Johri Lal (H.U.F.), Agra Vs. the Commissioner of Income Tax - Court Judgment

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direct taxation - commencement of proceedings - sections 4 (1), 22, 34, 34 (1) and 66 (1) of indian income tax act, 1922 - whether on facts of case proceedings commenced under section 34 (1) (b) could have been converted into proceedings under section 34 (1) (a) by income tax appellate tribunal - income tax officer (i.t.o.) issued notice to assessee under section 34 without mentioning properly whether he was taking action under section 34 (1) (a) or 34 (1) (b) - subsequently action taken under section 34 (1) (b) - action challenged by assessee - i.t.o. did not choose to proceed under section 34 (1) (a) - it is not open to tribunal to justify proceedings taken by i.t.o. under section 34 (1) (a) - held, tribunal had no right to convert proceedings initiated by i.t.o. under section 34 (1) (b) to that under section 34 (1) (a). - [s.k. dass, acting c.j.,; m. hidayatullah and; a.k. sarkar, jj.] by s. 13 of the delhi and ajmer rent control act, 1952 which came into force on june 9, 1952, courts were prohibited from directing eviction of a tenant at the suit of a landlord excepting in the cases mentioned in the proviso to it. clause (c) of the proviso permitted ejectment where the "tenant without obtaining the consent of landlord has before the commencement of this act sub-let. . . . the premises" relying on this clause the respondent landlord filed a suit against the appellant and respondent no. 2 for their ejectment from a shop room let to the latter alleging that it had been sub-let to the appellant without his consent. the appellant resisted the suit on the ground that the respondent land lord had acquiesced in the subletting. the trial judge decreed the suit holding that the respondent landlord had not done so. the appellant alone appealed to the additional senior sub-judge who set aside the order of the trial judge taking the view that the respondent landlord had acquiesced in the sub-letting. he also held that the subletting had commenced not later than november 1950. the landlord moved the high court in revision under s. 35 of the act. while the matter was pending in the high court, the delhi rent control act, 1958, came into force. section 57 of the act of 1958, provided; "(1) the delhi and ajmer rent control act, 1952, in so far as it is applicable to the union territory of delhi, is hereby repealed. (2) notwithstanding such repeal, all suits and other proceedings under the said act pending, at the commencement of this act, before any court or other authority shall be continued and disposed of in accordance with the provisions of the said act, as if the said act had continued in force and this act had not been passed: provided that in any such suit or proceeding for the fixation of standard rent or for the eviction of a tenant from any premises to which s. 54does not apply, the court or other authority shall have regard to the provisions of this act: provided further that the, provisions for under the said act shall continue in force in respect of suit,, and proceedings disposed of thereunder." the court held that by reason of the provisions of subs. (2) of s. 57 of the act of 1958 the revision case had to be dis- posed of in accordance with the provisions of the act of 1952. it also held that there was no evidence to justify the appellate court's findings that the respondent had acquiesced in the sub-letting by respondent no. 2 to the appellant. in that view of the matter the high court allowed the petition of revision. the appellant then appealed to this court. held: it was competent for the high court under s. 35 of the act of 1952 to interfere with the findings of the court below on the question of acquiescene on the ground that there was no evidence to support that finding. if a court had arrived at a finding without any evidence to support it, it can be legitimately said that it had not decided the case "according to law" within the meaning of that expression in s. 35. hari shankar v. rao girdhai lall chowdhury, 119621 supp. i s.c.r. 933, pooran chand v. motilal,119631 supp. 2 s.c.r. 906 and lala beni ram v. kundan lal, (1899) l.r. 26 i.a. 58, referred to. the right of' the appellant to challenge the decree of the trial judge by appeal could not be affected by the failure of the respondent no. 2 to file an appeal. per das, acting c. j., and hidaytullah, j. (sarkar, j. dissenting): the first proviso to s. 57(2) of the delhi rent control act, 1958 does not demand that a suit for the eviction of it tenant filed under the delhl and ajmer rent control act, 1952, must be governed entirely by the provisions of the new act. the provisions applicable continue to be the provisions of the old act with this addition that where the new act has slightly modified or clarified the previous provisions, those modifications and clarifications should iv applied. where entirely new rights and new liabilities have been created, the new provisions must not be allowed to override the provisions of the old act. if the expression "shall have regard to the provisions of this act" in the first proviso to s. 57(2) means that the provisions of the delhi rent control act, 1958, shall apply to ill such suits or proceedings as are referred to in s. 57(2) except in the