1955 (4) TMI 1 - SC - Income Tax

Whether, on the facts, it can be said that income chargeable to income-tax has escaped assessment in the relevant year? Held that - The Indian Finance Act of 1939 must be assumed even factually to have come into operation on the date specified and the tax must be taken to have become chargeable in that very year, though the actual liability for payment could not arise until proper and valid steps are taken for quantification of the tax. The contention, therefore, of the appellant that the income was not chargeable to tax in the year 1939-40 cannot be accepted. Thus the income of the assessee chargeable to income-tax escaped assessment in the relevant year 1939-40. Appeal dismissed.

Issues Involved:
1. Validity of the notice issued under section 34 of the Indian Income-tax Act.
2. Whether the income chargeable to tax has escaped assessment.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 34 of the Indian Income-tax Act:

The central issue in this appeal is the validity of the notice issued on 12th February 1944 under section 34 of the Indian Income-tax Act for the assessment year 1939-40. The assessment proceedings were initially set aside by the Income-tax Appellate Tribunal and confirmed by the High Court of Patna on the basis that the Indian Finance Act of 1939 was not in force in Chota Nagpur during the relevant period. Subsequently, the Governor of Bihar promulgated Bihar Regulation IV of 1942, retrospectively applying the Indian Finance Act of 1939 to Chota Nagpur.

The Income-tax Officer issued a fresh notice under section 34 on 12th February 1944, after the High Court's judgment and the promulgation of the Regulation. The appellant argued that the notice was invalid because all relevant information was already in the possession of the Income-tax Officer during the original assessment in 1939, and there was no new "definite information" leading to the discovery of escaped income.

The Court reasoned that the discovery of escaped income is not limited to new factual information but includes legal developments. The High Court's judgment and the retrospective application of the Finance Act constituted "definite information," enabling the Income-tax Officer to discover that the income had escaped assessment. Therefore, the notice issued on 12th February 1944 was valid.

2. Whether the Income Chargeable to Tax Has Escaped Assessment:

The appellant contended that the income did not escape assessment because it was initially assessed in 1939, and the proceedings only became infructuous due to the High Court's decision. The Court examined the scheme of the Income-tax Act and its relationship with the annual Finance Act. The Act provides the machinery for levying income tax, while the Finance Act imposes the obligation to pay tax for each year.

The Court noted that income is chargeable to tax independent of the Finance Act's passage, but the actual liability and quantification depend on the Finance Act. The retrospective application of the Finance Act of 1939 by Regulation IV of 1942 meant that the income was chargeable to tax in 1939-40, even though the initial assessment proceedings were invalidated.

The Court held that the failure of the original assessment proceedings due to the lack of legal authority (i.e., the Finance Act not being in force) constituted an "escapement" of income from assessment. The retrospective application of the Finance Act did not validate the original assessment but necessitated fresh proceedings under section 34.

The Court concluded that the income chargeable to tax had indeed escaped assessment in the relevant year, and the notice issued under section 34 was valid. Consequently, the appeal was dismissed with costs.

Conclusion:

The Supreme Court upheld the validity of the notice issued under section 34 of the Indian Income-tax Act and confirmed that the income chargeable to tax had escaped assessment for the year 1939-40. The appeal was dismissed with costs.

← Previous Next →