Full Judgment Text
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PETITIONER:
ICE & GENERAL MILLS
Vs.
RESPONDENT:
INCOME TAX OFFICER, CENTRAL CIRCLE II, MEERUT
DATE OF JUDGMENT20/11/1979
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
VENKATARAMIAH, E.S. (J)
CITATION:
1980 AIR 377 1980 SCR (2) 236
1980 SCC (1) 346
CITATOR INFO :
RF 1990 SC 334 (34)
ACT:
Escaped income-Reopening of assessment under section
147 of the 1961 Act not permissible when in respect of the
self-same escaped income, proceedings under section 34(1) of
the 1922 Act had been undertaken and were pending on April
1, 1962 i.e. the date of coming into force of the 1961 Act-
Income Tax Act, 1961, Section 297(2)(d) (ii) refers to
factual pending of a proceeding under section 34(1) of 1922
Act.
HEADNOTE:
The appellant-assessee is a firm carrying on business
of manufacturing ice and preservation of potatoes in its
cold storage. By an assessment order dated July 5, 1961 it
was assessed to income tax for the assessment year 1961-62
on a total income of Rs. 53,548/-. The Income Tax Officer,
in his proceedings started on December 21, 1961 under
section 34(1) of the 1922 Act, found certain property income
and income to the extent of one lakh from potato transaction
put through in the name of benami persons by the assessee
had escaped assessment and therefore, by his order dated
December 22, 1965 he brought them to tax. The said order of
the Income Tax Officer was annulled in appeal, on May 10,
1967 on the ground that the initiation of reassessment was
not justified. This order became final as the department did
not take further steps. On July 14, 1967 the Income Tax
Officer issued a notice under section 148 of the Income Tax
Act, 1961 in respect of the self same assessment year after
obtaining the sanction of the Commissioner of Income Tax.
Pursuant to the notice the appellant filed a return under
protest on August 14, 1967. The appellant challenged the
said notice by filing a writ petition in the Allahabad High
Court, inter alia on the ground that under section
297(2)(d)(ii) of the 1961 Act no reassessment proceedings
could be undertaken under section 147 of the 1961 Act
inasmuch as in respect of the self-same escaped income,
proceed ings under s. 34(1) of the 1922 Act had been
undertaken and were pending on April 1, 1962 when the 1961
Act came into force. The High Court rejected the contention
on the ground that in order that S. 297(2)(d)(ii) should
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apply, proceedings under section 34 of the 1922 Act must be
legal proceedings with jurisdiction.
Allowing the appeal by certificate, the Court
^
HELD : The factual pendency of the proceedings under
Section 34 of the 1922 Act on the relevant date, and not
their legality is material for purposes of S. 297(2)(d)(ii)
of the 1961 Act. [238 D-E]
In the instant case: (a) admittedly proceedings under
s. 34(1) of the 1922 Act in respect of the item of Rupees
one lakh (which was said to have escaped assessment) were
factually pending on April 1, 1962 and therefore, the notice
under s. 148 of the 1961 Act would be incompetent, and [239
C-D]
237
(b) The initiation of the proceedings under section 34
by the Income Tax Officer cannot be regarded as being
without jurisdiction and hence non est. The reassessment
order made by the Income Tax Officer on December 22, 1965
clearly shows that he had initiated the proceedings (in
respect of property income) under section 34(1) (b) i.e., in
consequence of information gathered by him from Assistant
Appellate Commissioner’s order for earlier year and not
under section 34(1)(a). [239 F-H]
S. B. Jain v. Mahendra, 83 I.T.R. 104 (SC) and Gujar
Mal Modi v. Commissioner of Income Tax, 84 I.T.R. 261;
applied.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2015 of
1972.
From the Judgment and Order dated 18-1-1971 of the
Allahabad High Court in Civil Misc. Writ Petition No.
4632/70.
S. T. Desai, B. R. Agrawala and P. C. Gokhale for the
Appellant.
V. S. Desai, Miss. A. Subhashini, J. Ramamurthy and
Miss R. Vaigai for the Respondent.
The Judgment of the Court was delivered by
TULZAPURKAR, J. The point raised in this appeal by
certificate seems to be covered by two decisions of this
Court in favour of the assessee and hence we propose to
dispose of the appeal by a short Judgment.
The appellant, a firm, carries on business of
manufacturing ice and preservation of potatoes in its cold
storage. It was assessed to income-tax for the assessment
year 1961-62 by an assessment order dated July 5, 1961 on a
total income of Rs. 53,548. In proceedings started on
December 21, 1961 under s. 34(1) of the Indian Income Tax
Act, 1922, the Income Tax Officer found certain property
income and income to the extent of one lakh from potato
transactions put through in the name of benami persons by
the assessee had escaped assessment and, therefore, by his
order dated December 22, 1965 he brought them to tax. The
said order of the Income Tax Officer was annulled by the
Appellate Assistant Commissioner in appeal on May 10, 1967
on the ground that the initiation of reassessment
proceedings was not justified. The Department allowed the
matter to rest there and the Assistant Appellate
Commissioner’s order became final. On July 14, 1967 the
Income Tax Officer issued a notice under s. 148 of the
Income-Tax Act, 1961 in respect of the self-same assessment
year after obtaining the sanction from the Commissioner of
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Income-Tax. Admittedly, while seeking sanction for reopening
the assessment under s. 147, the Income-Tax Officer in his
report categorically stated that
238
the assessee had concealed the income of Rs. 1,00,000 from
undisclosed source on account of benami storage of potatoes
in various names and the same had escaped assessment owing
to the failure on the part of the assessee to disclose his
income fully and truly. Pursuant to the notice the appellant
filed a return under protest on August 14, 1967. The
appellant challenged the notice by filing a writ petition in
the Allahabad High Court, inter alia, on the ground that no
reassessment proceedings could be undertaken under s. 147 of
the 1961 Act inasmuch as in respect of the self-same escaped
income proceedings under s. 34(1) of the 1922 Act had been
undertaken and were pending on April 1, 1962, when the 1961
Act came into force and in this behalf reliance was placed
on s. 297(2) (d) (ii) of the 1961 Act. The High Court
rejected the contention on the ground that in order that s.
