Andhra HC (Pre-Telangana)
Commissioner Of Wealth-Tax vs Subakaran Gangabhishan on 27 June, 1979
Equivalent citations: [1980]121ITR69(AP), AIR 1980 ANDHRA PRADESH 52, 1980 TAX. L. R. 73, (1980) 121 TAC 69, (1980) 1 ANDHWR 150, (1980) 1 I T J 170, 181 I T R 69, (1480) 1 ANDH WR 150, (1980) 3 TAXMAN 32 (AP)
JUDGMENT ORDER OF THE DIVISION BENCH S. Obul Reddy , C.J. and M. Ramachandra Raju, J.
1. The WTO issued a notice under Section 17(1)(a) of the W.T. Act to the assessee on the ground that the assessee failed to disclose fully and truly all material facts necessary for assessment of his net wealth chargeable to tax for the assessment years 1963-64 to 1967-68. That notice was issued in December, 1971. The notice has specified that the assessee failed to include 81/2 acres of land in Maredpalli in his wealth-tax returns for all the relevant assessment years. It so happened that when the WTO reopened the assessments he found that the Begumpet house property of the assessee was under-valued in all the assessment years and a bad debt of Rs. 2,36,985 for the assessment years 1966-67 and 1967-68 was wrongly allowed. An objection was taken by the assessee before the AAC and before the Appellate Tribunal that, in so far as the two items, viz., the house property in Begumpet and the bad debt are concerned, the WTO was not competent to reopen the assessment proceedings for the first four years, as the time prescribed for taking action in respect of cases falling under Clause (b) of Section 17(1) is at any time within four years of the end of that assessment year. This contention of his was negatived throughout.
2. Mr. T. Ramachandra Rao's contention is that, while it is open to the WTO, when he issues a notice under Section 17(1)(a), to also consider matters falling under Section 17(1)(b), viz., whether the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under-assessment or assessment at too low a rate or otherwise, he cannot exercise the jurisdiction vested in him under Section 17(1)(b) after the expiry of the period of limitation of four years prescribed for proceedings under Section 17(1)(b). In support of his contention, he relied upon a decision of the Madras High Court in A.L. VR. ST. Veemppa Chettiar v. CIT . That was a case where the ITO initiated reassessment proceedings by issuing a notice under Section 34(1)(a) of the Indian I.T. Act, 1922, in respect of a particular item. While so reopening he also sought to reopen the assessment under Section 34(1)(b). The Madras High Court, after referring to the decision in V. Jaganmohan Rao v. CIT , observed that the ITO cannot directly issue a notice for reassessment in cases falling under Clause (b) after the four year period. But those cases can be brought in indirectly by issuing a notice purporting to be under Clause (a). It was further observed at page 126 of the report:
"We are not inclined to accept the contention of the learned counsel for the revenue that the period of four years mentioned in the section is only for the issuance of a notice under Clause (b), but that it will not debar a reassessment in respect of items falling under Clause (b) after four years, if those items come to the knowledge of the Income-tax Officer in connection with the proceedings validly initiated by the issuance of a notice under Clause (a). The object of a time-limit for the issuance of a notice under Clause (b) is in effect to take away the power of the Income-tax Officer to deal with items falling under Clause (b) after the said period of four years. The further contention of the revenue is that the period of four years mentioned in respect of cases falling under Section 34(1)(b) cannot be considered to be a period of limitation so as to create a vested right in the assessee. Even if this contention were to be accepted, the object of providing a time limit before which the proceedings are to be initiated cannot be overlooked. As pointed out by the Supreme Court in S.S. Gadgil. v. Lal & Co. , the period prescribed by Section 34 for assessment may not be a period of limitation. However, the section in terms imposes a fetter upon the power of the Income-tax Officer to bring to tax escaped income. It prescribes different periods in different classes of cases for enforcement of the right of the State to recover tax."
