1970 (11) TMI 1 - SC - Income Tax

Assessment was set aside on the ground that the notice was not given - Therefore the finding and direction was necessary to the assessment proceedings - Accordingly the assessment proceedings were not time-barred - High Court was in error in holding that the second proviso to section 34(3) of the Act did not save the assessments and therefore we set aside the judgment of the High Court

Issues Involved:
1. Construction of the second proviso to sub-section (3) of section 34 of the Indian Income-tax Act, 1922.
2. Applicability of section 24B(3) of the Indian Income-tax Act, 1922 to assessments made on the executor of the estate of the deceased.

Issue-wise Detailed Analysis:

1. Construction of the Second Proviso to Sub-section (3) of Section 34 of the Act:
The primary issue was whether the second proviso to section 34(3) of the Indian Income-tax Act, 1922, applied to save the reassessment from the bar of limitation. The relevant provision states: "Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A."

The revenue argued that the second proviso saved the assessment from the bar of limitation due to an order of assessment made in consequence of a finding or direction given by the Appellate Assistant Commissioner. The appellant, Aruna Devi, contended that she was not an assessee, and thus the benefit of the second proviso would not apply to her.

The court held that Aruna Devi was indeed an assessee in the income-tax proceedings. The assessment order described the estate of the deceased by legal heirs and representatives, including Aruna Devi. The proceedings commenced during the lifetime of the deceased, and the assessment was made on Aruna Devi as a legal representative. Although the assessment was set aside because no notice was given to her, this did not invalidate the jurisdiction of the revenue authority. The court concluded that the second proviso to section 34(3) applied because the assessment proceedings were continued against the legal representatives, and the setting aside of the assessment was only due to the lack of notice to Aruna Devi.

2. Applicability of Section 24B(3) of the Act:
The second issue was whether section 24B(3) of the Act applied to the assessments made on the executor of the estate of the deceased. The High Court held that section 24B applied but that the entire procedure prescribed for making the assessment on the deceased assessee had to be repeated for the legal representative.

The court agreed with the High Court's conclusion that section 24B applied to the present case. The third sub-section of section 24B deals with cases where a person dies after having furnished a return. The Income-tax Officer had reason to believe the return was incorrect or incomplete and called upon the deceased to furnish evidence. The Act allows the revenue to make the assessment and determine the tax payable by the deceased on the basis of the assessment, issuing appropriate notices to the executor or legal representative as would have been served upon the deceased had he survived.

Conclusion:
The court held that the High Court was in error in holding that the second proviso to section 34(3) did not save the assessments. Consequently, the court set aside the judgment of the High Court and allowed the revenue's appeals. However, the court upheld the High Court's conclusion regarding the applicability of section 24B and dismissed Aruna Devi's appeals. Each party was ordered to bear its own costs in all the appeals.

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