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Issues Involved:
1. Validity of the notice issued on December 16, 1958, under section 34(1) of the Income-tax Act of 1922. 2. Whether the notice required the previous sanction of the Central Board of Revenue or the Commissioner of Income-tax. 3. Whether the notice was time-barred due to being issued after the lapse of eight years from the assessment year. Detailed Analysis: Issue 1: Validity of the Notice Issued on December 16, 1958 The petitioner challenged the validity of the notice issued on December 16, 1958, for the assessment year 1949-50 under section 34(1) of the Income-tax Act of 1922. The petitioner was originally assessed for the assessment year 1950-51, with a major source of income from a partnership. The Income-tax Officer later assessed an additional amount of Rs. 35,502 as income from undisclosed sources for the assessment year 1950-51. The Appellate Assistant Commissioner directed that this amount should be assessed for the assessment year 1949-50. Consequently, a notice was issued on December 16, 1958. The petitioner contended that the assessment was time-barred. Issue 2: Sanction Requirement The petitioner argued that the notice required the previous sanction of the Central Board of Revenue, not the Commissioner of Income-tax. This contention was based on the decision of the Bombay High Court in Hiralal Amritlal Shah v. K.C. Thomas, which was later reversed by the Supreme Court in Thomas v. Vasant Hiralal Shah. The Supreme Court clarified that the sanction of the Central Board of Revenue is necessary only when the escaped income amounts to one lakh of rupees or more. In other cases, the sanction of the Commissioner of Income-tax suffices. Therefore, this ground of challenge was not sustainable, and the petitioner conceded this point. Issue 3: Time-Barred Notice The primary contention was whether the notice was valid despite being issued after the lapse of eight years from the assessment year, considering the escaped income was less than one lakh of rupees. The assessment year in question was 1949-50, and the notice was issued on December 15, 1958, clearly after the eight-year period had expired. Section 34(1)(a) of the Income-tax Act, as it stood at the relevant time, allowed the Income-tax Officer to issue a notice without a time limit if certain conditions were met. However, the first proviso to section 34(1) imposed a time limit of eight years for cases where the escaped income was less than one lakh of rupees. The notice was issued in consequence of the Appellate Assistant Commissioner's direction. The second proviso to section 34(3) states that the time limit does not apply to reassessments made in consequence of any finding or direction in an order under specified sections. The Supreme Court in Income-tax Officer, Sitapur v. Murlidhar Bhagwan Das held that such directions must relate to the assessment year under appeal. Since the direction in this case pertained to a different assessment year, the notice was not saved by the second proviso to section 34(3). Legislative Amendments and Their Applicability The legislature introduced sub-section (4) in section 34 by the Income-tax (Amendment) Act (1 of 1959) to address notices issued after the lapse of eight years. However, this provision applies to cases where the eight-year period expired before the amendment by the Finance Act of 1956. Similarly, section 4 of Act 1 of 1959 saves notices issued before the commencement of the Act, notwithstanding the expiry of the eight-year period. These provisions did not apply to the present case as the notice was issued after the 1956 amendment, which removed the time limit. Conclusion In light of the Supreme Court's interpretation and the legislative framework, the notice issued on December 16, 1958, was invalid and without jurisdiction. The petition was allowed, the notice was quashed, and the respondent was ordered to pay the petitioner's costs. The rule was made absolute in terms of prayer (b). Petition allowed.
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