DESAI C.J. - The following two questions have been referred to this court by the Income-tax Appellate Tribunal under section 66(1) of the Income-tax Act in the circumstances given belo :
'1. Whether on the facts and circumstances of the case the assessee having voluntarily submitted return under section 22(3) before the completion of the assessments, could be considered to have waived the issue of the notice under section 34?
2. Whether on a true interpretation of the provisions of section 34, clause (a) or clause (b) of sub-section (1) of that section would be attracted in a case where no return under section 22(1) was filed by the assessee in due time?'
In this reference we are concerned with the assessment year 1948-49 and 1949-50. The assessee is an association of persons. No return was filed by it in response to the general notice issued under section 22(1) in either year of the assessment years. No special notice was issued against it in either year under section 22(2). Before any proceedings could be taken against it by the Income-tax Officer it itself on September 24, 1953, filed two return, one for the assessment year 1948-49 showing income from business amounting to Rs. 5,440 and the other for the other assessment year showing income from business amounting to Rs. 6,967. The Income-tax Officer, evidently treating the eturns as having been made under section 22(3), started assessment proceedings under section 23; since he professed to act under section 23 and not under section 34(1) he issued no notice to the assessee as contemplated by the latter provision. He issued a notice under section 23(2), examined the accounts of the assessee rejected them as not being correct and on April 16, 1955, estimated the income for the first year at Rs. 15,000 and odd and that for the second year at Rs. 13,000 and odd and assessed the assessee on these incomes. The assessee preferred an appeal contending that the assessment orders were barred by time. The Appellate Assistant Commissioner held that the return made for the first year, having been made more than four years from the end of it, was invalid and no assessment under section 23(3) could be made on it and that the other return, having been made before the expiry of four years, was valid but that the assessment order having been made after more than four years was invalid. He, therefore, quashed both the assessment orders. Under instructions from the Commissioner of Income-tax the Income-tax Officer preferred appeals from the two orders of the Appellate Assistant Commissioner and the Tribunal allowed both and restored the assessment orders. It was of the opinion that both the assessment orders were made under section 34 and that by filing the returns voluntarily the assessee must be deemed to have waived compliance with the formality of a notice prescribed by section 34(1). Since the period for completing assessment under section 34(1)(a) was eight years, it held that neither of the two assessment orders was barred by time. The department had tried to justify the assessment orders on the alternative ground that section 28(1)(c) applied to the assessment orders and that consequently they could be completed within eight years even if they were held to have been made under section 23(3) and not under section 34(1) but the Tribunal did not decide this contention.
A general notice issued under section 22(1) and a special notice issued under section 22(2) both require returns to be submitted in the prescribed form within the prescribed time. Any person who has not furnished a return within the time stated in either of the notices is permitted by section 22(3) to furnish a return 'at any time before the assessment is made'. Section 23 provides for an assessment order if a return is filed under section 22, whether in response to a general or special notice or as permitted by section 22(3) and also for a best judgment when no return is filed under section 22. The law regarding limitation for an assessment order is contained in section 34. We are concerned with the years 1948-53 and, therefore, with the provisions of section 34 as they stood then. The material provisions of section 34 as it stood then were thes :
'If an assessee failed to make a return of his income under section 22, or if he made a return but failed to disclose fully and truly all material facts necessary for his assessment for that year, the Income-tax Officer could within eight years of the end of the assessment year serve on him a notice and could proceed to assess or reassess the income that had escaped assessment.'
This was the substance of sub-section (1)(a). If income had escaped assessment in spite of the assessees having given true and full particulars of his income and the Income-tax Officer had information of such escape, he could within four years of the assessment year, serve a notice upon the assessee and assess or reassess him. This was the substance of sub-section (1)(b). An assessment order to which section 28(1)(c) applied was to be made within eight years; this was the first limb of sub-section (3). An assessment or reassessment in a case falling within sub-section (1)(a) was to be made within eight years; this was the second limb of sub-section (3). Every other order of assessment or reassessment was to be made within four years; this was the third limb of sub-section (3). The limit of time imposed by sub-section (3) was not to apply to a reassessment made in pursuance of an order under section 31 or section 33; such reassessment could be made at any any time.
