Full Judgment Text
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PETITIONER:
ESTHURI ASWATHIAH
Vs.
RESPONDENT:
THE INCOME-TAX OFFICER, MYSORE STATE
DATE OF JUDGMENT:
05/12/1960
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
KAPUR, J.L.
HIDAYATULLAH, M.
CITATION:
1961 AIR 1149 1961 SCR (2) 911
CITATOR INFO :
RF 1967 SC 916 (8)
ACT:
Income Tax--Reassessment--Notice issued by Income--tax Offi-
cer--if without jurisdiction--Indian Income-tax Act, 1922
(11 of 1922), ss. 34(1)(a), 23(1), 22(3)--Finance Act, 1950
(XXV of 1950), S. 13(1)--Part--B States (Taxation
Concessions) Order, 1950, cl. 5(1).
HEADNOTE:
The appellants, a Hindu undivided family, carrying on
business in the former State of Mysore, were assessed under
the Mysore Income-tax Act for the year of assessment 1949-50
corresponding to the year of account July 1, 1948, to June
30, 1949. The Indian Income-tax Act came into force in that
area in April 1, 1950, and on December 26, 1950, notice
under s. 22(2) of that Act was served upon the appellants to
submit their return for the assessment year 1950-51. On
September 8, 1952, the appellants submitted their return
stating that they had no assessable income for that year.
The Income Tax Officer passed on that return an order, "no
proceeding", and closed the assessment. When the appellants
submitted their return for the next assessment year, their
books of account disclosed an opening cash credit balance of
Rs. 1,87,000 and odd on July 1. 1949. They failed to
produce the books of account of the previous years, and the
Income-tax Officer held that Rs. 1,37,000 out of the said
opening balance represented income from an undisclosed
source. The appellants submitted a fresh return for the
assessment year 1950-51 purporting to do so under s. 22(3)
of the Indian Incometax Act. Pursuant to the direction of
the Appellate Assistant Commissioner, the Income Tax Officer
on October 15, 1957, served on the appellants a notice under
s. 34 of the Act and thereupon the appellants moved the High
Court under Art. 226 for an order quashing the said notice
and the proceeding as without jurisdiction. The High Court
dismissed the petition.
Held, that it was not correct to say that the issue of the
notice for reassessment was without jurisdiction as the
assessment was yet pending.
Under S. 23(1) of the Indian Income-tax Act, it is open to
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the Income-tax Officer, if he is satisfied as to correctness
of the return filed by the assessee, to assess the income
and determine the sum payable on the basis of the return
without requiring the assessee either to be present or to
Produce evidence. The order ’no proceeding recorded on the.
return must, therefore, mean that the Income Tax Officer bad
accepted the previous return and assessed the income as nil.
A revised return under s. 22(3) filed by the assessee may be
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entertained only before the order of assessment and not
thereafter. Lodging of such a return after the assessment
is no bar to reassessment under s. 34(1) of the Act.
It could not be said, having regard to the provisions of s.
13(1) of the Finance Act (XXV of 1950) and cl. 5(1) of Part.
B States (Taxation Concessions) Order 1950, issued by the
Central Government under s. 60A of the Indian Income-tax
Act, that for the assessment year 1950-51 the appellants
were assessable under the Mysore Income-tax Act and not
under the Indian Income-tax Act.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 200 of 1960.
Appeal from the Judgment and Order dated the 19th March,
1959, of the Mysore High Court, Bangalore, in Writ Petition
No. 263 of 1957.
K.Srinivasan and R. Gopalakrishnan, for the appellant.
A. N. Kirpal and D. Gupta, for the respondent.
1960. December 5. The Judgment of the Court was delivered
by
SHAH, J.-This appeal with certificate of fitness granted by
the High Court of Judicature of Mysore is from an order
rejecting the petition of the appellant for a writ to quash
a notice of reassessment under s. 34 of the Indian Income
Tax Act.
The appellants are a Hindu Undivided Family carrying on
business in groundnuts and other commodities at Goribidnur,
Kolar District, in the territory which formed part of the
former State of Mysore. The Mysore Income Tax Act was
repealed and the Indian’ Income Tax Act was brought into
force in the Part-B State of Mysore as from April 1, 1950.
