PETITIONER: K. L. VARADARAJAN Vs. RESPONDENT: THE COMMISSIONER OF INCOME-TAX, MADRAS DATE OF JUDGMENT05/11/1974 BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ GUPTA, A.C. CITATION: 1974 AIR 2357 1975 SCR (2) 597 1975 SCC (3) 595 ACT: Indian Income tax Act, 1922-Sec. 17 (1)-Proviso-Whether the words "all assessments thereafter" includes original assessments and not reassessments made under Sec. 34. HEADNOTE: The assessee, during the relevant period was studying abroad. He derived income during the period by way of dividend on shares and interest from deposits. The original assessments for the relevant years were completed on January 31, 1956, December 27, 1956 and February 28, 1958. The residential status adopted in those years was "resident and ordinarily resident person". Income-tax and super-tax were calculated at the rates applicable on the total income. In the course of the assessment proceedings for the assessment year 1958-59, the assessee filed a declaration under Sec. 17(1) of the Act on March 24, 1959 claiming to be assessed at rates appropriate to his total world income. This assessment was completed on March 23, 1960 in the status of a non-resident. The application under Sec. 17(1) was rejected. As the I.T.O. found that the assessee was a non-resident in the 3 previous years ending on December 31, 1954 to December 31, 1956 and his total income had been assessed to income- tax at the normal rates and further as he had failed to make the requisite declaration under Sec. 17(1) within the requisite time, the I.T.O. was of the view that the earlier assessments had been made at a lower rate and action under Sec. 34 of the Act was accordingly taken and the assessments for the above-mentioned 3 years were reopened and completed under Sec. 23(3) read with Sec. 34 of the Act. The status of the assessee was treated as a non-resident and his total income was brought to tax at the maximum rates. According to the assessee, the omission on his part to make the declaration earlier tinder Sec. 17(1) was due to inadvertence and ignorance and requested the I.T.O. that he should be taxed at rates appropriate to his world income. The I.T.O. rejected all the contentions of the assessee and held against him. On appeal, the Appellate Asstt. Commissioner and the Tribunal held that the I.T.O.'s reasoning for not accepting the declaration under Sec. 17(1) was not correct and held against the revenue. A question was referred to the High Court as to whether the declaration filed by the assessee under Sec. 17(1) in respect of the assessment year 1958-59 was operative in relation to the reassessments also in respect of the assessment years 1955-56, 1956-57 and 1957- 58. The High Court held against the assessee. and hence the appeal before this Court. Allowing the appeal, HELD : (1) According to the second proviso to Section 17(1) of the Act, once the assessee is allowed to make the declaration after the expiry of the period specified "such declaration shall have effect in relation to the assessment for the year in which the declaration is made (if such assessment had not been completed before such declaration) and all assessments thereafter." The words of the second proviso to Sec. 17(1) make it clear that the declaration would be operative not only for the assessment for the year in which the declaration is made if such assessment had not been completed before such declaration, but also all assessments to be made thereafter. The words all assessments thereafter" signify not only assessments for the subsequent 598 years but also would cover assessments for the earlier years in case the assessments for those earlier years are being made subsequent to the filing of the declaration. [600G- 601B] (2) According to Sec. 2(8) of the Income tax Act, 1961, the words "assessment" includes reassessment although such a definition was not there in the Act of 1922. A. N. Lakshman Shenoy v. I.T.O., Bangalore & Ors. [1958] 34 ITR 275 and Commissioner of Income tax v. Khem Chand Ramdas [1938] 6 ITR 414 referred to. [601C] (3) Further, in the context of Section 17(1) of the Act also the word "assessment" must include "reassessment under Sec. 34 of the Act; and to hold otherwise would result in an anomalous situation. It should be noted that whenever the legislature intended that the word "assessment" should not include reassessment, it used express words for the purpose. For example, according to Sec. 67 of the Indian Income tax Act, 1922 no suit shall be brought in any Civil Court to set aside or modify any assessment made under the Act. It is obvious that the protection afforded by that section would be available not only for the original assessments but also for reassessments made under Sec. 34 of the Act, even though the word used in the section is assessment and not reassessment etc. [602D-E, G; 603-C] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1275 to
1277 of 1970.
(From the Judgment & Order dated the 2nd May, 1969 of the
Madras High Court in T.C. No. 41 of 1966.)
S. T. Desai, for the appellant,
Hardyal Hardy and S. P. Nayar, for the respondent.