Section 28(1)(c) provides that if an Income-tax Officer, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or deliberately furnished inaccurate particulars of it, he may impose a penalty upon him in addition to assessing him to tax.
Since an assessment order itself in circumstances mentioned in section 34(1)(a) must be made within eight years of the end of the assessment year it means that notwithstanding the use of the words 'at any time' in section 22(3), a return is allowed to be made only within eight years. It is too late to make an assessment after the expiry of eight years and consequently no assessment is possible on a return made after the expiry of eight years and the legislature could not have contemplated the allowing of such a return. It would have been useless for it to allow the return if no assessment could be made on it. In this context the words 'at any time' must be interpreted to mean 'at any time before the expiry of eight years from the date of the assessment order'; the time-limit placed upon an assessment order must be imported in section 22(3).
Section 28(1)(c) refers to a case in which an assessee 'has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income'. A case in which an assessee has failed to furnish a return in response to a notice issued under section 22, sub-section (1) or sub-section (2), or has failed to furnish a return within the time allowed, is already governed by section 28(1); therefore, the provision in clause (c) must refer to a case in which an assessee has filed a return but concealed the particulars of his income or deliberately furnished inaccurate particulars of it. In order words, this provision applies when a return has been filed and does not apply when no return has been filed. It is obvious that when no return has been filed at all, there can arise no question of concealing, or deliberately furnishing inaccurate, particulars; the assessees default is wider, it being not filing a return at all. Section 34(3) prescribes the limit of eight years for an assessment order made in a case of concealment of, or deliberately furnishing inaccurate, particulars of income; this provision applies only when a return has been filed and has no application when no return has been filed. I have shown above that a return filed after the expiry of eight years of the end of the assessment year is no return contemplated by the law and, therefore, an assessment based upon it cannot be an assessment to which section 28(1)(c) applies; it is really a case to which section 28(1)(a) applies. The case exempted from the time-limit of four years by the first limb of section 34(3) is that of an assessment order passed on a return made within eight years, which conceals the particulars of the income or contains deliberately prepared inaccurate particulars.
Since an assessment order on a true and complete return must be made within four years it follows that such a return itself must be made with in four years in order to be treated as a return made under section 22. Though an assessment order can be made within eight years, if a return is found to be incorrect or incomplete, it would be absurd to say that an incorrect or incomplete return is allowed to be filed under section 22(3) within eight years. It would be wrong to hold that the legislature fixing a limit of four years for the filing of a correct return allowed an incorrect return to be filed within eight years. Any interpretation which means that the legislature contemplated the allowing of an incorrect return and providing for a greater period for it than for a correct return should not be adopted. Once four years have passed it must be held that not only a correct return but also an incorrect return is barred by time. If no assessment can be made at all even if the return is correct, no assessee would file an incorrect return because he would stand to lose nothing by filing a correct return and to gain nothing by filing an incorrect return. When there would be no purpose to be served at all by concealing the particulars of income from a return filed after four years or by deliberately furnishing inaccurate particulars of it, there would hardly be any such case and the legislature could not have provided for it. In Santosha Nadar v. First Additional Income-tax Officer the Madras High Court held that a return filed by an assessee voluntarily after the expiry of four years could not be treated as a return filed under section 22(3).
I must reject the contention that for assessment purposes the law makes no distinction between a return filed within time in response to a notice issued under section 22 and a return filed after the expiry of the time but before an assessment order is made. It is not correct that the only distinction between an assessment order made on a return of the former kind and an assessment order made on a return of the latter kind is that the latter may contain an order of imposition of penalty under section 28 but not the former. The provisions of section 22(3) are only of an enabling nature and do not confer any right upon an assessee. Their whole and sole effect is that even though the time specified in a notice has expired, he may file a return, provided no assessment order has been made against him. This enabling provision has nothing to do with the question within what time an assessment order can be made and certainly has not the effect of extending the period of four years prescribed by section 34(3). The only order that is exempt from the time-limit of four years is an order containing the finding of concealment of the particulars of the income or of deliberately furnishing inaccurate particulars of it, besides an order falling within section 34(1)(a). An order made on a return filed more than four years after and accepted as correct is not exempt from the general time-limit of four years.
