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1960 (3) TMI 71 - HC - Income Tax

Issues:
Reopening of assessment under Section 34(1)(b) of the Income Tax Act, computation of the period of limitation for initiating proceedings under Section 34(1)(b), jurisdiction of the Income Tax Officer to re-open assessment, validity of notice served under Section 34(1)(b), applicability of Section 23-A in reassessment, interpretation of Section 34(1) and Section 23-A, relevance of shareholder in Section 23-A proceedings, comparison with Spencer v. Income-tax Officer and Navinchandra Mafatlal cases, consideration of Section 35 for reopening assessment.

The judgment addresses the case where the petitioner, a shareholder in a company falling under Section 23-A of the Income Tax Act, challenged the reopening of assessment under Section 34(1)(b). The assessment year was 1950-51, and an order under Section 23-A was passed against the company in 1957. The petitioner sought a writ of prohibition, later deemed as a writ of certiorari, to set aside the notice served on 14-9-1957. The main issue revolved around the computation of the four-year limitation period under Section 34(1)(b). The petitioner argued the period ended on 31-3-1955, rendering the notice invalid. The Department contended the limitation should be from the order under Section 23-A or that no limitation applied due to Section 23-A's provisions.

The judgment delves into the interpretation of Section 34(1) and Section 23-A in light of previous case laws. It references Spencer v. Income-tax Officer, emphasizing the assessment year as the reference point for limitation computation under Section 34. It contrasts with Navinchandra Mafatlal case, where the Bombay High Court held the limitation starts after an order under Section 23-A. However, a subsequent case clarified that the limitation is tied to the assessment year of the shareholder, not the company's order under Section 23-A. The Court agreed with this interpretation, emphasizing Section 34's focus on the assessee's assessment year.

Regarding the applicability of Section 23-A in reassessment, the judgment dismisses the Department's argument that reassessment could occur under Section 23-A alone. It clarifies that Section 23-A is procedural and does not cover assessment or reassessment. Reassessment in this case was initiated under Section 34(1)(b), ensuring the shareholder's assessment could not be reopened without recourse to Section 34. The judgment highlights the necessity of notice to the shareholder before reassessment, aligning with the scheme of the Income Tax Act.

The judgment concludes that the Income Tax Officer lacked jurisdiction to reopen the assessment due to the notice being served after the limitation period expired. As a valid notice is a prerequisite for jurisdiction under Section 34, the Court issued a writ of certiorari to set aside the notice and subsequent assessment. The ruling underscores the importance of adhering to the prescribed limitation periods and the necessity of a valid notice for reassessment under the Income Tax Act.

 

 

 

 

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