1962 (12) TMI 53 - SC - Income Tax

Whether the second proviso to sub-section (3) of section 34 is constitutionally valid and applies to the case? whether section 34 as amended in 1948 applied to assessment years prior to 1948-49 and the second question was whether on the footing that amended section 34 did apply to assessment years prior to 1948-49 any action could be taken under the amended section in respect of those assessments which had become time-barred before the amended section came into effect? Held that - Appeal allowed. Notice against the firm of Purshottam Laxmidas was validly issued under the amended second proviso to section 34(3) and its validity cannot be called in question in any court or Tribunal in view of the provisions of section 4 of the Amending Act of 1959.

Issues Involved:
1. Validity of the notice issued under Section 34 of the Indian Income-tax Act, 1922.
2. Applicability of the second proviso to sub-section (3) of Section 34.
3. Constitutional validity of the second proviso to sub-section (3) of Section 34.
4. Retrospective application of amendments to Section 34.
5. Effect of the Indian Income-tax (Amendment) Act, 1959.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 34:
The primary issue was whether the notice issued on April 30, 1954, for reassessment under Section 34 was valid. The respondents contended that the notice was issued after the expiry of the time limit prescribed by sub-section (1) of Section 34(2). The appellants argued that the second proviso to sub-section (3) of Section 34, as amended by the Income-tax (Amendment) Act, 1953, allowed for the issuance of such a notice. The court concluded that the notice was invalid as it was issued after the eight-year period had expired, and the proviso did not apply to orders of assessment that had become final before it came into force.

2. Applicability of the Second Proviso to Sub-section (3) of Section 34:
The second proviso to sub-section (3) of Section 34 was a focal point of the dispute. The appellants contended that this proviso allowed for the reassessment at any time in consequence of or to give effect to any finding or direction by the Appellate Tribunal. The court held that the proviso did not apply retrospectively to cases where the time limit had already expired before the proviso came into effect on April 1, 1952.

3. Constitutional Validity of the Second Proviso to Sub-section (3) of Section 34:
The respondents argued that the second proviso to sub-section (3) of Section 34 violated Article 14 of the Constitution by creating an unreasonable classification between assessees and non-assessees. The court agreed, stating that there was no rational basis for distinguishing between persons with regard to whom a finding or direction is given by the Appellate Tribunal and those with regard to whom no such direction is given. The court held that the proviso was unconstitutional as it introduced unequal treatment without any rational basis.

4. Retrospective Application of Amendments to Section 34:
The court examined whether the amendments to Section 34, particularly the second proviso to sub-section (3), had retrospective effect. It concluded that the proviso did not have retrospective application to revive a remedy that had already been lost before April 1, 1952. The court emphasized that a vested right, such as immunity from reassessment after a certain period, could not be affected by subsequent legislation unless explicitly stated.

5. Effect of the Indian Income-tax (Amendment) Act, 1959:
The appellants also argued that the notice was validated by the Indian Income-tax (Amendment) Act, 1959, which introduced sub-section (4) to Section 34 and Section 4 of the Amending Act. The court held that the notice could not be validated by these provisions as the necessary facts to establish that the notice was issued under clause (a) of sub-section (1) of Section 34 were not found. The court emphasized that the applicability of Section 4 of the Amending Act of 1959 depended on certain facts, which were not established in this case.

Conclusion:
The court dismissed the appeal, holding that the notice issued on April 30, 1954, was invalid as it was issued after the expiry of the time limit prescribed by sub-section (1) of Section 34(2). The second proviso to sub-section (3) of Section 34 did not apply retrospectively, and the proviso was also held to be unconstitutional as it violated Article 14 of the Constitution. The court further held that the notice could not be validated by the Indian Income-tax (Amendment) Act, 1959, as the necessary facts to establish its validity were not found.

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