This application and four other applications namely Matters Nos. 190 of 1962, 191 of 1962, 192 of 1962, and 193 of 1962, involve the same facts and the same points of law. They have been heard simultaneously and will be disposed of by this judgment. The facts are briefly as follow :
There is a partnership firm carried on under the same and style of 'Madanlal Sohanlal' at No. 207, Chittaranjan Avenue, in the town of Calcutta, the partners whereof are Madanlal Jajodia, Sohanlal Jajodia, Sampatlal Jajodia and Pannalal Jajodia. Each one of them has made a separate application and that is why these five applications have come into existence. In or about April, 1947, an Act called the Taxation on Income (Investigation Commission) Act of 1947, being Act 30 of 1974, commonly known as the Income-tax Investigation Commission Act, was promulgated for the purpose of making suitable provisions to investigate and ascertain the actual incidence of taxation on income disclosed or undisclosed for a period covering the accounting years from 1st April, 1939, to 31st March, 1947, the corresponding assessment years being 1940-41 to 1947-48. On the 15th May, 1948, the petitioner was served with a notice by the Income-tax Investigation Commission constituted under the provisions of the Income-tax (Investigation Commission) Act, hereby the petitioner was informed that his case has been referred to the said Commissioner for investigation and report under section 5(1) of the said Act. The petitioner was asked to furnish the Commission with a statement of his total wealth and assets as they stood between the accounting years ending 15th April, 1940, and 30th March, 1947, the assessment years being 1940-41 to 1947-48. The petitioner filed a statement and the investigation and enquiry continued up to the year 1951, when a report was made some time in November, 1951, after considering certain terms of settlement proposed by the petitioner. It is stated in the petition that the Government of India accepted the recommendation of the Investigation Commission and notice was served under section 29 of the Income-tax Act on or about the 9th February, 1952, demanding the payment of the sum of Rs. 14,32,541, on account of payment of tax and a sum of Rs. 50,000 on account of penalty. This was a demand jointly payable by all the partners. On the 28th May, 1954, the Supreme Court, by its decision in Suraj Mall Mehta & Co. v. A. V. Visvanatha Sastri, declared sub-section (4) of section 5 of the Taxation on Income (Investigation Commission) Act, 1947, as void and unenforceable, as being violative of article 14 of the Constitution. On the 17th July, 1954, section 34 of the Income-tax Act, 1922, was amended by the introduction of section 34(1A). I shall presently deal with this amendment. On the 21st day of October, 1954, the Supreme Court by its decision in Shree Meenakshi Mills Ltd. v. A. V. Visvanatha Sastri held section 5(1) of the said Income-tax (Investigation Commission) Act as invalid on the ground that section 34 of the Income-tax Act, by the introduction of sub-section (1A), provided an alternative remedy which dealt with the same class of persons but less severely. Section 5(1) was, therefore, violative of article 14 of the Constitution and was invalid. This was confirmed by another decision of the Supreme Court, M. Ct. Muthiah v. Commissioner of Income-tax. It was held that cases which were pending on January 26, 1950, for investigation before the income-tax Investigation Commission could no longer by proceeded with under that Act. The petitioners case came within the mischief of this decision. These decisions led to a further amendment of section 34 by the Finance Act, 1956, with effect from the 1st April, 1956. This amendment will have to be considered in greater detail presently, but it may be mentioned here that some of the important amendments were that the time-limit of 8 years imposed in respect of cases failing under clause (a) of sub-section (1) of section 34 was omitted and the first proviso was added. On 2nd March, 1959, notices were served upon the petitioners under section 34 of the Income-tax Act for reopening the assessment for the years 1943-44 to 1947-68. On 29th March, 1962, further notices were issued under section 34 for reopening the assessment in respect of the assessment for the years 1940-41 to 1942-43. This application is directed against these notice under section 34, intended to reopen the assessment for the years 1940-41 to 1947-48. In order to appreciate the points taken in this application it is necessary to consider the provision of section 34 and deal with the amendments mentioned above in greater detail. The relevant provisions of sub-section (1) of section 34, as it stood on the dates when the impugned notices were issued, are as follow :
'34. (1) If -
(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or....... he may in cases falling under clause (a) at any time....... serve on the assessee........ a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or re-assess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-sectio :
Provided that the Income-tax Office shall not issue a notice under clause (a) of sub-section (1) -
(i) for any year prior to the year ending on the 31st day of March, 1941;
(ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income-tax which have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941;
(iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under clause (ii) unless the Central Board of Revenue, and, in any other case, the Commissioner, is satisfied on such reasons recorded that it is a fit case for the issue of such notice.'
