1958 (4) TMI 7 - SC - Income Tax

Did the Income-tax Officer concerned have jurisdiction to issue the notice under section 34 of the Indian Income-tax Act, 1922, and to make a re-assessment order pursuant to such notice ? Held that - We hold that the saving provisions save section 34 of the Indian Income-tax Act, 1922, in its entirety, as it was in force in the retroceded area prior to July 1, 1948, and the contention of the respondent that it stood repealed from that date is not correct. As to the period of limitation, it would be the period laid down in section 34 of the Indian Income-tax Act as it was in force in the retroceded area prior to July 1, 1948. The result, therefore, is that these appeals succeed and the judgment and order of the High Court of Mysore dated March 22, 1955, are set aside and the writ petitions filed by the respondent assessee are dismissed. Appeal allowed.

Issues Involved:
1. Jurisdiction of the Income-tax Officer to issue a notice under section 34 of the Indian Income-tax Act, 1922.
2. Interpretation of section 13(1) of the Finance Act, 1950.
3. Impact of the financial agreement between the President of India and the Rajpramukh of Mysore dated February 28, 1950.
4. Interpretation of the saving provisions in section 5(b) of Mysore Act XXXI of 1948 and paragraph (2), sub-paragraph (b) of Schedule A to Mysore Act LVII of 1948.
5. Period of limitation for re-assessment under section 34 of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer:
The principal question was whether the Income-tax Officer had the jurisdiction to issue a notice under section 34 of the Indian Income-tax Act, 1922, and to make a re-assessment order pursuant to such notice. The High Court had held that the Income-tax Officer did not have jurisdiction, but the Supreme Court overturned this decision. The Supreme Court found that the saving provisions in the Mysore Acts and the Finance Act, 1950, preserved the applicability of section 34 for re-assessment purposes.

2. Interpretation of section 13(1) of the Finance Act, 1950:
The High Court had interpreted section 13(1) narrowly, stating that it did not include re-assessment proceedings. However, the Supreme Court disagreed, holding that the expression "levy, assessment and collection of income-tax" in section 13(1) is broad enough to encompass re-assessment proceedings under section 34. This interpretation aligns with the comprehensive meaning of "assessment" to include re-assessment of escaped income.

3. Financial Agreement of February 28, 1950:
The High Court did not rule on the argument that the financial agreement rendered the re-assessment proceedings unconstitutional. However, the Supreme Court addressed this issue, stating that the financial agreement, when read with the recommendations of the Indian States Finances Enquiry Committee, did not invalidate the re-assessment proceedings. The financial agreement did not alter the applicability of section 34 of the Indian Income-tax Act, 1922.

4. Interpretation of Saving Provisions in Mysore Acts:
The Supreme Court examined the saving provisions in section 5(b) of Mysore Act XXXI of 1948 and paragraph (2), sub-paragraph (b) of Schedule A to Mysore Act LVII of 1948. These provisions stated that the Indian Income-tax Act, 1922, as in force in the retroceded area prior to July 1, 1948, would apply to proceedings relating to the assessment of income until the stage of assessment and determination of income-tax. The Supreme Court held that these provisions saved section 34 in its entirety, allowing for re-assessment proceedings. The term "assessment" was interpreted to include re-assessment, thus preserving the authority to re-assess under section 34.

5. Period of Limitation for Re-assessment:
The Supreme Court clarified that the period of limitation for re-assessment would be governed by section 34 of the Indian Income-tax Act, 1922, as it was in force in the retroceded area prior to July 1, 1948. This meant that the re-assessment notices issued by the Income-tax Officer were within the permissible time frame.

Conclusion:
The Supreme Court allowed the appeals, setting aside the judgment and order of the High Court of Mysore dated March 22, 1955. The writ petitions filed by the respondent assessee were dismissed, and the appellant was awarded costs in both the Supreme Court and the High Court. The judgment clarified the jurisdiction and applicability of section 34 of the Indian Income-tax Act, 1922, for re-assessment purposes in the retroceded area, and affirmed the broad interpretation of "assessment" to include re-assessment.

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