The, Judgment of the Court was delivered by
KHANNA, J.-These three appeals by certificate are directed
against the judgment of the Madras High Court whereby the
High Court answered the following question referred to it
under section 66(1) of the Indian Income-tax Act, 1922
(hereinafter referred to as the Act) in respect of
assessment years 1955-56, 1956-57 and 1957-58 against the
assessee appellant and in favour of the revenue
“Whether the declaration filed by the assessee
under section 17(1) in respect of the
assessment year 1958-59 was operative in
relation to the reassessments in respect of
the previous years ending on 31-12-195
4, 31-12-
1955 and 31-12-1956 corresponding to the
assessment years 1955-56, 1956-57 and 1957-58
?”
The assessee during the relevant period was studying abroad.
He derived income during that period by way of dividend on
shares and interest from deposits. The original assessments
for the relevant years were completed on January 31, 1956,
December 27, 1956 and February 28, 1958. The residential
status adopted in those years was “resident and ordinarily
resident person”. Income-tax and supertax were calculated
at the rates applicable on the total income. In the course
of the assessment proceedings for the assessment year 1958-
59, corresponding to the year ending on December 31, 1957,
the assessee filed a declaration under section 17(1) of the
Act on March 24, 1959 claiming to be assessed at rates
appropriate to the
599
total world income. This assessment was completed on
March 23, 1960 in the status of a “non-resident”. The
application under section 17(1) was rejected. As the
income-tax officer found that the assessee was a non-
resident in the three previous, years ending on December 31,
J954 to December 31, 1956 and his total income had been
assessed to income-tax at the, normal rates and further as
he had failed to make the requisite declaration under
section 17(1) within the requisite time, the income-tax
officer formed the view that the earlier assessments had
been made at a lower rate. Action under section 34 of the
Act was accordingly taken by the income-tax officer and
assessments for the above mentioned three years were
reopened and completed under section 23(3) read with section
34 of the Act. The status of the assessee was treated as
that of a non-resident. The assessee’s declaration under
section 17(1), which he had made in the course of assessment
proceedings for the assessment year 1958-59, was rejected
and ignored and- his total income was, brought to tax at the
maximum rates. The assessee in the course of the
proceedings for reassessment requested that the income
during the three years in question should be taxed at rates
appropriate to his world income. According to the assessee,
the omission on his part to make the declaration earlier
under section 17(1) was due to inadvertence and ignorance.
It was also contended that as the assessments were being
reopened and were thus deemed to be pending for the earlier
years, the assessee’s declaration mad-. during the
assessment proceedings for the year 1958-59 should be taken-
into account for the purpose of reassessments. The income-
tax officer rejected all the submissions. According to the
income-tax officer, option had been exercised by the
assessee after the prescribed date and it could not have
effect on the assessments for the three years in question.
The income-tax officer also referred to the first proviso to
section 17(1) of the: Act and said that the declaration
could be entertained only on the first occasion on which the
assessee became assessable. The second proviso, it was
observed, would also not avail the assessee.
The assessee went up in appeal to the Appellate Assistant
Commissioner. It was contended inter alia on his behalf
that the income-tax officer was wrong in holding that the
declaration under section 17(1) could be entertained only on
the first occasion when the person became assessable.
According to the assessee, the declaration could be accepted
even later provided sufficient cause was shown for not
filing the declaration earlier. The assessee further
submitted that the assessment as non-resident was made for
the first time in respect of assessment year 1958-59 and as
section 34 proceedings were fresh proceedings the
declaration made in 1958-59 ought to be accepted. The
Appellate Assistant Commissioner held that the income-tax
officer’s reasoning for not accepting the declaration under
section 17(1) was not correct. In this connection the
Appellate Assistant Commissioner referred to his order in
the appeal by the assessee for the assessment year 1958-59
wherein he had held that the assessee had sufficient cause
for not filing the declaration under section 17(1) when the
assessee became first assessable. It was also held that the
failure to file the declaration bad not resulted in a
reduction of tax liability.
600
The declaration filed on March 24, 1959 by the assessee, in
the opinion of the Appellate Assistant commissioner, could
be availed of for the assessments for the three years in
question as the assessment orders consequent upon the
reopening of assessments were being made subsequent to that
date.
The department went up in appeal to the Income-tax Appellate
Tribunal against the order of the Appellate Assistant
Commissioner. The Tribunal accepted the reasoning of the
Appellate Assistant Commissioner and dismissed the appeal.
On being moved by the. Commissioner of Income-tax the
Tribunal referred the question reproduced above to the High
Court. The High Court in answering the question against the
assessee referred to the expression “all assessments there-
after” in the two provisos to section 17(1) of the Act and
observed that those words showed that the declaration could
be availed of in respect of assessments for subsequent years
and not in respect of assessments made by the revenue in
exercise of its power under section 34 of the Act. The word
“assessments” in the above expression, in the opinion of the
High Court, referred to only original assessments and not to
assessments made by the revenue in exercise of its power
under section 34 of the Act.
