Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, BANGALORE
Vs.
RESPONDENT:
C. M. JAFFAR KHAN (DECEASED) REPRESENTED BY HISWIDOW RAHAM
DATE OF JUDGMENT24/09/1971
BENCH:
ACT:
Mysore Income-tax Act 1923, s. 48-Refund granted by Income-
tax Officer under section is an ’assessment’-Income profits
and gains for previous year ending 31st March 1949 assessed
under Mysore Act not liable to be assessed under Indian
Income-tax Act 1922 by virtue of Part, B States, (Taxation
Concession) Order 1950, Paragraph 5(1)-Section 34 of Indian
Act has no applicability to income covered by said
paragraph-- Words ’such income profits and gains’ in
paragraph, interpretation of.
HEADNOTE:
The assessee was a partner in a registered firm. The firm
filed its income-tax return for the period ending 30-6-1949
under the Mysore Income-tax Act 1923 and an assessment was
made thereunder. On 15-3-1950 the assessee filed his return
in respect of his individual income including his share of
income from the aforesaid firm for the accounting year
ending 30-6-1949. This return was also made under the
Mysore Act. By an order dated 20-3-1950 the Income-tax
Officer directed a refund of Rs. 641-3-0 to the assessee due
to the difference in the rate of tax applicable to him and
the maximum rate. In the course of proceedings for the
assessment years 1951-52 and 1952-53 the Income-tax Officer
was of the opinion that the assessee’s income had escaped
assessment in the accounting year ending 30-6-1949 and he
therefore issued a notice to him under s. 34 of the Act.
The assessee objected to the reopening of the assessment on
the ground that he had already been assessed for the said
period under the Mysore Act and that according to paragraph
5(1) of the Part B States (Taxation Concession) Order 1950
an assessment under the Indian Income-tax Act 1922 would be
possible only if, before the appointed day namely on 1-4-
1950 the assessee had not been assessed under the Mysore
Act. Since the refund order had been issued to him he
claimed to have been assessed under the Mysore Act. The
Income-tax Officer rejected this contention and made an
assessment under s. 34 of the Indian Act on 6-3-1955. The
Appellate Assistant Commissioner held that the assessment
under s. 34 was not valid. The Appellate Tribunal was of
the view that the refund granted by the Income-tax Officer
under s. 18 of the Mysore Act was not an assessment as
contemplated under s. 23 of the Indian Act, and that the
words ’such income profits and gains’ used in paragraph 5(1)
of the Part B States (Taxation Concession) Oeder 1950
referred to identity of income or sources and that it is
only in cases wherein income has been assessed under the
Mysore Act that the Income-tax Officer is prohibited from
taking any further action thereon. On this view the
Tribunal restored the order of the Income-tax Officer. In
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reference the High Court held that the refund order which
was made on assessee’s return was an order of assessment.
On appeal by the Revenue in this Court,
HELD : (i) The refund order given by the Income-tax Officer
on the return filed by the assessee was an assessment within
the meaning of paragraph 5 of the Order. The assessment of
both the firm as well as the individual had been made under
the Mysore Act for the year ending 30th June 1949 in respect
of income of that year. As such it clearly fell
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within the provisions of sub-paragraph, (1) of paragraph 5
of the Order which makes the Act applicable to such
assessments. [913 A-B; 914 B]
Esthuri Aswathiah v. Income Tax Officer, Mysore State, 41
I.T.R. 539. relied on.
It is also provided in subparagraph (2) of paragraph 5 that
where income profits and gains have not been assessed under
the State law they shall be assessed under the Indian Act
for the year ending 31-3-1951 which is the assessment year
1950-51 in respect of which the tax payable has been
specified therein. There can be no doubt that for the
assessment year 1950-51 for which the accounting year is the
previous year 1st April 1949 to 31st March 1950, the Act
applies and assessments would be made thereunder. This
would be a hardship because under the concerned tax law of a
Part B State an assessee in that State may have been taxed
already. It is in &der to remove this hardship that the
Order was issued under Section 60A of the Act. [914 C-D]
Further, any omission to give information, or failure to
file a return or failure to disclose truly and fully all
material facts which are a condition of the re-opening of
assessments under s. 34 of the Act do hot appertain to the
Income-tax Officer under the Act but to the Income-tax
Officer under the Mysore Act. Even on this reading it would
appear that Section 34 of the Act would have no
application., [914 E]
(ii)The finding of the Tribunal that an assessment under s.