297 (2) (d) (ii) should apply, the proceedings under s. 34
of the 1922 Act must be legal proceedings with jurisdiction
which was not the case here.
It is difficult to sustain this decision of the High
Court in view of two decisions of this Court in S. B. Jain
v. Mahendra(1) and Gujar Mal Modi v. C.I.T.(2) where it has
been held that s. 297 (2) (d) (ii) is concerned with the
factual pendency of proceedings under s. 34 of the 1922 Act
and not with their legality. It must in fairness be stated
that none of these decisions on the proper construction of
s. 297(2) (d) (ii) had been rendered by this Court when the
Allahabad High Court decided the matter.
In S. B. Jain v. Mahendra (supra) the Income-Tax
Officer had issued notice to the respondent-assessee on
January 5, 1962 under s. 34(1) (a) of the 1922 Act to reopen
his assessment for the assessment year 1946-47. The High
Court quashed the notice by its order dated March 6, 1963,
on the ground that the notice was barred by limitation. In
the meantime the 1961 Act came into force on April 1, 1962,
whereafter the Income Tax Officer again issued a notice on
March 26, 1963 under s. 148 of the 1961 Act. This Court held
that what s. 297(2)(d)(ii) of the 1961 Act, required was the
factual pendency of a proceeding under s. 34 of the repealed
Act, on April 1, 1962. The question whether that proceeding
was barred by limitation or not was irrelevant. Though the
earlier proceeding was quashed for the reason that notice on
which the proceeding was based was issued beyond time, it
could not be said that no proceeding under s. 34 of the 1922
Act was either factually or legally pending at the time when
the 1961 Act came into force and since the proceedings
initiated
239
under s. 34(1) (a) of the 1922 Act were pending at the time
when 1961 Act came into force, the Income-Tax Officer was
not competent to issue any fresh notice under s. 148 of the
1961 Act. In Gujar Mal Modi’s case (supra) the notice under
s. 34(1) (a) of the 1922 Act for reopening the assessment of
the deceased assessee was served only on one of the heirs of
the deceased assessee. The Assistant Appellate Commissioner
set aside the assessment made pursuant to that notice on the
ground that it was necessary to issue notices to all the
legal representatives of the deceased assessee. In the
meantime the 1961 Act came into force and, thereafter the
Income-Tax Officer issued notice under s. 148 of that Act to
all the heirs of the deceased assessee. This Court held that
since the proceedings under s. 34(1) (b) of the 1922 Act
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were pending on April 1, 1962, the second notice was
incompetent. In other words in both the cases this Court
laid emphasis on the factual pendency of the proceedings
under s. 34 on the relevant date, and not their legality as
being material for purposes of s. 297(2)(d) (ii) of the 1961
Act. In the case before us admittedly proceedings under s.
34(1) of the 1922 Act in respect of the item of Rs. 1,00,000
(which was said to have escaped assessment) were factually
pending on April 1, 1962 and, therefore, the notice under s.
148 of the 1961 Act would be incompetent.
An attempt was made by counsel for the Revenue to
distinguish the aforesaid decisions on the ground that in
the instant case the earlier proceedings under s. 34 of the
1922 Act being without jurisdiction, must be regarded as non
est inasmuch as the Assistant Appellate Commissioner had
annulled the revised assessment made by the Income-tax
Officer on the ground that the initiation of the proceedings
(which was in respect of property income that had escaped
assessment) was not justified inasmuch as it was not a case
of omission or failure on the part of the assessee to
furnish full particulars of the property income. The
submission, in our view, is factually incorrect. The
reassessment order made by the Income Tax Officer on
December 22, 1965 clearly shows that he had initiated the
proceedings (in respect of property income) under s. 34(1)
(b) i.e. in consequence of information gathered by him from
Assistant Appellate Commissioner’s order for an earlier year
and not under s. 34(1) (a) on account of any omission or
failure on the part of the assessee to make a full
disclosure and during the proceedings so initiated he came
across the item of Rs. 1,00,000 being the income from
undisclosed source which he held had been concealed and was
liable to be included under s. 34(1) (a). Therefore, the
initiation of the proceedings under s. 34 by the Income Tax
Officer cannot be regarded as being without jurisdiction and
hence
240
non est. As stated earlier the Department allowed the
Assistant Appellate Commissioner’s order whereby the
reassessment order was quashed to become final. Instead of
challenging that order a fresh notice under s. 148 of the
1922 Act was issued, which, in our view, the Income-tax
Officer was not entitled to do in view of the fact that
proceedings under s. 34 of the 1922 Act were factually
pending on April 1, 1962 when the new Act came into force.
In the result the order passed by the High Court is set
aside and the impugned notice under s. 148 of the 1961 Act
is quashed. It is obvious, that if any orders are passed
pursuant to the impugned notice, those will be of no avail
to the Revenue. The appeal is allowed but in the
circumstances there will be no order as to costs.
S.R. Appeal allowed.
241