3. The learned counsel for the revenue invited our attention to a decision of this court in Pulavarthi Viswanadham v. CIT [1963] 50 ITR 463, where a contrary view has been taken. This court expressed the view that the position obtaining after invoking Section 34(1)(a) of the Indian I.T. Act, 1922, is the same as it was prior to the completion of the original assessment and the ITO would have jurisdiction to assess items falling under Section 34(I)(b). What Mr. Ramachandra Rao contends is that there is no, discussion as such on the question of limitation provided under Section 34(1)(b) and, therefore, that decision requires reconsideration. The view expressed in Pulavarthi Viswa-nadham v. CIT [1963] 50 ITR 463 (AP) was followed by another Bench of this court in CIT v. Jeskaran Bhuvalka [1970] 76 ITR 128. There, as pointed out by Mr. Ramachandra Rao, the question as to whether the period of four years provided in Section 34(1)(b) operates as a bar after the expiry of that period for reopening the assessment in respect of the items referred to in Section 34(1)(b) did not arise for consideration. The language of Section 34 is in pari materia with the language of Section 17 of the W.T. Act. Since the question involved is an important one and is likely to arise quite often, we are of the opinion that there should be an authoritative pronouncement of this court. We, therefore, refer question No. 2, which reads as follows :
"If the answer to the above question is in the affirmative, whether the Wealth-tax Officer was competent to revise the value of the Begnmpet property in the reassessments for 1963-64 to 1966-67 and to disallow the assessee's claim for bad debt of Rs. 2,36,985 in the reassessment for 1966-67 when the limitation under Section 17(1)(b) had expired in respect of these two items ?"
4. Question No. 1 will have to be answered in the affirmative and in favour of the revenue and, therefore, question No. 2 alone is referred as it raises the question of limitation. Post the R.C. after the opinion of the Full Bench is received.
JUDGMENT OF THE FULL BENCH Kondaiah, C.J.
5. The Income-tax Appellate Tribunal, Hyderabad Bench, submitted a statement of case and referred under Section 27(1) of the Wealth-tax Act, 1957 (hereinafter called "the Act"), the following three questions of law, the first two at the instance of the assessee and the third at the instance of the revenue, for the opinion of this court:
"(1) Whether, on the facts and in the circumstances of the case, the Wealth-tax Officer had jurisdiction to reopen the assessments for the years 1964-65, 1965-66 and 1966-67 under Section 17(1)(a) of the Wealth-tax Act ?
(2) If the answer to the above question is in the affirmative, whether the Wealth-tax Officer was competent to revise the value of the Begumpet property in the reassessments for 1964-65 to 1966-67 and to disallow the assessee's claim for bad debt of Rs. 2,36,985 in the reassessment for 1966-67 when the limitation under Section 17(1)(b) had expired in respect of these two items ?
(3) Whether, on the facts and in the circumstances of the case, the land at Maredpalli can be treated as non-agricultural in nature and its value included in the net wealth of the assessee for the assessment years 1963-64 to 1967-68?"
6. This referred case came up before a Division Bench consisting of Obul Reddi C.J. and M. Ramachandra Raju J., who by their order dated September 27, 1977, answered question No. 1 in the affirmative and in favour of the revenue and referred question No. 2 to a Full Bench as in their opinion it is an important one and is likely to arise quite often and there should be an authoritative pronouncement. That is how this has come up before us.
in order to appreciate the scope of the question it is necessary to refer briefly to the facts and circumstances indicated in the statement of case. For the assessment years 1963-64 to 1967-68, the wealth-tax assessments of the assessee were originally completed under Section 16(3) of the Act on February 6, 1965, March 5, 1965, and January 27, 1968, respectively. Subsequently, the WTO, having come to know that an item of immovable property consisting of 81/2 acres of open land at Maredpalli, Secunderabad, was not disclosed by the assessee in the original returns, reopened in the first instance the assessments for the years 1957-58 and 1958-59 and estimated the value of the property at Rs. 85,000. The plea of the assessee that Maredpalli land was agricultural land and was, therefore, exempt from the purview of the Act was abandoned at the time of hearing of the appeal and the plea was confined to the value of the lands. The AAC determined the value of the land at Rs. 25,000 in his order dated April 5, 1969. Thereafter, the WTO reopened the assessments for the years 1963-64 to 1967-68 by the issuance of notices under Section 17(1)(a) of the Act on the ground that the assessee failed to disclose fully and truly all the relevant and material facts relating to the assessments in question. In the returns filed by the assessee in response to the notice issued under Section 17 of the Act, Rs. 25,000 towards the value of the Maredpalli land was included by the assessee, although the assessee objected to the jurisdiction of the WTO to reopen the assessment. Overruling the objections relating to the jurisdiction to reopen the assessment, the WTO held that the Maredpalli land was non-agricultural in nature and its value was liable to wealth-tax. In the returns filed for the assessment years 1968-69 and 1969-70 the assessee himself admitted the value of the Maredpalli land to be Rs. 85,000 on the basis of the approved valuer's report. . In the circumstances, for the assessment years 1963-64 and 1964-65, the value of the land was determined at Rs. 75,000, for the assessment years 1965-66 and 1966-67 at Rs. 80,000 and for the assessment year 1967-68 at Rs. 85,000. The WTO also noticed another property known as Begumpet property, the value of which was declared by the assessee for the assessment year 1968-69 at Rs. 3,83,801 on the basis of the report of an approved valuer and, therefore, came to the conclusion that there was under assessment in respect of the value of the property which was declared by the assessee at Rs. 1,60,000 in the original returns and accordingly fixed the value of the property at Rs. 2,75,000, Rs. 3,00,000, Rs. 3,25,000, Rs. 3,50,000 and Rs. 3,83,000 for the assessment years 1963-64, 1964-65, 1965-66, 1966-67 and 1967-68, respectively.
