1979 (7) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice dated December 20, 1956, under section 22(2) read with section 25(1) of the Indian Income-tax Act, 1922.
2. Validity of the assessment for the assessment year 1957-58 based on the return filed on April 9, 1958.
3. Legitimacy of the Appellate Tribunal's decision upholding the Appellate Assistant Commissioner's order canceling the refusal of registration under section 26A of the Indian Income-tax Act, 1922.

Issue-Wise Detailed Analysis:

1. Validity of the Notice Dated December 20, 1956:
The primary question was whether the notice issued under section 22(2) read with section 25(1) of the Act on December 20, 1956, was valid and legal. The court examined the provisions of section 22(1) and (2), noting that section 22(1) required the Income-tax Officer (ITO) to give a general notice by May 1 each year for filing returns, while section 22(2) allowed the ITO to serve a specific notice to individuals whose income, in the ITO's opinion, rendered them liable to income tax. The court referenced the case Tarzan Hosiery P. Ltd. v. ITO [1968] 69 ITR 842, which held that a return could be demanded under section 139(2) of the 1961 Act before the expiry of the time allowed under section 139(1). The court concluded that the notice dated December 20, 1956, was valid and legal, as section 22(2) could operate independently and simultaneously with section 22(1).

2. Validity of the Assessment for the Assessment Year 1957-58:
The court considered whether the assessment for the assessment year 1957-58, based on the return filed on April 9, 1958, was valid. The ITO had issued the notice under section 22(2) read with section 25(1), which allowed for an accelerated assessment in the year of business discontinuance. The court cited the Supreme Court's decision in CIT v. Srinivasan and Gopalan [1953] 23 ITR 87, which clarified that section 25(1) authorized premature assessment to prevent revenue loss due to business discontinuance. Additionally, the court referred to the Federal Court's decision in Chatturam v. CIT [1947] 15 ITR 302, which established that the jurisdiction to assess and the liability to pay tax were not conditional on the validity of the notice. The court concluded that the assessment based on the return filed on April 9, 1958, was valid.

3. Legitimacy of the Appellate Tribunal's Decision on Registration under Section 26A:
The court addressed whether the Appellate Tribunal was correct in upholding the Appellate Assistant Commissioner's order canceling the refusal of registration under section 26A. The Appellate Tribunal had agreed with the AAC that the assessment was invalid due to the premature notice, and therefore, the question of refusing registration did not arise. However, given the court's finding that the notice and subsequent assessment were valid, the court concluded that the Appellate Tribunal's decision was incorrect. Consequently, the cancellation of the refusal of registration under section 26A was not justified.

Conclusion:
The court answered all three questions in the negative, in favor of the department and against the assessee. The notice dated December 20, 1956, was valid, the assessment for the assessment year 1957-58 was valid, and the Appellate Tribunal's decision to uphold the AAC's order canceling the refusal of registration under section 26A was incorrect. The department was entitled to costs assessed at Rs. 200.