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Issues Involved:
1. Whether the proceedings under section 18(7) of the Indian Income-tax Act, 1922, and section 201(1) of the Income-tax Act, 1961, were barred by limitation. Detailed Analysis: 1. Barred by Limitation under Section 18(7) of the Indian Income-tax Act, 1922, and Section 201(1) of the Income-tax Act, 1961: The Tribunal referred the question of whether the proceedings under section 18(7) of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62, and under section 201(1) of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64, were barred by limitation. The facts revealed that W. J. Woodhouse, employed by Eyre Smelting Private Ltd., left India permanently after his assessments for the years 1960-61 to 1963-64 were completed in March 1963. Subsequently, the Income-tax Officer issued a letter on 28th July 1964, proposing to rectify the assessments, which led to an enhancement of the tax payable by Woodhouse on 22nd November 1964. The Income-tax Officer then demanded the enhanced amounts from the assessee on 26th June 1965, treating the assessee as a defaulter under section 18(7) of the 1922 Act and/or section 201(1) of the 1961 Act. The assessee appealed, arguing that the recovery proceedings initiated on 26th June 1965 were beyond the statutory period of limitation. The Tribunal, relying on the decision in Commissioner of Income-tax v. Blackwood Hodge (India) P. Ltd., concluded that the proceedings were recovery proceedings and, under section 46(7) of the 1922 Act and section 231 of the 1961 Act, no proceedings for recovery could be commenced after one year from the last day of the financial year in which the demand was made. Since the proceedings were initiated by the letter dated 26th June 1965, they were deemed time-barred. Relevant Statutory Provisions: Section 18 of the Indian Income-tax Act, 1922: - Section 18(2) mandates that any person responsible for paying salaries must deduct income-tax at the time of payment. - Section 18(7) deems a person or company failing to deduct or pay the tax as an assessee in default. Section 46 of the 1922 Act: - Section 46(7) states that no recovery proceedings shall commence after one year from the last day of the financial year in which the demand is made. Section 192 of the Income-tax Act, 1961: - Similar to section 18(2) of the 1922 Act, it requires deduction of income-tax on salaries at the time of payment. Section 200 of the 1961 Act: - Mandates payment of deducted tax to the credit of the Central Government within the prescribed time. Section 201 of the 1961 Act: - Deems a person or company failing to deduct or pay the tax as an assessee in default. Section 231 of the 1961 Act: - No recovery proceedings shall commence after one year from the last day of the financial year in which the demand is made, or in the case of a deemed assessee in default, after one year from the last day of the financial year in which the assessee is deemed to be in default. Arguments and Precedents: Dr. Debi Pal, counsel for the assessee, argued that since the proceedings were initiated after the repeal of the 1922 Act and under the 1961 Act, they were governed by section 297(2)(j) of the 1961 Act, which allows recovery of sums payable under the repealed Act under the new Act. He cited the Supreme Court decision in Third Income-tax Officer v. M. Damodar Bhat, which held that recovery proceedings must comply with the applicable sections of the new Act. Dr. Pal also referenced Associated Pigment Ltd. v. Income-tax Officer and Blackwood Hodge (India) P. Ltd., where it was held that recovery proceedings initiated after the statutory period were barred by limitation. Conclusion: The court held that the employer's obligation to deduct tax occurred when the salary was paid, and the default occurred at that time, not when an order was made under section 18(7) or section 231. Therefore, the letter dated 26th June 1965, initiating recovery proceedings, was barred by limitation. The court answered the question in the affirmative and in favor of the assessee, indicating that the proceedings were indeed time-barred. Separate Judgment: C. K. Banerji J. concurred with the judgment.
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