The appellants had adopted as their year of; account July 1
to June 30 of the succeeding year and they were assessed
under the Mysore Income Tax Act on that footing for the year
of assessment 1949-50 corresponding to the year of account
July 1, 1948,to June 30, 1949. After the Indian Income Tax
Act was applied to the State of Mysore on December 26, 1950,
notice under s. 22(2) of the Indian Income Tax Act was
served upon the appellants requiring them to submit their
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return of income for the assessment year 1950-51. On
September 8, 1952, the appellants submitted their return
stating that for the year ending June 30, 1949,
corresponding to the assessment year 1949-50, they were
assessed under the Mysore Income Tax Act, that their income
for the year ending June 30, 1950, was assessable under the
Indian Income Tax Act in the assessment year 1951-52 and
that they had no assessable income for the assessment year
1950-51. The Income Tax Officer passed on that return an
order "no proceeding" and closed the assessment. For the
assessment year 1951-52, the appellants submitted their
return of income. In the books of account produced by the
appellants an opening cash credit balance of Rs. 1,87,000
odd on July 1, 1949, was disclosed. The Income Tax Officer
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called upon the appellants to produce their books of account
of previous years, but the books were not produced on the
plea that the same were lost. In assessing the income of
the appellants for the year of account 1949-50, the Income
Tax Officer held that Rs. 1,37,000 out of the opening
balance in the books of account dated July 1, 1949,
represented income from an undisclosed source. In appeal,
the Appellate Assistant Commissioner observed that the
appellants not having exercised their option under s. 2(ii)
of the Indian Income Tax Act, and in the absence "of any
system of accounting adopted" by them, the only course open
to the Income Tax Officer was to take the financial year
ending March 31, 1950, as the previous year for the income
from an undisclosed source, and directed the Income Tax
Officer to consider this credit in the assessment for the
year 1950-51 after giving opportunity to the appellants to
explain the nature and source thereof. Before the appeal
was disposed of by the Appellate Assistant Commissioner, the
appellants had submitted a fresh return for the assessment
year 195051 purporting to do so under s. 22(3) of the Indian
Income Tax Act. Pursuant to the direction of the Appellate
Assistant Commissioner, the Income Tax Officer issued a
notice of reassessment under s. 34 of the Income Tax Act and
served it on October 15, 1957,
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calling upon the appellants to submit a fresh return. The
appellants thereupon submitted a petition under Art. 226 of
the Constitution to the High Court of Mysore praying for an
order declaring that the notice under s. 34 was without
jurisdiction and for quashing the notice and proceeding
consequent thereon. This petition was dismissed by the High
Court, but the High Court, on the application of the
appellants, certified that the appeal was a fit one for
appeal to this court.
Section 34(1) of the Indian Income Tax Act at the relevant
time in so far as it is material provided:
"(1) If-
(a)..the Income Tax Officer has reason to believe that by
reason of the omission or failure on the part of the
assessee to make a return of his income under s. 22 for any
year or to disclose fully and truly all material facts
necessary for his assessment for that year, income, profits
or gains chargeable to incometax have escaped assessment for
that year, 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 el.
(a) at any time within eight years and in cases falling cl.
(b) within four years of the end of that year, serve on the
assessee a notice containing all or any of the requirements
which may be included in a notice under sub-s. (2) of s. 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."
In the course of the assessment proceedings for 1951-52, the
appellants produced their books of account containing an
entry dated July 1, 1949, showing an opening cash balance of
Rs. 1,87,000 odd which was not satisfactorily explained.
Though called upon, they did not produce their books of
account for the earlier year. The appellants had failed to
disclose in their return for the assessment year 1950-51 any
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income. In the circumstances, the Income Tax Officer had
reason to believe that by reason of failure on the part of
the appellants to disclose fully and truly all’ material
facts necessary for assessment for that year, income
chargeable to tax had escaped assessment. The Income Tax
Officer had therefore jurisdiction to issue the notice for
reassessment.
The submission that the previous return submitted on
September 8, 1952, "had not been disposed of" and until the
assessment pursuant to that return was made, no notice under
s. 34(1) for reassessment could be issued, has in our
judgment no substance. The Income Tax Officer had disposed
of the assessment proceeding accepting the submission made
by the appellants that they had no income for the assessment
year 1950-51. Under s. 23(1) of the Indian Income Tax Act,
it is open to the Income Tax Officer, if he is satisfied
that the return made by an assessee under s. 22 is correct,
to assess the income and to determine the sum payable by the
assessee on the basis of the return without requiring the
presence of the assessee or production by him of any
evidence. The appellants had in their return dated
September 8, 1952, submitted that they had no assessable
income for the year in question and on this return, the
Income Tax Officer had passed the order "no, proceeding".
