1961 (7) TMI 78 - HC - Income Tax

Summary

Issues Involved:
1. Whether the present suit is barred by the provisions of section 67 of the Indian Income-tax Act, 1922.
2. Jurisdiction of income-tax authorities to assess and recover tax from the appellant.
3. Validity of service of notice under section 20(2)/34 of the Indian Income-tax Act.
4. Validity of assessment beyond the prescribed period.
5. Requirement and validity of notice of demand under section 29 of the Indian Income-tax Act.
6. Allegations of mala fide, fraud, and collusion in the assessment orders.
7. Applicability of Supreme Court's observations regarding the proper remedy.

Detailed Analysis:

1. Bar of Suit Under Section 67 of the Indian Income-tax Act, 1922:
The core issue was whether the suit was barred by section 67, which states, "No suit shall be brought in any civil court to set aside or modify any assessment made under this Act." The court held that although the relief claimed did not explicitly seek to set aside or modify the assessment, in substance, it would result in setting aside the assessment orders. Thus, the provisions of section 67 were attracted, and the suit was barred.

2. Jurisdiction of Income-Tax Authorities:
The appellant contended that the assessment orders were without jurisdiction. However, the court found that the income-tax authorities were authorized under sections 3, 23(5), 26, and 44 of the Act to determine the partners of the firm and fix their liability. The court emphasized that any mistakes made by the Income-tax Officer should be addressed through the appellate machinery provided under the Act, not through a civil suit.

3. Validity of Service of Notice:
The appellant argued that he was not properly served with a notice under section 20(2)/34. The court noted that the procedure for service of notices is given in section 63 of the Act and that the appellant had produced notices addressed to him. It was concluded that the income-tax authorities had duly served and assessed the appellant as a partner of the firm after making necessary inquiries.

4. Assessment Beyond Prescribed Period:
The appellant claimed that the assessment was made beyond the prescribed period. The court referred to section 34(3) of the Act, which empowers the income-tax authorities to make assessments within a specified period. This point was not argued before the lower court, and the court found no merit in this contention.

5. Notice of Demand Under Section 29:
The appellant contended that no notice of demand was served on him under section 29. The court observed that this objection was not raised in the lower courts or in the grounds of appeal. Moreover, under section 63(2), a notice could be addressed to any member of the firm. The court held that procedural irregularities should be addressed through the appellate process within the Act, not through a civil suit.

6. Allegations of Mala Fide, Fraud, and Collusion:
The appellant alleged that the assessment orders were mala fide, fraudulent, and collusive. The court noted that this point was not raised before the lower appellate court and was found against the appellant by the trial court. The court distinguished this case from others where no elaborate appellate machinery was provided, emphasizing that the appellant should have pursued these allegations through the income-tax authorities' appellate process.

7. Supreme Court's Observations on Proper Remedy:
The appellant claimed that the Supreme Court had suggested filing a regular suit. The court found no record of such a direction and noted that this point was not raised in the lower courts. The court reiterated that the proper remedy was to use the appellate machinery within the Income-tax Act.

Conclusion:
The court dismissed the appeal, holding that the suit was barred under section 67 of the Indian Income-tax Act, 1922, and that the appellant should have pursued the remedies provided within the Act. The court left the parties to bear their own costs.