7. On appeal, the AAC held that the WTO was well within his jurisdiction to reopen the assessments and fixed the value of the Maredpalli land at Rs. 60,000 for the assessment year 1963-64, Rs. 70,000 for 1964-65 and 1965-66 and Rs. 80,000 for 1966-67 and 1967-68 and upheld the assessment in respect of Begumpet property. In the further appeal to the Tribunal, it was contended on behalf of the assessee that there was no escapement of the value of Maredpalli land within the meaning of Section 17(1)(a), that, in any event, the WTO had no jurisdiction to reassess the items of escapement or under-assessment which would fall within the category of Section 17(1)(b) as the period of four years' limitation had expired, that the Maredpalli land was agricultural in nature and as such it was exempt from tax and that the reassessment and assessment are, consequently, invalid and without jurisdiction. This claim was countered by the departmental representative by stating that the assessee had admitted the fact of non-inclusion of Maredpalli property and when notice was issued seeking reopening of assessment, the assessee included that property in the revised return and hence the WTO had jurisdiction to reopen the assessment under Section 17(1)(a) of the Act. The assessee's representative replied that the admission of the assessee, that the Maredpalli land was non-agricultural in nature, was made under an erroneous impression of law and that admission was withdrawn before the AAC in view of the Full Bench decision of the Andhra Pradesh High Court in Officer-in-Charge (Court of Wards] v. CWT [1969] 72 ITR 552. The Tribunal agreed with the WTO and the AAC that the omission of Maredpalli property in the original return had undoubtedly invested the WTO with the jurisdiction to reopen the assessment under Section 17(1)(a) of the Act and the attitude of the assessee before the appellate authorities would not deprive the WTO of his powers and jurisdiction to reopen the original assessment. However, on the application of the several tests laid down by the Andhra Pradesh High Court in Officer-in-Charge (Court of Wards) v. CWT [1969] 72 ITR 552 [FB] it was found that the land was agricultural in nature and was, therefore, exempt from the purview of the Act. The Tribunal negatived the contention of the assessee's representative that the WTO was precluded in the proceedings initiated under Section 17(1)(a) of the Act to charge the items of wealth falling under Section 17(1)(b) of the Act, and, consequently, the underassessment pertaining to Begumpet property was held to be rightly revised in the reassessment and the disallowance of bad debt of Rs. 2,36,985 was quite in order in the assessments for the years 1966-67 and 1967-68. The Tribunal determined the value of Begumpet property at Rs. 3,50,000, Rs. 3,00,000, Rs. 2,50,000, Rs. 2,00,000 and Rs. 1,60,000 for the assessment years 1967-68, 1966-67, 1965-66, 1964-65 and for 1963-64, respectively.
8. The sum and substance of the contention of Mr. T. Ramachandra Rao, learned counsel for the assessee, is that the WTO has no jurisdiction to reopen the previous assessment and assess or reassess the net wealth chargeable to tax which escaped assessment whether by reason of under-assessment or at too low a rate of assessment or otherwise, in respect of items falling under Section 17(1)(b) after the expiry of four years prescribed therefor, in a proceeding initiated by the WTO pursuant to a notice under Section 17(1)(a) of the Act. To put it differently, according to the assessee, the reassessment proceedings initiated through a notice under Section 17(1)(a) of the Act must be confined only to the items which fall under Section 17(1)(a) of the Act and in support of this contention the assessee's counsel relied strongly upon the decisions in Veerappa Chettiar v. CIT and Jaganmohan Rao v.
CIT , and other decisions. This claim of the assessee is resisted by Sri P. Rama Rao, learned standing counsel for the revenue, contending, inter alia, that when once the reassessment proceedings initiated under Section 17(1)(a) are valid, the WTO has not only jurisdiction but has a statutory duty and obligation to reassess the entire escaped net wealth and complete the assessment and that there is no fetter for the WTO to restrict his reassessment proceedings only to the items that would fall under Section 17(1)(a).
9. In order to consider the scope of this plea the provisions of Section 17(1) of the Act may be noticed :
"If the Wealth-tax Officer-
(a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under Section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of underassessment or assessment at too low a rate or otherwise; or
(b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in Clause (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under-assessment or assessment at too low a rate or otherwise;
he may, in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section."
