1977 (7) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in applying the second proviso to section 34(1) of the Income-tax Act.
2. Whether Turner Morrison & Co. Ltd. was deemed to be an agent of Hungerford Investment Trust Ltd. under section 43 of the Income-tax Act.
3. Whether the question that Turner Morrison & Co. Ltd. was not deemed to be an agent by the Income-tax Officer under section 43 was ever canvassed before the Tribunal.

Issue-wise Detailed Analysis:

1. Justification of Applying the Second Proviso to Section 34(1) of the Income-tax Act:
The Tribunal held that the assessment could be reopened only under section 34(1)(b) and since the assessee was assessed as an agent of a non-resident principal, the second proviso to section 34(1) applied. This proviso restricts the period for such reassessment to two years from the end of the assessment year, as opposed to the four years provided in the substantive part of section 34(1)(b). The notice under section 34(1)(b) was issued on 9th June 1956, which was beyond the two-year limitation period, rendering it illegal and void. Consequently, the Income-tax Officer had no jurisdiction to reopen the assessment for the year under reference, and the reassessment was set aside.

2. Deemed Agency under Section 43 of the Income-tax Act:
The Tribunal was directed to submit a further statement of the case to clarify whether Turner Morrison & Co. Ltd. was deemed to be an agent under section 43. The Tribunal confirmed that no notice was issued under section 43 appointing Turner Morrison & Co. Ltd. as a statutory agent for the relevant assessment year. The Tribunal also noted that it was not canvassed before them that the Income-tax Officer treated Turner Morrison & Co. Ltd. as an agent under any other section, such as section 40(2). The Tribunal rejected the Income-tax Officer's application under section 35, which sought to treat Turner Morrison & Co. Ltd. as natural agents under section 40(2), because this contention was not raised during the hearing of the appeal.

3. Canvassing of Agency under Section 43 Before the Tribunal:
The department's counsel argued that Turner Morrison & Co. Ltd. should be considered agents under section 40(2) instead of section 43, as no notice under section 43 was served. However, this argument was not raised before the Tribunal initially. The Tribunal had proceeded on the basis that Turner Morrison & Co. Ltd. were deemed agents under section 43, as evidenced by the department's consistent approach in previous assessments and the Tribunal's rejection of the rectification application. The court held that the new contention could not be considered a mere facet of the original question and could not be raised at this stage. The Tribunal was justified in applying the second proviso to section 34(1) based on the department's initial stance.

Conclusion:
The court answered the question in the affirmative, in favor of the assessee, concluding that the Tribunal was justified in applying the second proviso to section 34(1) of the Income-tax Act, thereby rendering the notice barred by limitation. The contention that Turner Morrison & Co. Ltd. could be agents under section 40(2) was not entertained as it was not raised before the Tribunal initially.