Vimadalal, J.:— The facts giving rise to this reference, which relates to assessment years 1947-48 and 1950-51, are that for these assessment years, original assessments were made on the assessee-company (now in liquidation) on 20th February, 1950, and 29th February, 1952, respectively. In those assessments, the Income-tax Officer allowed the claim of the assessee to deduct interest payable to M/s. Vussonjee Munjee & Co. Pvt. Ltd. who were formerly the managing agents of the said company Subsequently, in the assessment for the year 1951-52, however, the Tribunal held that the claim for deduction of interest payable by the assessee-company to the said M/s. Vussonjee Munjee & Co. Pvt. Ltd. was not a permissible deduction in computing the assessee-company's business profit under section 10.
2. In the meantime, in respect of some other items, the Income-tax Officer was satisfied that there was sufficient justification for reopening the assessment for the assessment years 1947-48 and 1950-51 by taking recourse to the provisions of section 34(1)(a) of the Indian Income-tax Act, 1922 (hereinafter referred to as “the Act”). Neither the validity of the initiation of those proceedings nor the merits of the disallowance of the interest payable to M/s. Vussonjee Munjee & Co. Pvt. Ltd. were disputed by the assessee, but when the matter went up in appeal to the Tribunal, it was sought to be contended on behalf of the assessee that the said item of interest payable to M/s. Vussonjee Munjee & Co. Pvt. Ltd. for the assessment years 1947-48 and 1950-51, which had been allowed as a deduction in the original assessments for those years could not be disallowed in the reassessment proceedings, because to do so would be to resort to the powers under clause (b) of section 34(1) of the Act which could not be done after the expiration of the period of four years from the end of the years in question, which period had admittedly lapsed. That contention was rejected by the Tribunal by its order dated 18th July, 1963. On the application of the assessee, the following question of law was, thereafter, submitted to this court by the Tribunal:
“Whether, in the course of making reassessment after having validly initiated the reassessment proceedings under section 34(1)(a) in respect of certain other items of escaped income, the Income-tax Officer can also add back, in computing the business income under section 10, the sum of Rs. 66,850 (for the assessment year 1947-48) and Rs. 24,606 (for the assess ment year 1950-51) which was allowed at the time of original assessment, it being common ground that the said sum is not a permissible deduction under section 10?”
3. Section 34 of the Act has gone through various amendments, but, for the purpose of this reference, it is only necessary to bear in mind that the present clauses (a) and (b) came to be enacted as separate clauses therein only by the Income-tax and Business Profits Tax (Amendment) Act, 1948, which came into force on the 1st of April, 1948. It is necessary to bear this fact in mind in order to view the observations in some of the cases, to which I will refer, in the proper perspective.
4. Before dealing with the question of law that has been referred to us, I would like to make certain preliminary observations. The first thing that I would like to point out is that the statement of the case clearly proceeds on the footing that the notice of reassessment that was given in the present case was one under clause (a) of section 34. Apart from the reference to that clause at more than one place in paragraph 4 of the statement of the case, the question itself, as framed, clearly refers to the reassessment proceedings having been initiated under section 34(1)(a). This, therefore, is not one of the usual cases in which the notice of reassessment was given under section 34 simpliciter without reference to either of its clauses. I will, however, proceed to consider the question of law referred to us, both on the footing that this is a notice which is specifically stated to be under section 34(1)(a) of the Act, as well as on the footing of its being a notice under section 34 simpliciter, for in the view which I take, it makes no difference to the legal position in the matter.
5. The other preliminary observation which I would like to make is that as laid down by the Privy Council in the case of Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 ITR 442, 448 (PC), section 34, although it is part of a taxing statute, imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting provisions of that kind the rule is that that construction should be preferred which makes the machinery workable. That, in my opinion, is, however, not the same thing as saying that section 34 should be liberally construed. On the contrary, in my opinion, since the reopening of an assessment is a power of an extraordinary nature, section 34 must be strictly construed. Indeed, the contention that since section 34 is a machinery section, it should be liberally construed was advanced before the Madras High Court in the case of Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116, 124, 125 (Mad), but the same was, in effect, though not in terms, not accepted by that court. I agree with that view of the Madras High Court.