Such an order in the circumstances of the case meant that
the Income Tax Officer accepted the return and assessed the
income as "nil". If thereafter, the Income Tax Officer had
reason to believe that the appellants had failed to disclose
fully and truly all material facts necessary for assessment
for that year, it was open to him to issue a notice for
reassessment.
Under s. 22, sub-s. (3), an assessee may submit a revised
return if after he has furnished the return under sub-s. (2)
he discovers any omission or wrong statement therein. But
such a revised return can only be filed "at any time before
the assessment is made" and not thereafter. The return
dated February 26, 1957, was submitted after the assessment
was made pursuant to the earlier return and it could not be
entertained. Nor could the lodging of such a return
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debar the Income Tax Officer from commencing a proceeding
for reassessment of the appellant under s. 34(1) of the
Indian Income Tax Act.
There is also no substance in the contention that for the
assessment year 1950-51 the assessee could be assessed under
the Mysore Income Tax Act and not under the Indian Income
Tax Act. By the Finance Act XXV of 1950 s. 13, cl. (1), it
was provided in so far as it is material that:
"If immediately before the 1st day of April, 1950, there is
in force in any Part-B State...... any law relating to
income-tax or super-tax or tax on profits of business, that
law shall cease to have effect except for the purposes of
the levy, assessment and collection of income-tax and super-
tax in respect of any period not included in the previous
year for the purposes of assessment under the Indian Income
Tax Act, 1922 (XI of 1922), for the year ending on the 31st
day of March, 1951, or for any subsequent year."
By virtue of s. 13(1), the Mysore Income Tax Act ceased to
be in operation as from April 1, 1950, except for the
purposes of levy, assessment and collection of income-tax
and super tax in respect of any period which was not
included in the previous year for the purposes of assessment
under the Indian Income Tax Act for the assessment year
1950-51. The appellants had been assessed for the period
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July 1, 1948, to June 30, 1949, under the Mysore Income Tax
Act. It is manifest that for any account year which was the
previous year in relation to the assessment year 195051, the
appellants were liable to be assessed under the Indian
Income Tax Act and not under the repealed Act. The year of
account July 1, 1949, to June 30, 1950, was not a period
prior to such previous year and therefore liability to pay
tax in respect of that period could be assessed not under
the Mysore Income Tax Act, but under the Indian Income Tax
Act. It was urged that this interpretation of s. 13 may,
when the account year of an assessee does not coincide with
the financial year lead to double taxation of the income for
the account year ending between April 1, 1949,
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and March 31, 1950. But in order to avoid the contingency
envisaged by the appellants, the Central Government has, in
exercise of its power under s. 60A of the Indian Income Tax
Act, issued the Part-B States (Taxation Concessions) Order,
1950, which by cl. 5(1) provides amongst other things, that
the income, profits and gains of any previous year ending
after the 31st day of March, 1949, which is a previous year
for the State assessment year 1949-50 shall be assessed
under the Act (Indian Income Tax Act, 1922) for the year
ending on the 31st March, 1951, if and only if such income,
profits and gains have not, before the appointed day, been
assessed under the State law. If, in respect of the
previous year for the purposes of the assessment year ending
31st March, 1951, the appellants had been assessed by any
State Government under a law relating to income-tax in force
in the State, the Indian Income Tax authorities would be in-
competent to assess income for that year; but in default of
such assessment income of the appellants for that year was
assessable under the Indian Income Tax Act.
The notice under s. 34 was also not issued after the expiry
of the period prescribed in that behalf. The notice was
issued by the Income Tax Officer because he had reason to
believe that by reason of failure on the part of the
appellants to disclose fully and truly all material facts
necessary for the assessment for the the year 1950-51,
income had escaped assessment. Such a notice fell
manifestly within s. 34(1)(a) and could be issued within
eight years, from the end of the year of assessment. The
impugned notice under s. 34 for reassessment of the income
of the appellants for the year 1950-51 was, in our judgment,
properly issued and the High Court was right in dismissing
the petition for a writ to quash the notice.
The appeal fails and is dismissed with costs.
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