(a) Income Tax Act (XI of 1922)---

----S.3C & Sched. Fifth ---C.B.R. Circular No.63(211)-IT-IV/76, dated 14th July, 1976---Introduction of S.3C and Fifth Schedule of Act, 1922---Object and scope---Scheme and machinery of the provisions stated.

The object behind introduction of S3 and Fifth Schedule to the Income Tax Act, 1922 was to bring into tax net the income which had earlier remained undisclosed to the Income Tax Officer. The intention also appears to be to provide for a separate procedure governing cases falling under section 3C in order to lend an assurance to the assessee that he would not be dealt with under the ordinary provisions of Income-tax Act. A perusal of the Fifth Schedule shows that instead of itself providing for a comprehensive procedure for the Income-tax Officer to deal with cases falling under section 3C, it empowered the Central Board of Revenue to make rules or to issue orders, instructions or directions as it had considered necessary to give effect to the provisions of the said Schedule and other concerned matters - connected therewith for which no provision existed in the said schedule. The Circular No.63(211)-IT-IV/76 issued by the Board of Revenue under the Fifth Schedule shows that it did not authorise the Income-tax Officer to make additions to the returned income out of the expenditure claimed in the trading and profit and loss account beyond what may be found inadmissible under the law. However, clause 5 of the Fifth Schedule to the Act postulates a situation where the assessee might have failed to fully or truly disclose his income but in such an eventuality, the assessee could only be liable for punishment as provided in the said Schedule. This was made further clear by clause 17 of the said circular issued by the Central Board of Revenue. Both clause 5 of the Fifth Schedule as well as clause 17 of the said circular left no discretion to the Court in case an assessee was found guilty of failure to fully and truly disclose his income as the same besides being punishable with imprisonment was also made punishable with fine which would in any case be equal to the undisclosed income itself for which no declaration was made. This makes it abundantly clear that aforesaid provisions did not only provide for punishment by imprisonment of the assessee but also recovery, in the shape of fine, of all such income, profit and gains earned by the assessee which had not been fully disclosed by him. The legislature, therefore, could not have intended to apply the ordinary provisions of the Income-tax Act since after providing for a complete framework in the Fifth Schedule it authorised the Central Board of Revenue to issue further orders and directions in this regard to provide for a complete machinery to deal with cases falling under section 3C.

(b) Income Tax Act (XI of 1922)---

----S.3C & Fifth Sched.---CBR Circular No.63(211)-IT-IV/76, dated 14th July 1976---Separate comprehensive machinery had been provided for, under the Fifth Schedule and the Circular---Held, Income Tax Commissioner was not empowered to invoke any other provisions of the Ad, 1922 outside the Fifth Schedule or Circular No. 63 of 1976 for dealing with cases falling under S.3C.

Waheed Farooqui for Petitioner.

Iqbal Naeem Pasha for Respondent.

Date of hearing: 20th January, 1992.

JUDGMENT

MAMOON KAZI, J.---These income-tax references are being disposed of by this common judgment as identical question of law has been raised in all of them.

The respondent in ITR No.22 of 1985 is a public limited company. It filed a return of income for the year in question. Subsequently, it filed a declaration in respect of its undisclosed income under section 3C of the Income Tax Act, 1922, read with Fifth Schedule thereto. The Income-tax Officer, who dealt with the case, was of the opinion that the respondent had failed to make a true declaration and, therefore, instead of accepting the declaration of undisclosed income made by the respondent, it proceeded to finalize the assessment under the normal provisions of the repealed Income Tax Act. The respondent then filed appeal before the learned Appellate Assistant Commissioner which was allowed and the order of the Income Tax Officer was set aside. The Department then appealed before the learned Income-tax Appellate Tribunal which while following its earlier decisions in I.T.Rs. No.282 (KB) and 297 (KB) of 1977-78, reported in (1979) 39 Tax 35 (Trib), upheld the order of the learned Assistant Commissioner, holding that "if the Income-tax Officer had reason to believe that the assessee had in fact, not declared the correct and full amount of undisclosed income for the year under appeal, then it was open to him to have collected relevant material and instituted criminal proceeding against the assessee-respondent as laid down in the relevant provisions of law and got him punished."

2. The Department was, however, aggrieved and consequently the following question has been referred to this Court for determination: ---

"Whether, in the facts and circumstances of the case, the Appellate Tribunal was justified in holding that consequent to the filing of declaration of undisclosed income under section 3C of the repealed Income Tax Act, 1922, read with Fifth Schedule of the Act the framing of best judgment assessment under section 23(4) was improper, illegal and contrary to the provisions of law and the specific directions given by the Central Board of Revenue to the assessing thereof?"

3. So far as I.T.Rs. No.45 to 50 are concerned, a declaration filed by the respondents therein under section 3C of the repealed Income-tax Act was reopened by the Income-tax Officer under section 34 of the said Act after discovery of new facts which were not made known to the department by the said respondents at the time of acceptance of their respective declarations. The appeals respectively filed by the respondents were, however, allowed and the orders respectively passed by the Income-tax Officer in each case were set aside. The appeals filed by the department before the learned Income Tax Appellate Tribunal were also dismissed. However, when the department moved the learned Tribunal for reference of the question arising from the respective appellate orders of the learned Tribunal to this Court, the Tribunal held that the appeals filed by the department were time-barred as the same had been filed beyond the period of limitation prescribed by section 66(1) of repealed Income-Tax Act. Consequently, besides the main question referred to above the following additional question has been referred to this Court by the Department;

"Whether on the facts and circumstances of the case; the Tribunal was justified in holding that the application of the applicant was barred by time?.