6. The third preliminary observation that I desire to make is that the following three points are matters of common ground between the parties to this reference:
(1) The reopening of the assessment in the present case was valid;
(2) Four years from the end of the relevant assessment years had elapsed at the time when the notice of assessment dated 6th March, 1956, was served on the 8th March, 1956, and at the date of that notice the Income-tax Officer could not have served a notice under section 34(1)(b) specifically; and
(3) The original assessment is not entirely set aside by reason of the reassessment proceedings, but some limitation must be read into the power to reassess de novo.
7. Mr. Dastoor and Mr. Joshi, however, differ on what that limitation should be, and, indeed, that is the main question before us. Mr. Dastoor has formulated his legal position in the form of the following two propositions:
(1) Where an assessment is reopened under section 34(1)(a), all such items as satisfy the conditions of section 34(1)(a) can be brought to tax, even though the notice of reassessment has been issued with regard to only one or more of them; and
(2) alternatively, even if the view taken is that items which satisfy the conditions of section 34(1)(b) and not of section 34(1)(a) can also be brought to tax in such a reassessment, that can be done only if the notice of reassessment was issued within the time limit prescribed for section 34(1)(b).
8. In this connection, it may be mentioned that, at the time relevant to this reference, the time limit for taking action under clause (a) of section 34(1) was 8 years, whilst the time limit for taking action under clause (b) of that section was four years from the end of the assessment year in question. On the other hand, it was contended by Mr. Joshi that when a notice of reassessment under section 34, or either of its clauses, is served upon an assessee, he can be assessed de novo qua all the items of income, whether falling under clause (a) or clause (b), which are found to have escaped assessment. I must now proceed to consider each of these contentions and the authorities relied upon in support of the same.
9. I would prefer to deal first with the two propositions formulated by Mr. Dastoor on behalf of the assessee which have been set out in the preceding paragraph. In support of his second proposition, Mr. Dastoor relied strongly on the very recent decision of the Madras High Court in the case of Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116 (Mad) to which I have already referred in another context. The facts of that case were that the assessee was originally assessed as a Hindu undivided family for the assessment year 1953-54 on 31st August, 1954, and in the original assessment the assessee had claimed certain losses in sugar mill business which had been allowed as claimed, but the assessee had not disclosed the interest received by him from one of his debtors. In the course of the assessment of that debtor, the Income-tax Officer found that a sum of Rs. 24,165 had been credited to the assessee as having been paid to him by way of interest. The Income-tax Officer also found that the loss claimed by the assessee from the sugar mill business had been wrongly allowed to him in the assessment years in question, as the said business had already become defunct prior thereto. The Income-tax Officer, therefore, reopened the original assessments for the years 1953-54 and 1954-55 by issuing a notice under section 34(1)(a) of the Act in response to which the assessee filed revised returns for those two years. The assessee, however, objected to any interference with the original assessments in respect of the losses from the sugar mill business which assessments, he submitted, had become final and could not be reopened after the expiry of four years. After intermediate proceedings to which it is unnecessary to refer, at the instance of the assessee, a reference was made to the High Court referring to it the question as to whether it was open to the Income-tax Officer under section 34(1)(a) of the Act to reconsider the assessee's claim in respect of the losses from the sugar mill business for the assessment years 1953-54 and 1954-55. Putting it in simpler language, the question before the High Court was, whether in proceedings validly initiated under section 34(1)(a), cases falling under section 34(1)(b) could also be dealt with, particularly after the four year period mentioned in that section was over (See [1973] 91 ITR 116, 121). It was stated in the judgment in the said case (also at page 121) that it was well established that where the Income-tax Officer validly initiated reassessment proceedings by issuing a notice under section 34(1)(a) in respect of a particular item, he could, during the reassessment proceedings, deal with all items falling under clause (a) though they had not been dealt with specifically in the notice, and that his jurisdiction was not limited only to the item in respect of which a notice under clause (a) of section 34(1) had been issued. That is a proposition with which I am in agreement. There is, however, the further question as to whether, in the case of a notice under section 34(1)(a), items under section 34(1)(b) can be brought in, particularly after the four year period mentioned in that section is over. As far as that is concerned, it is important to bear in mind that in Veerappa Chettiar's case [1973] 91 ITR 116 (Mad) a concession was made by the learned counsel for the assessee (at pages 123-124) that in view of judicial decisions, the power of the Income-tax Officer to bring in items of income falling under section 34(1)(b) to charge in reassessment