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1959 (5) TMI 18 - SC - Income TaxWhether the notice issued under section 34 of the Act by the Income-tax Officer on February 27, 1950, after the assessee had filed a voluntary return was valid in law ? Whether the assessment made on February 26, 1951, is valid in law ? Held that - If the Income-tax Officer had acted on that return and assessed the assessee before March 31, 1950, the assessment would have been valid. He chose to ignore the return, and served on the assessee a notice under section 34(1). This notice was improper, because with the return already filed, there was neither an omission nor a failure on the part of the assessee, nor was there any question of assessment escaping . The notice under section 34(1) was, therefore, invalid and the consequent assessment, equally so. We accordingly agree with the judgment under appeal. Appeal dimssied
Issues Involved:
1. Validity of the notice issued under section 34 of the Indian Income-tax Act after the assessee had filed a voluntary return. 2. Validity of the assessment made on February 26, 1951. Detailed Analysis: 1. Validity of the Notice Issued Under Section 34: The primary issue was whether the notice issued under section 34 of the Indian Income-tax Act on February 27, 1950, after the assessee had filed a voluntary return on January 5, 1950, was valid in law. - Arguments and Contention: The assessee contended that since he had submitted a return under section 22(3) of the Act on January 5, 1950, the assessment, if any, had to be completed before March 31, 1950, as required by section 34(3) of the Act. He argued that with a voluntary return already before the Income-tax Officer, there was no scope for issuing a notice under section 34. - High Court's Decision: The High Court upheld the assessee's contention, stating that the Department should have issued a notice under section 22(2) within the assessment year. If no return was made within the time fixed by the notice, the Department should have proceeded under section 23(4) to a "best judgment" assessment. The High Court concluded that a notice under section 34 could not be issued after a voluntary return was already filed, and the extended period of limitation for assessment under section 34(3) was not applicable in this case. - Supreme Court's Analysis: The Supreme Court examined the conflicting views between the Bombay High Court and the Calcutta High Court. The Calcutta High Court's view was that a return showing income below the taxable limit was not a valid return under section 22(1). In contrast, the Bombay High Court held that a "voluntary" return showing a non-taxable income was still a valid return under the Act. The Supreme Court favored the Bombay view, stating that a return, even if showing income below the taxable limit, is still a return in law and cannot be ignored. - Conclusion: The Supreme Court concluded that the notice under section 34(1) issued on February 27, 1950, was invalid because the assessee had already filed a return on January 5, 1950. There was no omission or failure on the part of the assessee, and thus, no question of income escaping assessment arose. Therefore, the notice under section 34(1) was improper, and the consequent assessment was equally invalid. 2. Validity of the Assessment Made on February 26, 1951: The second issue was whether the assessment made on February 26, 1951, was valid in law. - Arguments and Contention: The assessee argued that the assessment completed on February 26, 1951, was invalid as it was completed four years after the end of the relevant assessment year. The Department argued that the period for taking action under section 34 was extended to eight years due to the assessee's suppression of income or incorrect particulars. - High Court's Decision: The High Court answered the question in the negative, agreeing with the assessee's contention that the assessment should have been completed before March 31, 1950, as required by section 34(3) of the Act. - Supreme Court's Analysis: The Supreme Court reiterated that the return filed on January 5, 1950, was a valid return, and the Income-tax Officer should have acted on it. The assessment should have been completed on or before March 31, 1950. The notice under section 34(1) and the assessment made on February 26, 1951, were invalid as the conditions under section 34(1) were not met. - Conclusion: The Supreme Court agreed with the High Court's judgment that the assessment made on February 26, 1951, was invalid. The appeal by the Commissioner of Income-tax was dismissed, and the High Court's answers were upheld. Final Judgment: The Supreme Court dismissed the appeal with costs, affirming the High Court's decision that both the notice issued under section 34 and the assessment made on February 26, 1951, were invalid. The answers given by the High Court of Bombay were correct in all the circumstances of this case. The appeal thus fails, and is dismissed with costs.
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