Upon an analysis of the above provisions we find as follow :
1. Action may be taken under section 34(1)(a) at any time if the income, profits, etc., which have escaped assessment amount to, or are likely to amount to, one lakh of rupees or more in the aggregate. In such a case, however, the Income-tax Officer must not only record his reason for doing so, but must obtain the approval of the Board of Revenue.
2. But such action must be taken within 8 years only, after the expiry of the year in question, if the income, profits or gains, etc., which have escaped assessment, amount to or are likely to amount to less than one lakh of rupees in the aggregate. In such case the Income-tax Officer must have his recorded reasons approved by the Commissioner of Income-tax.
3. No notice for reopening under clause (a) of sub-section (1) can be issued prior to the year ending the 31st day of March, 1941.
In this particular case, it is not disputed that the income, profits or gains, etc., which is stated to have escaped assessment, amount to more than a lakh of rupees in the aggregate. Therefore, prima facie here exists no time-limit for reopening the assessment save and except that no notice can be issued for a period prior to the year ending the 31st day of March, 1941. Notices have been served for the assessment years 1940-41 to 1947-48 which would then be in compliance with the provisions of law above-mentioned. What is argued however is that, notwithstanding the omission of the time-limit for reopening the assessments as mentioned above in clause (a) of sub-section (1) of section 34, the petitioners case ought to have been treated as one arising, not under section 34(1)(a) but under section 34(1A). As will presently appear, there is a time-limit imposed under section 34(1A) and no notice for reopening the assessment can be issued after the 31st day of March, 1956. If this contention is correct, then the impugned notices are invalid as having been issued beyond the period of limitation. It will, therefore, be necessary to set out the relevant provisions of section 34(1A) which run as follow :
'34. (1A) If, in the case of any assessee, the Income-tax Officer has reason to believe -
(i) that income, profits or gains chargeable to income-tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1946; and
(ii) that the income, profits or gains which have so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more;
he may, notwithstanding that the period of eight years or, as the case may be, for years specified in sub-section (1) has expired in respect thereof, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22, and may proceed to assess or reassess the income, profits or gains of the assessee for all or any of the years referred to in clause (i), and thereupon the provisions of this Act (excepting those contained in clauses (i), and (iii) of the proviso to sub-section (1) and in sub-section (2) and (3) of this section) shall, so far as may be, apply accordingl :
Provided that the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue satisfied on such reasons recorded that it is a fit case for the issue of such notic :
Provided further that no such notice shall be issued after the 31st day of March, 1956.'
It is necessary to make a passing mention of sub-section (1B) of section 34. It provides that an assessee, upon whom a notice has been issued under clause (a) of sub-section (1) or under sub-section (1A) for any of the years ending on the 31st day of March of the years 1941 to 1948 inclusive, may apply to the Central Board Revenue at any time within six months from the receipt of such notice or before the assessment or reassessment is made, whichever is earlier, to have the matter relating to his assessment settled, and the Central Board of Revenue may with the approval of the Central Government accept such settlement.