proceedings validly initiated by him in respect of items coming under section 34(1)(a) was not disputed by him. In view of that concession, the only question which survived before the Madras High Court was, whether that could be done even after the four year period had expired or, in other words, the question of the period of limitation prescribed by section 34 itself. In view of the concession made by the learned counsel for the assessee in Veerappa Chettiar's case [1973] 91 ITR 116 (Mad) the decision therein cannot be regarded as an authority which negatives the first proposition propounded by Mr. Dastoor before us. Indeed, in my opinion, that concession has led the court to take what I, with due respect, consider to be an illogical view because, by some sort of implication, the court was driven to apply the period of limitation prescribed for clause (b) to a notice under clause (a). In my opinion, a period of limitation cannot be applied by any sort of implication, but must be express. I am, therefore, of the view that the first proposition propounded by Mr. Dastoor is the more logical proposition and I am happily supported in that view by a plain reading of the terms of section 34 and its ordinary grammatical construction. Omitting words which are inconsequential for the purpose of bringing home the point which I am now considering, the material part of section 34 would read as follows:
“34. Income escaping assessment.—(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 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
(b) …… the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, ……
he may in cases falling under clause (a) …… and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, …… a notice containing all or any of the require ments which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains ……; 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-section: ……”
10. Reading the section in that manner, it is quite clear to my mind that the four year period of limitation clearly governs the notice and not the item that had escaped assessment. A notice served within four years of the end of the assessment year is the very basis of the jurisdiction of the Income-tax Officer to reopen an assessment under clause (b) of section 34(1). A plain reading of section 34, as it stands after the 1948 amendment of the Act, shows that section 34 contemplates two different types of notices, one under clause (a) and the other under clause (b), the latter with a special fetter of a shorter four year period of limitation and one must not, therefore, overlook the essential distinction that the section makes between these two clauses. That, indeed, is what the Madras High Court itself has in Veerappa Chettiar's case [1973] 91 ITR 116 (Mad), already cited above, pointed out at page 124. I am, however, not prepared to go as far as the same High Co???rt did in the earlier case of Commissioner of Income-tax v. Sundaram and Company (P.) Ltd. [1970] 78 ITR 162, 169 (Mad) when it stated that clauses (a) and (b) of section 34(1) contemplate two separate and mutually exclusive jurisdictions, if any, that it meant that the Income-tax Officer could proceed only under one or the other clause, for it is not difficult to conceive of cases in which the Income-tax Officer may well proceed under both those clauses. He may proceed under clause (a) because of the concealment of some income in the original assessment, and under clause (b) by reason of subsequent information obtained by him which shows that that income had escaped assessment in the original assessment, and may, in such a case, legitimately initiate proceedings for reassessment under both the clauses of section 34 simultaneously. I would have preferred to take the view that an Income-tax Officer desiring to initiate reassessment proceedings under section 34 should specify in the notice, whether he desires to proceed under clause (a) or clause (b) or under both the clauses of that section, but it is too late in the day for me to take that view, for it has been held by the Supreme Court in the case of Kantamani Venkata Narayana and Sons v. First Addl. Income-tax Officer [1967] 63 ITR 638, 640 (SC) approving the view taken by the Calcutta High Court in the case of P.R Mukherjee v. Commissioner of Income-tax [1956] 30 ITR 535, 546 (Cal), that a proceeding under section 34 is not vitiated because it did not set out the clause under which it was issued. The position, therefore, is that an Income-tax Officer may issue a notice under section 34 simpliciter without specifying that he desires to take action under clause (a) or clause (b) of that section. The only way in which such a notice can be construed would be to read it as a notice under clause (a) and/or clause (b) of section 34, unless the facts of a particular case show that action was contemplated only under one or the other of those clauses, as in the Supreme Court case of Commissioner of Income-tax v. Onkarmal Meghraj [1974] 93 ITR 233 (SC) in which the fact that the proposal submitted by the Income-tax Officer to the Commissioner for taking action under section 34, the sanction of the Commissioner, the notices issued in the cases and the returns filed by the parties, as well as the assessment orders of the Income-tax Officer were taken as pointing to the conclusion that action was not contemplated or taken under clause (a). The facts of the case were also taken into account for that purpose and it was observed that, in view of those facts, no question of omission or failure to make a return or to disclose fully and truly all material facts arose and section 34(1)(a) could not, therefore, apply, but section 34(1)(b) only could apply.