10. We may consider the effect and scope of reassessment proceedings contemplated under Section 17(1) of the Act which is in pari materia with Section 34(1) of the Indian I.T. Act, 1922, which fell for consideration in several decided cases. The earliest decision is that of the Privy Council in CIT v. Mahaliram Ramjidas [1940] 8 ITR 442. Therein it was held that the ITO is not required by Section 34 to convince the assessee or to intimate to him the nature of the alleged escapement, or to give him an opportunity of being heard, before he decides to operate the powers conferred on him. The Privy Council observed at page 449 :
"The operative part of Section 34 empowers the Income-tax Officer to proceed de novo under Sub-section (2) of Section 22, and that in turn leads, if there should still be a question of the accuracy of the return, to an enquiry under Section 23(2) and (3) and in that enquiry the assessee has a statutory right to appear and to produce evidence."
11. There is nothing in the section to indicate that the word "such" would qualify or particularise any portion of the escaped income or extent of its discovery, or exact nature of definite information. See CIT v. Jagan Nath Maheshwary [1957] 32 ITR 418 (Punj) and Abdul Sattar v. CIT [1963] 47 ITR 621 (AP). A Division Bench of this court in Abdul Sattar v. CIT [1963] 47 ITR 621 (AP), held that when once a case is reopened under Section 34 of the I.T. Act, the ITO is not limited to the information which he had received and on the strength of which he had asked for reopening of the assessment and reassessment of the assessee and that the expression "such income" in Section 34 of the I.T. Act refers to the entire escaped income, not only to that part of it with respect to which the ITO has definite information, in consequence of which he discovered the escapement. In Jaganmohan Rao v. CIT [1970] 75 ITR 373, the Supreme Court had to consider the question whether the ITO's jurisdiction is restricted only to the portion of income that escaped assessment. The Supreme Court did not agree with the assessee and observed at page 380 regarding the scope of the proceedings under Section 34 thus :
"......once proceedings under Section 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income-tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year."
12. The Supreme Court had to consider the scope and effect of reassessment under Section 19(1) of the Madhya Pradesh General Sales Tax Act, 1958, in Commr. of S.T. v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271. Hegde J., speaking for the court, ruled at page 280 thus :
"What is true of the assessment must also be true of reassessment because reassessment is nothing but a fresh assessment. When reassessment is made under Section 19, the former assessment is completely reopened and in its place fresh assessment is made. While reassessing a dealer, the assessing authority does not merely assess him on the escaped turnover but it assesses him on his total estimated turnover. While making reassessment under Section 19, if the assessing authority has no power to make best judgment assessment, all that the assessee need do to escape reassessment is to refuse to file a return or refuse to produce his account books. If the contention taken on behalf of the assessee is correct, the assessee can escape his liability to be reassessed by adopting an obstructive attitude. It is difficult to conceive that such could be the position in law."
13. To the same effect is the decision in Dy. CCT v. H.R. Sri Ramulu [1977] 39 STC 177 (SC), wherein the question that fell for determination was whether the period of four years for the exercise of revisional powers under Section 21(2) of the Mysore Sales Tax Act, 1957, has to be calculated from the date of initial assessment or from the date on which the orders under Section 12A of that Act were made. It was held that the period of four years is to be calculated from the date on which orders under Section 12A of that Act were made. The reason given by Khanna J., who spoke for the court, is as follows (p. 180) :
" ...once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment."
14. From the aforesaid decisions, it is clear that reassessment wipes out the original assessment and the reassessment must be in respect of not only the items that escaped assessment but the entire assessment for the year. The assessing authority, whether under the I.T. Act or under the Sales Tax Act, has a statutory duty and obligation, apart from having jurisdiction, to include all items that escaped assessment notwithstanding the fact that he had mentioned in the notice only some and complete the assessment as if the reassessment proceedings are de novo and afresh.
