1964 (9) TMI 78 - HC - Income Tax

Summary

Issues Involved:
1. Validity of assessments for the years 1950-51, 1951-52, and 1952-53.
2. Application of the second proviso to section 34(3) and its constitutionality under Article 14 of the Constitution.
3. Jurisdiction of the Income-tax Officer under section 34(1) and the effect of the Appellate Assistant Commissioner's findings.
4. Whether the original returns filed by the assessees were still pending and the implication of "no assessment" remarks.

Issue-wise Detailed Analysis:

1. Validity of Assessments for the Years 1950-51, 1951-52, and 1952-53:
The main question was whether the assessments for the years 1950-51, 1951-52, and 1952-53 were valid. The Income-tax Officer issued notices under section 34(1) for all three years, claiming that the income had escaped assessment. The validity of these notices was challenged on the grounds of limitation. The court concluded that the assessments for 1950-51 and 1951-52 were invalid as the notices were issued beyond the permissible period. However, the assessment for 1952-53 was deemed valid since the notice was issued within four years from the end of the assessment year.

2. Application of the Second Proviso to Section 34(3) and Its Constitutionality:
The second proviso to section 34(3) removes the time-limit for reassessment in cases where an appellate authority has made a finding or direction. The proviso was challenged as discriminatory under Article 14 of the Constitution. The court referred to the Supreme Court's majority view in Prashar v. Vasantsen Dwarkadas, which held that the proviso was invalid only insofar as it applied to third parties. Thus, the proviso was upheld as valid for the assessees who were actual parties to the appeal.

3. Jurisdiction of the Income-tax Officer Under Section 34(1) and the Effect of the Appellate Assistant Commissioner's Findings:
The Appellate Assistant Commissioner had accepted the partition between Karuppan Chettiar and his son, necessitating individual assessments. The court held that the second proviso to section 34(3) allowed the Income-tax Officer to reassess Karuppan Chettiar individually, as he was a party to the appeal. The court concluded that the proceedings initiated against Karuppan Chettiar on March 2, 1957, were valid.

4. Whether the Original Returns Filed by the Assessees Were Still Pending:
It was argued that the original returns filed by Muthukaruppan Chettiar should be deemed pending because they were closed with a "no assessment" remark. The court held that the "no assessment" remark constituted a lawful termination of the assessment proceedings, thereby allowing the Income-tax Officer to initiate proceedings under section 34. The court cited M. Ct. Muthuraman v. Commissioner of Income-tax to support this view.

Conclusion:
- The assessments for the years 1950-51 and 1951-52 were invalid due to the expiration of the limitation period.
- The assessment for the year 1952-53 was valid as the notice was issued within the permissible period.
- The second proviso to section 34(3) was upheld as valid for the assessees who were parties to the appeal, thereby allowing reassessment without a time-limit.
- The original returns were not pending, and the "no assessment" remark did not prevent the initiation of proceedings under section 34.

The court answered the questions accordingly, affirming the validity of the assessment for 1952-53 and invalidating the assessments for 1950-51 and 1951-52. Costs were awarded to the department for T.C. No. 157 of 1960, while no costs were ordered for T.C. No. 156 of 1960.