11. I will now deal with the contention of Mr. Joshi that once proceedings are initiated under section 34, or under either of its clauses, the Income-tax Officer is entitled to reassess the assessee de novo in respect of all the items of income, whether falling under clause (a) or clause (b) of section 34, but only in respect of those items which are found to have escaped assessment. He has submitted that that is the only limitation that should be read into the powers of reassessment conferred upon the Income-tax Officer by section 34 of the Act. In my opinion, however, to accept Mr. Joshi's contention would amount to permitting the Income-tax Officer to virtually defeat the object of section 34 in prescribing the period of four years for the initiation of proceedings under clause (b) of section 34, as stated in the judgment of the Madras High Court in the case of Veerappa Chettiar [1973] 91 ITR 116, 124 (Mad) or, as has been put in another way in the same judgment (at page 125), it would mean that the Income-tax Officer would be able to do indirectly what he could not do directly by issuing a specfic notice under section 34(1)(b) of the Act. Mr. Joshi, however, submitted that we are bound by authority to take the view propounded by him and I must, therefore, proceed to consider the position on the authorities that were cited before us in the course of the hearing of this reference. I will refer first to the decision of the Privy Council in the case of Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC) to which I have already referred in another context. The facts of that case were that, in the original assessment, the Income-tax Officer accepted the assessees' return as correct and complete. It may be stated that in that return the assessee had entered under the head of business, trade, commerce, etc., a loss of Rs. 8,54,385. The Income-tax Officer, however, subsequently received information that the account books of the assessees had always been manipulated and, after making inquiries, he, therefore, directed the issue of a notice under section 34 read with section 22(2) of the Act. In the revised return filed pursuant thereto, the respondents showed the same loss and the usual procedure was thereafter being followed. The assessees then applied for stay of the proceedings under section 34 till the question which they raised, viz., that section 34 could not be put into operation without giving the assessees an opportunity of being heard, was decided on the reference made to the High Court. The Privy Council, whilst allowing the appeal, held that it was not necessary for the Income-tax Officer to have given any such opportunity. The actual point which arose and was decided in that case was, therefore, totally different from the one before us. Reliance has, however, been placed upon a statement in the judgment of the Privy Council in which, after referring to the scheme of the relevant sections, it is stated that the whole procedure which is laid down by sections 22 and 23 of the Act, not only applies on first assessment, but is also prescribed by section 34 if for any reason income, profits or gains had escaped assessment (at page 445) and that the operative part of section 34 empowers the Income-tax Officer to proceed de novo under sub-section (2) of section 22 (at page 449). Those observations, however, are not, in my opinion, of any assistance for the purpose of answering the question that has been referred to us, for it is not disputed that in the reassessment, the assessment starts de novo, but the only question is, what is the limitation subject to which that reassessment de novo is to be made. In the case of Pulavarthi Viswanadham v. Commissioner of Income-tax [1963] 50 ITR 463 (AP) the Andhra Pradesh High Court has taken a view of section 34 which I am not prepared to endorse. It was held in the said case that though the assessment had been reopened on a notice which was given specifically under section 34(1)(a) of the Act, the Income-tax Officer could reopen an item under section 34(1)(b) of the Act, notwithstanding the fact that a fresh notice under that section would have been barred on the date on which the notice under section 34(1)(a) had been issued. The High Court observed that once the assessment was reopened, no distinction could be made between items falling under clause (a) and those falling under the pale of clause (b) (See [1963] 50 ITR 463, 466), and that if that had been the only item which escaped assessment, proceedings would have been started only under section 34(1)(b) (at page 467). It may be mentioned that action under section 34(1)(b) was barred in the said case, because the notice under section 34(1)(a) had been issued on 11th March, 1954, whilst the original assessment had been completed on the 2nd March, 1948. In answering the question in favour of the department, the High Court, therefore, clearly took the view that the bar of the shorter period of limitation prescribed by section 34 in regard to cases falling under clause (b) of that section was not applicable, once reassessment proceedings had been properly and validly initiated under section 34(1)(a). As already stated above, that is a view which I am not prepared to take. In the case of Modern Theatres