Madras High Court
P.L.M.P.L. Palaniappa Chettiar vs The Commissioner Of Income-Tax on 14 October, 1929
Equivalent citations: (1930)58MLJ23
JUDGMENT Kumaraswami Sastri, J.
1. The question we are asked to answer is:
When an Income-tax Officer takes action under Section 34 of the Income-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?
2. 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 provisions 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 under Section 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 underestimation, he has been taxed at a certain rate which is subsequently found to be incorrect and notice is given to him under Section 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 0-1-6 instead of 0-1-0 and the rate will therefore be higher. Where the rate is in question, the enquiry need not, under Section 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.
3. Our answer will therefore be that, in a case where the rate is sought to be raised under Section 34 of the Income-tax Act, an Income-tax Officer is not bound to determine afresh the correct taxable income of the assessee. The petitioner will pay Rs. 250 the costs allowable.