1961 (2) TMI 86 - HC - Income Tax

Summary

Issues Involved:
1. Refusal of firm registration by the Income-tax Officer.
2. Petitioner's status as a non-resident.
3. Jurisdiction of the Income-tax Officer to rectify the assessment.
4. Compliance with principles of natural justice.
5. Validity of proceedings under Section 35 versus Section 34 of the Income-tax Act.
6. Double assessment of the same income.

Detailed Analysis:

1. Refusal of Firm Registration by the Income-tax Officer:
The petitioner and Murugan were partners in a firm, which was refused registration by the Income-tax Officer for the assessment year 1951-52, as in previous years. The Appellate Assistant Commissioner allowed the firm's appeal for 1951-52, setting aside the Income-tax Officer's refusal to register the firm.

2. Petitioner's Status as a Non-Resident:
The petitioner, a resident of Ceylon, claimed non-resident status. Initially, the Income-tax Officer treated him as resident and ordinarily resident, resulting in a "no demand" assessment since his share of the firm's income (treated as an unregistered firm) had already been assessed. Later, the Income-tax Officer rectified the assessment to treat the petitioner as a non-resident and assessed his share of the profits from the now-registered firm.

3. Jurisdiction of the Income-tax Officer to Rectify the Assessment:
The Income-tax Officer issued a notice under Section 35 to rectify the assessment, treating the petitioner as a non-resident and assessing his share of the firm's profits. However, this rectification was initially done without notice to the petitioner and was later canceled. The Income-tax Officer reissued the notice, but the petitioner did not file objections, leading to the final order on February 19, 1959.

4. Compliance with Principles of Natural Justice:
The petitioner argued that he was not given an effective opportunity to present his objections before the final order was passed. The court held that both the department and the petitioner were under the misapprehension that the interim stay was still in effect. The petitioner was not given a fresh opportunity to object after the stay was clarified, violating principles of natural justice.

5. Validity of Proceedings under Section 35 versus Section 34 of the Income-tax Act:
The court examined whether the rectification under Section 35 was valid. It was held that the description of the firm as unregistered in the original assessment order constituted a mistake apparent from the record, justifying rectification under Section 35. The court also discussed whether the case should have been reopened under Section 34 instead, noting that the requirements of both sections were satisfied but chose to uphold the rectification under Section 35.

6. Double Assessment of the Same Income:
The court noted that the assessment of the firm as an unregistered firm was left intact, and the same income was assessed again as the petitioner's share, violating Section 23(5)(a) and Section 23(6) of the Act. The order did not clarify how the adjustments for the tax paid by the firm were carried out, leading to potential double taxation.

Conclusion:
The court allowed the petition, issuing a writ of certiorari to set aside the order dated February 19, 1959, due to the violation of principles of natural justice and the improper double assessment of the same income. The parties were directed to bear their respective costs.