Ltd. v. Commissioner of Income-tax [1965] 55 ITR 683 (Mad), one of the questions referred was whether the additions made in the reassessment in respect of agreements other than two particular agreements in respect of which the notice of reassessment was issued were legal. It was held by the Madras High Court (at page 686), that when the assessment of an assessee is reopened under section 34(1)(a), the Income-tax Officer was not limited to the specific allegations of suppression mentioned in the notice but the entire assessment was liable to be reopened, and if on such re-examination, it was found that “by reason of the failure of the assessee to disclose fully and truly all material facts”, any other sums had also escaped assessment, it was within the jurisdiction of the Income-tax Officer to include them as well. The words quoted by me, however, clearly show that those observations were made in reference to items which fell within the same clause of section 34(1), viz., clause (a). That is a proposition which is in accordance with the view which I take on the point. That brings me to the most important decision that we have to consider as far as the present reference is concerned, and that is the decision of the Supreme Court in the case of V. Jaganmohan Rao v. Commissioner of Income-tax [1970] 75 ITR 373 (SC). The facts of that case were that the assessee, who was the karta of a Hindu undivided family, was assessed as such for the relevant assessment years 1944-45, 1945-46 and 1946-47. On the 1st February, 1941, the assessee purchased a spinning mill for a sum of Rs. 54,731 at a time when there was litigation pending between the sons of the vendor and the vendor, it being the contention of the vendor's sons in that litigation that the said mill and other properties were joint family properties and should be partitioned. The vendor claimed that the said properties were his self-acquired properties. The District Judge held that they were the self-acquired properties of the vendor and dismissed the suit of the sons, and it was whilst an appeal to the High Court from that decision of the District Judge was pending that the purchase in question was made by the assessee. The Madras High Court reversed the decision of the District Judge and held that the properties were joint family properties in which the vendor had a ⅓rd share, and his sons had the remaining ⅔rds share. Pending an appeal from that decision to the Privy Council, the assessee submitted his return for the relevant assessment years, but before the assessments in respect thereof were completed, the assessee entered into a compromise with the vendor's sons on the 7th of September, 1945, whereby, on payment of a sum of Rs. 1,15,000, the vendor's sons released their interest in the said properties. Pending the appeal to the Privy Council, as receiver appointed by the High Court, the assessee had deposited Rs. 1,09,613 for the year 1944-45, Rs. 31,087 for the year 1945-46 and Rs. 4,775 for the year 1946-47 which, under the compromise arrived at between the assessee and the vendor's sons, he was entitled to withdraw on payment of the agreed sum of Rs. 1,15,000 by him to the vendor's sons. The Privy Council reversed the decision of the High Court and restored that of the District Judge, holding that the vendor was the absolute owner of the mill and the sons had no right, title or interest therein. On receipt of the decision of the Privy Council, the Income-tax Officer issued, on 2nd March, 1948, a notice under section 34 of the Act in respect of the said sum of Rs. 1,09,613 received by the assessee as lease income of the mill. In those proceedings, the assessee raised two contentions, viz., (a) that the proceedings intiated under section 34 for the year 1944-45, were invalid as there was no new information leading to the discovery that income had escaped assessment; and (b) that, in any event, the assessee was entitled to set off the sum of Rs. 1,15,000 paid to the vendor's sons under the compromise arrived at between them for releasing their rights, if any, in the mill, against the assessee's income, from the mill. One of the questions which was referred to the High Court in respect of the assessment for each of the years in question was, whether the assessee was not entitled to set off Rs. 1,15,000, being the amount paid to the vendor's sons for releasing their rights in the property from out of the amount received from the mill. Following its own earlier decision in another case, the Supreme Court held ([1970] 75 ITR 373, 379-80), that the decision of the Privy Council constituted information within the meaning of section 34(1)(b) of the Act and the proceedings for reassessment were, therefore, validly initiated. It was, however, sought to be contended before the Supreme Court on behalf of the assessee that, in any case, the Income-tax Officer could have legitimately assessed the one-third share of the income which was due to the assessee according to the judgment of the Madras High Court, and there was, therefore, escape only to the extent of the remaining two-thirds share of the income. Rejecting that contention, the Supreme Court stated as follows—See [1970] 75 ITR 373, 380 (SC):
“It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.”
