1982 (8) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the ITO to issue notices under Section 34 and Section 23(2) of the Indian Income Tax Act, 1922.
2. Validity of the assessments for the years 1949-50, 1950-51, and 1951-52.
3. Competence of the AAC to direct fresh assessments on the non-resident company.
4. Applicability of the second proviso to Section 34(3) of the Indian Income Tax Act, 1922.
5. Bar of limitation for reassessment proceedings.

Issue-wise Detailed Analysis:

1. Jurisdiction of the ITO to Issue Notices:
The appellant challenged the notices issued under Section 34 and Section 23(2) of the Indian Income Tax Act, 1922, arguing that the ITO had no authority or jurisdiction to issue such notices for the assessment years 1949-50, 1950-51, and 1951-52. The appellant contended that these proceedings were barred by limitation and that the notices were issued based on directions given by the AAC in the appeals of Turner Morrison & Co. Ltd., which were not binding on the appellant as it was not a party to those appeals.

2. Validity of the Assessments for the Years 1949-50, 1950-51, and 1951-52:
The assessments for the years 1949-50, 1950-51, and 1951-52 were set aside by the AAC, who directed the ITO to make a direct assessment on the non-resident company, Hungerford Investment Trust Ltd. The appellant argued that the assessments were invalid as they were time-barred and the AAC had no jurisdiction to give such directions. The court, however, found that the appellant was the assessee in the proceedings for all three assessment years and that the ITO had committed an irregularity at the last stage of the reassessment proceedings for the years 1950-51 and 1951-52 and at the initial stage for the year 1949-50.

3. Competence of the AAC to Direct Fresh Assessments on the Non-resident Company:
The appellant contended that the AAC could not direct fresh assessments on the non-resident company merely because the assessments on the resident company as agents of the non-resident company were invalid. The court held that the AAC was justified in giving directions to make fresh direct assessments on the non-resident company, as the assessee remained the non-resident company throughout, and the direction only involved a change in the machinery for assessment.

4. Applicability of the Second Proviso to Section 34(3) of the Indian Income Tax Act, 1922:
The appellant argued that the second proviso to Section 34(3) was ultra vires the Constitution as it offended Article 14 by lifting the bar of limitation for assessing any person other than the assessee. The court found that the expression "any person" in the proviso must be confined to a person intimately connected with the assessment of the year under appeal. The court agreed with the learned judge of the court of the first instance that Hungerford Investment Trust Ltd. came within the mischief of the words "any person," meaning a person intimately connected with the assessment under appeal.

5. Bar of Limitation for Reassessment Proceedings:
The appellant submitted that the reassessment proceedings were barred by limitation as the time-limit for completing the assessment under Section 34(3) was four years from the end of the assessment year in which the income was first assessable. The court, however, held that the second proviso to Section 34(3) applied, and the reassessments were not barred by limitation. The court found that Hungerford Investment Trust Ltd. was intimately connected with Turner Morrison & Co. Ltd., and therefore, the reassessments were validly directed by the AAC.

Conclusion:
The appeal was dismissed, and the court upheld the validity of the reassessments and the directions given by the AAC. The court agreed with the learned judge of the court of the first instance that Hungerford Investment Trust Ltd. came within the mischief of the words "any person" and "association of persons," and the reassessments were not barred by limitation.