Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF INCOME-TAX, BOMBAY V.
Vs.
RESPONDENT:
RANCHHODDAS KARSONDAS, BOMBAY
DATE OF JUDGMENT:
08/05/1959
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
DAS, SUDHI RANJAN (CJ)
BHAGWATI, NATWARLAL H.
CITATION:
1959 AIR 1154 1960 SCR (1) 114
ACT:
Income-tax-Return showing income below minimum taxable-
Whether a good return-Income-tax Officer ignoring such
return and issuing notice to assessee to file return--
Assessment made within one year of notice but beyond four
years of the end of the assessment year--Validity of-Indian
Income-tax Act, 1922 (XI of 1922), SS. 22 and 34.
HEADNOTE:
A public notice under S. 22(1) of the Income-tax Act, 1922
was published on May 1, 1045, requiring every person whose
total income exceeded the maximum amount which was not
chargeable to income-tax to file returns for the assessment
year 1945-46. On January 5, 1950, the assessee submitted a
voluntary return showing an income of Rs. 1,935 for the
assessment year 1945-46 and added a footnote to the return
that his wife had sold her old ornaments and deposited a sum
of Rs. 59,026 with the Assar Syndicate in which he was a
partner. The Income-tax Officer, who had discovered these
credits while examining the accounts of the Assar Syndicate,
ignored the voluntary return, and, on February 27, 1950,
issued a notice under s. 34(1) of the Act calling upon the
assessee to submit his return. On March 14, 1950, the
assessee submitted an identical return. The Income-tax
Officer made the assessment on February 26, 1951, and
included the sum of Rs. 59,026 in the total income of the
assessee. The assessee contended that the assessment was
invalid as it was completed more than four years after the
end of the assessment year in violation Of s. 34(1)(b). The
appellant contended that the voluntary return was no return
as it did not disclose any taxable income and the assessment
was valid under the proviso to s. 34(3) Of the Act, having
been made within one year of the notice issued under s.
34(1).
Held, that the assessment was invalid. The voluntary return
filed by the assessee, even though it did riot disclose any
taxable income, was a good return and could not be ignored.
As such no question arose under s. 34(1) of income escaping
assessment and the Income-tax Officer was not justified in
issuing the notice under S. 34(1). The proviso to S. 34(3)
was applicable only when there was a Proper notice issued
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under S. 34(1) and the appellant could not take advantage of
the time allowed by this proviso. The assessment was
clearly made beyond four years of the end of the assessment
year 1945-46 and was time barred.
Harakchand Makanji & Co. v. Commissioner of Income-tax,
(1948) 16 I.T.R. 119 All India Groundnut Syndicate Ltd. v.
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Commissioner of Income-tax, (1953) 25 I.T.R. go and P. S.
Rama Iyer v. Commissioner of Income-tax, (1957) 33 I.T.R.
458, approved.
Commissioner of Agricultural Income-tax v. Sultan Ali
Gharami (1951) 20 I.T.R. 432; B. K. Das & Co. v.
Commissioner of Income-tax, (1956) 30 I.T.R. 439 and
Commissioner of Income-tax v. Govindlal Dutta (1957) 33 1
T.R. 630, disapproved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 281 of 1955.
Appeal from the judgment and order dated March 18, 1954, of
the Bombay High Court in Income-tax Reference No. 35 of
1953.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
R. J. Kolah and Ram Ditta Mal, for the respondent.
1959. May 8. The Judgment of the Court was delivered by
HIDAYATULLAH J.-This appeal on a certificate of fitness
granted by the High Court of Judicature at Bombay has been
filed by the Commissioner of Income-tax, Bombay against
Ranchhoddas Karsondas of Bombay (hereinafter referred to, as
the assessee) under s. 66A of the Indian Income-tax Act.
The facts leading tip to this appeal are as follows For the
assessment year 1945-46, a public notice under s. 22(1) of
the Income-tax Act (hereinafter called the Act) was issued,
requiring every person whose total income during the
previous year exceeded the maximum amount which was not
chargeable to income-tax to furnish, within such period not
being less than sixty days as might be specified in the
notice, a return of his income in the prescribed form and
verified in the prescribed manner. This notice was
published on or about May 1, 1945. The assessee did not
make a return of his income. The Income-tax Officer, while
examining the books of account of a partnership called the "
Assar Syndicate " of which the assessee was a partner, found
that in the account year corresponding to the assessment
year 1945-46, there were six cash credits aggregating to Rs.