Section 34(1)(a) applies when an Income-tax Officer has reason to believe that income has escaped assessment, either by reason of the omission or failure on the part of an assessee to make a return under section 22 or to disclose fully and truly all material facts necessary for the assessment; in such a case he can, at any time within eight years, serve on the assessee a notice and may assess him, again within eight years according to the law in force in 1948-53. There is a failure or omission to make a return under section 22, if no return is filed before the expiry of four years; I have shown above that a return filed after the expiry of four years is not one contemplated by section 22 at all. Therefore, if no return is filed within four years an Income-tax Officer can serve upon the assessee a notice under section 34 and proceed to assess him within eight years. Before he serves a notice he must have reason to believe that the income of the assessee has escaped assessment and in order that he has such reason there must first have been an escape of the income from assessment. In other words, section 34(1) can apply only after income has escaped assessment. Income cannot be said to have escaped assessment merely because it has not been assessed so far; escape from assessment is not synonymous with non-existence of assessment. Income is liable to be assessed on the very first day of the assessment year. Surely, if it is not assessed on that day it cannot be said that it has escaped assessment. When a general notice or a special notice is issued under section 22 and a return is filed within the time prescribed in it, though the income stated in the return has not yet been assessed, it cannot be said to have escaped assessment and the Income-tax Officer cannot proceed under section 34. Once a return has been filed he must proceed under section 23 and so long as it is pending he cannot say that the income has escaped assessment. So long as income is in the process of being assessed it cannot be said to have escaped assessment. So long as the period stated in a notice under section 22(1) or section 22(2) has not elapsed, there is no case of escape of income if return is filed on the last day of the period; so long as it remains pending, it cannot be said that income has escaped assessment. Once the period stated in a special notice or (where no special notice is issued) in a general notice has expired without a return having been filed it becomes a case of escape of income from assessment and an Income-tax Officer can proceed under section 34(1). He is not required to wait for four years and he would be ill-advised to wait for four years because if a few days before the end of the four years a return is filed he would be obliged to pass an assessment order within the few days left before the expiry of the four years and if he cannot pass it, it would be too late to pass it. As I pointed out earlier, section 22(3) confers no right at all upon an assessee and that, therefore, there is no duty or liability imposed by it upon an Income-tax Officer. After a notice issued under section 22(2) has proved abortive (no return having been filed within the time stated in it) he gets invested with the power to issue a notice under section 34(1)(a), i.e., it becomes a case of escape of income from assessment. The position may change if, before he passes an assessment order, the assessee files a return and four years have not elapsed; from that time the income may cease to be income that has escaped assessment. On a return filed within four years and before any assessment order is made an Income-tax Officer must proceed as if it had been filed within the period stated in a notice issued under section 22. In Commissioner of Income-tax v. Ranchhoddas Karsondas the Supreme Court held that when a voluntary return has been filed it must be deemed to be a return under section 22 and no proceeding under section 34 can be taken.
I shall deal with the assessment order for the assessment year 1949-50 first. The return was filed by the assessee before the expiry of four years and before any assessment order was passed; it was, therefore, a return filed under section 22. On the expiry of the period mentioned in the general notice the Income-tax Officer could proceed under section 34(1)(a) on the ground that the assessees income had escaped assessment on account of its omission or failure to make a return, but as soon as it filed the return, the income could no longer be said to have escaped assessment so long as the return was pending. Therefore, the Income-tax Officer could not proceed to assess the assessee under section 34(1)(a). The return was found to be incorrect or incomplete but that was at the time when he passed the assessment order; prior to that it could not be said that the income had escaped assessment on account of the assessees failure to disclose fully and truly all material facts necessary for its assessment. When a return has been filed, section 34(1)(a) can apply only after an assessment order is made on it and subsequently it is found that the income or a part of it had escaped assessment under the assessment order. The case, therefore, did not fall within section 34(1)(a). The order of assessment would have been one under section 23, to which section 28(1)(c) applied, if there was a finding contained in the assessment order that the assessee had concealed the particulars of its income or deliberately furnished inaccurate particulars of it. The Tribunal, however, did not decide the question whether it had concealed the particulars of its income or deliberately furnished inaccurate particulars of it but that seems to me to be immaterial if there was a finding to this effect recorded by the Income-tax Officer. The question is of limitation for an assessment order to be made by the Income-tax Officer; what is exempted from the limit of four years is an order of assessment to which section 28(1)(c) applies. An assessment order recording an Income-tax Officers finding about concealment or deliberately furnishing inaccurate particulars is such an order even if on appeal the finding is quashed. The existence of a finding at the time of the making of the assessment is all that is required and not its legality or correctness. If an appellate authority quashes it, it does not mean that the assessment order did not contain it and that it was not governed, when it was made, by the exemption mentioned in section 34(3). The question of limitation for an assessment order must be decided, obviously and from necessity on the basis of facts to be found at the time when it is about to be passed and cannot possibly be decided on the basis of facts to come into existence later after it was passed. I, however, find that the assessment order did not record the finding at all and, therefore, it could not be said to be one to which section 28(1)(c) applied; admittedly neither of the provisions applied to the case.