matter of the jurisdiction of the civil court, then in reality the substantive provision of s. 57(2) will be denuded of its full effect for all practical purposes. moreover, that would be giving effect to the provisions of the rent control act of 1958 retrospectively though s. 57(2) states in clear terms that all suits and proceedings pending at the commencement of the new act will be dealt with in accordance with provisions of the old act. the correct approach is to read the first proviso harmoniusly with the substantive provision contained in s. 57(2). per sarkar, j. the expression "shall have regard to the provisions of the new act" in s. 57(2) of the act of 1958 gives to all the provisions of the act of 1958 a retrospective operation and not to, some of those provisions. those words do not mean that the intention was that some of the provisions of the new act only were to be applied and they cannot be given that meaning because otherwise the effect of the proviso would be to wipe out largely the first part of the sub-section. the words "suits and other proceedings" in sub-s. (2) of s.57 of the act of 1958 include appeals and revision cases. hari shankar v. rao giridhari lal choudhary [1962] supp. 1 s.c.r. 933, pooran chand v. motilal, [1963] supp. 2 s.c.r. 906 lala beni' ram v. kundan lal, (1899) l.r. 26 i.a. 58, mukesh chand v. jamboo parshad, (1963) lxv p.l.r. 285, shri kishore aggarwal v. satya dev, (1959) lxi p.l.r. 574, jhabar mal chokhani v. jinendra parshad (1963) lxv' p.l.r. 469, ryots of garbandho v. zamindar of parlakimedi (1943) l.r. 70 i.a. 129, mysore states electricity board v. the bangalore woollen cotton & silk mills ltd. [1963] supp. 2 s.c.r. 127, bulaqui das v. ram 42-2 s. c. india/64. saran, (1960) lxiii p.l.r. 231, jiva bhai purshottam v. chhagan karson, [1962] 1 s.c.r. 568, bimal parshad jain v. niadarmal, (1960) lxll p.l.r. 664 and man mohan lal v. b. d. gupta, (1962) lxiv p.l.r. 51, referred to. - 5. before proceedings under section 34(1)(a) could be validly initiated the income-tax officer must have reasons to believe that, by reason of the omission or failure on the part of the 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 and gains chargeable to income-tax, have escaped assessment for that year, or have been unassessed, or assessed at too low a rate, or have been made a subject matter of the excessive relief under the act, or excessive loss or depreciation allowance have been computed. the failure to fulfil that condition would vitiate the entire proceedings. appellate assistant commissioner of income-tax, (central), calcutta [1971]82itr147(sc) ,the income-tax officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied, does not exist or is not material or relevant to the belief -required by this section. therefore, it was not open to the tribunal to justify the proceedings taken by the income-tax officer under section 34(1)(a). the tribunal could not have initiated proceedings under section 34(1)(a). if the tribunal converts the proceedings into one under section 34(1)(a) then the conditions prescribed in section 34(1)(a) cannot be satisfied. the revenue, to pay the costs of the assessee both in this court as well as in the high court.k.s. hegde, j.1. this appeal by certificate arises from the decision of the high court of allahabad in a reference under section 66(1) of the income-tax act 1922 (to be hereinafter referred to as the act). the assessee is a hindu undivided family. in this case we are concerned with the assessee's assessment for the assessment year 1950-51.2. the question for decision in this case is whether on the facts and circumstances of the case the proceedings which were commenced by a notice under section 34(1)(b) could have been converted into proceedings under section 34(1)(a) by the income tax appellate tribunal. in order to decide this question it is necessary to refer to the material facts. for the assessment year in question the assessee was assessed without any objection. thereafter the income-tax officer issued a notice to him under section 34 of the act without mentioning therein whether he was taking action under section 34(1)(a) or 34(1)(b). the assessee filed its objection to the notice in question. it pleaded that it had sup-plied to the income-tax officer correct information and there was no justification for taking action against it under section 34. the income-tax officer in his order opined that it had not given the full particulars but all the same it was not necessary to go into that question as he was taking action under section 34(1)(b). the assessee's objection that proceedings under section 34(1)(b) were barred by limitation, was rejected by the income-tax officer. the assessee went up in appeal to the appellate assistant commissioner against the order of the income-tax officer. the only point considered by the appellate assistant commissioner was whether proceedings under section 34(1)(b) were barred by limitation or not. he did not go into the question whether the proceedings taken by the income-tax officer could be justified under section 34(1)(a). the appellate assistant commissioner agreeing with income-tax officer came to the conclusion that the required notice had been served within time and therefore the proceedings taken under section 34(1)(b) were valid proceedings, against this order of the appellate assistant commissioner the assessee went up in second appeal to the income-tax appellate tribunal. the tribunal not only upheld the order of the appellate assistant commissioner but upheld that order on. an alternative ground namely that the impugned proceedings could be justified under section 34(1)(a). thereafter at the instance of the assessee the tribunal submitted the following questions soliciting the opinion of the high court.