1962 (11) TMI 50 - SC - Income Tax

Application under article 226 of the Constitution made by the respondent-assessee for a writ quashing an order of assessment made under section 34 of the Income-tax Act, 1922 questioned - Held that - Appeal dismissed. State sought leave to contend that the order of July 30, 1957, could be supported under section 35 of the Income tax Act. This leave was refused for such a point was not raised in the court below and the action by the revenue authorities had expressly been taken under section 34 of the Act.

Summary

Issues:
1. Validity of order of assessment made under section 34 of the Income-tax Act, 1922.
2. Interpretation of section 34 regarding reopening of assessments.
3. Determining if excessive relief was granted in the original assessment.
4. Whether interest paid in advance is part of tax and can be considered for reassessment.
5. Applicability of section 35 of the Income-tax Act in the present case.

Detailed Analysis:
1. The judgment deals with the appeal arising from an application under article 226 of the Constitution challenging an order of assessment made under section 34 of the Income-tax Act, 1922. The respondent-assessee sought a writ to quash the assessment order, which was based on the grounds of excessive relief granted during the original assessment.

2. Section 34 of the Income-tax Act allows for the reopening of assessments if income has escaped assessment, been under-assessed, or subjected to excessive relief. The court analyzed the grounds mentioned in the notice issued under section 34 and concluded that only excessive relief was relied upon for reassessment, not under-assessment. The court emphasized that the order was solely based on excessive relief and not under-assessment.

3. The court determined that the case did not involve under-assessment but rather overassessment due to the advance payment of tax by the respondent. The payment of interest under section 18A was found to be a statutory liability of the State and not a relief granted in computing income. The subsequent amendment of the law reducing the interest amount did not warrant reassessment under section 34 as it was not a case of under-assessment or excessive relief.

4. The court addressed the argument that interest paid in advance should be considered part of the tax and any excess payment of interest constituted excessive relief. However, the court clarified that interest under section 18A was not treated as part of the tax but as a separate component. The provisions of section 18A regarding interest payment by the assessee did not apply to the interest payable by the Government in this case.

5. The court rejected the contention that the order could be supported under section 35 of the Income-tax Act, as the action was expressly taken under section 34, and no such point was raised earlier. The appeal was dismissed, emphasizing that the order was not sustainable under section 35, and costs were awarded against the appellant.

Overall, the judgment clarifies the conditions under which assessments can be reopened under section 34, emphasizing the distinction between under-assessment and overassessment due to advance tax payments. It underscores that interest paid in advance is not part of the tax and cannot be considered for reassessment under section 34.