1973 (8) TMI 1 - SC - Income Tax

Whether in the case of the appropriate HUF and having regard to the second proviso to section 34(3) the reassessment made by the Income-tax Officer is governed by any limitation period - Whether in the case of the assessees the remedy available to the Income-tax Officer had already become time-barred under section 34 before that section was amended in 1953 with retrospective effect from April 1 1952 - second proviso to s. 34(3) was not applicable - Held that assessments were time barred

Issues Involved:
1. Applicability of Section 34(1)(a) or Section 34(1)(b) of the Income-tax Act.
2. Applicability of the second proviso to Section 34(3) of the Income-tax Act.
3. Validity of reassessment notices issued under Section 34 after the amendment in 1953.
4. Impact of the Indian Income-tax (Amendment) Act, 1959, on the reassessment notices.

Issue-wise Detailed Analysis:

1. Applicability of Section 34(1)(a) or Section 34(1)(b) of the Income-tax Act:
The High Court determined that the notices issued should be deemed to have been issued under Section 34(1)(b). This conclusion was based on the proposal made by the Income-tax Officer, the sanction given by the Commissioner, the notice issued by the Income-tax Officer, the return made by the assessees, and the assessment order. The High Court found that the facts did not indicate any omission or failure to make a return or to disclose fully and truly all material facts necessary for assessment. Therefore, Section 34(1)(a) did not apply, and only Section 34(1)(b) could apply.

2. Applicability of the second proviso to Section 34(3) of the Income-tax Act:
The High Court held that the second proviso to Section 34(3) did not apply to eight of the eleven respondents for the assessment year 1944-45, as they were not parties to the proceedings in which the direction of the Tribunal was given. Only Narayandas, Meghraj, and Hanumandas, who had filed returns as individuals but were assessed as Hindu undivided families, were parties to those proceedings. The High Court observed that the escapement of assessment was not due to any failure or omission on the part of the assessees but due to the erroneous view taken by the Income-tax Officer.

3. Validity of reassessment notices issued under Section 34 after the amendment in 1953:
The High Court pointed out that the second proviso to Section 34(3) became applicable only from April 1, 1952, and the assessment under Section 34 for the year 1944-45 would be barred if action was not taken before this date. The Supreme Court concurred with this view, stating that the amendment in 1953 did not enable the Income-tax Officer to take action where the period mentioned had expired before April 1, 1952. This applied to all individuals except Narayandas, Meghraj, and Hanumandas, whose cases were directly affected by the Tribunal's orders.

4. Impact of the Indian Income-tax (Amendment) Act, 1959, on the reassessment notices:
Before the High Court, a contention was raised based on the provisions of the Indian Income-tax (Amendment) Act, 1959, that the notices issued and the action taken could not be questioned on the ground that the period prescribed had expired. The High Court held against the department on this question, and it was not argued before the Supreme Court, making it unnecessary to spend further time on it.

Conclusion:
The Supreme Court upheld the High Court's decision that Section 34(1)(b) applied and not Section 34(1)(a). The second proviso to Section 34(3) did not apply to eight of the respondents for the assessment year 1944-45, as they were not parties to the proceedings. The reassessment notices issued after the amendment in 1953 were invalid for those whose assessment periods had expired before April 1, 1952. Consequently, Civil Appeals Nos. 2264 of 1969, 2268 of 1969, and 2272 of 1969 were allowed with costs, while the other nine appeals were dismissed with costs.

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