15. The intendment and object of Section 17(1) of the Act and the corresponding Section 34(1) of the Act of 1922 is to confer jurisdiction on the assessing authorities to assess or reassess the taxable wealth or income, as the case may be, which escaped assessment for any year whether by reason of underassessment or assessment at too low a rate or otherwise. Section 17(1)(a) will be attracted if the WTO has reason to believe that by reason of omission or failure on the part of any person to make a return of his net wealth or to disclose fully and truly all material facts necessary for the assessment of his net wealth, the net wealth chargeable to tax has escaped assessment for that year. The escapement may be due to underassessment or assessment at too low a rate or otherwise. If the aforesaid factors are satisfied, the WTO may at any time within eight years of the end of the assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 14 and may proceed to assess or reassess such net wealth. In spite of the fact that no such omission or failure as is referred to in Clause (a) has been noticed, the WTO is empowered under Clause (b) to serve a similar notice within a period of four years if he has, in consequence of any information in his possession, reason to believe that net wealth chargeable to tax has escaped assessment for any year. It is pertinent to notice that the provisions of the Act have been made applicable to such reassessment proceedings and that the notice issued under Clause (a) or (b) of Sub-section (1) of Section 17 of the Act must be construed to be a notice issued under Section 14(2) of the Act. Section 14(2) empowers the WTO to serve a notice upon any person, who, in his opinion, is assessable under the Act in respect of his net wealth, requiring him to furnish within such period not being less than 30 days a return in the prescribed form verified in the prescribed manner, particulars of his net wealth as on the valuation date mentioned in the notice. Form A read with Rule 3 of the W.T. Rules requires a person to furnish particulars of his net wealth in and outside India along with verification.
16. On a careful reading of the provisions of Section 17(1) of the Act, we are of the view that once an assessment is validly reopened under Section 17(1) no distinction can be made between the items falling under Clause (a) and Clause (b) thereof, that the reassessment proceeding wipes out the original assessment which results in obtaining the same position as it was prior to the completion of the original assessment and that the assessing authority would, consequently, have jurisdiction to assess the items falling under Clause (a) as well as Clause (b) of Section 17(1) of the Act. The expression "and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had been issued under that sub-section" would indicate that the WTO has not only jurisdiction but has a duty and obligation to assess or reassess the entire escaped net wealth chargeable to tax for that year irrespective of the fact that some of the items fall under Clause (a) and others under Clause (b) of Sub-section (1) of Section 17. We have to take note of the fact that the earlier portion of Sub-section (1) of Section 17, which pertains to issuance of notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 14, is separated by a comma and the latter portion of that sub-section is altogether independent as it requires the WTO to proceed to assess or reassess such net wealth. The period of limitation of eight years and four years prescribed in Clauses (a) and (b), respectively, govern the right conferred on the assessing authority to issue notice proposing to make assessment or reassessment, as the case may be, but not the items which escaped assessment whether by reason of underassessment or assessment at too low a rate or otherwise. Where the omission or failure either to file a return or to disclose fully and truly all the primary and material facts, is on the part of the assessee, the larger period of eight years is available to the assessing authority to reassess the entire net wealth. The assessing authority would get or acquire jurisdiction to reassess the entire net wealth under Section 17(1)(a) when once the provisions of Section 17(1)(a) are attracted. The provisions of Section 17(1)(a) would be attracted even if one of the items that escaped assessment falls under this category. Where there is not even a single item which falls under Clause (a), the assessing authority has no jurisdiction to make reassessment under Clause (a) but has to confine his assessment only to items falling under Clause (b). Such a case would arise when the escapement of assessment is caused not due to the failure of the assessee either to file a return in time or to disclose fully and truly all material and primary facts but due to some other reason. The Sovereign Parliament designedly made this distinction. If the provisions of Clause (a) are rightly attracted even in respect of one item and the assessing authority sought to interfere and assess or reassess the entire net wealth including such net wealth which would have normally fallen under Clause (b), the assessee cannot complain that the net wealth which would have fallen under Clause (b) cannot be assessed or reassessed. It is the assessee that should blame himself for such a situation since he himself has given room or opportunity for reopening of the earlier assessment and for making fresh assessment or reassessment under Clause (a). The framers of this section conferred the benefit of lesser period of four years to reopen the assessments of those assessees who filed their returns and disclosed fully and truly all material facts, as they are not, in any way, responsible for the escapement of assessment of any items of net wealth. However, at the same time, jurisdiction was conferred on the assessing authority to reassess within a period of four years under Clause (b) any escaped assessment which had been caused for reasons other than the failure or omission on the part of the assessee to file the return or to disclose fully and truly all material facts. This has been done with a view to protect the interests of the public revenue. If this distinction is kept in view, it cannot be said that the WTO or the ITO, as the case may be, is trying to reopen the assessment indirectly, which he could not do directly under Clause (b). We are, therefore, of the view that when once the assessment is validly reopened under Clause (a) of Sub-section (1) of Section 17 by issuance of a notice thereunder, the powers of the WTO are not limited to the items which escaped assessment by reason of the failure or omission on the part of the assessee to file the return in time or to disclose all his net wealth which is subject to tax, but extends to taxing items which were excluded by the WTO in the original assessment and which would have fallen under Clause (b), in spite of the fact that the period of four years had already elapsed.