59,026 in the name of the assessee’s wife. Before, however,
the Income-tax
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Officer could take any action, the assessee submitted a "
voluntary " return on January 5, 1950 of his income for the
accounting year 1944-45 (assessment year 1945-46) showing a
total net income of Rs. 1,935. He added a footnote to the
return to the following effect:
" My wife has sold her old ornaments and deposited the sum
of Rs. 59,026 in the firm of Assar Syndicate in which I am a
partner."
The Income-tax Officer did not act on this return, but on
February 27, 1950 he issued a notice purporting to be under
s. 34 of the Act calling upon the assessee to submit his
return. This notice was served on the assessee on March
3,1950, and in answer thereto, the assessee submitted a
similar return on March 14, 1950 showing the same income and
adding the same footnote. The Income-tax Officer then
issued and served upon the assessee notices under ss. 22(4)
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and 23(2) of the Act asking him to produce his books of
account and to tender any evidence he cared to lead. It
appears from the record that these notices were complied
with, but on February 26, 1951 the Income-tax Officer
included the sum of Rs. 59,026 in the total income of the
assessee and assessed him on it for the assessment year
1945-46.
The assessee appealed, in turn, to the Appellate Assistant
Commissioner and the Income-tax Appellate Tribunal. His
contentions were three, viz., that the amount of Rs. 59,026
could not and should not have been included in his income,
that the amended S. 34 of the Act had no retrospective
effect, and that the assessment completed on February 26,
1951 was invalid, inasmuch as it was completed four years
after. the end of the relevant assessment year. Both the
Appellate Assistant Commissioner as well as the Tribunal
rejected his contentions, but the Tribunal on being moved by
him, raised and referred two questions of law under s. 66(1)
of the Act to the High Court of Judicature, Bombay, for its
decision. These questions were:
" (1) Whether the notice issued under Section 34 of the Act
by the Income-tax Officer on 27-2-1950,
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after the assessee had filed a voluntary return was valid in
law?
(2) Whether the assessment made on 26-2-1951 is valid in
law?
This reference was heard by the High Court on March 18,
1954, and by a judgment delivered on the same day, Chagla,
C.J., and Tendolkar, J., answered’ both the questions in the
negative. Before the High Court, it was again contended by
the assessee that since he had submitted a return under s.
22(3) of the Act on January 5, 1950, the assessment, if any,
had to be completed before March 31, 1950, as required by s.
34(3) of the Act. He also contended that he was entitled
under s. 22(3) to make a " voluntary " return on the date he
did, and with a voluntary return before the Income-tax
Officer, there was no scope for the issuance of a notice
under s. 34. The High Court upheld the contentions of the
assessee, and gave its opinion that the Department ought to
have issued a notice under s. 22(2) within the assessment
year, and if no return was made within the time fixed by the
notice, the Department should have proceeded under s. 23(4)
to a ’best judgment’-assessment. The other alternative for
the Department was to issue a notice under s. 34 of the Act,
if the period for sending a notice under s. 22(2) had
expired. But it could not issue a notice under s. 34 after
a return was already made before it, and the benefit of the
extended period of limitation for assessment available under
the first proviso to sub-s. (3) of s. 34 of one year from
the service of the notice under sub-s. (1) of that section
was not available in this case. The High Court granted a
certificate of fitness, and hence this appeal.
The arguments which were urged before the High Court were
all raised in this Court by the parties. The case of the
Department was supplemented by an argument that, inasmuch as
the assessee had suppressed his income or given incorrect
particulars thereof, the period during which action under s.
34 could be taken was the extended one of 8 years.
In the arguments before us, our attention was drawn to a
cleavage of opinion between the Bombay High
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Court on the one hand and the Calcutta High Court on the
other. While the Bombay High Court seems to be of the view
that a " voluntary " return showing a nontaxable income is
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still a good return for all purposes under the Act, the
Calcutta High Court is of the view that what s. 22(1) of the
Act requires is a return of taxable income and not a return
of income, which shows a loss or is below the taxable limit.
It appears that at one time the Calcutta High Court also
entertained the view that such a return was no return at
all, but it was explained later that this meant that the
return was ineffective for the purposes of s. 22(1) of the
Act, though it might be a " return " being in the prescribed
form. The Bombay High Court also entertains the view that
the assessment proceedings commence with the issue of a
public notice, and that s. 34 of the Act cannot apply, where
in answer to the public notice a return is made whether of
taxable income or not. The view of the Calcutta High Court
is that assessment proceedings commence either with a notice
under s. 22(2) of the Act or with the filing of a return
showing taxable income.
