer assessed the said credit as income from undisclosed sources in the assessment for the assessment year 1949-50. The Appellate, Assistant Commissioner relying on C.I.T. v. Darolia & Sons. (27 I.T.R. 515) held that the amount was not taxable in the assessment year 1949-50. The Income-tax Officer thereupon assessed the amount in 1948-49 after having issued in November 1958 a notice under s. 34(1) (a) of the Indian Income'-tax Act, 1922. He rejected the appellant's contention that notice under the said section was timebarred. In appeal the Appellate Assistant Commissioner held that in the earlier appeal there was no finding that the credit represented the assessee's income or that it should be assessed in the year 1948-49 and that consequently the notice under s. 34 issued in November 1958, was not saved by the second proviso to s. 34(3) of the Act. The appeal filed by the Revenue was allowed by the Tribunal and in reference the Madras High Court relying on its own ruling in A.S. Khader Ismail v. Income-tax Officer, (47 I.T.R. 16) upheld the order of the Tribunal. The appellant came to this Court and relied on this Court's decision in Income-Tax Officer A-Ward Sitapur v. Murlidhar Bhagwandas (52 I.T.R. 335) in which the aforesaid Madras decision had been overruled. The Revenue urged that in answering the reference the effect of s. 2 of the Income-tax (Amendment) Act 1959 must be taken into consideration. To this the appellant objected that the point was outside the scope of the questions of law referred by the Appellate Tribunal to the High Court. HELD:(i) The view taken by the Madras High Court as to the scope of the word 'finding' in A. S. Khader Ismail's case and followed by it in the present case had been overruled, by this Court. Accordingly the department could not take advantage of the second proviso to s. 34(3). [20E- F] Income-Tax Officer, A-Ward Sitapur v. Murlidhar Bhagwan Das, 52 I.T.R. 335, applied (ii)However, the impact of s. 2 of the Amending Act of 1959 had to be considered before the reference could be properly answered. Although the question had not been raised before the Tribunal or the High Court it was only an aspect of the question of limitation which had been referred. All that s. 66(1) requires is that the question of law which is referred to the High Court and which the High Court is to decide must be the question which was in issue before 18 the Tribunal. When the question itself was under issue there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the Bhanji Bagawandas vs Commissioner Of Income-Tax, Madras on 18 July, 1967  2 purpose of s. 66(1) of the Act. [22B-D] C.I.T. Bombay v. Scindia Steam Navigation Co. Ltd. 42 I.T.R. 589, applied. Onkarmal Mehraj v. C.I.T., Bombay-1, 36 I.T.R. 369, and S. C. Prashar v. Vasantsen Dwarkadas, 49 I.T.R. 1, referred to. [On the above view the case was remanded to the High Court for examining the question of law referred to it after considering the impact of the Amendment Act of 1959.] JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1984 of 1966. Appeal from the judgment and order dated January 2, 1964 of the Madras High Court in T.C. No,. 153 of 1962. S. Swaminathan and R. Gopalakrishnan, for the appellant. Veda Vyasa, A. N. Kirpal, R. N. Sachthey and S. P. Nayar, for the respondent. The Judgment of the Court was delivered by Ramaswami, J.-This appeal is brought from the judgment of the Madras High Court dated January 1, 1964 in Tax Case No. 153 of 1962. The asessment year involved in this appeal is 1948-49, the corresponding previous year being the financial year 1947- 48. For the accounting period from November 13, 1947 to November 1, 1948 which was the corresponding previous year for the assessment year 1949-50 there was shown a credit of Rs. 25,000 in the capital account of the appellant. On November 13, 1947, this amount was credited in the books of the appellant. On October 30, 1948 this amount was transferred to the account of one Amrithlal. Ranchoodas, the father-in-law of the appellant. The Income-tax Officer included the said amount as income of the appellant from undisclosed sources in the assessment for the assessment year 1949-50. On appeal to the Appellate Assistant Commissioner the appellant contended that the amount could not be included in the assessment year 1949-50 because the credit appeared prior to March 31, 1948. The Appellate Assistant Commissioner allowed the appeal holding that the credit came into the books of the appellant on November 13, 1947, i.e., in the financial year 1947-48 which is the previous year for the assessment year 1948-49. On this finding, the Appellate Assistant Commissioner deleted the addition of Rs. 25,000 from the assessment of the appellant for the year 1949-50. In doing so, the Appellate Assistant Commissioner followed the decision in C.1.T. v. P.Darolia & Sons(1). Consequently on November 3, 1958 the, Income-tax Officer issued a notice under s. 34(1)(a) of the Incometax Act, 1922, (hereinafter referred to as the. 