1964 (10) TMI 84 - HC - Income Tax

Issues Involved:
1. Constitutionality of the amended section 34(3) of the Income-tax Act, 1922.
2. Applicability of the amended section 34(3) to the reassessment proceedings.
3. Whether the reassessment proceedings were time-barred.
4. Whether the assessee, Shantilal, was a stranger to the proceedings under section 34.

Detailed Analysis:

1. Constitutionality of the Amended Section 34(3):
The primary issue was whether the second proviso to section 34(3) of the Income-tax Act, 1922, was ultra vires the Indian Constitution, particularly Article 14. The Tribunal had differing views: the Accountant Member held against the department, while the President was doubtful about the applicability of Article 14. The High Court referenced the Supreme Court's decision in Prashar v. Vasantsen Dwarkadas, which held that the second proviso to section 34(3) was unconstitutional as it introduced unequal treatment without a rational basis, thus violating Article 14.

2. Applicability of the Amended Section 34(3) to the Reassessment Proceedings:
The reassessment proceedings for the assessment years 1944-45, 1945-46, and 1946-47 were initiated under the amended section 34(3). The Tribunal's Accountant Member believed that section 34(3) abrogated the limitations of both four and eight years. However, the President noted that the amendment was not retrospective and thus could not revive a remedy already barred. The High Court agreed with the Tribunal's President, holding that the amendment could not revive a right to issue a notice that had already expired before the amendment came into effect.

3. Whether the Reassessment Proceedings Were Time-Barred:
The Tribunal and the High Court examined whether the reassessment proceedings were initiated within the permissible time limits. The President of the Tribunal held that the period of limitation was four years, not eight, as there was no concealment involved. The High Court confirmed that the reassessment proceedings for the year 1944-45 were time-barred since the right to issue a notice had expired before the amendment to section 34(3) came into force.

4. Whether the Assessee, Shantilal, Was a Stranger to the Proceedings Under Section 34:
The Tribunal considered whether Shantilal was a stranger to the reassessment proceedings initiated under section 34. The High Court referred to the Supreme Court's interpretation in Income-tax Officer v. Murlidhar Bhagwan Das, which clarified that "any person" in the second proviso to section 34(3) must be intimately connected with the assessment under appeal. The High Court concluded that Shantilal, being assessed as an individual and not as part of the Hindu undivided family (HUF), was a stranger to the reassessment proceedings initiated against the HUF. Therefore, the second proviso to section 34(3) could not be invoked against him.

Judgment:
The High Court held:
1. The provisions of the second proviso to section 34(3) were ultra vires the Indian Constitution as they violated Article 14.
2. The reassessment proceedings initiated under the amended section 34(3) were not valid as the amendment could not revive a remedy already barred.
3. The reassessment for the year 1944-45 was time-barred and thus invalid.
4. Shantilal was a stranger to the reassessment proceedings against the HUF, and the second proviso to section 34(3) could not be applied to him.

The High Court answered the referred questions as follows:
1. Question No. 1: In the affirmative.
2. Question No. 2: In the affirmative.
3. Question No. 3: In the negative.

The Commissioner was directed to pay the costs of the reference to the respondent.

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