1961 (10) TMI 1 - SC - Income Tax

Whether no notice under section 34 of the Income-tax Act could be issued because of the lapse of eight years from the end of the accounting year? Held that - The period of limitation, whether it is eight years for cases falling under section 34(1)(a) or four years falling under section 34(1)(b), has to be computed from the end of that year. Though the expression year has not been further defined by section 34 itself, it should be clear from the context to the section itself that the year referred to is the assessment year and has no reference to the accounting year, which is elsewhere specified by the Act itself as the previous year. Appeal allowed.

Summary

Issues:
Interpretation of section 34(1)(a) of the Indian Income-tax Act - Meaning of "any year" - Assessment year versus accounting year.

Analysis:
The case involved an appeal against the judgment of the High Court of Mysore regarding the interpretation of section 34(1)(a) of the Indian Income-tax Act. The appellant, the first Additional Income-tax Officer, issued a notice to the respondent under section 34(1)(a) for the assessment year 1948-49, alleging that income had escaped assessment. The respondent objected, citing the lapse of eight years from the end of the accounting year. The High Court construed "any year" in section 34(1)(a) to refer to the accounting year, leading to the respondent filing a petition under article 226 of the Constitution. The key question was whether "any year" in section 34(1)(a) referred to the assessment year or the accounting year.

The appellant argued that "any year" in section 34(1)(a) referred to the assessment year, as per the provisions of the Income-tax Act and the Indian Finance Act, 1948. The Finance Act specified rates for income tax for the year beginning April 1, 1948, with assessments for the year ending March 31, 1949. Additionally, section 22(1) required a return for the assessment year based on the total income of the previous year, indicating that income tax is assessed for the assessment year on the income of the previous year.

The Supreme Court analyzed previous judgments, including Pannalal Nandlal Bhandari v. Commissioner of Income-tax and Spencer v. Income-tax Officer, Madras, to support the interpretation that "any year" in section 34(1)(a) referred to the assessment year and not the accounting year. The Court held that the High Court's interpretation was erroneous and that the correct understanding was that the words "that year" in section 34(1)(a) had reference to the assessment year. Therefore, the appeal was allowed, the High Court's judgment was set aside, and the respondent was ordered to pay costs.