'Act' to the appellant for the assessment year 1948-49. By his order dated April 20, 1959 he rejected the contention of the appellant that the assessment was barred by limitation and assessed the sum of Rs. 25,000 as income from other sources. The appellant took the matter in appeal to the Appellate Assistant Commissioner who, by his order dated February 23, 1960, allowed the appeal. He took the view that there was no finding in the order of the Appellate Assistant Commissioner that the credit represented the income of the appellant or that the same credit should be assessed in the Bhanji Bagawandas vs Commissioner Of Income-Tax, Madras on 18 July, 1967  3 assessment year 1948-49. He further held that the notice under s. 34 issued on November 3, 1958 was bad in law and was not saved by the second proviso to s. 34(3) of the Act. The Commissioner of Incometax preferred an appeal against the order of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal which allowed the appeal, holding that "the order of the Appellate Assistant Commissioner in the appeal against the assessment for 1949-- 50 should be taken to contain a finding that the sum of Rs. 25,000 represented income of the assessee to be considered in the assessment year 1948-49". At the instance of the appellant the Appellate Tribunal referred the following questions of law for the opinion of the High Court under s. 66(1) of the Act: "(1) Whether on the facts and in the circumstances of the case, the proceedings initiated against the assessee for the assessment year 1948-49 under section 34 and the assessment for the said year are barred by limitation and. hence not lawful? (2) Whether the proceedings initiated against the assessee for the assessment year 1948-49 under section 34 and the assessment made under section 34 for the assessment year 1948-49 could be justified in law as for the purpose of giving effect to, a finding or directions in the order of the Appellate Assistant Commissioner in I.T.A. No. 134 of 1958-59? (3) Whether on the facts and in the circumstances of the case, the assessment made is saved from the bar of limitation under the second proviso to section 34(3)?" By its judgment dated January 2, 1964, the High Court answered the questions in favour of the respondent and against the appellant. The High Court followed an earlier decision in A.S. Khader Ismail v. Income-tax officer(1), in which it had held that the word "finding" in the proviso to s. 34(3) of the Act must be given a (1) 27 I.T.R. 515. (2) 47 I.T.R. 16. wide significance so as to include not only findings necessary for the disposal of the appeal but it would apply to cases where it is held that the income in question was in respect of an earlier year which was not the subject-matter of the appeal before the appellate authority. On behalf of the appellant Mr. Swaminathan put forward the argument that the decision of the High Court is contrary to the view taken by this Court in Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das(1) in which it was held that the expressions "finding" and "direction", in the second proviso to s. 34(3), meant respectively, a finding necessary for giving relief in respect of the assessment for the year in question, and a direction which the appellate or revisional authority, as the case may be, was empowered to give under the sections mentioned in that proviso. A "finding", therefore, could 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 might 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 was that the income did not belong to the relevant year. He might incidentally find that the income belonged to another year, but that was not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. It was further held that the second proviso to s. 34(3) did not save the Bhanji Bagawandas vs Commissioner Of Income-Tax, Madras on 18 July, 1967  4 time-limit prescribed under s. 34(1) in respect of an escaped assessment of a year other than that which was the subject-matter of the appeal or revision, as the case may be, and accordingly the notice issued under s. 34(1) (a) in that case was barred by limitation and was not saved by the second proviso to s. 34(3). In the course of its judgment this Court overruled the judgment of the Madras High Court in A. S. Khader Ismail v. Income-tax Officer(1). It follows therefore that the view taken by the High Court in the present case is not correct in law and must be overruled. On behalf of the respondent, however, Mr. Veda Vyasa con- tended that in answering the reference the effect of s. 2 of the Income-tax (Amendment) Act (Act 1 of 1959) must be taken into consideration and in view of the amendment made by that section of the amending Act the questions referred to the High Court must be answered necessarily against the appellant. Section 2 of the Amendment Act. 1959 inserted in