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Case Referred No. 47 of 1959, decided on 25th January 1961.

Income‑tax Act (XI of 1922), S. 34(1)(a)‑Escape of income -Re‑assessment‑Notice under S. 34(1)(a)‑Period of 8 years, whether starts from accounting year or assessment year.

The period of 8 years prescribed by section 34(l)(a) of the Income‑tax Act, 1922, for issuing a notice for re‑assessment of income starts from the expiry of the assessment year and not from the expiry of the accounting year in relation to the income sought to be assessed.

Talluri Raghavaiah v. First Additional Income‑tax Officer, Bapatla (1962) 44 I T R 136 fol.

Pannalal Nandlal Bhandari v. Commissioner of Income‑tax (1961) 41 I T R 76 explained.

By this application, Gowra Venkayya Chetty, the assessee, requires the Appellate Tribunal to refer to the High Court some questions, said to be of law and which are said to arise out of its order, under section 33(4) made on April 5, 1959, in I. T. A. No. 9228 of 1957‑58. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order, we hereby draw up an agreed statement of the case and refer it to the High Court of Judicature of Andhra Pradesh at Hyderabad under section 66 (1) of the Indian Income‑tax Act, 1922.

2. This reference arises out of a re‑assessment made upon the assessee for the assessment year 1948‑49 after taking recourse to the provisions of section 34. The relevant account year for the said assessment year is the financial year, April 1, 1947, to March 31, 1948. The questions required to be referred to the High Court are as follows;

"(1) Whether on the facts and circumstances of the case the assessment under section 34(1)(a) is legal

(2) Whether on the facts and circumstances of the case the notice issued under section 34(1)(a) after a period of eight years from the account year is valid "

When the application came up for hearing before us we were told that by both these questions the assessee‑applicant merely wanted to challenge the validity of the reassessment on a single ground to be presently mentioned, and none was directed against the quantum of the assessment as such. Hence the material facts, having bearing on the said issue, are as follows;

On the earlier occasion, the Income‑tax Officer had com pleted the assessment for the assessment year 1948‑49. After the completion of the said assessment, he found that a certain income has escaped assessment (this fact being i of in dispute, it is not necessary to set it out in detail) for the said assessment year. He, therefore, initiated proceedings under section 34 and served a notice on March 21, 1957, i.e., after a period of eight years from the end of the account year, viz., the financial year ended March 31, 1948.

The material provisions of section 34(1), as it stood at the relevant time after its amendment by the Finance Act of 1956, are as follows;

"34. (1) If‑--------

(a) the Income‑tax Officer has reason to believe that . . . . . income, profits or gains chargeable to income‑tax have escaped assessment for that year . . . . . he may in cases falling under clause (a) at any time . . . . . serve on the assessee, . . . . . a notice . . . . .

Provided that the Income‑tax Officer shall not issue a notice under clause (a) of subsection (1)‑ . . . . .

(ii) for any year, if eight years have elapsed after the expiry of that year, . . . . ."

The contention raised by the assessee before the Tribunal was that the notice that was issued was served upon the assessee on March 21, 1957, and that date fell beyond the period of eight years, the said period of eight years commencing with the end of the relevant account year, viz., 1947‑48, and as such the re assessment made on the basis of the said notice was not valid. On the other hand, the department contended that the said period of eight years was to commence from the end of the assessment year for which action was to be taken and not from the end of the "previous year" relevant to the said assess ment year. For the reasons given by the Tribunal in paragraph 3 of its order, a copy of which is marked Annexure A' and forms part of the case, the Tribunal rejected the contention of the assessee.

3. On these facts, the following question of law arises;

"Whether the re‑assessment made for the assessment year 1948‑49 on the basis of the notice served on March 21, 1957, is invalid "

We refer the question accordingly.

T. S. Narasinga Rao for M. J. Swamy for the Assessee.

C. Kondiah for the Commissioner.

‑The question that arises for con sideration in this reference is as to the starting point of the period of limitation under section 34(1)(a) of the Indian Income‑tax Act, i.e., whether the eight years period has to be computed from the expiry of the accounting year or the assessment year.

This very question fell to be decided by a Bench of this Court Talluri Raghavaiah v. First Additional Income‑tax Officer, Bapatla ((1962) 44 I T R 136). After referring to the various provisions of the Indian Income‑tax Act and several of the decided cases, we reached the conclusion that the year contemplated by section 34(1)(a) is the assessment year and not the accounting year.

Sri Narasinga Rao for the assessee contends that the judgment of the Supreme Court in Pannalal Nandlal Bhandari v. Commissioner of Income‑tax ((1961) 41 I T R 76) throws doubt on the correctness of the principle enunciated in Talluri Raghavaiah v. First Additional Income‑tax Ofcer, Baparla. We have to demur to this proposition. Far from rendering the judgment in Talluri Raghavaiah v. First Additional Income‑tax Officer, Bapatla, doubtful, the ruling cited above lends support to it. At page 78 of the report, their Lordships observed;

"Admittedly, the notices issued by the Income‑tax Officer for the years in question were issued within eight years from the end of the years of assessment and if clause (1)(a) of section 34 applied, the assessment was not barred by the law of limitation."

Sri Narasinga Rao thinks that the sentence with which the judgment commences, namely, "To the appellant who was a non -resident for the purposes of Indian Income‑tax Act, 1922, had accrued in the assessment years 1943‑44, 1944‑45, 1946‑47 and 1947‑48 certain dividend income within the taxable territory of British India . . . . ." indicates that the starting point of limitation is from the expiry of the accounting year. We do not think that there is any basis for this argument. Their Lordships observed that dividends had accrued in the assessment years for purposes of the Act, which only means that dividends were chargeable to tax for the assessment years. That does not in any way justify the conclusion that the period of limitation commenced from the expiry of the year in which the dividends were received. As already observed, this judgment does not lend any colour to the argument of the learned counsel for the assessee.

Sri Narasinga Rao has not adduced any fresh reasons to enable us to change our mind and go back upon the decision rendered by us in Talluri Raghavaiah v. First Additional Income‑tax Officer, Bapatla.

If so, the notice issued to the assessee under section 34(1)(4) is valid and cannot be impugned.

For these reasons, the question referred to us is answered in favour of the department and against the assessee. There will be no order as to costs.

Reference answered accordingly.

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