1933 (5) TMI 17 - HC - Income Tax

Summary

Issues:
1. Can an assessment be made under Section 34 on the successor of a person if income has escaped assessment?
2. Does the validity of such assessment get affected if the succession took place after the year in which the income escaped assessment?
3. Can proceedings under Section 34 continue against the successor of a person who has already made a return in response to the notice, or should proceedings against the successor start de novo?

Analysis:

Issue 1:
The case involved three questions referred by the Commissioner of Income Tax, Madras. The first question was whether an assessment can be made under Section 34 on the successor of a person if income has escaped assessment. The judgment clarified that the notice under Section 34 was served on the deceased husband, who was alive at the time to respond to the notice. The court held that the successor, in this case, the widow, could be assessed under Section 26(2) as if she had been carrying on the business during the year of account and received the profits herself. Thus, the assessment on the successor was deemed legal in this scenario.

Issue 2:
The second question raised was whether the succession occurring after the year in which the income escaped assessment affects the validity of the assessment. The judgment explained that the key times for assessment under Section 26(2) are the date of assessment and the year of account. As the widow was found to be carrying on the business at the time of assessment, she was rightfully assessed as the successor. Therefore, the court answered this question in the negative, stating that the succession timing did not invalidate the assessment.

Issue 3:
The final question was regarding the continuation of proceedings against the successor when a notice under Section 34 had been served on the original person. The petitioner argued that proceedings against the successor should start de novo. However, the court held that the Income Tax Officer could proceed to assess the successor under Section 26(2) if it was discovered during the assessment that another person had succeeded the predecessor. The judgment emphasized that the notice under Section 34 served on the deceased husband attracted the provisions of Sections 23 and 26, allowing for the assessment of the successor without starting proceedings de novo. Therefore, the court answered this question by stating that proceedings against the successor should not be initiated de novo.

In conclusion, the court answered the three questions posed by the Commissioner of Income Tax, Madras, affirmatively, negatively, and by rejecting the need to start proceedings against the successor de novo. The petitioner was directed to pay costs to the Income Tax Commissioner. The judges Cornish and Bardswell concurred with the judgment delivered by Chief Justice Horace Owen Compton Beasley.