34 could be made in the present case because the assessee’s
income from property and other sources had not been assessed
under the Mysore Act was wrong. This reasoning would lead
to the startling conclusion and would imply that there would
be two assessments in respect of , the income of an assessee
during one assessment year, i.e., while assessment made
under the Mysore Act in respect of income reported by the
assessee cannot be reopened, the income not disclosed by him
would be liable to be assessed under, the Act. Moreover if
that reasoning is correct it would not be a case of
reassessment under s. 34 but assessment under s. 23 of the
Act. This was not the stand taken by the Revenue at any
stage.
The appeals must accordingly be dismissed. [914 G-915 A]
JUDGMENT:
CIVIL APPEAL JURISDICTION :Civil Appeals Nos. 1306 and 1307
of 1967.
Appeals by special leave from the judgment and order dated
February 4, October 5, 1966 of the Mysore High Court in
I.T.R.C. No. 4 of 1964 and S.C.L.A.P. No. 214 of 1966.
B.Sen and R. N. Sachthey, for the appellant (in both the
appeals).
The respondent did not appear.
The Judgment of the Court was delivered by-
P.Jaganmohan Reddy, J. The High Court of Mysore in a
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reference under Sec. 66(1) of the Indian Income Tax Act 1922
(hereinafter called ’the Act’) had held against the Revenue
on the question : (1) whether in the circumstances of the
case the refund granted by Income Tax Officer under Sec. 48
of the
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Mysore Income Tax Act 1923 (hereinafter called ’the Mysore
Act’) amounted to an assessment and, (2) whether the inter-
pretation placed by the Income Tax Tribunal on the words
’such income profits and gains’ in paragraph 5 (1) of the
Part B States (Taxation Concession) Order 1950 (hereinafter
called ’the Order’) is correct ? On the first question its
answer was in the affirmative and on the second in the
negative. Against this Judgment two appeals have been filed
by special leave by the Commissioner of Income Tax, Mysore.
The facts which gave rise to the reference before the High
Court are that a registered firm of partnership known as C.
M. Jaffar Khan & Co., Bangalore of which the assessee was a
partner filed a return in respect of its income for the
period ending 30-6-49 under the Mysore Act and an assessment
was made thereon in a sum of Rs. 3376-7-0 which was duly
paid. On 15-3-50 the assessee filed his return in respect
of his individual income including his share of income from
the partnership firm for the accounting year ending’ 30-6-
49. This return was also made under the Mysore Act and it
appears that in respect of this return, by an order dated
20-3-1950 the Income Tax Officer directed a refund of Rs.
641-3-0 to the assessee due to the difference in the rate of
tax applicable to him and the maximum rate. It further
appears that in the course of the proceedings for the
assessment years 1951-52 and 1952-53 the Income Tax Officer
was of the opinion that the assessee’s income had escaped
assessment in the accounting year ending 30-6-49 and he
therefore issued a notice to him under Sec. 34 of the Act.
The assessee objected to the reopening of the assessment on
the ground that he had already been assessed in respect of
the income for the year ending 30-6-49 under the Mysore Act;
that a refund of tax had been given to him, as such the
Income Tax Officer has made an assessment under the Mysore
Act; and that according to paragraph 5 of the Order an
assessment under the Act would be possible only if, before
the appointed date namely on 1-4-1950 the assessee had not
been assessed under the Mysore Act. The Income Tax Officer
rejected these contentions on the ground that the assessment
made on the firm could not be regarded as an assessment made
on the assessee individually and completed the assessment
for the years 1950-51 on 6-3-55 on a total income of Rs.
3,21,821.
The assessee appealed to the Income tax Appellate Assistant
Commissioner and raised similar contentions to those raised
before the Income Tax Officer. The Income Tax Officer on
the other hand contended that as the respondent assessee
had disclosed only a share income from the firm ’C. M.
