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Issues Involved
1. Jurisdiction of the Income-tax Officer under Section 34 of the Indian Income-tax Act, 1922. 2. Retrospective application of Section 34 as amended by the Income-tax and Business Profits Tax (Amendment) Act, 1948. Issue-wise Detailed Analysis 1. Jurisdiction of the Income-tax Officer under Section 34 of the Indian Income-tax Act, 1922 The petitioner challenged the jurisdiction of the Income-tax Officer to reassess under Section 34, asserting that the necessary conditions precedent for such jurisdiction were absent. The court examined whether it could review the sufficiency of materials that led the Income-tax Officer to believe there was ground for action under Section 34. The court noted that the jurisdiction of the Income-tax Officer is based on his "reason to believe" that certain conditions exist. This belief does not need to be based on sufficient legal evidence, but it must be honest. The court cited the case of Rex v. Kensington Income Tax Commissioner, where the term "discover" was interpreted to mean "has reason to believe." The court emphasized that the Income-tax Officer must have some material before him to form this belief, and if there is prima facie ground for his belief, the court cannot interfere, even if the belief is erroneous. The court further referenced the case of Nakkuda Ali v. Jayaratna, which interpreted "has reasonable grounds to believe" as requiring the existence of such grounds known to the person forming the belief. The affidavit in opposition by the Income-tax Officer indicated that the company had systematically carried on a trade in the sale of investments, contrary to its initial representation of casual transactions. This provided a basis for the Income-tax Officer's belief that there was under-assessment due to failure to disclose material facts. The court concluded that the Income-tax Officer had jurisdiction to determine the existence of preliminary facts and proceed under Section 34, and any erroneous decision on these facts should be addressed through appeals as provided by the Income-tax Act, not through writs of prohibition or certiorari. 2. Retrospective application of Section 34 as amended by the Income-tax and Business Profits Tax (Amendment) Act, 1948 The petitioner contended that the amended Section 34 could not apply retrospectively to assessments for the years 1942-43, 1943-44, and 1944-45. The court examined whether the amendment had retrospective effect. It referenced the Judicial Committee of the Privy Council's interpretation in Commissioner of Income-tax, Bengal v. Mahaliram Ramjidas, which stated that Section 34 deals with the machinery of assessment and does not impose a charge. Generally, statutes are prospective unless explicitly stated otherwise, but procedural statutes can be retrospective unless they affect substantive rights. The court noted that the amendment to Section 34 introduced new grounds for reassessment and extended the period for completing assessments. These changes affected substantive rights, thus the amendment could not be applied retrospectively unless explicitly stated. The Amending Act of 1948 specified that Sections 3 to 12, including the amendment to Section 34, were operative from 30th March, 1948, but did not provide for further retrospective operation. Therefore, the amendment did not apply to the assessments in question, which were governed by the pre-1948 version of Section 34. The court concluded that the Income-tax Officer's actions based on the amended Section 34 were without jurisdiction. Consequently, the notices issued under the amended section and the subsequent proceedings were invalid. The court made the rule absolute, prohibiting the respondents from proceeding with the assessments based on the notices dated 28th March, 1951, under the amended Section 34. No order for costs was made due to the complexity of the legal question involved.
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