1966 (10) TMI 26 - SC - Income Tax

Whether the notice dated 23rd February 1950 was validly issued under section 34 or not? Whether the order of assessment dated 2nd May 1956 made by the P.I.T.O. was barred by time? Held that - Since the case of the assessee was transferred to the P.I.T.O. at the stage when no proceeding was pending before the A.I.T.O. the P.I.T.O. became seized of the jurisdiction to take any proceedings against the assessee which the law permitted. It was clearly in exercise of this jurisdiction that the P.I.T.O. issued the subsequent notice dated 11th February 1956. That notice was therefore competently issued by him and was also valid because it was issued before the expiry of eight years from the end of the relevant assessment year 1947-48. The notice having been issued validly within the period of limitation permitted by section 34(3) the actual order of assessment could be made validly before the expiry of the period of one year from the date of the notice. The order of assessment dated 2nd May 1956 was Consequently a valid order and was not barred by time. In the circumstances the answer returned by the High Court to the two questions referred to it has to be held to be incorrect. Both the questions have to be answered against the assessee and in favour of the Commissioner of Income-tax so that the answer returned by the High Court to the two questions is set aside the first question is answered in the affirmative and the second in the negative. Appeal allowed.

Issues Involved:
1. Validity of the notice under section 34 issued by the Principal Income-tax Officer (P.I.T.O.) on 11th February, 1956.
2. Whether the assessment dated 2nd May, 1956, made by the P.I.T.O. was barred by time.

Detailed Analysis:

1. Validity of the notice under section 34 issued by the Principal Income-tax Officer on 11th February, 1956:

The assessee initially filed a voluntary return showing a net loss of Rs. 330 for the assessment year 1947-48. Before the proceedings could be completed, there was a change in territorial jurisdiction, and the assessee's case fell within the jurisdiction of the 8th Additional Income-tax Officer (A.I.T.O.), who issued a notice under section 34 on February 23, 1950. On February 4, 1952, the A.I.T.O. passed an order stating, "The case is, therefore, filed," which led to the interpretation that the proceedings were terminated.

The P.I.T.O. issued a subsequent notice under section 34 on 11th February, 1956, and made an assessment on 2nd May, 1956. The High Court held that the notice dated 23rd February, 1950, was valid and the proceedings on it were continuing, thus rendering the subsequent notice invalid. However, the Supreme Court disagreed, interpreting the A.I.T.O.'s order as terminating the proceedings. The Court stated, "the word 'filed' should be interpreted as being equivalent to 'disposed of'," meaning no proceedings on the basis of the notice dated 23rd February, 1950, remained pending before the A.I.T.O.

The Supreme Court referenced the Esthuri Aswathiah case, where an order "no proceedings" was interpreted as the Income-tax Officer accepting the return and assessing the income as "nil." Similarly, in Haji Mohamed Mian v. Commissioner of Income-tax, the Calcutta High Court interpreted the order to "file" as terminating the proceedings. Thus, the Supreme Court concluded that the P.I.T.O.'s notice dated 11th February, 1956, was validly issued.

2. Whether the assessment dated 2nd May, 1956, made by the Principal Income-tax Officer was barred by time:

The High Court held that the assessment was barred by limitation, as it should have been completed by 31st March, 1956. However, the Supreme Court found that since the A.I.T.O. had terminated the proceedings on 4th February, 1952, the P.I.T.O. had the jurisdiction to issue the subsequent notice on 11th February, 1956, which was within the eight-year limitation period allowed by section 34(3).

The Supreme Court clarified that the term "case" in the context of section 5(7A) includes both pending and future proceedings. Therefore, the transfer order by the Commissioner on 30th December, 1955, was valid, even if no specific proceeding was pending at the time. The P.I.T.O. was thus competent to issue the notice and make the assessment.

The Supreme Court concluded that the assessment dated 2nd May, 1956, was valid and not barred by time, as it was made within one year from the date of the valid notice issued on 11th February, 1956.

Conclusion:

The Supreme Court set aside the High Court's answers to the two questions, ruling in favor of the Commissioner of Income-tax. The first question was answered in the affirmative, validating the notice under section 34 issued on 11th February, 1956, and the second question was answered in the negative, confirming that the assessment dated 2nd May, 1956, was not barred by time. The appeal was allowed with costs awarded to the Commissioner in both the Supreme Court and the High Court.

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