17. This view of ours gains support from the decision of a Division Bench of this court in Pulavarthi Viswanadham v. CIT [1963] 50 ITR 463. It arose under Section 34(1) of the Indian I. T. Act of 1922. Therein the ITO initiated proceedings under Section 34(1)(a) of the 1922 Act for the year 1945-46 as he had reason to believe that the assessee was indulging in extensive money-lending and other business activities without disclosing them to the income-tax authorities. In the reassessment he included two sums of Rs. 7,553 and Rs. 478 representing 1/4th share of the profits earned by the assessee and which were originally excluded by the ITO from the taxable income of the assessee under the mistaken impression that they belong to the estate of late J.V. Subba Rao. The question that fell for consideration was whether the ITO had jurisdiction to include the aforesaid items, which would fall under Clause (b) only. Chandra Reddy C. J., speaking for the Bench, observed at pages 465, 466, 467 :
"......when once the Income-tax Officer reaches the conclusion on the material that is before him that there has been a non-disclosure as regards part of the income, profits, or gains chargeable to income-tax by the assessee, he is entitled to issue a notice either under Clause (a) or (b), as the case may be, under Section 22(2) of the Income-tax Act......
What emerges from Sub-section (2) of Section 22 is that when once an assessee is required to submit a return of his income, he is obliged to disclose the totality of his income. The question that falls to be decided on the language of these two sections is whether after notice is issued under Section 34(1)(a) the assessment should be limited to items which escaped assessment by reason of the failure on the part of the assessee to disclose all his income, profits or gains, which are subject to tax. The contention of learned counsel for the assessee is that having regard to the terms of Clause (b), it was not within the powers of the Income-tax Officer to bring to charge such of the items as have escaped from being taxed without any remissness on his part. It is only items that escaped assessment due to omission or failure of the assessee that come within the range and sweep of Section 34, continues learned counsel for the assessee. We do not think that we can accede to this proposition. When once the assessment is reopened, no distinction could be made between items falling under Clause (a) and those coming within the pale of Clause (b) ...... it is futile to contend that it is only such portion of the income which was not included in the original return that would be liable to tax in the reassessment proceedings. The position obtaining after invoking Section 34(1)(a) is the same as it obtained prior to the completion of the original assessment. In that situation it was open to the department to subject the above-said shares of income to tax. If that were the only item which escaped assessment, proceedings would have been started only under Section 34(1)(b)."
18. To the same effect are the decisions of this court in Anne Nagendram and Bomma Reddi Venkayya and Co. v. CIT [1967] 66 ITR 46, Tadikonda Ramulu v. CIT (R. C. Nos. 54/1960 & 5/1964 dt. 12-1-1964) and CIT v. Jeskaran Bhuvalka [1970] 76 ITR 128.
19. We shall now advert to the decisions taking the contrary view. The decision of the Madras High Court in Veerappa Chettiar v. CIT supports the assessee's contention in the present case. That case arose under Section 34(1) of the Indian I. T. Act, 1922. Therein the question that fell for decision was whether, on the facts and the circumstances of the case, it was open to the ITO under Section 34(1)(a) of the 1922 Act to reconsider the assessee's claim in respect of the loss from Thatchanallur Sugar Mill business for the assessment years 1953-54 and 1954-55. It was held that when once the reassessment proceedings are validly initiated in respect of an item of income either under Clause (a) or Clause (b) of Section 34(1), the jurisdiction of the ITO to reassess is not confined to the item of income in respect of which notice has been issued, but extends to all items of income which have escaped assessment, which may fall either under Clause (a) or Clause (b) of Sub-section (1) of Section 34. Ramanujam J., speaking for the court, observed at pages 123 and 124 thus :
"In this case the learned counsel for the assessee fairly concedes, in view of the above decisions, the power of the Income-tax Officer to bring in items of income falling under Section 34(1)(b) to charge in proceedings validly initiated by him in respect of items coming under Section 34(1)(a). But what he contends is that though the Income-tax Officer has got power to bring to charge items falling under Section 34(1)(b) in reassessment proceedings validly initiated under Section 34(1)(a), such power could not be exercised after the period of four years mentioned as regards the cases falling under Clause (b). According to the learned counsel the object of providing a time limit for the issuance of a notice in cases falling under Section 34(1)(b) is to take away the power of the Income-tax Officer to reassess the items of income coming under Clause (b) after a specified time limit, and that, therefore, the contention of the revenue that once the reassessment proceedings have been validly initiated in respect of the items falling under Clause (a), the items of income falling under Clause (b) could also be brought to charge without any time limit, overlooks the said object.