It will now be necessary to go a little into the history of these various amendments. Sub-section (1A) was introduced by the Income-tax (Amendment) Act (XXX of 1954), with effect from the 17th July, 1954. Section 34, as it then stood, laid a bar of limitation of eight years in respect of a notice issued by the Income-tax Officer under section 34(1)(a). The reason why sub-section (1A) was introduced is as follow : In 1947, an Act was promulgated known as the Taxation on Income (Investigation Commission) Act, 1947. This statue was brought into force for investigation of the cases of certain assessees who were suspected of having concealed vast income made during the 'war years', namely, the period commencing from 1st September, 1939, to 31st March, 1946. As I have stated above, a very important procedural section in that Act was declared ultra vires by the Supreme Court some time in May, 1954, and the position thus created was that neither could notice be issued under section 34(1)(a) in respect of the assessment years prior to 1945-46 as the bar of eight years was already operative, nor could the cases be dealt with under the Taxation Income (Investigation Commission) Act, 1947. That is why sub-section (1A) was inserted in section 34 by section 2 of the Indian Income-tax (Amendment) Act, 1954. Under section 34(1A), notice could be issued in respect of the war years, notwithstanding the fact that they were barred under sub-section (1)(a). There were, however, three safeguards provided against any arbitrary action being taken. The first safeguard was that no action could be taken unless the amount which had escaped assessment was more than a lakh rupees. The second safeguard was that, even in such a case, it was necessarily to obtain the sanction of the Board of Revenue, and the third and a very important safeguard was that no action could be taken beyond the 31st day of March, 1956.
This amendment, however, affected the legal position in respect of the Investigation Commission Act, because it was held by the Supreme Court that the scope of section 34(1A) of the Income-tax Act and section 5(1) of the Investigation Commission Act were identical, and, as the latter provision was more harsh, it was violative of article 14 of the Constitution and, therefore, was declared void. In 1956 (after 31st March), therefore, the position was as follow : In the war years, it was no longer possible to issue notices under section 34(1)(a) because eight years had already elapsed, nor was it possible to issue notice under section 34(1A) because the outside limit provided therein had by then expired. It was in order to remedy this state of affairs that an amendment was introduced by the Finance Act of 1956. By this amendment, the time-limit of eight years in section 34(1)(a) was altogether abolished, but with certain safeguards already mentioned above. The impugned notices given in the present case have been issued, taking advantage of the amendment introduced by the Finance Act of 1956. But for this amendment, no such notices could have been issued, being barred under the law as it stood previous to this amendment, both under section 34(1)(a) and section 34(1A). The learned standing counsel appearing on behalf of the petitioners does not dispute that if section 34(1)(a) applies as it stands now then the notices are within time. He, however, argues that the instant case should be governed, not by section 34(1)(a), but by the provisions of section 34(1A). If that is true, then, of course, the notice are invalid as being issued after the permissible period of time during which they could be issued.
This precise point came to be considered by a Division Bench of the Bombay High Court in Laxminarayan R. Rathi v. Income-tax Officer, Poona. In that case, notices were issued under section 34(1)(a) for the years 1940-41 to 1948-49 after the Amendment Act of 1956. It was argued that the case did not all under section 34(1)(a) but fell within the scope of section 34(1A). The main argument put forward by Mr. Palkhivala on behalf of the assessee was that section 34(1)(a) was a general provision while section 34(1A) was a special provision and, therefore, the principle of generalia specialibus non derogant applied and it was the latter section that applied. This point was repelled by Tambe J. He pointed out that in order to apply this principle certain conditions had to be fulfilled. Firstly, both the general enactment and the particular enactment must be simultaneously operative, secondly, there must be nothing in the general provision indicating a legislative intent to overrule or set aside the particular provision. The learned judge pointed out that at no time did the provisions in the two sub-sections operate simultaneously. As pointed out above, sub-section (1A) was brought into the filed because notice could no longer be issued for the war years under section 34(1)(a) and the amendment in sub-section (1)(a) effected in 1956 was made because the provision of sub-section (1A) was no longer effective. Secondly, the learned judge showed that there was ample indication to show that the legislature intended that the general provision should apply. Since the amendment in 1956 in sub-section (1)(a) was occasioned by the fact that notice could no longer be issued under sub-section (1A), the legislative intent was clear that, in future, notices should be issued under sub-section (1)(a). Secondly, the amendment made in sub-section (1B) by the Finance Act of 1956 shows the legislative intent. Previously, it applied to the case of an assessee to whom notice had been issued under sub-section (1A). By the Finance Act of 1956, an amendment was introduced and those persons to whom notices had been issued under sub-section (1)(a) for the years ending 31st day of March of the years 1941 to 1948 inclusive were included. This is a sufficient indication to show that the legislature did not intend that assessment or reassessment for these years should be governed by sub-section (1A) alone. The learned judge further pointed out that the introduction of sub-section (4) by the Amending Act of 1959 by which it was provided that notice under sub-section (1)(a) may be issued 'at any time', notwithstanding that at the time of such issue the period of eight years had expired, shows that it was never intended to restrict the issue of notice during the war years to sub-section (1A).