s. 34 of the Act a new sub-section (4) which provides: "A notice under clause (a) of sub-section (1) may be issued at any time notwithstanding that at the time of the-issue of the notice the period of eight years specified (1)52 I.T.R. 335. (2) 47 T.T.R. 16. in that subsection before its amendment by clause of section 18 of the Finance Act, 1956 (18 of 1956), had expired in respect of the year to which the notice relates. Section 4 of the Amending Act, 1959 read as follows: "No notice issued under clause (a) of sub- section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, reassessment or settlement made or other proceeding taken in consequence of such notice shall be called in question in any court, tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or re-assessment was made the time within which such notice should have been issued or the assessment or re-assessment should have been made under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired." Mr. Veda Vyasa referred to the decision of the Bombay High Court in Onkarmal Meghraj v. C.I.T. Bombay-I.(1) in which it was held that there was nothing in s. 2 or 4 of the Amendment Act of 1959 to restrict the terms of the words "at any time" occurring in s. 4 of that Act as meaning "at any time after April 1, 1956", viz., the date on which the amendments made by the Finance Act, 1956, came into force and there was nothing in the provisions of the Amendment Act of 1959 which limited the retrospective operation of s. 4. It was also held that since the enactment of the Amendment Act of 1959 a notice issued after April 1, 1956, for reopening an assessment, by virtue of s. 4, could not be permitted to be called in question on the ground that the notice was not issued within the period prescribed by the Bhanji Bagawandas vs Commissioner Of Income-Tax, Madras on 18 July, 1967  5 unamended s. 34(1)(a). On behalf of the respondent reference was also made to the decision of this Court in S. C. Prashar v. Vasantsen Dwarkadas,(2) in which it was held that s. 4 of the Amendment Act, 1959 operated on and validated notices issued under s. 34(1)(a) as amended in 1948 even earlier than April 1, 1956, in other words, in respect of assessment years prior to March 31, 1956. and therefore notices issued under s. 34(1)(a) of the Income-tax Act before April 1, 1956, could not be challenged on the ground that they were issued beyond the time limit of eight years from the respective assessment years prescribed by the 1948 amendment. On behalf of the appellant Mr. Swaminathan raised the objection that the point was not taken up by the respondent in the High Court, nor was there any reference to it in the statement of the case tiled by the respondent. It was also contended that the point raised was outside the scope of the questions of law referred by the Appellate Tribunal to the High Court. We do not think there is any substance in the (1) 38 I.T.R. 369. (2 ) 49 I.T.R. 1. objection raised on behalf of the appellant. One of the questions referred to the High Court is "whether on the facts and in the circumstances of the case the assessment made is saved from the bar of limitation under the second proviso to section 34(3)?" It is true that the impact of the Amending Act, 1959 (Act 1 of 1959) was not raised before the Appellate Tribunal or before the High Court, but it is not a separate question by itself and is only an aspect of the question of limitation which has already been referred by the Appellate Tribunal to the High Court. As pointed out in CI.T. Bombay V. Scindia Steam Navigation Co. Ltd.,(1) the question of law referred to the High Court under s. 66 may be a simple one having its impact on one point, or it might be a complex one, involving more than one aspect and requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law which is referred to the High Court and which the High Court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of s. 66(1) of the Act. In our opinion, the argument of the respondent with regard to the legal effect of the Amending Act of 1959 (Act 1 of 1959) is within the frame-work of the question already referred to the High Court and it is therefore competent to this Court, in a case of this description, to allow a new contention to be advanced. It is, however, necessary that the case should be remanded to the High Court for examining the question of law referred to it after 'considering the impact of the Amending Act of 1959 (Act 1 of 1959). For these reasons we allow this appeal, set aside the judg- ment of the High Court dated January 2, 1964 and remand the case to it for further hearing and answering the reference in light of the Income-tax Amending Act 1 of 1959. In the circumstances of the case we direct that the respondent should pay the cost of this appeal in this Court, Appeal allowed. Y. P. (1) 421. T.T.R. 589, Bhanji Bagawandas vs Commissioner Of Income-Tax, Madras on 18 July, 1967  6