We are inclined to agree with the contention of the learned counsel for the assessee in this regard."
20. Having rightly held that the power of the ITO to bring in items of income falling under Clause (b) to charge in the proceedings validly initiated by him in respect of items falling under Clause (a), the learned judges erred in observing that the aforesaid power of the ITO is curtailed in view of the specification of four years' period applicable to items falling under Clause (b). When once the ITO is conceded to have power to bring to charge the items falling under Clause (b) in reassessment proceedings validly initiated under Clause (a), such power cannot be curtailed to the period of four years indicated in Clause (b). It may also be noticed at page 129 that the decision of this court in Pulavarthi Viswanadham v. CIT [1963] 50 ITR 463 has been approved to the extent that "it is an authority for the proposition that when the reassessment proceedings are initiated by invoking Clause (a) of Section 34(1), it is open to the Income-tax Officer to assess in those proceedings items falling under Clause (b) also ". It is further stated thus :
"Though the observations of the court in that case were to the effect that once an assessment is reopened the Income-tax Officer has to follow the same procedure as in the case of the original assessment, the court has not gone specifically into the question whether the period of four years mentioned in Clause (b) could be ignored by the Income-tax Officer in those reassessment proceedings."
21. With great respect to the learned judges, we hold that the decision and the observations which are in conflict with the view expressed by this court in Pulavarthi Viswanadham's case [1963] 50 ITR 463 do not represent the correct legal position.
22. The Bombay High Court in New Kaiser-I-Hind Spg, and Wvg. Co. Ltd. v. CIT [1977] 107 ITR 760 differed from the view taken by this court in Pulavarthi Viswanadham's case [1963] 50 ITR 463. The Bombay High Court did not consider the true effect and import of the observations of the Supreme Court in Jaganmohan Rao v. CIT on the assumption that (p. 772):
"......the court was not concerned in that case with the question as to whether the reassessment could be made under Section 34(1)(a) or Section 34(1)(b), but the observations quoted above were made by the Supreme Court only in reference to and in the context of the contention that was advanced before it ([1970] 75 ITR 373, 380) that only 2/3rds of the income of the mill could be said to have escaped assessment. In fact though the Supreme Court has in its judgment referred to Section 34(1)(b), at the time material for the assessment in the said case, Clauses (a) and (b) were not to be found as separate clauses in Section 34 as it then stood. It is in reference to the said contention that the Supreme Court said that the entire income that had escaped assessment was liable to be reopened in the proceedings initiated in the said case tinder Section 34(1)(b)."
23. With great respect to the learned judges, we are unable to adopt this reasoning. The decision and the observations of the Supreme Court are really binding on the High Courts. That apart, the view expressed by the Supreme Court in Jaganmohan Rao's case has been reiterated in the latest decisions as pointed out by us earlier. The learned judges laid much stress on the period of limitation of four years prescribed for initiating reassessment proceedings in respect of the items falling under Clause (b). They relied mostly upon the decision of the Madras High Court in Veerappa Chettiar's case which we have already dealt with. With due respect to the learned judges, we are of the view that the very approach of the learned judges of the Bombay High Court does not appear to be correct as may be noticed from the following passage (p. 775):
"......in view of the concession that was made before the Madras High Court in the said case by the learned counsel for the assessee, the question as to whether, in a notice issued under Clause (a) of Section 34(1), items under Clause (b) thereof could be reopened, did not arise and was not considered or decided by that court, and the only question before it was, whether the period of limitation prescribed for cases falling under Clause (b) would be applicable to items falling under that clause in case they were sought to be reopened by a notice issued under Clause (a)."
24. The only real question that falls for decision is that once the reassessment proceedings have been validly initiated under Section 34(1)(a), whether the ITO has or has no jurisdiction to reassess the items which escaped assessment or were subjected to under-assessment, although they, fall under Clause (b) thereof. Therefore, the decision of the Bombay High Court, in our view, does not lay down the correct proposition of law. The decision of the Supreme Court in Bist and Sons v. CIT cited by the assessee's counsel in support of his contention, that what could not be done directly cannot indirectly be done, has no application, to the facts of this case. The decision of the Supreme Court in CIT v. Onkarmal Meghraj relied upon by the assessee's counsel does not in any way assist the assessee in the present case. That was a case wherein it was held that there was no omission or failure either to file a return or to disclose fully and truly all the material facts and, therefore, Section 34(1)(a) could not apply and the notice should be deemed to have been issued under Section 34(1)(b). The assessment year being 1944-45, the notice issued under Section 34 in April, 1954, was beyond the period of four years' period specified under Section 34(1)(b) and consequently the assessments on the sons of N, M and H were barred by limitation. Hence, this case is distinguishable on facts.
