COMMISSIONER OF INCOME-TAX, LAHORE ZONE (WEST PAKISTAN), LAHORE Versus DR. KHURSHID ALAM MALIK, SHEIKHUPURA
1. MUSHTAQ HUSSAIN, J .--The income of Dr. Khurshid Alam Malik, a medical practitioner of Sheikhupura, for the years 1955-56 to 1958-59 was the subject-matter of assessment under section 23(3)/34 of the Income-tax Act before the Income-tax Officer, Sheikhupura. He made the assessment vide his order dated 25-2-1961.
2. The assessee felt aggrieved on a number of counts including that the I.T.O. did not have the power to initiate proceedings under Section 34 of the Income-tax Act. He filed an appeal, which was disposed of by the Appellate Assistant Commissioner of Income-tax, Lahore, by his order dated 13-4-1964. On the particular point referred to hereinbefore with particular relation to the residential bungalow constructed by the assessee, the learned Appellate Assistant Commissioner probably came to the conclusion that the I.T.O. had the power in the present case to proceed under Section 34 because he only reduced the assessment by Rs.5,750 for each of the years under review which could have been done only if he had, in fact, come to the conclusion that the order was intra vires. So far as the cost of the bungalow is concerned, he accepted the I.T.O's estimate of Rs.64,500 which was based on a certificate from the S.D.O. Buildings & Roads of Public Works Department as against the amount of Rs.42,290 assessed by an unqualified Overseer of the Municipal Committee, Sheikhupura. He, however, accepted the contention of the assessee that the S.D.O's. certificate was on the basin of rates prevailing in 1961 whereas the building had been constructed in the year 1957-58. The learned Appellate Authority, therefore, reduced the assessment made by the S.D.O. by Rs. 9,000 and fixed it at Rs.53,000.
3. Dr. Khurshid Alam felt dissatisfied with this order and moved the Income-tax Appellate Tribunal. The Tribunal by its order dated 12-1-1966 dismissed the appeal for the years 1955-56 to 1957-58, but accepted the appeal with regard to 1958-59. The Tribunal found that the latter year was not at par with other years as far as the legality of the assessment under section 34 is concerned. As would appear from the facts stated in the earlier part of the order the first I.T.O. who made the original assessment for this year was well aware of the construction of the bungalow by the appellant, which was completed in the early part of the relevant accounting year it cannot, therefore, be contended that so far as this year is concerned, the construction of the bungalow constituted a new factor which was not within the knowledge of the Income-tax Officer at the time of the making of the original assessment.
4. ? The assessee seems to have felt satisfied with this order but the Commissioner of Income-tax did not agree with the opinion of the Tribunal that the proceedings for the charge year 1958-59 initiated by the I.T.0, were not valid in law. He consequently moved the Tribunal which has by its order dated 8-9-1966 referred the following question to us for opinion:-
5. "Whether on the facts 'and in the circumstances of the case, the Tribunal was right in holding that the proceedings initiated under Section 34 of the Income-tax Act in respect of the assessment year 1958-59 were not valid in law."
6. Reliance has been placed before us by learned counsel for the Commissioner of Amir Singh Sher Singh v. Commissioner of Income-tax (1935) 3 I.T.R. p. 171, where the judgment of this Court has been printed. In that case the question referred to the Court was as follows.
7. "A business loss of Rs.55,438 (inclusive of an alleged bad debt deduction Rs.40,896) having been determined in an initial assessment and set off therein under section 24 of the Act against chargeable income, whether in proceedings under section 34 of the Act, the Income-tax Officer, could validly determine such loss as Rs.17,126 only (by way of reducing the admissible 'bad debt' deduction to Rs.2,584) and raise tax upon the balance of income after setting off under section 24 of the reduced loss thus determined?"
8. The Court was of the opinion that?
9. "The words 'for any reason' placed before the expression 'escaped assessment' clearly indicate that the legislature intended to include all those cases which either resulted from mere inadvertence or from conscious misapprehension of the proper situation. From the perusal of the judgments cited above which restrict the meaning of the word 'escape' it appears that the significance of these words has not been duly considered. To us, in the presence of these words, there appears to be no justification for confining the meaning of the word 'escape' to those cases only which have not come to the notice of the Income-tax Officer at all and excluding those cases where he has applied his mind but on account of an error of judgment has set any part of the income free from assessment. The idea conveyed by the words 'for any reason' is so wide as to make it impossible not to include any case of non-assessment to whichever cause it may be due. We may remark, that the intention of the Legislature was to shape Section 34 on the model of Section 125 of the English Act, which was very extensive on its scope and covered all such cases as we propose to do. In respectful agreement therefore with. In re: The Anglo Persian Oil Company (India) Ltd. (1933) I L R 60 Cal. 840, we have no hesitation in bolding that Section 34 empowers an Income-tax Officer to revise the assessment already made and to assess a sum which has not been assessed by his predecessor on account of the wrong application of the Act. -Our answer to the question referred, therefore, will be in the affirmative.".
10. This case was considered by a Full Bench of Lahore High Court in Madan Mohan Lal v. Commissioner of Income-tax, Punjab and N.-W.F.P. reported in the same volume at page 438. The long line of decisions of the Lahore and the other Courts came under review. The case was disposed of by a majority view held by Sir James Addison, Acting Chief Justice and Din Mohammad J. The third Judge, Dalip Singh J. did not agree with their Lordships. Din Mohammad J. with whom the Acting C.J. concurred gave the following opinion:-
11. "I would accordingly hold that if an item of income is included in the return submitted by an assessee during a tax year but is left unassessed by the Income-tax Officer, or if assessed in the first instance the assessment is cancelled by any appellate or revisional authority, it is escaped assessment within the meaning of Section 34 and the assessee can be legally served with a notice within one year of the end of that year."
12. Their Lordships also noted with approval the judgment of the Rangoon High Court in Commissioner of Income-tax Burma v. N.N Burjorjee reported in 131 I.C. 507 in which one finds the following observation:-
13. "We are of opinion that Section 34 is applicable to cases in which either no assessment at all has been made upon the person who received the income, profits or gains liable to assessment, or where an assessment has been made in the course of the year, but some portion of the income, profits or gains of such assessee for some reason or other has not been included in the order of assessment; such income is income which has 'escaped assessment' in' the year, and falls within the ambit of Section 34 of the Act."
14. In view of these two rulings, one of a Full Bench of this High Court one need not concern oneself with the rulings of other Courts of pre-independence India. In the present case, the Tribunal came to the conclusion that the Income-tax Officer who made the first assessment was aware of the construction of the bungalow and since he was fully cognisant of it when he made the order which was sought to be re-opened under Section 34, the second Income-tax Officer who acted under that section had no reason for doing so inasmuch as the facts on the basis of which action under Section 34 was taken were already before the first Income-tax Officer, at the time of making the original assessment and it would only tantamount to this, that in the opinion of the second I.T.O. the estimate of his predecessor was too low.
15. The case of the Department, however, is that although the fact of the construction of the house property was within the knowledge of the first I.T.O. but the quantum of investment in it had not been disclosed to him where for he was not in a, position to assess or at least correctly assess the individual to tax in the absence of such information. The decisions of this Court quoted above are, therefore, applicable with full force to the facts before us and the word "escaped" having been given the meaning that of the case we find in the two rulings cited above, we are of the view that action under Section 39 of the Income-tax Act in respect of the assessment year 1958-59 was therefore, valid in law.
16. The answer to the question posed is given in the affirmative. There will be no order as to costs.
17. M.B.A./ C-22/ L ????????????????????????????????????????????????????????? Question answered in the affirmative