1967 (3) TMI 1 - SC - Income Tax

Reassessment - service of notice - reassessment for 1945-46 made on March 9, 1955, was valid - appeal of department is allowed

Issues Involved:
1. Validity of the reassessment proceedings for the year 1945-46.
2. Proper service of notice under section 34(1)(a) of the Indian Income-tax Act, 1922.
3. Compliance with the procedural requirements for service of notice.
4. Authority of the Income-tax Officer to reassess based on the notice served.

Detailed Analysis:

1. Validity of the Reassessment Proceedings for the Year 1945-46:
The reassessment proceedings for the year 1945-46 were initiated based on the information received by the Income-tax Officer that large sums of money were credited in the respondent's account, which were not disclosed in the original return. The original return filed by the respondent showed a net business loss of Rs. 7,960, while the reassessment brought to tax an additional amount of Rs. 61,036. The High Court had held that the reassessment proceedings were invalid due to improper service of notice. However, the Supreme Court overturned this decision, stating that the reassessment proceedings were valid as the notice was duly served.

2. Proper Service of Notice Under Section 34(1)(a) of the Indian Income-tax Act, 1922:
The crux of the case revolved around whether the notice under section 34(1)(a) was properly served. The Income-tax Officer initially issued a notice on March 18, 1954, which was claimed to be accepted by the respondent's son. However, this was deemed irregular, and a fresh notice was issued on March 24, 1954, and affixed to the respondent's business premises on March 25, 1954. The Supreme Court emphasized that service of notice is a condition precedent to the initiation of reassessment proceedings. The Court found that the notice was affixed in the presence of two witnesses and that the process-server's affidavit supported this action.

3. Compliance with the Procedural Requirements for Service of Notice:
The procedural requirements for service of notice are outlined in Section 63 of the Indian Income-tax Act, 1922, which assimilates the provisions of the Code of Civil Procedure. Order V, rules 17 and 19 of the Code of Civil Procedure were particularly relevant. Rule 17 allows for affixing the notice on a conspicuous part of the house if the defendant cannot be found, while Rule 19 requires verification of the service. The Supreme Court held that the process-server had made reasonable attempts to serve the notice personally and, upon failing to find the respondent, affixed the notice as per the procedural requirements. The Income-tax Officer's inquiry and declaration of valid service further supported this compliance.

4. Authority of the Income-tax Officer to Reassess Based on the Notice Served:
The Supreme Court concluded that the Income-tax Officer had the authority to reassess the respondent's income based on the notice served. The Court rejected the argument that the notice was not duly served, emphasizing that the statutory requirements were satisfied. The Tribunal and the High Court's findings of improper service were deemed erroneous. The Supreme Court noted that the process-server's actions and the subsequent declaration by the Income-tax Officer fulfilled the legal requirements for valid service.

Conclusion:
The Supreme Court allowed the appeal, overturning the High Court's decision and confirming the validity of the reassessment proceedings. The Court held that the notice under section 34(1)(a) was duly served, satisfying the procedural requirements, and thereby, the Income-tax Officer had the authority to reassess the respondent's income. The appeal was allowed with costs awarded to the appellant in both the Supreme Court and the High Court.

Appeal allowed.

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