1968 (8) TMI 12 - SC - Income Tax

KC in respect of his individual income had never been assessed to tax before he filed the returns and unless the returns filed by him were disposed of no notice under s. 34 was competent - assessments made by the ITO pursuant to the notice under s. 34 of the IT Act 1922 was invalid

Summary

Issues:
1. Validity of assessments made by the Income-tax Officer pursuant to notice under section 34 of the Income-tax Act for the assessment years 1950-51, 1951-52, and 1952-53.

Analysis:
The case involved a Hindu undivided family consisting of Karuppan Chettiar, his son Muthukaruppan, and grandsons. The family claimed partition during assessment proceedings for the year 1949-50, which was accepted by the Appellate Assistant Commissioner. Subsequently, Karuppan Chettiar filed returns in his individual capacity for the years 1950-51, 1951-52, and 1952-53. The Income-tax Officer, however, assessed the Hindu undivided family for these years, treating Karuppan Chettiar's returns as filed on behalf of the family. The Appellate Assistant Commissioner's order recorded the partition and canceled the assessments for the family for those years, directing separate assessments for divided members.

The Income-tax Officer later issued notices under section 34 of the Income-tax Act to Karuppan Chettiar for assessment of his income as a separated member for the years in question. Despite Karuppan Chettiar's protests, the Income-tax Officer assessed his income. The Tribunal upheld the assessments, citing jurisdiction under section 34 and section 25A(2) of the Income-tax Act. The High Court also affirmed the assessments, stating that the Appellate Assistant Commissioner's order lifted the limitation bar for assessments under section 34(3).

However, the Supreme Court found a fundamental flaw in the assessments. Karuppan Chettiar had filed returns in his individual capacity, which were not considered before the Income-tax Officer assessed the Hindu undivided family. The Court referred to the principle established in Commissioner of Income-tax v. Ranchhoddas Karsondas, stating that unless returns filed voluntarily are disposed of, no notice under section 34 can be issued. As Karuppan Chettiar's returns were not addressed before the notice under section 34 was issued, the Court deemed the notice and subsequent assessments invalid.

The Court disagreed with the High Court's view and held that the question of the competency of the notice under section 34 was indeed raised before the Tribunal. Therefore, the Court allowed the appeals, declaring the assessments made by the Income-tax Officer pursuant to the notice under section 34 invalid. The appellants were awarded costs in both the Supreme Court and the High Court.