1930 (11) TMI 16 - HC - Income Tax

Summary

Issues:
1. Validity of appointment of Special Income-tax Officer
2. Transfer of case to Special Income-tax Officer
3. Legality of assessment made by Special Officer
4. Validity of assessment made by Income-tax Officer of the district
5. Interpretation of Section 34 of the Income-tax Act

Analysis:

Issue 1: Validity of appointment of Special Income-tax Officer
The Commissioner appointed a Special Income-tax Officer to deal with certain cases, including the present case. However, it was later held that the Commissioner did not have the power to make such an appointment under the Income-tax Act. The Special Officer, therefore, did not have the authority to impose assessments or handle the case as an Income-tax Officer.

Issue 2: Transfer of case to Special Income-tax Officer
The Commissioner's order transferred the case to the Special Officer as it stood at that time, not requiring the proceedings to start afresh. Prior to this transfer, valid notices under Section 22(2) had been issued by the Income-tax Officer of the assessee's district. The Special Officer proceeded to issue fresh notices, call for returns, and make an assessment to the best of his judgment, which was later deemed illegal.

Issue 3: Legality of assessment made by Special Officer
The assessment made by the Special Officer was considered null and void, as it was based on an illegal appointment and did not conclude the proceedings. The assessees challenged this assessment before the Assistant Commissioner, which was still pending when it was determined that the Special Officer had no authority to handle their case.

Issue 4: Validity of assessment made by Income-tax Officer of the district
Subsequently, the Income-tax Officer of the district, whose jurisdiction was never terminated by the illegal order of the Commissioner, issued reminders for the assessees to file a return. The assessees filed a return under protest, and an assessment was made by the Income-tax Officer of the district in January 1930 in the ordinary course, not as a default assessment.

Issue 5: Interpretation of Section 34 of the Income-tax Act
The assessees argued that after September 1929, it was not open to the income-tax authorities to make any assessment on them, as more than a year had passed since the expiry of the relevant financial year. They relied on Section 34 of the Income-tax Act, which deals with income that has escaped assessment. However, the Court held that the assessment made in January 1930 was valid, as the proceedings were still pending and had not yet resulted in a final assessment. The Court interpreted that income cannot be said to have escaped assessment if there are ongoing proceedings for the assessment of the assessee's income.

In conclusion, the Court found the assessment made by the Income-tax Officer of the district to be valid, as the proceedings were still pending, and the income-tax authorities were entitled to rely on the notices issued earlier. The Court ruled in favor of the income-tax authorities and awarded costs against the assessees.