Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF INCOME-TAX, ANDHRAPRADESH, HYDERABAD
Vs.
RESPONDENT:
K.ADINARAYANA MURTY
DATE OF JUDGMENT:
03/04/1967
BENCH:
ACT:
Indian Income-tax Act, 1922, s.34-Notice of reassement
issued to assessee in status of individual-Return filed in
status of HUF-Appellate Authority holding that correct
status was HUF-Another notice under v. 34 issued-Assessment
on return filed in response to second notice-Validity of
assessment.
HEADNOTE:
The respondent had two sons. Prior to the assessment year
1954-55 the Income-tax Authorities assessed him as had of a
Hindu undivided family. In 1954-55 the Income-tax Officer
held that he was an ’individual’ and assessed him
accordingly. Thereafter, having obtained sanction from the
Commissioner he issued to the respondent a notice under s.
34 of the Income-tax Act 1922 in respect of the year 1949-50
in the status of an individual. A return was filed by the
respondent in response to the notice. However in the appeal
relating to 1954-55 the Appellate Assistant Commissioner
held thatthe correct status of the assessee was that of a
Hindu undivided family. The Income-tax Officer then issued
another notice under s. 34 to therespondent in respect of
1949-50 in the status of a Hindu undivided family. On he
return filed in response to this second notice the Incometax
Officer made an assessment adding certain "escaped income"
-to that originally assessed for 1949-50. In reference, the
High Court held that the first of the notices under s. 34
was not invalid in law and consequently the issue of the
second notice was illegal and the assessment made in
pursuance of it was illegal. The Revenue appealed to this
Court.
HELD : Under the scheme of the Income-tax Act the
Individual’ and the ’Hindu undivided family’ are treated as
separate units of assessment and if a notice under s. 34 of
the Act is wrongly issued to the assessee in the status of
an ’individual’ and not in the correct status of ’Hindu
undivided family’, the notice is illegal and ultra-vires and
without jurisdiction. [391F-G]
The Income-tax Officer was therefore justified in ignoring
the first notice under s. 34 of the Act and the return filed
by the assessee in response to that notice and consequently
the assessment made by the Income-tax Officer pursuant to
the second notice was a valid assessment. [391H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 632 of 1966.
Appeal by special leave from the judgment and Order dated
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April 14, 1964 of the Andhra Pradesh High Court in case
referred No. 46 of 1962.
B.Sen, Gopal Singh, S. P. Nayyar and R. N. Sachthey, for the
appellant.
S. T. Desai, B. Parthasarathy, and O. C. Mathur, for the
respondent.
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The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from
the judgment of the High Court of Andhra Pradesh dated April
14, 1964 in Referred Case No. 46 of 1962.
The respondent, hereinafter called the "assessee" was a
Hindu Undivided Family consisting of K. Ankineedu and his
two sons. For the assessment year 1949-50 corresponding to
the previous financial year ending March 31, 1949, the
assessee submitted a return in response to a notice sent to
him. The Income-tax Officer computed his total income as
Rs. 2,429/- only which was below the taxable limit and so
the assessee was declared not liable to pay income-tax.
Subsequent to the assessment, the Income-tax Officer had
information that the assessee had done some business as pro-
curement agent for the Government and in this business he
had earned large profits which had escaped assessment.
Accordingly he issued a notice under s. 34 of the Income-tax
Act, 1922 (hereinafter called the ’Act’) on March 22, 1957.
In response to the notice the assessee made a return on
April 30, 1957. Prior to the issue of the above notice the
Income-tax Officer had taken the view in the assessment made
for the year 1954-55 that the correct status of the assessee
was not ’Hindu Undivided Family’ but his status was
"individual". In accordance with this view the notice under
s. 34 of the Act was issued to the assessee on March 22,
1957 in the status of an ’individual’. As the proceedings
under this notice were continuing, but before the assessment
could be made, the Appellate Assistant Commissioner in the
appeal for the assessment year 1954-55 accepted the
contention of the assessee and held that the. status of the
assessee was that of ’Hindu Undivied Family’and not’
individual’. Thereafter,the Income-tax Officer issued a
fresh notice under s. 34 on February 12, 1958 which was
served on the assessee on the same day. This notice was
issued to assess the income of the assessee as a ’Hindu
Undivided Family’ from the procurement business which had
escaped from the original assessment made on February 10,
1950. A return in pursuance of the second notice was duly
filed on February 28, 1958 and the assessment was ultimately
made under s. 34 of the Act in the status of ’Hindu
Undivided Family’ on August 16, 1958. In this assessment, a
sum of Rs. 60,000/- was included as the income escaping from
the original assessment. The assessee preferred an appeal
to the Appellate Assistant Commissioner and contended that
the proceedings under- s. 34 of the Act were not valid
because no notice could be issued after the expiry of 8
years from the close of the ’previous year’ as distinct from
the ’assessment year’. The Appellate Assistant Commissioner
accepted the contention raised by the assessee and held that
the proceeding was invalid. The Income-tax Officer took the
matter in appeal before
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the Income-tax Appellate Tribunal and claimed that -the
period of limitation for starting proceedings under S. 34
was to be counted from the end of the ’assessment year’ and
not from the end of the ’previous year’. The Tribunal
accepted his contention and overruled the view of the
Appellate Assistant Commissioner on this point. The
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assessee also contended that the assessment proceeding
started by the second notice dated February 12, 1958 was bad
in law as he had already made a return on April 30, 1957
which was in pursuance of the first notice under S. 34
issued on March 22, 1957. It appears from the statement of
the case that the Income-tax Officer was required to
disclose the particular notice on which he made the
assessment. The Income-tax Officer said that the assessment
was based oil the second notice. The Appellate Tribunal
took the view that the return filed by the assessee on April
30, 1957 in response to the first notice was not a valid
return and the Income-tax Officer was not bound to act upon
it. Accordingly the Appellate Tribunal held that the
assessment made under the second notice was legally valid.
