1952 (11) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Liability of income accruing in Madhya Bharat during the accounting year 1949-50.
2. Jurisdiction of the Income-tax Officer, Indore, to assess income derived outside Madhya Bharat.
3. Constitutionality of the Indian Income-tax Act, 1922, as amended by the Indian Finance Act, 1950.
4. Validity of the notice issued under Section 22 of the Income-tax Act.
5. Objection to the place of assessment under Section 64(3) of the Income-tax Act.
6. Validity of the penalty imposed by the Income-tax Officer.

Detailed Analysis:

1. Liability of Income Accruing in Madhya Bharat During the Accounting Year 1949-50:
The court examined whether under Section 3 read with Section 2(14A) of the Income-tax Act, the income accruing in Madhya Bharat in the accounting year 1949-50 was liable to tax. The proviso to Section 2(14A) deems the whole of India, excluding Jammu and Kashmir, as taxable territory for the purpose of making any assessment for the year ending on 31st March 1951. The court concluded that the income accruing in Madhya Bharat during the period from 1st April 1949 to 31st March 1950 is chargeable to tax under the Indian Income-tax Act.

2. Jurisdiction of the Income-tax Officer, Indore, to Assess Income Derived Outside Madhya Bharat:
The court held that sub-clauses (i) and (ii) of clause (b) of the proviso to Section 2(14A), read with Section 64, give jurisdiction to the Income-tax Officer, Indore, to assess the petitioners in respect of the income derived from outside Madhya Bharat during the accounting year 1949-50. The court found that the Income-tax Officer, Indore, had the authority to assess the petitioners on the income arising in Part A States.

3. Constitutionality of the Indian Income-tax Act, 1922, as Amended by the Indian Finance Act, 1950:
The petitioners argued that Parliament had no power to impose income-tax on income accruing in Madhya Bharat before 26th January 1950. The court rejected this argument, stating that the Covenant under which Madhya Bharat was constituted was not a statute and did not impose restrictions on the powers of the Dominion Legislature. The court held that under the new Constitution, Parliament has the power to legislate retrospectively for Part B States, including Madhya Bharat.

4. Validity of the Notice Issued Under Section 22 of the Income-tax Act:
The petitioners contended that the notice under Section 22(2) was invalid as it was addressed to Sir Hukumchand as an individual and not as a member of a Hindu undivided family. The court found this objection to be without substance, noting that Sir Hukumchand was informed that the return required was for the Hindu undivided family. The court also cited the Federal Court's decision in Chattu Ram v. Income-tax Commissioner, Bihar, which stated that the jurisdiction of the Income-tax Officer to assess and the liability of the assessee to pay tax are not conditional on the validity of the notice.

5. Objection to the Place of Assessment Under Section 64(3) of the Income-tax Act:
The petitioners argued that they had raised an objection as to the place of assessment, which the Income-tax Officer, Indore, did not address as required under Section 64(3). The court found that the petitioners did not specifically raise an objection as to the place of assessment before the Income-tax Officer, Indore. The court noted that the petitioners themselves had stated Indore as the principal place of their business and residence in their return, which was accepted by the Income-tax Officer. The court concluded that there was no issue requiring determination under Section 64(3).

6. Validity of the Penalty Imposed by the Income-tax Officer:
The court found that the order imposing a penalty of Rs. 25,000 on the petitioners was passed after the issuance of a prohibitory order by the court and was thus without jurisdiction and illegal. The court noted that the Income-tax Officer was aware of the proceedings in the court and should have exercised greater care in ascertaining the outcome of the hearing before imposing the penalty. The court set aside the order imposing the penalty.

Conclusion:
The court dismissed the petition challenging the provisional assessment and the notice of demand, holding them to be valid. However, the court declared the order imposing the penalty of Rs. 25,000 as illegal and without jurisdiction, and set it aside. The parties were ordered to bear their own costs.