We are not here concerned with the quantum but only with the
legality of the assessment. The side issue whether, in
point of fact, the cash credits in the name of the wife,
represented the income (if the husband does not survive for
decision. Thus, the only question is whether the notice
issued under s. 34 of the Act on February 27, 1950 (after
the assessee filed his " voluntary " return on January 5,
1950) and the assessment thereon, were valid in law.
Section 34(3) of the Act provides that no assessment except
the assessment within el. (a) of sub-s. (1) thereof or
under s. 23 to which el. (c) of sub-s. (1) of s. 28
applies, shall be made after the expiry of four years from
the end of the year in which income, profits or gains were
first assessable. A proviso, however, allows one year from
the date of the service of the notice for the completion of
the assessment. It reads, omitting matters not relevant
here:
" ... where a notice under sub-section (1) has been issued
within the time therein limited, the assessment or
reassessment to be made in pursuance of such
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notice may be made before the expiry of one year from the
date of the service of the notice even if such period
exceeds the period of . . . four years . . . " It is,
therefore, quite clear that the extra period is available
only if a notice under sub-s. (1) of s. 34 has been issued
within the time therein limited. This takes us to s. 34(1).
Section 34(1), omitting parts not relevant, reads:
" (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 make a return of his income under section 22, for any
year...... I or
(b) notwithstanding that there has been no omission or
failure as mentioned in clause (a) on the part of the
assessee, 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) at any time within
eight years and in cases falliny under clause (b) at any
time within four years of the end of that year, serve on the
assessee. . . a notice . . . and may proceed to assess such
income. . . "
It would appear from this that if the return filed on
January 5, 1950, was a return of income, there was no
failure or omission on the part of the assessee, so as to
bring the matter within s. 34(1)(a) of the Act, and subs.
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(3) of s. 34 would then apply to the case limiting the
period to four years. In that event, the assessment should
have been completed on or before March 31, 1950. But if the
return made by the assessee was no return at all, then the
conditions under the first subsection of s. 34 obtained, and
the assessment could be completed within one year of the
date of service of the notice (March 3, 1950), i.e. on or
before March 2, 1951. In that event, the assessment would
be valid. The validity of the return in this context is
tied to the validity of the notice and also vice versa.
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Section 22 of the Act (omitting the parts not relevant) may
now be quoted:
" (1) The Income-tax Officer shall, on or before the 1st day
of May, in each year, give notice, by publication in the
press..., requiring every person whose total income during
the previous year exceeded the maximum amount which is not
chargeable to income-tax to furnish, within such period not
being less than sixty days... a return.... setting forth...
his total income and total world income during that year:
(2) In the case of any person whose total income is, in the
Income-tax Officer’s opinion, of such an amount as to render
such person liable to income-tax, the Income-tax Officer may
serve a notice upon him requiring him to furnish, within
such period, not being less than thirty days... a return ...
setting forth ... his total income and total world income
during the previous year:
(3) If any person has not furnished a return within the
time allowed by or under sub-section (1) or sub-section (2),
or having furnished a return under either of those sub-
sections, discovers any omission or wrong statement therein,
he may furnish a return or a revised return, as the case may
be at any time before the assessment is made."
It will be seen from this, that, as the Bombay High Court
correctly pointed out, there is a time limit provided in
sub-ss. (1) and (2) and the failure or omission occurs when
that period passes, but sub-s (3) allows a locus
poenitentiae before the assessment is actually made. There
is no dispute that a return could be filed in this case,
late though it was. The controversy centres round the fact
that the return, when it was filed, disclosed an income
which was below the maximum not chargeable to tax, and the
question is whether in such an event the Income-tax Officer
was precluded from issuing a notice under s. 34 of the Act.
There has been in the past a well-marked difference of
opinion between the Bombay and the Calcutta High
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Courts, the leading cases in Bombay being Harakchand Makanji
& Co. v. Commissioner of Income-tax (1), All India Groundnut
Syndicate Ltd. v. Commissioner of Income-tax(2) and the
decision under appeal here, while the Calcutta view is to be
found in Commissioner of Agricultural Income-tax v. Sultan
Ali Gharami (3), R. K. Das & Co. v. Commissioner of Income-
tax (4) and Commissioner of Income-tax v. Govindlal Dutta
(5). To these may be added P. S. Rama Iyer v. Commissioner
of Income-tax (6), in which the Madras High Court has
accepted the Bombay view.