4. It is pertinent to point out that at the time of hearing of these references the question in regard to limitation was not pressed before us. Therefore, it is not necessary for us to enter into any further discussion upon the said question and we proceed to decide the main question that has been referred to, us either by the learned Tribunal or by the Department.

5. So far as the main question is concerned, it is necessary to first refer to section 3C which was introduced in the repealed income-tax Act by the Finance Act, 1976. The said section provides as follows: ---

"3C. Charge of income-tax on undiclosed income.---Subject to the provisions of the Fifth Schedule, every person shall pay income-tax, in respect of the undisclosed income, referred to in the raid Schedule, at the rate of thirty per cent. of such income."

The expression "undisclosed income" was defined by clause (1) in the Fifth Schedule appended to the said Act to mean as "all income, profits and gains of any previous year or years ending before the first day of July, 1975 which were chargeable to tax but were not so charged". Clause 7 of the said Schedule empowered the Central Board of Revenue to make such rules, or issue such orders, instructions or directions as it may consider necessary to give effect to the provisions of the said Schedule or concerned matters connected therewith for which no provisions or no sufficient provisions existed in the said Schedule. The Central Board of Revenue, in pursuance of the said clause, issued circular No.63(211)-IT-IV/76, dated the 14th July, 1976, embodying instructions regarding declaration referred to in section 3C and the Fifth Schedule to the said Income-tax Act. Clause 3 of the said circular, shows that "where a person has been assessed to Income-tax in respect of the year for which he makes declaration of undisclosed income the income chargeable for that year was to be the `income' assessed ply the undisclosed income and the income charged would be the income assessed. Clause (4) of the circular provides that: "Where an assessee had filed a return of income for any year" but assessments have not been made, the income chargeable for that year would be the income returned plus the undisclosed income declared for that year. Income charged for that year would be the income returned under section 22 or 34 of the Act". Clause 19 of the said circular, further provides as follow, ---

"19. Disposal of pending income tax and sales tax assessments.---Where assessment of any year for which declaration has been made is pending, the Income Tax Officer will finalise the assessment on the basis of the returns. He may, however, make such additions to the returned income out of the expenditure claimed in the trading and profit and loss account as may be inadmissible under the law or of income claimed to be exempt under the law and which the Income Tax Officer holds to be taxable."

Reference may also be made to clause 5 in the Fifth Schedule to the Act which provides for punishment of a person who fails to declare his undisclosed income fully and truly, by a special Judge under section 54A of the repealed Income Tax Act, and according to the said clause, such person would be liable for imprisonment for a term which may extend to five years and with fine. The said clause provides as follows: ---

"5. Prosecution.---Any person who fails to declare his undisclosed income, or has not declared his undisclosed income fully and truly, shall, on conviction by a Special Judge under section 54A, be punishable with imprisonment for a term which may extend to five years and also with fine which shall be equal to the income, profits and gains not disclosed."

6. The main contention on behalf of the department before the .learned Tribunal was that no restrictions had been imposed upon the power of the Income-tax Officer to invoke any of the relevant provisions of the repealed Income-tax Act in case of failure of an assessee to declare his undisclosed income fully and truly. However, in each case, the contention was, repelled.

7. We would like to point out that as is clearly evident from the provisions of section 3C of the repealed Income-tax Act and the Fifth Schedule thereto, the object behind introduction of the said provisions was to bring into tax net the income which had earlier remained undisclosed to the Income Tax Officer. The intention also appears to be to provide for a separate procedure governing cases falling under section 3C in order to lend an assurance to the assessee that he would not be dealt with under the ordinary provisions of Income-tax Act. A perusal of the Fifth Schedule shows that instead of itself providing for a comprehensive procedure for the Income-tax Officer to deal with cases falling under section 3C, it empowered the Central Board of Revenue to make rules or to issue orders, instructions or directions as it had considered necessary to give effect to the provisions of the said Schedule and other concerned matters connected therewith for which no provision existed in the said Schedule. The Circular issued by the Board of Revenue under the Fifth Schedule shows that it did not authorise the Income-tax Officer to make additions to the returned income out of the expenditure claimed in the trading and profit and loss account beyond what may be found inadmissible under the law. However, clause 5 of the Fifth Schedule to the Act postulates a situation where the assessee might have failed to fully or truly disclose his income but in such an eventuality, the assessee could only be liable for punishment as provided in the said Schedule. This was made further clear by clause 17 of the said Circular issued by the Central Board of Revenue. Both clause 5 of the Fifth Schedule as well as clause 17 of the said Circular left no discretion to the Court in case an assessee was found guilty of failure to fully and truly disclose his income as the same besides being punishable with imprisonment was also made punishable with fine which would in any case be equal to the undisclosed income itself for which no declaration was made. This makes it abundantly clear that aforesaid provisions did not only provide for punishment by imprisonment of the assessee but also recovery, in the shape of fine, of all such income, profits and gains earned by the assessee which had not been fully disclosed by him. The legislature, therefore, could not have intended to apply the ordinary provisions of the Income-tax Act since after providing for a complete framework in the Fifth Schedule it authorised the Central Board of Revenue to issue further orders and directions in this regard to provide for a complete machinery to deal with cases falling under section 3C.

8. We, therefore, have no doubt that a separate comprehensive machinery was provided for, both under the Fifth Schedule and the Circular issued by the Central Board of Revenue in this behalf and the I.T.C. was not empowered to invoke any other provisions of the Income-tax Act outside the Fifth Schedule or the said Circular for dealing with cases falling under section 3C.

9. We, therefore, answer the question in the affirmative.

M.A.K./C-282/K???????? ?????????????????????????????????????????????? Question answered in affirmative.