Since the Appellate Assistant Commissioner did not deal with
the merits of the assessment the Appellate Tribunal remanded
the appeal to the Appellate Assistant Commissioner for being
dealt with on merits. At the instance of the assessee the
Appellate Tribunal stated case to the High Court on the
following question of law:
"Whether, on the facts and in the
circumstances of the case, the assessment in
pursuance of the notice issued under s. 34 on
12-2-1958 is a valid assessment
The High Court held that the first notice dated March 22,
1957 was not invalid in law and consequently the issue of
the second notice on February 12, 1958 was illegal and the
assessment made in pursuance of that notice was also
illegal. The High Court accordingly answered the question
of law in favour of the assessee.
The question presented for determination in this appeal is
whether it was competent for the Income-tax Officer to issue
the second notice dated February 12, 1958 and continue
proceedings thereon ignoring the return already filed by the
assessee in pursuance of the first notice under the same
section. It was pointed out by Mr.S. T. Desai on behalf
of the assessee that both the notices under s.34 of the Act
were in identical terms and were addressed to the assessee
in his name and the issue of the second notice made no
difference in its contents to the knowledge of the assessee.
It was also contended that the assessee filed his return in
the status of ’Hindu Undivided Family’ in response to the
first notice and the Income-tax Officer ought not to have
ignored that return. We are unable to accept the argument
put forward on behalf of the assessee as correct. The
Income-tax Officer could not have validly acted on. the
return filed by the assessee in the status of ’Hindu Undivi-
391
ded Family and assessment made by the Income-tax Officer
on such a return would have been invalid in law because the
notice under s. 34 had been issued in the status of
’individual’ ’and sanction of the Commissioner for the issue
of a notice under s. 34 was also obtained on that basis. We
therefore consider that the Income-tax Officer was entitled
to ignore the return filed by the assessee as non est in
law. It is not disputed that the Income-tax Officer issued
the first notice under s. 34 of the Act on March 22, 1957 to
the assessee in the status of ’individual’. The Appellate
Tribunal has stated in para 3 of the statement of the case
that the lncome-tax Officer had taken the view that the
correct status of the assessee was ’individual’ and in
accordance with that view "a notice under s. 34 was issued
to the assessee as above for making an assessment in the
status of ’individual’ ". As there was some ambiguity in the
statement of the case on this point, we referred to the
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original file of the income-tax proceedings and satisfied
ourselves that the assertion of fact made in the statement
of the case is correct. It appears that on February 13,
1957 the Income-tax Officer had applied for the sanction of
the Commissioner for instituting proceedings under s.
34(1)(a) of the Act against the assessee to make an
assessment in the status of an ’individual’ with regard to
the procurement agency business. Sanction of the
Commissioner was given to the proposal of the Income-tax
Officer and thereafter the first notice under s. 34 of the
Act was issued on March 22, 1957. In this state of facts we
are of opinion that the proceeding taken under the first
notice under s. 34 of the Act was invalid and ultra vires.
The correct status of the assessee was that of ’Hindu
Undivided Family’ as was held by the Appellate Assistant
Commissioner in the assessment for the year 1954-55 and
since the first notice under s. 34 was issued to the
assessee as an ’individual’ for making assessment in that
status, it is manifest that the proceedings taken under that
notice were illegal and without jurisdiction. Under the
scheme of the Income-tax Act the ’Individual’ and the ’Hindu
Undivided Family’ are treated as separate units of assess-
ment and if a notice under s. 34 of the Act is wrongly
issued to the assessee in the status of an ’individual’ and
not in the correct status of ’Hindu Undivided Family’ the
notice is illegal and all proceedings taken under that
notice are ultra vires and without jurisdiction. It was
contended by Mr. S. T. Desai on behalf of the assessee that
the return was filed by the assessee in response to the
first notice in the character of ’Hindu Undivided Family’.
But the submission of the return by the assessee will not
make any difference to the character of the proceedings in
pursuance of the first notice which must be held to be
illegal and ultra vires for the reasons already stated. We
are therefore of the opinion that the Income-tax Officer was
legally justified in ignoring the first notice issued under
s. 34 of the Act and the return filed by the assessee in
response to that notice and consequently the assessment made
by the Income-
392
tax Officer in pursuance of the second notice issued on
February 12, 1958 was a valid assessment.
We accordingly allow this appeal, set aside, the judgment of
the High Court of Andhra Pradesh dated April 14, 1964 and
hold that the question of law referred to the High Court
should be answered in the affirmative and against the
assessee. There will be no order as to costs in this
appeal.
G.C.
Appeal allowed.
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