E.M. Muthappa Chettiar, legal representative of E.M. Viswanatham Chettiar (deceased) vs The Commissioner of Income Tax

Alfred Henry Lionel Leach, C.J.—On the 18th November, 1932, E.M. Viswanatham Chettiar was assessed to Income Tax on an income

of Rs. 8,277 in respect of the Tamil year ended 12th April, 1932. The assessee was the managing member of an undivided Hindu family. The

family carried on a money-lending business at Puduvayal in British India, in the Federated Malay States, and in Burma. The year of assessment

closed on the 12th April, 1933 and on the 13th December, 1933, the Income Tax Officer having reason to believe that income earned during the

accounting period had escaped assessment issued a notice u/s 34 of the Indian Income Tax Act. On the 6th October, 1934, the assessee filed a

statement to the effect that that no income had escaped assessment. On the 25th February 1935, the Income Tax Officer issued a notice to the

assessee u/s 23(2) to produce the evidence on which he proposed to rely. On the 18th July, 1936, the Income Tax Officer gave the assessee

notice that on the 24th of that month he would commence an inquiry into the question of what income had escaped assessment and directed him to

appear before him with all his account books and pass books. The inquiry in fact actually commenced on the 23rd July, and continued on the 28th

and the 29th when it was completed. On the 30th July, 1936, the Income Tax Officer re-assessed the assessee on an income of Rs. 55,000 which

included the Rs. 8,277 already assessed.

The reasons for the delay which took place after the issue of the notice u/s 34 on the 13th December, 1933, are apparent from the facts set out

in the statement made by the Commissioner of Income Tax in making the reference now before us. Inquiries had to be made in Burma and there

was lengthy correspondence with the Income Tax officials in that country. It is clear that income which should have been assessed in the year of

assessment did escape assessment. The assessee, however, contended before the Commissioner of Income Tax that the Income Tax Officer had

no right in making the further assessment to take into consideration information which he had received after the expiration of one year from the end

of the year of assessment. The Commissioner was asked to state a case on this point, but as he refused, the assessee applied to this Court and the

Commissioner was directed to refer the following question:

Where the Income Tax Officer has issued a notice u/s 34, can he, for the purpose of assessing income, which has escaped assessment rely on facts

which come to his knowledge after one year from the end of the year of assessment?

As in our view the assessee wishes us to read into Section 34, something which is not there I will set it out in full:

If for any reason income, profits or gains chargeable to Income Tax has escaped assessment in any year or has been assessed at too low a rate,

the Income Tax Officer may, at any time within one year or the end of that year, serve on the person liable to pay tax on such income, profits or

gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a

notice under Sub-section (2) of Section 22 and may proceed to assess or re-assess such income, profits or gains, and the provisions of this Act

shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section:

Provided that the tax shall be charged at the rate at which it would have been charged had the income, profits or gains not escaped assessment or

full assessment, as the case may be.

It will be seen that all that the section says is that if for any reason income chargeable to Income Tax has escaped assessment in any year or has

been assessed at too low a rate the Income Tax Officer may within the time specified serve on the assessee the contemplated notice, and after

having done so proceed to assess or re-assess such income. There is nothing in the section which indicates that the inquiry is to be limited in time.

The decision of the Privy Council in the case of Rajendra Nath Mukherjee vs. Income Tax Commissioner, (1933) LR 61 I.A. 10 has bearing on

the question now before us. The assessees in that case were partners in a firm. After the year of assessment had expired but before the final

assessment was made the Income Tax Officer discovered profits which had not been returned, and at a period considerably later than the end of

the financial year made an assessment based on what he had discovered after its close. The appellants submitted that on a true construction of the

Act an assessment must be completed within the year of assessment and if it was not, the only remedy open to the Income Tax authorities was that

provided by Section 34. Their Lordships held that there was no limitation to the time in which the final assessment could be made and that as

proceedings for the assessment of the assessee''s income for a financial year were pending and no final assessment had been made there was no

question of income having escaped assessment within the meaning of Section 34 so as to make the service of a notice within one year of the end of

the year as therein required a condition of assessment.

In the present case the notice required by Section 34 was given within the period allowed and it was the duty of the Income Tax Officer to

ascertain what income had in fact escaped assessment. The assessment was reopened so far as such income was concerned. To say that the

Income Tax Officer shall be limited to facts discovered within a year of the year of assessment is to say something which the section does not say

and if acted upon would defeat the object of the section. We have no hesitation in answering the reference in the affirmative.

The reference having been decided against the assessee he will pay the costs, Rs. 250.