1960 (8) TMI 6 - SC - Income Tax

Whether the proceedings taken against the appellant under section 34 of the Act were valid? Held that - The place where an assessment under section 34 can be made has to be decided under section 64. Now the appellant was not carrying on any business, profession or vocation. He was working as the Defence Minister of the Government of India and residing in Delhi. He could be properly assessed by the Income-tax Officer, Delhi, under section 64(2) if the assessment was the original assessment. This is not in dispute. It follows that no objection can legitimately be taken by the appellant to his assessment under section 34 by the Income-tax Officer, Delhi.Appeal dismissed.

Issues Involved:
1. Maintainability of the appeal.
2. Validity of proceedings under section 34 of the Income-tax Act.
3. Jurisdiction of the Income-tax Officer, Delhi.
4. Interpretation of income escaping assessment under section 34.
5. Constitutionality of section 23A of the Income-tax Act.

Detailed Analysis:

1. Maintainability of the Appeal:
The respondent contended that the appellant, having failed to utilize the other remedies provided in the Income-tax Act, should not be allowed to approach the Supreme Court with special leave. The appellant had attempted to refer questions of law to the High Court but was unsuccessful due to a delay caused by postal issues. The Supreme Court condoned the delay and granted special leave, emphasizing that there was no attempt by the appellant to mislead the court. The court decided to hear the appeal as it involved questions of law arising from the Tribunal's judgment.

2. Validity of Proceedings under Section 34:
The main question was whether the proceedings initiated under section 34 of the Income-tax Act were valid. The appellant argued that section 34 proceedings could not be initiated by the Income-tax Officer, Delhi, as they were a continuation of the original assessment proceedings, which were conducted by the Income-tax Officer, Lahore. The court held that section 34 allows for reassessment and that the provisions of the Act, including section 64, apply to determine the place of assessment. Since the appellant resided in Delhi, the Income-tax Officer, Delhi, had jurisdiction to reassess the income.

3. Jurisdiction of the Income-tax Officer, Delhi:
The appellant contended that only the Income-tax Officer, Lahore, or his successor could initiate proceedings under section 34. The court rejected this argument, stating that section 64 determines the place of assessment, and since the appellant was residing in Delhi, the Income-tax Officer, Delhi, had the jurisdiction to reassess the income. The court found no merit in the appellant's objection to the jurisdiction of the Income-tax Officer, Delhi.

4. Interpretation of Income Escaping Assessment under Section 34:
The appellant argued that section 34 applies only to actual income escaping assessment, not to income deemed to have escaped assessment. The court disagreed, stating that section 23A creates a fictional income deemed to exist on a specified date for assessment purposes. If such income is not included in the assessment, it has escaped assessment. The court held that the income deemed to be received under section 23A had escaped assessment and was liable to reassessment under section 34.

5. Constitutionality of Section 23A:
The appellant challenged the constitutionality of section 23A, arguing that it taxed shareholders on the income of the company, which was beyond the legislative competence under entry 54 of List I in the Seventh Schedule to the Government of India Act, 1935. The court upheld the constitutionality of section 23A, stating that it was enacted to prevent tax evasion by ensuring that undistributed profits of a company controlled by a group were deemed to be distributed as dividends and taxed in the hands of the shareholders. The court emphasized that legislative entries should be read broadly to include measures preventing tax evasion.

Conclusion:
The Supreme Court dismissed the appeal, holding that the proceedings under section 34 were valid, the Income-tax Officer, Delhi, had jurisdiction, the income deemed to have been received under section 23A had escaped assessment, and section 23A was constitutional as it aimed to prevent tax evasion. The appeal was dismissed with costs.

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