1981 (8) TMI 6 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice under Section 34(1) of the Indian Income-tax Act, 1922.
2. Applicability of Section 24B of the Indian Income-tax Act, 1922, to the trustees.
3. Jurisdiction of the Income Tax Officer (ITO) to reopen assessments.
4. Liability of trustees and legal representatives for tax assessments of the deceased.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 34(1) of the Indian Income-tax Act, 1922:
The petition challenges the issuance of a notice to the trustees under Section 23(2) of the Indian Income-tax Act, 1922, on November 15, 1975. The assessments in question pertain to the years 1947-48, 1948-49, and 1949-50. The ITO had observed that "huge withdrawals the assessee makes are utilised in some investments and this particular source is not disclosed by the assessee." The ITO did not wait for the account books and proceeded to make assessments based on the available information, stating that the income was assessed "subject however to revision under s. 34 in case the actual income is found to be higher afterwards."

2. Applicability of Section 24B of the Indian Income-tax Act, 1922, to the Trustees:
The petitioners contended that under Section 24B(1), no tax liability can be fastened upon them nor any inquiry or proceeding could be started and continued against them except for the year which is the previous accounting year of the deceased. They argued that proceedings under Section 34 read with Section 24B of the Act cannot be continued against the trustees and legal representatives of the deceased. The trustees pointed out that the properties which are the subject matter of the trust were acquired by the assessee long before the disputed assessments were sought to be reopened, namely, prior to the accounting year 1946-47.

3. Jurisdiction of the Income Tax Officer (ITO) to Reopen Assessments:
The ITO issued notices under Section 34 of the Act to Shamji Kheta for the assessment years 1947-48, 1948-49, and 1949-50, in 1956, 1957, and 1958, respectively. The petitioners argued that the ITO had no jurisdiction to issue these notices as the assessments were not attempted to be reopened on the basis of information subsequently received, but on the basis of a failure to file a return or failure "to disclose fully and truly all material facts necessary" for the assessments of those years. The ITO had already assessed the income based on the available material, and therefore, it was contended that the income could not be deemed to have escaped assessment.

4. Liability of Trustees and Legal Representatives for Tax Assessments of the Deceased:
The petitioners contended that the liability of the executors, administrators, or legal representatives of a deceased assessee to pay tax out of the estate of the deceased was confined only to the income of the year of death of the assessee. They relied on the provisions of Section 24B(1) and argued that the trustees or executors could not be called upon to participate in a proceeding relating to reassessment of the deceased assessee not for the previous year of his death, but many years earlier. The Supreme Court in CIT v. Amarchand N. Shroff [1963] 48 ITR (SC) 59 and CIT v. James Anderson [1964] 51 ITR 345 (SC) had held that Section 24B did not authorize the levy of tax on the income of the deceased person in the year of assessment succeeding the year, being the previous year in which such person died.

Conclusion:
The court concluded that the making of an assessment by the ITO does not bar the issuance of notices under Section 34 of the Act where the conditions precedent laying down the circumstances in which the ITO acquires jurisdiction to issue a notice under Section 34 of the Act are satisfied. However, the court held that the trustees or executors could not be compelled by a notice under Section 34(1)(b) issued by the ITO either to file a return or to produce any documents or information as contemplated by Section 24B of the Act. Therefore, the directions of the ITO to appear and take part in the proceeding were quashed. The petition was allowed, and the rule was made absolute in the above terms.