Jaffar Khan & Co.’ and as the income from the property and
other sources was not disclosed such profits and gains had
not been assessed under the Mysore
911
Act and, therefore, action under Sec. 34 of the Act was
fully justified. The Appellate Assistant Commissioner
however, rejected the contention of the Income Tax Officer
and held that the re-assessment under Sec. 34 of the Act was
not valid. In this view he set aside the assessment made by
the Income Tax Officer. The Department filed an appeal to
the Income Tax Tribunal against the order of the Appellate
Assistant Commissioner. The Tribunal however was of the
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view that the refund granted by the Income Tax Officer under
Sec. 18 of the Mysore Act was not an assessment as
contemplated under Sec. 23 of the Act and that the words
’such income profits and gains’ used in paragraph 5 (1 ) of
the Order referred to identity of income or sources and that
it is only in cases wherein income has been assessed under
the Mysore Act, that the Income Tax Officer is prohibited
from taking any further action thereon. The appeal was
therefore-allowed and the assessment made by the Income tax
Officer restored.
The High Court following the decision of this Court in
Esthuri Asmathiah v. Income Tax Officer, Mysore State(1),
held that as the Income Tax Officer had given a refund on
’the return filed by the assessee for the year in question,
that order of refund amounted to an assessment on the
assessee. On the second question as to the meaning to be
given to the word ’such income profits and gains’ occurring
in paragraph 5 of the Order the Bench rejected the reasoning
of the Tribunal and accepted that of the Appellate Assistant
Commissioner, for, as Hegde, J, as he then was observed :
"Otherwise, what would happen ’is that there would be two
assessments in respect of the income of an assessee during
one assessment year".
The contentions of the learned Advocate for the Revenue fol-
low much on the same lines as were the contentions before
the High Court of Mysore namely that as the assessee did not
disclose his personal income except that of the income of
the firm, that income would not have been assessed under the
Mysore Act, as such, it is open to the Income Tax Officer to
make an assessment under Sec. 34 of the Act. He further
contends that the object of the Order was to give relief
from double taxation because of the financial integration of
Part B States of which Mysore wag one, +the assessment of
income, profits and gains of the previous year endnig after
31-3-49 which is a previous year for ’the said assessment
year 1949-50, had to be assessed under the Act for the year
ending on 31-3-51, but this could be done "if and only it,
such income profits and gains have not before the appointed
day been assessed under the State Law".. It is ’therefore
submitted that as this order was made in exercise of the
powers conferred under Sec. 60(A) of the Act, any income
profits and
912
gains which have not been assessed under the State raw will
become assessable under the Act. Paragraph 5 of the Order
and Sec. 34 of the Act are as follows
Paragraph 5(1)
"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 for the year ending on the 31st
day of March 1951, if and only if, such in-
come, profits and gains have not, ’before the
appointed day been assessed under the State
law".
(2)Where the income, profits and gains
referred to in sub-paragraph (1) have not been
assessed under the State law, ’they shall be asses
sed under the Act for the year ending on
the 31st day of March, 1951, and the tax
payable thereon shall be determined as here-
under-
(3)In this paragraph the State assessment
year 1949-50 means the assessment year which
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commences on any date between the 1st April,
1949 and the 31st December, 1949.
Sec. 34 "(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 or 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)nowithstanding 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 falling under
clause (b) at any time within
91 3
four years of the end of that year, serve on
the assessee.