Section 34(1)(c) has nothing to do with the facts before us. There was certainly no omission or failure on the assessees part to make a return; there was no case of escape of assessment and even if there were any, the Income-tax Officer did not become aware of it consequence of any information received by him. This provision comes into application only when an assessment order has been passed once resulting in escape of income from assessment. It applies when a true and full disclosed return of the particulars of the income is made. I have shown above that so long as a return is pending there cannot arise any escape of income from assessment. Consequently, when a return has been filed, so long as an assessment order has not been passed on it, it cannot be said that income has escaped assessment. There must be in existence escape of income from assessment before an Income-tax Officer proceeds under section 34.
Coming to the other assessment order for the year 1948-49, the return, having been filed more than four years from the end of the assessment year, was no return contemplated by section 22 and the Income-tax Officer could proceed under section 34(1) in spite of it. He could issue notice within eight years and assess the assessee also within eight years. The assessment order was certainly passed within eight years but no notice had been issued. If the requirement of a notice was not waived by the assessees act of filing the return, the assessment order could not be made at all.
The language of section 34 makes it clear that the issue of a notice as contemplated by section 34(1) is a jurisdictional step without which the further proceedings would be rendered null and void. It is quite true to say that once a return has been filed no useful purpose would be served by the issue of a notice. Even if the object of a notice is to require the assessee to file a return and he has already filed one, it cannot be said that there is no further object to be served by a notice. A notice is required to be issued as a preliminary to a proceeding to assess under section 34(1) and the issue of it puts the assessee on guard by warning him that the proceeding is under section 34 and not under section 23. In certain circumstances a notice contemplated by section 34(1) cannot be issued by an Income-tax Officer at all and, if it cannot issue, no assessment order can be passed. If the requirement of a notice is dispensed with there would be nothing to prevent his passing an assessment order even in the absence of these circumstances (by the proviso to the provision only the issue of a notice is barred and not the passing of an assessment order). The Supreme Court has held that the issue of a notice is a condition precedent to the exercise of jurisdiction. Jurisdiction can be conferred only by a statute and not by consent or acquiescence. Since jurisdiction is conferred upon an Income-tax Officer to proceed under section 34(1) only if he issues a notice, an assessee cannot confer jurisdiction upon him by waiving the requirement of a notice because jurisdiction cannot be conferred by consent or acquiescence. In Commissioner of Income-tax v. Ramsukh Motilal, Chidambaram Chettiar v. Commissioner of Income-tax, R.K. Das & Co. v. Commissioner of Income-tax and Commissioner of Income-tax, Maharaja Pratap Singh it was held that the issue of a notice is a condition precedent to the exercise of jurisdiction under section 34(1) and that there can be no waiver of it. This view was affirmed by the Supreme Court in Narayana Chetty v. Income-tax Officer.
My answers to the two questions are as follow :
Question No. 1. - No.
Question No. 2. - If no return is filed within the time prescribed in the general notice issued under section 22(1)(a) section 34(1)(a) would be attracted if, (i) no return was filed before the expiry of four years, (ii) if a return was filed before the expiry of four years and an assessment order was passed on it and it was later found that on account of the assessee not disclosing true and full facts income had escaped assessment, and (b) section 34(1)(b) would be attracted only if a return was filed before the expiry of four years and was found to be rue and complete, and an assessment order was passed upon it but on account of informations subsequently come into the possession of the Income-tax Officer he found that income had escaped assessment.