In appeal before us Mr. Desai on behalf of the assessee-
appellant has assailed the judgment of the High Court and
has contended that correct view of law was taken by, the
Appellate Assistant Commissioner and the Tribunal. As
against that Mr. Hardy on behalf of the revenue has
supported the view taken by the High Court.
After hearing the learned counsel for the parties, we are of
the, opinion that the submission made by Mr. Desai is well-
founded. The assessee, as mentioned earlier, filed the
declaration in the course of assessment proceedings relating
to the year 1958-59 on March 24, 1959. Although the above
declaration was rejected by the income-tax officer, the
Appellate Assistant Commissioner on appeal in respect of
assessment for the assessment year 1958-59 held that there
was sufficient cause for the assessee in not making the
declaration on the first occasion on which he became
assessable and that his failure to make such declaration had
not resulted in reducing his liability to tax for any year.
The assessee was, accordingly allowed to make the
declaration after the expiry of the prescribed period.
According to the second proviso to section 17(1) of the Act,
once the assessee is allowed to make the declaration after
the expiry of the period specified ,,such declaration shall
have effect in relation’ to the assessment for the. year in
which the declaration is made (if such assessment had not
been completed before such declaration) and all assessments
thereafter”. The words of the second proviso to section
17(1) reproduced above make it clear that the declaration
would be operative not only for the assessment for the year
in which the declaration is made if such assessment had not
been completed before such declaration, but ‘also for all
assessments to be made thereafter. The words “all
assessments thereafter”, in our opinion, signify not only
assessments for. the subsequent years but would also cover
assessments for
601
the earlier years in case the assessments for those earlier
years are.being made subsequent to the filing of the
declaration. The words”all assessments, thereafter” have a
wide amplitude and we see no cogent reason for not giving
them their natural meaning or for restricting their scope.’
Those words would include within their ambit all assessments
made subsequent to the filing of the declaration-and it
would be wrong to so construe them as if the legislature had
used the words “all assessments for the subsequent years”.
We are unable to subscribe to the view taken by the High
Court that the assessments referred to in the words
reproduced above mean, only the original assessments and not
the reassessments made under section 34 of the Act.
According to section 2(8) of the Income-tax Act, 1961 the
words “assessment” includes reassessment. Although such a
definition was not there in the Act of 1922, the word
“assessment” in the second proviso to section 17(1) of the
Act must necessarily, in our opinion, cover reassessment
under section 34 of the Act.In the case of A. N. Lakshman
Shenoy v. Income-tax Officer, Bangalore & Ors.(1) this Court
held that the word “assessment” in-the Finance Act, 1950
would include reassessment. It was observed that the col-
location of the words “levy, assessment and collection of
income-tax”‘ showed that the word “assessment” had a
comprehensive meaning so as to cover reassessment. The case
of Commissioner of Income-tax.v. Khemchand Ramdas(2) upon
which reliance had been placed by the,revenue in Shenoy’s
case, as has also been done in the present case, was
distinguished. This Court referred to the observations of
the Judicial’ Committee in the case of Khemchand Ramdas and
held that those, observations lend no support to the view
that the word “assessment” must always bear a particular
meaning in the Income-tax Act. Reliance in this context was
placed upon the following observations of.’ the Judicial
Committee
“These two questions are so closely related to
one another that they can conveniently be
considered together. In order to answer them
it is essential to bear in mind the method
prescribed by the Act for making an assessment
of tax, using the word assessment in its
comprehensive sense as including the whole
procedure for imposing liability upon the
taxpayer. The method consists of the
following steps. In the first place, the
taxable income of the taxpayer has to be
computed. In the next place, the sum payable
by him on the basis of such computation has,
to be determined. Finally, a notice of demand
in the prescribed form, specifying the sum so
payable, has to be served upon the taxpayer.”
This Court further observed in Shenoy’s case
:
“If the word ‘assessment’ is taken in its
comprehensive sense, as we think it should be
taken in the context of section 1 3 ( 1 ) of
the Finance Act, 1950, it would include
‘reassessment’ made under the provisions of
the Act. Such ‘reassessment’
(1) [1958] 34 ITR 275.
(2) [1938] 6 ITR 414,
602
will without doubt come within the expression
‘levy, assessment and collection of income-
tax’. In his speech in Commissioner for
General. Purposes of Income Tax for the City
of London v. Gibbs and Others(1) Lord Simon
has pointed out that the word ‘assessment’ is
used in the English Income tax code in more
than one sense- and sometimes, within the
bounds of the same section, two separate
meanings of the word may be foun
d. One,
meaning is the fixing of the sum taken to
represent the actual profit and the other the
actual sum in tax which the taxpayer is liable
to pay.