No useful purpose will be served in discussing these cases
in detail. In some of them, the point need not have been
taken up for decision, though it was. We shall refer very
briefly to the two rival views and the grounds on which they
are rested, and in doing so, we begin with the Calcutta
decisions. In Sultan Ali Gharami’s case (3), a notice under
s. 24(1) of the Bengal Agricultural Income-tax Act
(corresponding to s. 22(1) of the Act) was issued. No
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return was filed. Three years later, a notice under s.
24(2) of that Act (corresponding to s. 22(2) of the Act) was
served, and a return showing an income below the taxable
minimum was filed. The contention was that without a notice
under s. 24(2) within the assessment year or a notice under
s. 38(1) (corresponding to s. 34 (1) of the Act) the best
judgment’ assessment was bad. The contention further was
that the return could be taken to be under s. 24(1) or s.
24(3). Chakravarti, J. (as he then was) and Das Gupta, J.,
held that a person who had no assessable income was not
placed under a duty to file a return, that the return
whether filed under s. 24(1) or s. 24(3) which had failed to
show an assessable income could not possibly be ’treated’ as
a return under s. 24(1) or even s. 24(3)when filed in answer
to a notice under s. 24(2). They further observed at p.
442:
" A return under section on 24(1) is a return filed by a
person who decides for himself that he had an assessable
income in the previous year and by filing
(1) (1948) 16 1. T. R. 119, (4) (1056) 30 I. T. R. 439
(2) (1954) 25 1. T. R. R (5) (1957) 33 1. T. R. 630
(3) (1951) 20 I. T R. 432(6) (1957) 32 I. T. R. 458
16
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the return he offers that income for assessment.. A person
who had no assessable income in the previous year is placed
under no duty by a notice under section 24(1) to furnish a
return and a person who thinks, rightly or wrongly, that he
had no assessable income will furnish none. A return under
section 24(1), whether filed within the time allowed under
the section or filed subsequently under the provisions of
section 24(3), will therefore show an assessable income... A
return which showed no assessable income, could not possibly
be ’treated’ as a return filed under section 24(1) or a
return called for under that section but filed under section
24(3), when in fact it was filed in response to a notice
under section 24(2)."
The opinion here expressed was criticised in the judgment
under appeal, and in the next case, R. K. Das & Co v.
Commissioner of Income-tax(1), the Calcutta High Court
(Chakravarti, C.J., and Sarkar, J.) explained what was
really meant. It is not necessary to refer to the facts of
that case. This is what Chakravarti, C.J., observed at p.
449:
" It should be remembered’, I observed ’that the return in
the present case is being sought to be treated as a return
under section 24(1), belatedly filed.’ And then I went on to
say that a return under section 24(1) would only be filed by
a person who thought that he had a taxable income and
therefore a return showing an income below the taxable limit
could not be held, on a construction thereof, to be a return
under section 24(1) and consequently the return in the case
we were then considering could not be treated as such a
return filed under section 24(3). To say that, was not to
say that even a return filed in, compliance with a notice
under section 22(2), if filed belatedly under section 22(3)
could not be a return showing an income below the taxable
limit."
This left the matter somewhat ambiguous as to what was
really meant, and in Commissioner of Income-tax v. Govindlal
Dutta(2),Chakravarti, C. J., and Guha, J.,
(1) (1956) 30 I.T.R. 439.
(2) (1957) 33 I.T.R. 630.
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again explained the true import of the law laid down. They
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referred to s. 22(1) of the Act as it stood prior to the
amendment of 1953, and observed that under that section a
person was required to file a return only if his total
income during the preceding year exceeded the maximum amount
which was not chargeable to tax. The return contemplated
was thus only a return of income and not a return of loss
and not even a return of income, but a return of taxable
income. Not only had a person no duty but he had even no
right to file a return voluntarily, if he had suffered a
loss, to ’report’ that loss. The learned Judges concluded
that it was a complete mistake to think that s. 22(3)
provided for the filing of a voluntary return showing loss,
at any time, before assessment. That section, they opined,
contemplated the filing of a return of taxable income, and a
return not showing such income was not a return at all in
law.
