P.L.M.P.L. Palaniappa Chettiar vs The Commissioner of Income Tax

The question we are asked to answer is:

When an Income Tax Officer takes action tinder Section 34 of the Income come Tax Act for the purpose of raising the rate of tax on the ground

that the rate originally fixed was too low is not the Income Tax Officer bound to re-assess the income that is, to determine afresh the correct

taxable income of the assessee?

Section 34 refers to income escaping assessment and it provides that in such cases it may either be that the income has escaped assessment or

has been assessed at too low a rate the Income Tax Officer may 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 under Sub-section (2)

of Section 22 and may proceed to assess or re-assess such income, profits or gains, and that the provision of this Act shall, as far as possible,

apply accordingly as if the notice were a notice issued under that sub-section. Then there is a proviso 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 is argued for

the petitioner that u/s 34 where the rate at which the tax is levied is sought to be raised, the Income Tax Officer is bound to begin proceedings

again as regards assessment and in fact proceed as if there is an inquiry in respect not only of the portion which has escaped assessment but of all

the other items, also, and reference is made to Sections 14 and 16. It is argued that, when there are various heads under which a person returns his

income, if in respect of one of those heads, owing to an omission or under-estimation he has been taxed at a certain rate which is subsequently

found to be incorrect and notice is given to him u/s 34 the Income Tax Officer is not to confine himself to that portion which has escaped

assessment, but he is to begin again as if the notice sent was a first notice sent to the assessee to return his income. We do not think that Section 34

requires any such thing to be done. Section 34 refers to a specific case, namely, the case where an income chargeable to Income Tax has escaped

assessment or has been assessed at too low a rate. It may escape assessment leaving the rate unchanged, in which case it is only the amount of the

assessment that will have to be raised owing to the rise in the taxable income or it may escape assessment in such a way that, if rectified, it would

take the income beyond a certain rate; for example, it may give the figure to be over Rs. 40,000 in which case it will be assessed at 1 anna 6 pies

instead of 1 anna and the rate will, therefore, be higher. Where the rate is in question, the enquiry need not, under s 34, go beyond the facts on

which the (raising of the rate depends. When the assessee is given notice to show cause why the tax should not be raised because of an item having

escaped assessment, he is entitled to show that, as a matter of fact, there has been no omission and that the original rate is correct. We do not

think that Section 34 requires the whole thing to be re-opened and every item under which Income Tax is charged to be considered afresh and a

fresh assessment levied. In one sense, of course, he must fix the taxable income to enable him to fix the rate, but he is not bound to re-open the

items which are not in question or which have become final, and start proceedings again. We think he is only bound to confine himself to the

particular item which has been omitted.

Our answer will, therefore, be that, in a case where the rate is sought to be raised u/s 34 of the Income Tax Act, an Income Tax Officer is not

bound to determine afresh the correct taxable income of the assess. The petitioner will pay Rs. 250 the costs allowable.