On the admitted facts which are not in dispute it is
apparent that the refund order given by the Income Tax
Officer on the return filed by the assessee is an assessment
within the meaning of paragraph 5 of the Order. It was so
held in Esthuri Aswathiah case(1) where on the facts of that
case the assessee who had filed his return for the
assessment year 1950-51 disclosing that there was no
assessable income contended that as it had been assessed for
the accounting year ending June 30, 1949 under the Mysore
Act there was no assessable income for that year and that
only the income for the next accounting year ending on June
30, 1950 was assessable for the year 1951-52. The- Income
Tax Officer passed an order "no proceeding" and closed the
assessment. This decision is not helpful as it did not deal
with the question that arises before us. In that case a
notice under Sec. 22 of the Act was served on the assessee
requiring it to submit its return of income for the
assessment year 1950-51. It is in respect of that notice
that a return was filed by the assessees to which we have
made a reference showing that there was no assessable
income. For the next assessment year 1951-52 the assessees
filed a return and in the course of those assessment
proceeding account books were produced by them which
disclosed an opening, cash credit balance of Rs. 1,87,000/-
as on 1st July 49. When the Income tax Officer called for
the books of the earlier year the books were not produced by
the assessees. In the circumstances a sum of Rs. 1,37,000/-
out of the opening balance as on 1-7-49 was treated as
income from undisclosed sources for the year 1951-52. But
on appeal the Appellate Assistant Commissioner held that the
financial year ending 31-3-50 ought to be taken as the
previous year for the income from undisclosed sources. ID
he meantime the appellant submitted a fresh return for the
assessment year 1950-51 on which no action was taken but on
October 15, 1957 the Income tax Officer served a notice of
reassessment under See. 34 of the Act calling upon the
Appellant to submit a fresh return. That order was
challenged in a Writ Petition before the High Court on the
ground that the Income Tax Officer had no jurisdiction to
issue a notice of reassessment. That petition was dismissed
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by the High Court. In an appeal by certificate this Court
held that since the Income-tax Officer had, passed an order
thereon ’no proceeding’, it mean," that he had accepted the
return submitted by the Appellant, and assessed the income
as nil and if thereafter he, 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
(1) 41 I.T.R. 539.
914
to issue a notice for reassessment under Sec. 34. It was
further held that the Appellant was liable to be assessed
under the Indian Income-tax Act 1922 and not under the
Mysore Income-tax Act for the year 1950-51.
The facts in these appeals before us are different in that
the assessment of both the firm as well as of the individual
had been made under the Mysore Act for the year ending 30th
June, ’49 in respect of income of that year. As such, it
clearly falls within the provision of sub-paragraph (1) of
paragraph 5 of the Order which makes the Act inapplicable to
such assessments. It is also provided in sub-paragraph (2)
of Paragraph 5 that where income, profits and gains have not
been assessed under the State law they shall be assessed
under the Act for the year ending 31-3-51 which is the
assessment year 1950- 5 1, in respect of which the tax
payable has been specified therein. There can be no doubt
that for the assessment year 1950-51, for which the
accounting year is the previous year 1st April 1949 to 31st
March 1950, the Act applies and assessments would be made
thereunder. This would be a hardship because under any of
the concerned tax law of a Part B State an assessee in that
State may have been taxed already. It is in order to remove
this hardship that the order was issued under Sec. 60 A of
the Act. This apart it may also be noticed that any
omission to give information, or failure to file a return or
failure to disclose truly and fully all material facts which
are a condition of the reopening of assessments under Sec.
34 of the Act do not appertain to the Income Tax Officer
under the Act but to the Income Tax Officer under the Mysore
Act. Even on this reading it appears to us that Sec. 34 of
the Act would have no application. The learned counsel for
the Revenue was not able to meet this point. The Tribunal
thought that there was some substance in the Departmental
representative’s contention on the second question, that the
words ’such income’ profits and gains used in paragraph 5(1)
of the order ’refer to identity of income or sources; that
it is only in cases where the income had been assessed under
the Mysore Act; that the Income-tax Officer is prohibited
from taking further action thereon’ and as such ’it cannot
be said that the assessee had been assessed on incomes such
as property income and income under other sources’, and it
is these that have been brought to assessment under Sec. 34
of the Income-tax Act". As rightly pointed out by the High
Court that this reasoning would It--ad to startling
conclusions and would imply that there would be two
assessments in respect of the income of an assessee during
one assessment year i.e. while assessment made under the
Mysore Act in respect of income reported by the assessee
cannot be reopened, the income not disclosed to him would be
liable to be assessed under the Act. Apart
915
from the incongruity in this reasoning pointed out by the
High Court it appears to us that if that reasoning is
correct it would not be a case of reassessment under Sec. 34
but assessment under Sec. 23 of the Act. This is certainly
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not the stand taken by the Revenue either before the High
Court or before us. In the circumstances the answers
returned by the High Court do not require any interference
and the appeals are accordingly dismissed. There will be no
order as to costs since the respondents are ex-parte.
G. C. Appeals dismissed.
916