12. It then proceeded to deal with the second question with which I am not concerned in the present case. A careful perusal of the judgment of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) shows that the court was not concerned in that case with the question as to whether the reassessment could be made under section 34(1)(a) or section 34(1)(b), but the observations quoted above were made by the Supreme Court only in reference to and in the context of the contention that was advanced before it (at the top of page 380) that only ⅔rds of the income of the mill could be said to have escaped assessment. In fact, though the Supreme Court has in its judgment referred to section 34(1)(b), at the time material for the assessment in the said case, clauses (a) and (b) were not to be found as separate clauses in section 34 as it then stood. It is in reference to the said contention that the Supreme Court said that the entire income that had escaped assessment washable to be reopened in the proceedings initiated in the said case under section 34(1)(b). It is also clear from the passage from the judgment of the Supreme Court quoted above that, when reassessment proceedings are initiated, it is not the entire original assessment that is set aside, but it is only the “under-assessment” that is set aside, and the Income-tax Officer was under a duty to levy tax on “the entire income that had escaped assessment”, and not on the entire income of the assessee as such. I am, therefore, not prepared to read the judgment of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) as holding, as Mr. Joshi strongly urged at the beginning of his argument, that once reassessment proceedings are initiated under either of the clauses of section 34, the Income-tax Officer is entitled to reassess the assessee in respect of all income that is found to have escaped assessment, whether it be under clause (a) or clause (b) of section 34(1), for that was not the point which arose before the Supreme Court and has not been dealt with by it in its judgment. The expressions, “whole assessment” and “entire income” as used in the passage from the judgment of the Supreme Court quoted above, can only mean one of the two things. They can mean the entire subject-matter of the original assessment, or they can mean the entire income that had escaped assessment. In my opinion, it is in the latter sense that those expressions have been used by the Supreme Court in the said case. There is, however, no third sense in which those expressions can be understood. It cannot be said that in respect of an item which is found to have escaped assessment, the whole of the original assessment, in respect of the income which had escaped assessment is not reopened and the assessee cannot, therefore, reagitate the question of any deduction or allowance refused to him, wholly or in part, in the original assessment in respect of the particular item of escaped income. In view of the judgment of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC), the view taken by this court in the case of Kevaldas Ranchhodas v. Commissioner of Income-tax [1968] 68 ITR 842, 845 (Bom), that recomputation could only take place under section 34 with a view to garnering in the income escaping assessment under the first clause, and that it was clear from the provisions of the said section itself that it was not intended for the benefit of the assessee but only for the benefit of the revenue, is no longer good law. What had happened in Kevaldas's case [1968] 68 ITR 842 (Bom) was that the assessee, who was the karta of a Hindu undivided family, was assessed in respect of the income from the business of speculation, but the Income-tax Officer later on came to know that the assessee had suppressed speculation profits to the extent of Rs. 30,000. He, therefore, issued a notice under section 34(1)(a) of the Act. At that stage, the assessee himself disclosed new figures as to his receipts from the speculation business as also his payments made in the speculation business. The position as it existed on the new figures was that the assessee's receipts from the speculation business were larger by Rs. 31,149, but at the same time his payments in respect of the same business were larger by Rs. 85,510. The Income-tax Officer held that the claim for relief, which was omitted to be made in the original assessment, could not be made in the proceedings under section 34, and that view was ultimately confirmed by the High Court in the reference. It may be noted that the allowance or deduction which was sought to be claimed in Kevaldas Ranchhodas's case [1968] 68 ITR 842 (Bom) was in respect of the very item of income in regard to which the notice under section 34(1)(a) had been issued, and yet the High Court took the view that the assessee was not entitled to claim revision of the loss that had already been determined in the original assessment in regard to that item. As already stated above, in view of the decision of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) that the entire assessment in regard to the income which had escaped assessment must be deemed to be reopened, in my opinion, the decision in Kevaldas Ranchhodas's case [1968] 68 ITR 842 (Bom) is no longer good law. To give to section 34 the meaning that was given to it in Kevaldas Ranchhodas's case [1968] 68 ITR 842 (Bom) would, in my opinion, amount to construing the expressions “whole assessment” and “entire income” used by the Supreme Court in its judgment in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC) as meaning, not the whole item which had escaped assessment, but only the part of the item the revision of which would be in favour of the department. There is no warrant for placing such a construction on the decision of the Supreme Court in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC).
13. The propositions that emerge from a consideration of the above authorities are as follows:
(1) If a notice under section 34(1) expressly specifies that it is under clause (a) thereof, no reassessment in respect of any item can be made under clause (b) of that section under the jurisdiction to reassess acquired by that notice. In such a case, no question of the period of limitation in respect of clause (b) being applicable would, therefore, arise. I do not approve of the view taken by the Madras High Court in Veerappa Chettiar's case [1973] 91 ITR 116 (Mad) (at page 127) and by the Calcutta High Court in P.R Mukherjee's case [1956] 30 ITR 535 (Cal) (at page 547), both of which have been cited above, that the Income-tax Officer has jurisdiction in such a case to reassess items under clause (b) also provided that the re assessment proceedings were initiated within the period of four years laid down in regard to section 34(1)(b).