25. To the same effect is the decision of the Allahabad High Court in Gupta Cold Storage v. ITO [1978] 115 ITR 819 cited by the assessee's counsel. Therein it was found on facts that the notice issued under Section 148 of the I.T., Act, 1961, to reassess the income for the assessment year 1961-62 was beyond 8 years from the date of the close of the assessment year 1961-62 and, therefore, it was clearly beyond time and invalid. Consequently, the notice issued on July 14, 1976, was quashed. The other decision of the Supreme Court on which strong reliance has been placed by the assessee's counsel is Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR I. Therein the question that fell for decision was whether there was omission or failure on the part of the appellant to disclose truly and fully all the material facts with regard to depreciation in respect of some of the items of the capital assets. The appellant pleaded that all the material facts were already on the record of the department and it is for the ITO to draw a correct inference. The High Court in writ proceedings rejected the plea of the assessee and held that the assessee did not disclose fully and truly all the material facts and, therefore, the notice under Section 147(a) was validly issued. On appeal to the Supreme Court it was held that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts necessary for the assessment. The ITO in determining the figures of depreciation for certain items of capital assets did not take note of the fact that the aggregate of the depreciation including the initial depreciation allowed under different heads could not exceed the original cost to the assessee of those items of capital assets. It is really a lapse on the part of the ITO in not applying the law contained in Clause (c) of the proviso to Section 10(2)(vi) of the Act of 1922. On a consideration of the entire facts, the court was of the opinion that (p. 10):
"......it cannot be said that the excess depreciation was allowed to the appellant-company and its income as such escaped assessment because of its omission or failure to disclose fully and truly all material facts. " In the result the appeal was allowed and the impugned notices under Section 147(a) were quashed. This case would render no assistance to the plea of the assessee. On the other hand, it supports our view that the assessee has adequate and effective remedy if the assessing authority resorts to take aid of the longer period of limitation provided under Clause (a) of Section 17(1) of the Act with a view to reopen the items of escapement which fall only under Clause (b). The aforesaid cases are distinguishable on facts.
Hence, the decisions relied upon by the assessee's counsel in support of his contention, that the assessing authority has no jurisdiction to include the items which would fall under Clause (b) of Section 17(1) of the Act even though the reassessment proceedings have been validly initiated under Clause (a) if a period of four years had elapsed, do not lay down correct principles of law.
26. It is not open to the assessee to contend that the assessing authority would be resorting to circumvent the provisions pertaining to the limitation, to the detriment of the assessee. Such a contingency will not arise in the case of honest and fair assessees, who have discharged their duty of filing the return in time, and fully and truly disclosing all the material facts necessary for the assessment. In such a case, no assessment can be reopened or no proceeding for reassessment under Clause (a) can be entertained. Where any assessing authority attempts to resort to this procedure of issuing notice under Clause (a) with a view to reassess the items falling under Clause (b), the same can validly be challenged in a court of law in view of the completion of four years' period of limitation. If the assessee succeeds in his plea that the reassessment proceedings under Clause (a) are without jurisdiction, as no case has been made out to reopen the assessment under Clause (a) or that the very proceedings are barred by limitation of even eight years, the assessing authority cannot be permitted to proceed with the reassessment proceedings and any reassessment made in such a case or cases would be decided against the revenue and in favour of the assessee. Hence, it cannot be said that the assessee has no remedy in genuine and appropriate cases to protect his interests if he has not committed any default in the discharge of his duty to furnish fully and truly all the material facts necessary for the assessment.
27. For all the reasons stated above our answer to the second question is in the affirmative and in favour of the revenue and against the assessee, holding that the WTO has riot only ample jurisdiction and power but has a statutory duty and obligation to include all the items which fall under Clause (b) in the net wealth of the assessee for the assessments in question.
28. The decision of the Tribunal on question No. 3 is based on the application of the principles of law enunciated by a Full Bench of this court in Officer-in-Charge (Court of Wards) v. CWT [1969] 72 ITR 552, which is no longer good law as the same has been overruled by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133. The assessee's counsel as well as the standing counsel for the department represented that the matter should go back to the Appellate Tribunal for determining this question afresh in accordance with the law laid down by the Supreme Court in CWT v. Officer-in-Charge (Court of Wards), Paigah [1976] 105 ITR 133, with liberty to the parties to adduce fresh evidence if in its opinion it is necessary to lead additional evidence in support of the respective stands taken by the parties and we order accordingly.
29. The reference is answered accordingly. There shall be no order as to costs.