1951 (2) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the proceedings under Section 34 of the Indian Income-tax Act.
2. Timing and basis of the notice issued under Section 34.
3. Jurisdiction and liability to pay tax in relation to the validity of the notice.

Detailed Analysis:

1. Validity of the proceedings under Section 34 of the Indian Income-tax Act:
The primary issue for determination was whether the proceedings under Section 34 of the Indian Income-tax Act, 1922, were validly initiated. The court noted that the answer depended on the construction of Section 34, which allows the Income-tax Officer to reassess income if, in consequence of definite information, it is discovered that income has escaped assessment. The court held that the proceedings under Section 34 were valid as the Income-tax Officer had gathered information through his own calculations that part of the applicant's income had escaped assessment. The court rejected the applicant's argument that the notice was invalid because it was issued before the final order of the Commissioner of Income-tax.

2. Timing and basis of the notice issued under Section 34:
The applicant contended that the notice under Section 34 was not valid since it was issued before the final order of the Commissioner regarding the recalculation of profits. The court found this argument untenable, stating that the Income-tax Officer had sufficient information from his own recomputation to issue the notice. The court emphasized that the phrase "definite information" in Section 34 must be interpreted based on the circumstances of each case and need not be limited to information resulting from the Commissioner's order. The court distinguished the present case from other cited cases, noting that the facts were different and supported the validity of the notice.

3. Jurisdiction and liability to pay tax in relation to the validity of the notice:
The court further elaborated that even if the notice under Section 34 was defective, it would not render the proceedings illegal or the assessment null and void. The court highlighted that Section 34 is part of the assessment machinery, and the liability to pay tax is founded on Sections 3 and 4 of the Income-tax Act, which are the charging sections. The court cited precedents to support the view that the validity of the notice does not affect the jurisdiction to assess or the liability to pay tax. The court concluded that the proceedings under Section 34 were valid and the question referred by the Income-tax Appellate Tribunal should be answered in the affirmative.

Separate Judgment by Sarjoo Prosad, J.:
Sarjoo Prosad, J., concurred with the findings and reasoning of the primary judgment. He addressed the specific point raised by the applicant regarding the timing of the notice under Section 34. He clarified that the sums of money indicated in the notice had indeed escaped assessment during the relevant periods and that the Income-tax Officer's discovery was based on a correct inference. He emphasized that the notice under Section 34 contained a statement of an existing fact, even on the date it was issued, and there was no error in the notice. He agreed with the legal analysis provided by his learned brother and found no additional points to add.

Conclusion:
The court concluded that the proceedings under Section 34 of the Indian Income-tax Act were valid, and the applicant was liable for the reassessed amounts. The question of law referred by the Income-tax Appellate Tribunal was answered in the affirmative, and the applicant was ordered to pay the costs of the reference.