If the notice under section 34(1) is expressed to be given under clause (b) thereof, presumably, the position would be the same as when the notice is specifically given under clause (a) of that section, but I do not want to express a definite opinion in regard to the same, as that question does not arise before us.
(2) If a notice is specifically given under clause (a) or clause (b) in respect of a particular item in that clause, all other items in the same clause which have escaped assessment can also be reopened. In my opinion, it is not necessary to issue or enclose a separate notice under section 22(2) of the Act at the time of issuing a notice under section 34. To do so may, however, be a convenient mode of complying with the terms of section 34 which require that the notice to be given under that section must contain “all or any of the requirements of sub-section (2) of section 22”, instead of embodying the requirements of section 22(2) in the notice under section 34 itself. The Income-tax Officer can, of course, call for a comprehensive return. In this connection, it may be pointed out that no separate notice under section 22(2) of the Act appears to have been given in the case of Commissioner of Income-tax v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC) cited above (vide page 446). There is nothing to be found in any of the other decisions which would militate against the view which I am taking.
(3) If the notice under section 34(1) does not specify the particular subclause [(sub-clause (a) or sub-clause (b)] under which it is given, but is a notice under section 34 or under section 34(1), simpliciter, as we are told by the learned counsel on both sides is usually the case, such a notice would have to be construed as a notice under sub-clause (a) and/or sub-clause (b) of section 34(1), and the period of limitation of four years would, therefore, be applicable in regard to the items which are sought to be reassessed under clause (b), pursuant to that notice. This would be the position unless the facts of the case show that, though the notice was stated to be given under section 34 or under section 34(1) simpliciter, action was contemplated only under clause (a) or clause (b) of section 34(1), as the case may be, as was the position in the case of Commissioner of Income-tax v. Onkarmal Meghraj [1974] 93 ITR 233 (SC) already cited above.
14. It was, lastly, urged by Mr. Joshi that if I am not prepared to accept his proposition that once proceedings under section 34(1) are validly initiated, the Income-tax Officer has jurisdiction to reassess de novo in respect of all items of escaped income, whether they be under clause (a) or under clause (b), regardless of the period of limitation provided in that section for cases falling under clause (b), I should, in conformity with the view, which, according to him, was taken by the Madras High Court in Veerappa Chettiar's case [1973] 91 ITR 116 (Mad), accept the second and the alternative proposition propounded by Mr. Dastoor, but should not accept Mr. Dastoor's first proposition. He made that submission on the ground that uniformity is desirable in an All-India taxing statute, as was stated by Chagla C.J in the case of Maneklal Chunilal & Sons Ltd. v. Commissioner of Income-tax [1953] 24 ITR 375, 385 (Bom) and reiterated by Tambe J. in the case of Commissioner of Income-tax v. Chimanlal J. Dalai & Co., [1965] 57 ITR 285 (Bom). I cannot, however, accept that argument of Mr. Joshi for the simple reason that, as already pointed out by me above, the Madras High Court in Veerappa Chettiar's case [1973] 91 ITR 116 (Mad) does not negative the first proposition propounded by Mr. Dastoor which I am accepting, as stated above. I have already pointed out that, in view of the concession that was made before the Madras High Court in the said case by the learned counsel for the assessee, the question as to whether, in a notice issued under clause (a) of section 34(1), items under clause (b) thereof could be reopened, did not arise and was not considered or decided by that court, and the only question before it was, whether the period of limitation prescribed for cases falling under clause (b) would be applicable to items falling under that clause in case they were sought to be reopened by a notice issued under clause (a). There is, therefore, no question of following the judgment of the Madras High Court in Veerappa Chettiar's case [1973] 91 ITR 116 (Mad) as a matter of uniformity as an authority in support of the second and the alternative proposition propounded by Mr. Dastoor.
S.K Desai, J.:— I agree and have nothing to add.
16. By the Court— We answer the question referred to us in the negative and in favour of the assessee. The Commissioner must pay the assessee's costs of the reference.