The Calcutta view, as shown above, really proceeds upon the
wording of s. 22(1). It lays down that the public notice
requires only persons having an income above the taxable
limit to make a return. A person who has no such income
need not make a return, and if he does make a return, it is
not a return which need be considered, being not a return in
law.
It is a little difficult to understand how the existence of
a return can be ignored, once it has been filed. A return
showing income below the taxable limit can be made even in
answer to a notice under s. 22(2). The notice under s.
22(1) requires in a general way what a notice under s. 22(2)
requires of an individual. If a return of income below the
taxable limit is a good return in answer to a notice under
s. 22(2), there is no reason to think that a return of a
similar kind in answer to a public notice is no return at
all. The conclusion does not follow from the words of s.
22(1). No doubt, under that sub-section only those persons
are required to make a return, whose income is above taxable
limits, but a person may legitimately consider himself
entitled to certain deductions and allowances, and yet file
a return to be on the safe side. He may show his income and
the
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deductions and allowances he claims. But it may be that on
a correct processing his income may be found to be above the
exempted limit. No doubt, it is futile for a person not
liable to tax to rush in with a return, but the return in
law is not a mere scrap of paper. It is a return, such as
the assessee considers, represents his true income.
We are unable (and we say this with due respect) to accept
the view adumbrated in the Calcutta cases. The contrary
view is expressed by the Bombay High Court in the earlier
case of Harakchand Makanji & Co. v. Commissioner of Income-
tax (1) and in the judgment under appeal. That view was
accepted by the Madras High Court in P. S. Rama Iyer v.
Commissioner of Income-tax (2) and also, in our opinion, is
the sounder view of the two. In the earlier of the two
Bombay cases, Chagla, C. J., and Tendolkar, J., held (as
stated in the head note):
" Notice under section 34 is only necessary if at the end of
the assessment year no return has been made by the assessee,
and the authorities wished to proceed under section 22(2),
but where the assessee himself chooses voluntarily to make a
return, no question can arise under section 34 of assessment
escaping, and therefore there is no necessity to serve any
notice under section 34."
This represents the law applicable to the facts as they are
to be found in this case. In the assessment year no return
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of income was filed, nor was any notice served under s.
22(2). There was, however, the general notice under s.
22(1). A return in answer to that notice could be filed
under s. 22(3) before assessment, and for this there is no
limit of time. It was filed on January 5, 1950. There was
nothing to prevent the Income-tax Officer from taking up the
return and proceeding to assess the income of the assessee.
It was open to him, if there was sufficient justification
for it, to hold that the amount noted in the footnote was
really the assessee’s income, in which case an assessable
income would have been found and the tax could be charged
thereon. If the Income-tax Officer had acted on that return
and assessed the assessee
(1) (1948) 16 I.T.R. 119.
(2) (1957) 321, T. R. 458.
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before March 31, 1950, the assessment would have been valid.
He chose to ignore the return, and served on the assessee a
notice under s. 34(1). This notice was improper, because
with the return already filed there was neither an omission
nor a failure on the part of the assessee, nor was there any
question of assessment ’escaping’. The notice under s.
34(1) was, therefore, invalid and the consequent assessment
equally so. We accordingly agree with the judgment under
appeal.
Before leaving this case, we may refer to two other
arguments, which were raised. Mr. Rajagopala Sastri pointed
out that an assessee might file the ’voluntary’ return on
the last day showing income less than the taxable limit, and
the Department would, in that case, be driven to complete
the assessment proceedings within a few hours or lose the
right to send a notice under s. 34(1). An argument ab
inconvenienti is not a decisive argument. The Income-tax
Officer could have avoided the result by issuing a notice
under s. 23(2) and not remaining inactive until the period
was about to expire. Further, all laws of limitation lead
to some inconvenience and hard cases. The remedy is for the
legislature to amend the law suitably. The Courts can
administer the laws as they find them, and they are seldom
required to be astute to defeat the law of limitation. This
argument is thus no answer to the clear meaning and
implications of the Act.
The other argument was that the return was not a true one,
and fell within the mischief of cl. (c) of sub-s.(1) of s.
28, and that, therefore, the period during which action
could be taken was the extended one of 8 years. The short
answer to that is that this was not a part of the
Department’s case at any prior stage, and cannot be allowed
to be raised now.
In our opinion, the answers given by the High Court of
Bombay were correct in all the circumstances of this case.
The appeal thus fails, and is dismissed with costs.
Appeal dismissed.
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