1958 (10) TMI 41 - HC - Income Tax

Summary

Issues Involved:

1. Validity of the initiation of action under section 34 of the Indian Income-tax Act, 1922.
2. Retrospective effect of the amendment to section 4(3)(i) of the Indian Income-tax Act.
3. Inclusion of income from trust properties in the total income of the settlor.
4. Re-assessment proceedings for the assessment year 1952-53.

Detailed Analysis:

1. Validity of the initiation of action under section 34 of the Indian Income-tax Act, 1922:

The primary issue was whether the Income-tax Officer was entitled to issue a notice under section 34(1)(b) to re-open the assessment for the year 1952-53 based on the amended section 4(3)(i) of the Indian Income-tax Act, which received assent on May 24, 1953, but was given retrospective effect from April 1, 1952. The Tribunal had initially accepted the contention that the initiation of action under section 34 was not proper for the assessment years 1953-54 and 1954-55 due to the lack of ignorance of facts by the Income-tax Officer. However, for the assessment year 1952-53, the Tribunal held that the re-assessment proceedings could not be set aside merely based on the amendment being retrospective.

2. Retrospective effect of the amendment to section 4(3)(i) of the Indian Income-tax Act:

The amendment to section 4(3)(i) by the Indian Income-tax (Amendment) Act, 1953, made the income derived from property held under trust subject to the provisions of section 16(1)(c). This amendment was given retrospective effect from April 1, 1952. The Tribunal considered that the law as amended could not apply to re-open a completed assessment for the year 1952-53. However, the High Court held that the retrospective amendment could be applied to re-open the assessment under section 34(1)(b).

3. Inclusion of income from trust properties in the total income of the settlor:

The assessee had created a revocable trust in 1940, and the income from the trust properties was initially exempt under section 4(3)(i) as it then stood. The Income-tax Officer had included this income in the total income of the assessee based on section 16(1)(c). The High Court had previously ruled in favor of the assessee, excluding the trust income from the total income. However, with the amendment to section 4(3)(i), the income from the trust properties was to be included in the total income of the settlor, Bai Navajbai, for the assessment year 1952-53 and subsequent years.

4. Re-assessment proceedings for the assessment year 1952-53:

The re-assessment for the year 1952-53 was initiated based on the retrospective amendment to section 4(3)(i). The High Court examined whether the Income-tax Officer had the right to re-open the assessment based on the new information provided by the amendment. The Court concluded that the knowledge of the amendment constituted "information" within the meaning of section 34(1)(b), allowing the Income-tax Officer to re-open the assessment. The Court referenced the Supreme Court decision in M.K. Vankatachalam v. Bombay Dyeing and Manufacturing Co. Ltd., which supported the application of retrospective amendments to re-open completed assessments.

Conclusion:

The High Court answered the question in the affirmative, holding that the Income-tax Officer was entitled to issue a notice under section 34(1)(b) to re-open the assessment for 1952-53 based on the retrospective amendment to section 4(3)(i). The assessee was ordered to pay the costs, and the question was answered in favor of the Department.