Realising the difficulty of meeting the conclusions arrived at by the Bombay High Court, with which I respectfully agree, the learned standing counsel tried to put his argument on a slightly different basis. He argues that there is a distinguishing in feature in this case, namely, that the cases of the petitioners were actually referred for investigation before the Income-tax Investigation Commission. In fact, he points out that there was a report and a settlement. He argues that such cases were always intended to be dealt with by the provisions of section 34(1A). The learned standing counsel has drawn my attention to the Supreme Court decision in Shree Meenakshi Mills Ltd. where section 5(1) of the Income-tax Investigation Commission Act was declared invalid. Mahajan C.J. said as follow :
'For the reasons given above we are of the opinion that assuming that the provisions of section 5(1) of Act XXX of 1947 could be saved from the mischief of article 14 of the Constitution on the basis of a valid classification, that defence is no longer available in support of it after the introduction of the new sub-section in section 34 of the Income-tax Act, which sub-section is intended to deal with the same class of persons dealt with by section 5(1) of the impugned Act.'
From this he argues that sub-section (1A) is the proper provision to be applied for the class of persons who were being proceeded against under section 5(1) of the Income-tax (Investigation Commission) Act. He also draws my attention to a recent decision of the Supreme Court in K. S. Rashid & Son v. Income-tax Officer. In that case, Gajendragadkar C.J. was dealing with the constitutional validity of section 34(1A) and said as follow :
'That is how section 5(1) became a dead letter and the Investigation Commission, in consequence, ceased to function. The cases which had been referred to that Commission and which had not been completed had, therefore, to be taken up under section 34(1A) of the Act.'
The learned standing counsel argues that these statements made in the Supreme Court decisions go to show that cases which were referred to the Investigation Commission would have to be governed by sub-section (1A) and by no other provision of law. As against this, the learned counsel for the respondents has referred me to the budget speech in connection with the proposed Finance Act of 1956. It has been established that such speeches cannot be taken into account for interpreting a statute. However, in some cases they have been referred to for the purpose of finding out the background in which the particular statutory provision was enacted (see Chiranjilal v. Union of India at page 45 and Amarendra Nath Roy Chowdhury v. Bikash Chandra Ghose. The relevant part of the speech was as follow :
'At this stage, I should like to refer to only one of these amendments. The House will remember that, shortly after section 5(4) of the Investigation Commission Act had been declared invalid by the Supreme Court, we issued an Ordinance on the 17th July, 1954, enacting a new section 34(1A) in the Income-tax Act to enable us to take over the cases which had been started under the provision declared invalid. Under this Ordinance, which was subsequently ratified into law by Parliament, we took powers to reopen all cases of tax evasion during the war years of more than Rs. 1 lakh. As the law stands, this power can be exercised only up to the 31st March, 1956. There have been, since then, two other judgments of the Supreme Court, one in October, 1954, declaring section 5(1) of the Investigation Commission Act invalid from the 17th July, 1954, and another in December, 1955, declaring that section invalid from the 26th January, 1950. This means that the department will how have to take over again a large number of cases previously dealt with by the Investigation Commission. We have carefully reviewed the position arising out of the judgments of the Supreme Court in consultation with our legal advisers. As a result, it is now proposed to have a redraft of the existing provisions of the law enabling the department to reopen old cases. Substantially, the position remains unchanged, the only difference being that, while the existing law lays down a time-limit up to the 31st March, 1956, for the exercise of the departments powers to reopen cases of concealment beyond eight years, the proposed amendment fixes no time-limit. This is being done for three reason : firstly, the latest judgment of the Supreme Court having been given only in December, 1955, it is not possible for the department to issue all notices within the short period of three months left since then; secondly, the validity of the new section 34(1A) is itself being challenged in several High Courts and it is not known when we shall get a final decision on this point; and, finally, the Taxation Enquiry Commission have recommended that, as in other countries, there should be no time-limit to the reopening of cases of fraudulent tax evasion. This is a desirable reform which has been long overdue. The power of reopening cases beyond eight years will not be exercised unless the amount of total tax evasion exceeds Rs. 1 lakh and then only with the sanction of the Central Board of Revenue. This will ensure that the powers are exercised after proper scrutiny and only in cases of substantial evasion.'
