1973 (1) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Validity of assessments based on voluntary returns filed under section 22(1) of the Indian Income-tax Act, 1922.
2. Applicability of section 34 for initiating proceedings.
3. Interpretation of the second proviso to section 34(3) regarding the bar of limitation.
4. Scope of "any person" in the context of assessment under section 34(3).

Detailed Analysis:

1. Validity of Assessments Based on Voluntary Returns:
The main question was whether valid assessments could be made on May 31, 1962, for the assessment years 1948-49 and 1949-50 based on voluntary returns filed on November 18, 1950. The court held that when a return of income is filed voluntarily under section 22(1), assessment proceedings commence, and section 34 does not apply as long as these proceedings are pending. The Tribunal's view that voluntary returns exhaust themselves after four years was rejected. The court affirmed that if the bar of limitation is lifted, the proceedings revive, and the assessments can be made without issuing a notice under section 34.

2. Applicability of Section 34 for Initiating Proceedings:
The court examined whether the Income-tax Officer should have taken action under section 34 instead of proceeding based on voluntary returns. It concluded that section 34 was not applicable since the assessment had to be made in consequence of or to give effect to a finding or direction contained in an appellate order. The voluntary returns were still valid, and there was no need to issue a notice under section 34.

3. Interpretation of the Second Proviso to Section 34(3) Regarding the Bar of Limitation:
The second proviso to section 34(3) states that the bar of limitation does not apply to assessments made to give effect to any finding or direction in an appellate order. The court held that the bar of limitation was lifted by the Tribunal's order, allowing assessments to be made without time constraints. The Supreme Court's precedents supported this interpretation, affirming that voluntary returns remain valid and must be considered before proceeding under section 34.

4. Scope of "Any Person" in the Context of Assessment Under Section 34(3):
The court addressed whether the Tribunal could give a finding or direction regarding the assessee. According to the Supreme Court's decision in Income-tax Officer v. Murlidhar Bhagwan Das, "any person" includes those liable to be assessed for income related to the assessment year under appeal. The court found that the income assessed in the hands of the Hindu undivided family included the assessee's income, making the assessee liable for assessment. The Tribunal was competent to give directions relevant to the assessment years under appeal, including 1948-49 and 1949-50.

Dissenting Opinion:
One judge dissented, arguing that the second proviso to section 34(3) does not confer fresh power to make assessments without a time limit and only lifts the bar of limitation within the scope of the appellate authority's jurisdiction. The dissenting judge believed that the assessee's assessment did not depend on the Hindu undivided family's assessment for years after the partition and that no provision allowed for such a direction. Consequently, the assessments made on May 31, 1962, were considered incompetent.

Conclusion:
The majority opinion answered the question in the affirmative, supporting the department's stance. The assessments made on May 31, 1962, based on the voluntary returns filed on November 18, 1950, were deemed valid. The department was awarded costs of Rs. 200.