It has been contended before us that the
Finance Act and the Income-tax Act should be
read together as forming one ,code, and so
read the words ‘assessment’ and ‘reassessment’
acquire definite and distinct connotations.
We are unable to agree, for the reasons which
we have already given, that even if we read
the Finance Act along with the Income-tax Act
the word ‘assessment’ can be given a
restricted meaning. To repeat these reasons
the Income-tax Code itself uses the word
assessment in different senses, and in the
context and collocation of the words of the
Finance Act, the word ‘assessment’ is capable
of bearing a comprehensive meaning only.”
In the context of section 17(1) of the, Act the word
“assessment” must necessarily include reassessment under
section 34 of the Act. To hold otherwise would result in an
anomalous situation. This can best be illustrated by taking
a concrete case. An assessee files a ,declaration under
section 17(1) of the Act in respect of the assessment year
1955-56. Supposing his assessment for the year 1956-57 is
reopened and an order for reassessment is made. In case the
,declaration made under section 17(1) can be availed of only
for the original assessments and not for reassessments under
section 34 of the Act, the result would necessarily be that
the declaration would have to be excluded from consideration
in making the reassessment ‘for the year 1956-57 even though
the declaration had been filed much earlier. This could
hardly have been the intention of the legislature. The
entire scheme of section 17(1) as well as the context, in
our opinion, clearly shows that the word “assessment” in
section 17(1) has been used in a comprehensive sense so as
to include reassessment.
It may also be observed that there are indications in the
Act that whenever the legislature intended that the word
“assessment” should not include reassessment, it used
express words for the purpose. Section 33B of the Act
empowers the Commissioner of Income-tax if he considers any
order passed by the income-tax officer to be erroneous and
prejudicial to the interest of revenue to make inter alia an
order, after complying with the requirements of that
section. canceling the assessment and directing a fresh
assessment. Sub-section (2) of that
(1) [1942] A.C. 402,406.
603
section makes it clear that no order can be made under that
section to revise an order,of reassessment made under the
provisions of section 34. If the order of assessment did
not include an order of reassessment made under the
provisions of section 34, there would have been hardly any
necessity of making a provision in sub-section (2) of
section 33B that no order can be made under sub-section (1)
of’ that section to revise an order of reassessment made
under the pro-. visions of section 34.
According to section 67 of the Act, no suit shall be brought
in any Civil Court to set aside or modify any assessment
made under the Act. It is obvious that the protection
afforded by that section would be available not only for the
original assessments but also for reassessments made under
section 34 of the Act even though the word used in the
section is assessment and not reassessment. Likewise, the
fact that the legislature has used the word “assessments”
and not ,,.reassessments” in the second proviso to section
17(1) of the Act would not exclude the applicability of that
proviso to cases of reassessments subsequent to the filing
of the declaration.
The matter may also be looked at from another angle.
Proceedings under section 34 of the Act can be initiated if
the income-tax, officer has reason to believe that income,
profits or gains chargeable to income-tax have escaped
assessment for any year or have been. under-assessed or
assessed at too law a rate or have been made the subject of
excessive ‘relief under the Act or excessive loss or
depreciation allowance has been computed. The first of the
above five contingencies deals with income, profits or gains
chargeable to income-tax escaping assessment. In such an
event the income-tax officer would after initiating
proceedings under section 34 make assessment of such income,
profit or gain. In the other four contingencies, the carder
made by the income-tax officer would be for reassessing
such. income, profit or gain or recomputing the loss or
depreciation allowance. If the view propounded on behalf of
the revenue were to be accepted that assessment does not
include reassessment made under section 34 of the Act, the
result would be that the benefit of the declaration made
under section 17 (1 ) of the Act, in case other conditions
are fulfilled, would be available only in the first
contingency mentioned above relating to escaped assessment
and not in the remaining contingencies because they pertain
to reassessment. This would certainly be anomalous for it
would result in placing persons whose income has escaped
assessment in a better position compared to persons, whose
income has been under-assessed or assessed at too low a rate
or has been the subject of excessive relief under the Act or
in whose cases
604
excessive loss or depreciation allowance has been computed.
This could hardly have been the intention of the
legislature.
We, therefore, accept these appeals, set aside the judgment
of the High Court and discharge the answer given by it to
the question referred to it. The question reproduced above
is answered in, the affirmative in favour of the assessee-
appellant and against the revenue. The assessee appellant
shall be entitled to his costs both in this Court as well as
in the High Court. One hearing fee.
S. C. Appeals allowed.
605