As I take it, the argument put forward on behalf of the learned standing counsel is briefly as follow : According to him sub-section (1A) applies only to cases of those assessees whose cases were pending before the Income-tax Investigation Commission. In respect of such assessees notice under sub-section (1A) must be served within the 31st March, 1956. The amendment in 1956 to section 34(1)(a) has the effect of including cases other than those cases pending before the Commission. In such cases no time-limit is applicable. In respect of assessees whose cases were pending before the Income-tax Investigation Commission, if no notice has been served within the period provided for under the proviso to section 34(1A), then no notice under section 34 can at all be served on them. This is because, by the time section 34(1A) had been enacted, the assessees had already been subjected to considerable harassment in the hands of the Income-tax Investigation Commission, and that it was the object of the legislature that no further harassment should be made, and if notices were to be issued in the case of such assessees, they must strictly be within the time-limit provided by the proviso to sub-section (1A).
In my opinion, the argument put forward by the learned standing counsel cannot be accepted. The excerpts from the judgment of the Supreme Court do not support the theory that he has advanced. What has been stated there is a mere reference to the history of the relevant amendments in section 34, namely, the declaration that certain provisions of the Income-tax (Investigation Commission) Act were invalid, the introduction of sub-section (1A) and the subsequent amendment in 1956 of sub-section (1)(a). It is true that sub-section (1A) was introduced because a provision in the Income-tax (Investigation Commission) Act was declared invalid. This, however, did not mean that it applied only to those cases which were pending before the Investigation Commission. The statutory provision does not say so, and we cannot introduce words into it to that effect. Nor can it be said that notice under sub-section (1)(a) cannot now be issued on those upon whom notices were not issued under sub-section (1A), and whose cases had been referred to the Investigation Commission. The legislative proceedings mentioned above show a different background. It is plain that the intention was to enable notices to be served on assessees upon whom notices had not been served under sub-section (1A) and upon whom notices had could not be served under that provision within the short period left when the authorities were faced with the invalidity of section 5(1) of the Investigation Commission Act. The first difficulty that has to be met by the learned standing counsel is the amended provision in section 34(1B). In order to meet this difficulty, he argues as follow : He says that the sub-section as it now stands is an all-embracing section, covering both the cases of sub-section (1)(a) and sub-section (1A). But in the case of assessee coming under sub-section (1A), the settlement can only be effected under sub-section (1B) provided notice had already been served on them prior to 31st March, 1956. According to the learned standing counsel, this is the only way in which the proviso to sub-section (1A) can be harmonised with sub-section (1)(a). In my opinion, this argument cannot be accepted. This again would be adding to the wordings of sub-section (1B). In that sub-section, there is no restriction to the effect that, in spite of notices served under section 34(1)(a), there would be any time-limit if the cases could have come within sub-section (1A). It is also dependent on the earlier argument that in cases of assessees who had been proceeded against under the Income-tax (Investigation Commission) Act, notice could only be issued under sub-section (1A) or that sub-section (1A) was the only provision intended to deal with cases against assessee whose cases had referred to the Income-tax Investigation Commission. Neither of these arguments are acceptable, and, consequently, the argument relating to sub-section (1B) also fails.
These are the only points taken on behalf of the petitioner and have failed.
For the reasons given above, the application cannot succeed and must be dismissed. The rule is discharged. Interim orders, if any, are vacated. There will be no order as to costs.
Application dismissed.