K. S. ABDUL SATTAR vs COMMISSIONER OF Income Tax, ANDHRA PRADESH.

UMAMAHESWARAM J. - The question that is referred to for our decision u/s 66(1)of the Indian Income Tax Act is as follows :

"Whether, once proceedings u/s 34(1) (b) have been validity started, income that is known to have escaped assessment at the time of the issue of the notice alone can be assessed or any and all income that has escaped assessment ?"

To appreciate the question referred to us, it is necessary to set out a few relevant facts. The assessee submitted a return for the year 1953-54 in which he stated that he had received a sum of Rs. 4,000 by way of interest. He made a note in his return that the receipt was of a casual and non-recurring nature not arising from business, profession or vocation. His statement was accepted by the Income Tax Officer. On July 31, 1957, the Income Tax Officer made a note in his order as follows :

"The assessee was in receipt of some interest income. This was declared in part G of the return. Exemption was claimed on the ground of its being of a casual nature and not being business income.

The facts examined in connection with the assessment for 1956-57 clearly show that the income is not at all casual...... The income is clearly taxable."

He issued a notice u/s 34(1) (b) of the Income Tax Act as amended in 1948. It was found that a sum of Rs. 20,000 was deposited by the assessee with Messrs. D. C. Johar & Sons (Private) Ltd. and that the sum of Rs. 4,000 was earned by way of interest thereon. In assessee was unable to prove the source. His representative agreed that the amount of Rs. 20,000 might be treated as income from undisclosed sources provided no penalty proceedings were launched. The Income Tax Officer levied assessment on the sum of Rs. 20,000 as well. There upon, the assessee preferred an appeal to the Appellate Assistant Commissioner of Income Tax, "B" Range, Hyderabad. The Appellate Assistant Commissioner confirmed the assessment and held that once proceedings were taken u/s 34(1) (b), the Income Tax Officer was entitled to assess not only the sum of Rs. 4,000 but also the sum of Rs. 20,000, i.e., the entire income that escaped assessment. On a further appeal to the Income Tax Appellate Tribunal, the view taken by the Appellate Assistant Commissioner was confirmed. The assessee applied for a reference u/s 65(1) of the Income Tax Act. An agreed statement of the case was filed before the Tribunal. Only one question was referred by the Tribunal, viz., whether once proceedings u/s 34(1) (b) have been validity started, income that is known to have escaped assessment at the time of the issue of the notice alone can be assessed or any and all income that has escaped assessment. Though an argument was addressed before the Appellate Assistant Tribunal that there was no warrant for the proceedings being taken u/s 34(1) (b) of the Act, it was not referred to this court by the Tribunal. Sri Mallikarjuna Rao, the learned advocate for the petitioner, strenuously contended that even though only one question was referred by the Appellate Tribunal u/s 66(1) of the Act, still the second question, viz., that whether there was no warrant for the proceedings being taken u/s 34(1) (b) of the Act, arises out of the order of Appellate Tribunal. The facts disclose that the Appellate Tribunal did not refuse to refers the second question to this court. No such request to refer the second question was made to the Tribunal. The assessee has also not availed himself of the provisions of section 66(2) and requested this court to refer that question as well. We are not satisfied that the provisions of section 66(4) and 66(5) apply to the facts of this case. As pointed out by Venkatarama Ayyar J. in Commissioner of Income Tax v. Scindia Steam Navigation Co. Ltd. :

"It is the question of law referred u/s 66(1) that calls for decision u/s 66(5) and it is that that constitutes the pivotal point on which the jurisdiction of the court hinges."

The question that is referred to us arises out of the statement of facts referred to by the Tribunal. It is not necessary for us to refer the case back to the appellate Tribunal to make any additions or alterations or raise the second question.

The only question that arises for decision in the reference is whether, having reopened the proceedings u/s 34(1) (b), the Income Tax Officer was not entitled to levy assessment on the entire income that escaped assessment, viz., Rs. 4,000 and the sum of Rs. 20,000 as income from undisclosed sources. The identical question came up for secession before the Punjab High Court u/s 34 as amended by the 1939 Act. We are only concerned with the question as to what is the meaning to be given to the word "such" in the clause "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 assets or reassess such income, profits or gains......" This is dealt with by Tek Chand J. in Commissioner of Income Tax v. Jagan Nath Maheshwary :

"Now the meaning of the word such as used in juxtaposition with income, profits or gains remains to be considered. According to the learned counsel for the assessee, the term such income, etc., etc., refers not to the entire escaped income but to that part of it only, with respect to which the Income Tax Officer had a definite information, in consequences of which he had discovered the escapement. This restricted scope of the expression such income, etc., etc., does not commend itself to me either on the basis of grammar, logic, or natural and reasonable construction. The word such, as used in this context, qualifies income, profits or gains which have escaped assessment; it does not proceed further to qualify or particularise any portion of the escaped income, or extent of its discovery, or the exact nature of the definite information."

We respectfully agree with the observations of the learned judge. When once valid proceedings are taken u/s 34(1) (b), the Officer has not only jurisdiction but also the duty to levy tax on the entire income that has escaped assessment during that year. The same view is taken by a Division Bench of the Madhya Pradesh High Court in Seth Kalekhan Mohammed Hanif v. Commissioner of Income Tax. At page 677 the learned judges observed as follows :

"We think that once the case is reopened u/s 34 of the Income Tax Act, the Income Tax Officer is not limited to the information which he had received and on the strength of which he had asked for a reopening and reassessment of the assessee. If he were to discover other cash credits, he is entitled to take them into account in the income of the assessee and to assess such income if it had escaped assessment earlier."

Following the above two decisions and on a true construction of section 34(1) (b), we are inclined to take the view that the entire income that had escaped assessment should be taxed. We, therefore, answer the question accordingly. The respondent is entitled to costs. Advocates fee is fixed at Rs. 150.

Question answered accordingly.