(1) whether the reopening of the case by the income-tax officer by the issue of a notice under section 34 of the indian income-tax act fell within the ambit of section 34(1) (a) of the act or under section 31(1)(b) of the act?(2) whether the service of the notice under section 34 of the indian income-tax act by affixture on the residential house of the assessee was legal and proper?(3) whether the amount of rupees 62,500/- was liable to tax under section 4(1)(b)(iii) of the indian income-tax act?3. the high court answering the first question, came to the conclusion that the notice in question was a valid notice and it was a notice under section 34(1)(a). it answered the second question in the negative and in favour of the assessee. it answered the third question in the affirmative and in favour of the revenue. it came to the conclusion that the proceedings under section 34(1)(b) were barred by time but it agreed with the tribunal that the proceedings were validly initiated under section 34(1)(a).4. our answer to the third question depends upon our answer to the first question. if we come to the conclusion that the proceedings were not validly initiated under section 34(1)(a) then we will have to answer the third question also in favour of the assessee.5. before proceedings under section 34(1)(a) could be validly initiated the income-tax officer must have reasons to believe that, by reason of the omission or failure on the part of the 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 and gains chargeable to income-tax, have escaped assessment for that year, or have been unassessed, or assessed at too low a rate, or have been made a subject matter of the excessive relief under the act, or excessive loss or depreciation allowance have been computed. the formation of the required opinion by the income-tax officer is a condition precedent. without formation of such an opinion he will not have jurisdiction to initiate proceedings under section 34(1)(a). the fulfilment of this condition is not a mere formality but it is mandatory. the failure to fulfil that condition would vitiate the entire proceedings. as held by this court in sheo nath singh v. appellate assistant commissioner of income-tax, (central), calcutta : [1971]82itr147(sc) , the income-tax officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied, does not exist or is not material or relevant to the belief -required by this section. it is true that the courts will not go into the sufficiency of the reasons which persuaded the income-tax officer to initiate proceedings under section 34(1)(a) of the act. but the courts will examine the relevancy of the reasons which persuaded the income-tax officer to take proceedings under section 34(1)(a). the formation of the required belief is not the only requirement. the income-tax officer is further required by section 34 to record his reasons for taking action under section 34(1)(a) and obtain the sanction of the central board of revenue or the commissioner, as the case may be.6. in the instant case, as seen earlier, the income-tax officer did not choose to proceed under section 34(1)(a). consequently, he may or may not have recorded the reasons as required by this section nor do we know where those reasons were submitted to the required authority and his sanction obtained on the basis of those reasons. this court also has ruled that the commissioner or the board of revenue, while granting sanction will have to examine the reasons given by the income-tax officer and come to an independent decision and the authority in question should not act mechanically. from the material on record there is no basis to hold that those requirements had been fulfilled. possibly they could not have been fulfilled because the income-tax officer proceeded only on the basis of section 34(1)(b) and not on the basis of section 34(1)(a). he himself had declined to proceed on the basis of section 34(1)(a) for whatever reason it may be. therefore, it was not open to the tribunal to justify the proceedings taken by the income-tax officer under section 34(1)(a). the tribunal could not have initiated proceedings under section 34(1)(a). if the tribunal converts the proceedings into one under section 34(1)(a) then the conditions prescribed in section 34(1)(a) cannot be satisfied.7. we are of the opinion that the tribunal erred in upholding the impugned proceedings under section 34(1)(a). the high court also did not address itself to this question properly.8. for the reasons mentioned above this appeal is allowed. the answers given by the high court on questions 1 and 3 are discharged and in their place we answer question no.1, that the proceedings taken were in valid. consequently, we answer the third question in the negative and in favour of the assessee. the revenue, to pay the costs of the assessee both in this court as well as in the high court.