1978 (4) TMI 50 - HC - Income Tax

Issues Involved:
1. Validity of reopening assessment under Section 147(a) read with Section 148 of the Income-tax Act, 1961.
2. Applicability of Section 297(2)(d)(ii) of the Income-tax Act, 1961.
3. Interpretation of Section 34(1)(a) of the Indian Income-tax Act, 1922.
4. Impact of amendments made by the Finance Act, 1956, and the Income-tax (Amendment) Act, 1959.
5. Applicability of Supreme Court ruling in J. P. Jani, ITO v. Induprasad Devshanker Bhatt.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147(a) read with Section 148 of the Income-tax Act, 1961:
The Income-tax Officer (ITO) initiated proceedings under Section 147(a) of the Income-tax Act, 1961, with prior approval, by issuing a notice under Section 148 on February 3, 1964, which was served on the assessee on February 12, 1964. The Tribunal concluded that the action of the ITO in reopening the assessment was bad in law. This view was based on the reasoning that the right to reopen the assessment was already barred under Section 34(1)(a) of the Indian Income-tax Act, 1922, on April 1, 1962, when the 1961 Act came into force. Therefore, Section 297(2)(d)(ii) of the 1961 Act did not revive the right of the ITO to reopen the assessment.

2. Applicability of Section 297(2)(d)(ii) of the Income-tax Act, 1961:
Section 297(2)(d)(ii) of the 1961 Act enables the ITO to issue the notice under Section 148 read with Section 147(a) as no proceeding for reassessment had been pending under Section 34 of the 1922 Act when the 1961 Act came into force. The notice issued was also within the time limit of sixteen years prescribed by Section 149(1)(a)(ii) of the 1961 Act. However, the Supreme Court ruling in J. P. Jani's case established that Section 297(2)(d)(ii) of the 1961 Act does not take away any right vested in the assessee by the operation of the 1922 Act.

3. Interpretation of Section 34(1)(a) of the Indian Income-tax Act, 1922:
Section 34(1)(a) of the 1922 Act, as it stood from time to time, was examined. The section allowed the ITO to reopen assessments if income had escaped assessment due to omission or failure by the assessee. The relevant time limit for reopening assessments under this section was eight years. The amendments made by the Finance Act, 1956, removed the time limit of eight years for cases where the escapement of income was rupees one lakh or more. However, this change did not apply retroactively to cases where the time limit had already expired before the amendment.

4. Impact of Amendments Made by the Finance Act, 1956, and the Income-tax (Amendment) Act, 1959:
The Finance Act, 1956, and the Income-tax (Amendment) Act, 1959, significantly altered Section 34. The 1956 Act removed the eight-year limit for cases involving escapement of rupees one lakh or more. The 1959 Act added sub-section (4) to Section 34, which allowed reopening assessments even if the eight-year period had expired before the 1956 amendment. This sub-section was intended to override the vested right that the assessee had acquired after the expiry of the eight-year period under the 1948 Act.

5. Applicability of Supreme Court Ruling in J. P. Jani, ITO v. Induprasad Devshanker Bhatt:
In J. P. Jani's case, the Supreme Court ruled that Section 297(2)(d)(ii) of the 1961 Act does not revive the right to reopen assessments that had already become time-barred under the 1922 Act. However, this case involved an escapement of income less than rupees one lakh, and the eight-year limit was still applicable. In the present case, the escapement was rupees one lakh, making the 1956 and 1959 amendments relevant. The ruling in Jani's case did not consider sub-section (4) of Section 34, which was crucial to the present case.

Conclusion:
The court concluded that the vested right accruing to the assessee after the expiry of eight years under Section 34(1)(a) before its amendment in 1956 was taken away by sub-section (4) introduced by the 1959 Act. Therefore, the right to reassess the assessee was not barred before April 1, 1962, when the 1961 Act came into force. The notice issued by the ITO in February 1964 under Section 148 read with Section 147(a) of the 1961 Act was valid. The Tribunal was not justified in holding that the action of the ITO in reopening the assessment was bad in law.

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