Ar. Pl. Spl. Chidambaram Chettiar vs The Commissioner of Income Tax

Rajagopalan, J.—The question referred to this Court u/s 66(1) of the Income Tax Act arises out of the proceedings taken u/s 34 of the

Income Tax Act to revise the assessment for the assessment year 1942-43. The accounting year ended on 12th April, 1942.

The assessee, an undivided Hindu joint family of the community of Nattukottai Chettiars, had several sources of business income in Burma,

Malaya and Indo-China. Towards the end of the accounting year, these places were occupied by enemy forces, and means of communication

were cut off. When the assessee submitted its return of income, it was not in a position to give any definite information about its income from its

businesses outside the taxable territories. The Income Tax Officer completed the assessment for 1942-43 on 18th September, 1942, with the

observation:

The assessee has furnished a return without taking into account the income from the sole and joint business outside British India as those businesses

are situated in countries now occupied by the enemy. It is stated that the accounts are not available. In the absence of information, no income will

be taken into account in respect of those businesses.

After the termination of the war, in response to a notice issued u/s 34, the assessee submitted a revised return. The assessee''s figures were

accepted. The quantum itself was never in dispute. The Income Tax Officer assessed Rs. 62,789 as the accrued foreign income and Rs. 80,007 as

the sum remitted to the taxable territories. The assessee''s contention that Section 34 could not be invoked, was not accepted by the Departmental

authorities. An appeal to the Tribunal also failed. It Was under these circumstances that the Appellate Tribunal referred the following question to

this Court u/s 66(1):

Whether Section 34 has been validly applied for the assessment year 1942-43.

One of the grounds on which the Tribunal negatived the contention of the assessee was:

It is clear that the assessee virtually acquiesced in the aforesaid arrangement made by the Government and it does not now lie in his mouth to

challenge the Section 34 proceedings.

We are unable to agree with this point of view. The jurisdiction of the Departmental authorities has to be founded on Section 34. There can be no

question of estoppel. Acquiescence cannot confer jurisdiction if Section 34 did not. The learned Counsel for the Department urged that the

assessee must be held to have waived the objection to a deferred assessment being made subsequent to the termination of the hostilities. No more

than acquiescence, can waiver control the scope of Section 34.

The other point on which the Tribunal rested its decision was set out as follows:

...This is not a case where the Income Tax Officer was already in possession of facts but by dint of forgetfulness or oversight, had failed to assess a

certain source. As already observed, the circumstances were extraordinary and peculiar. Until the war was over, the Income Tax Officer had no

information as to whether the business was running and whether any income had been earned at all abroad. The termination of the war and the

information about the existence of the foreign business, inter alia, constituted ""definite information"" which would justify the taking of Section 34

proceedings.

The main contention of the learned Counsel for the assessee was that it was a case of piecemeal assessment which was clearly outside the scope

of Section 34. The Income Tax Officer certainly deferred the assessment of the income from the foreign business. No doubt it was laid down in T.

Manavedan Tirumalpad and Another Vs. Commissioner of Income Tax, Madras, .

Deferred assessment is not discovery of escaped assessment. Section 34 could not have been called in aid to complete an assessment deliberately

deferred.

The principle laid down in FAZAL DHALA Vs. COMMISSIONER OF Income Tax, BIHAR AND ORISSA., , CHUNI LAL NAYYAR

Vs. COMMISSIONER OF Income Tax., , and Debi Prasad Malviya Vs. Commr. of Income Tax, United Provinces, Lucknow, , was followed.

The question, however, is whether that principle governs the facts established in this case.

In all those cases the existence of a source of income, the income from which was not taken into account in the original assessment proceedings,

was known to the assessing authority. That that source yielded an income which was liable to assessment was also known. Only the quantification

of that income and the quantification of the tax had to be done. They were deferred to suit apparently the administrative convenience of the

assessing authority. It was under these circumstances that the Courts held that for such a deferred assessment the Departmental authorities could

not invoke Section 34 of the Act.

In the piesent case, as pointed out by the Tiibunal, the assessee was not in a position to give information even whether the source of income ihe

assessee had at each of the foreign centres was in existence at all subsequent to December, 1941 or January 1942, when the enemy occupied

these territories. The means of communication were cut, and there was no possibility of getting any information. Short of harassing the assessee and

proceeding to estimate the income from the foreign sources without any real data at all, the Income Tax Officer could not have taken into account

the income from the foreign sources when he completed the original assessment. Besides, there is one other factor to be taken into account. That

the assessee received remittances from abroad during the year of account was known to the assessee, but that was not disclosed at an earlier

stage. Possibly the assessee could urge that until the accounts were completed he would not be in a position to state whether the remittances

admittedly received represented remittances of profits The main feature of the case is that neither the Assessee nor the Income Tax Umcer was in a

position to know during the original assessment proceedings whether even the source of foreign income, the foreign business; was in existence

much less to know whether that source yielded any income, despite the large amount of remittances actually received within the taxable territories

by the assessee. The principle that deferred or piecemeal assessment will not come within the scope of Section 34 of the Income Tax Act, cannot,

in our opinion, be extended to this case, where, though apparently the assessment of the income from the foreign sources was deterred, that was

occasioned by factors beyond the control of both the assessee and the assessing authorities. It is not as if we can subscribe to the view, that if the

Act did not specifically provide for the machinery to assess the income under such circumstances, the rsquirements of Section 34 of the Act can be

dispensed with. The requirements, in our opinion, have been safcsfied in this case. There was de-tinite information subsequent to the termination of

the hostilities, and that information led to the discovery of the income which was not and which could not have been assessed in the original

assessment proceedings. As we have pointed out, the bar of piecemeal assessment would not apply to the facts of this case.

Our answer to the question referred to us is in the affirmative and against the assessee. Since the assessee faik d he will pay the costs of this

reference. Counsel''s lee Rs. 250.