INCOME-TAX OFFICER, A-WARD, SITAPUR vs. MURLIDHAR BHAGWANDAS, LAKHIMPUR KHERI

CIVIL APPEAL No. 130/1962Supreme Court[1964] 6 S.C.R. 41129 January 1964Bench: 5 JudgesAuthor: BHUVNESHWAR PRASAD SINHA, K. SUBBA RAO, RAGHUBAR DAYAL, N. RAJAGOPALA AYYANGAR, J.R. MUDHOLKAR27 pages
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What were the facts?

The assessee, Murlidhar Bhagwandas, was assessed for the assessment year 1949-50. Initially assessed under Section 23(4) for non-compliance with notices, this assessment was later cancelled. However, it was discovered that interest income of Rs. 88,737 had escaped assessment for the year 1949-50. The Income-Tax Officer issued a notice under Section 34(1)(a) for this escaped income. Following the cancellation of the initial assessment, the Income-Tax Officer included this amount in a fresh assessment for 1949-50. The assessee appealed to the Appellate Assistant Commissioner (AAC), who directed the deletion of Rs. 88,737 from the 1949-50 assessment and its inclusion in the assessment for the year ending 1948-49. The Income-Tax Officer then issued a notice under Section 34(1) for the year 1948-49. The assessee filed a writ petition challenging this notice as being beyond the prescribed time limit under Section 34. The High Court quashed the notice, holding it was issued beyond the ordinary period of limitation and that the second proviso to Section 34(3) did not apply.

What did the Supreme Court hold?

The majority of the Supreme Court held that the notice issued under Section 34(1)(a) for the assessment year 1948-49 was clearly barred by time. The proviso to sub-section (3) of Section 34 of the Indian Income-tax Act, 1922, does not save the time limit prescribed under sub-section (1) of Section 34 in respect of an escaped assessment of a year other than that which is the subject matter of the appeal or revision. The jurisdiction of appellate or revisional authorities is confined to the assessment year under review, and any direction given must necessarily be limited to matters falling within that year. The proviso does not confer fresh power to make assessments without time limit but only lifts the ban of limitation for assessments made under certain provisions within the scope of the tribunal's jurisdiction. The majority also addressed the Article 14 contention, finding that the classification made by the proviso had a reasonable basis and was rationally related to the object of detecting escaped income, distinguishing between cases where escaped income was identified by a higher authority and those where it was not. However, this discussion was in the context of the dissenting opinion's reasoning. The operative direction was to allow the appeal and quash the writ of certiorari issued by the High Court, meaning the High Court's order quashing the notice was upheld by the majority.

What were the issues?

1. Whether the notice issued under Section 34(1)(a) for the assessment year 1948-49, pursuant to a direction by the Appellate Assistant Commissioner to include escaped income from that year in the assessment, was barred by limitation under Section 34 of the Indian Income-tax Act, 1922. Assessee's contention: The notice was issued beyond the ordinary period of limitation prescribed by Section 34, and the second proviso to Section 34(3) was not attracted to save the limitation for an assessment year other than the one under appeal. Revenue's contention: The second proviso to Section 34(3) was attracted, allowing for the issuance of a notice without the ordinary time limit because the Appellate Assistant Commissioner had made a finding or direction regarding the escaped income. The entire matter was at large before the appellate authority, empowering it to direct inclusion in an earlier year. 2. Whether the second proviso to Section 34(3) of the Indian Income-tax Act, 1922, which allows for the issuance of a notice to an assessee in respect of escaped income without a time limit when an appellate authority has made a finding or direction, is discriminatory and violates Article 14 of the Constitution. (This issue was raised by the dissenting judges but discussed in the majority judgment's context). Assessee's contention (as discussed by the majority): The proviso creates discrimination by lifting the bar of limitation only for assessees with respect to whom an appellate authority has made a finding or direction, while other similarly situated assessees without such a finding or direction remain subject to the limitation period. Revenue's contention (as discussed by the majority): There is a reasonable basis for the classification made by the proviso, as it relates to the object of detecting and bringing to assessment escaped income, distinguishing between cases where escaped income has been judicially identified by a higher authority and those where it has not.

Which sections of the Income-tax Act were involved?

Section 34(1)(a),Section 34(3),Section 23(4),Section 34,Section 31,Section 66,Section 66(b)

AI-generated summary — verify with the full judgment below

6 S.C.R. SUPREME COURT REPORTS 411 either with cl. (1) of Art. 15 or cL (2) of Art. 29 to require 1964 the consideration of the castes of persons tto be borne in R. Chilraleklw mind for determining what are socially and educationally Stat• ofM"Jton backward classes. It is true that cl. ( 4) of Art, 15 contains a non-obstante clause with 1the result that power conferred Mudholkar 1. by that clause can be exercised despite the provisions of cl. (1) of Art. 15 and cl. (2) of Art.

29.

But that does not justify the inference that castes have any relevance in determining what are socially and educationally backward communities. As my learned brother bas rightly i;iointed out the Constitution has used in cl. ( 4) the expression "classes" and not "castes". Upon the view which I have taken on the two points I have discussed the appeals must be allowed and a direction be issued to the Selection Committee to make the selection of candidates solely on the basis of the result of P.U.C. examination. I would allow them with costs here as well as in the High Court. ORDER BY COURT In view of the judgment of the majority, the appeals fail and are dismissed. There will be n

The order continues below.

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