1965 (3) TMI 1 - HC - Income Tax

reopening of the case by the Income-tax Officer by the issue of a notice under section 34 - service of the notice - taxability of amount under section 4(1)(b)(iii)

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to reopen the case under section 34 of the Indian Income-tax Act.
2. Legality and propriety of the service of notice by affixture.
3. Taxability of the amount of Rs. 62,500 under section 4(1)(b)(iii) of the Indian Income-tax Act.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to Reopen the Case under Section 34:
The primary issue was whether the reopening of the case by the Income-tax Officer fell under section 34(1)(a) or section 34(1)(b) of the Indian Income-tax Act. The Appellate Tribunal found that the Income-tax Officer initiated proceedings under section 34(1)(b). However, it also noted that the remittances amounting to Rs. 62,500 had escaped assessment due to the assessee's failure to disclose them during the original assessment. The Tribunal concluded that the provisions of section 34(1)(a) were applicable since the assessee had not disclosed this income in its return nor fully and truly stated the particulars of its income. This led to the finding that there was concealment of material facts, justifying the reopening under section 34(1)(a). The court agreed with this assessment, noting that the proceedings properly fell within the ambit of section 34(1)(a) and not section 34(1)(b).

2. Legality and Propriety of the Service of Notice by Affixture:
The second issue was whether the service of the notice under section 34 by affixture on the residential house of the assessee was valid. The facts revealed that the notice was affixed on March 25, 1955, after multiple attempts to serve it personally. The Appellate Tribunal upheld this service, applying the provisions of Order 5, rule 20, of the Code of Civil Procedure. However, the court found that for substituted service to be valid, all conditions of Order 5, rule 20, must be fulfilled, including affixing a copy of the notice on a conspicuous place in the income-tax office. Since this was not done, the service by affixture was deemed not in accordance with law. The court also rejected the argument that affixture alone could be considered as an alternative mode of service under rule 20, emphasizing that the mode of service must be different and not merely a partial compliance with the prescribed method.

3. Taxability of the Amount of Rs. 62,500 under Section 4(1)(b)(iii):
The third issue was whether the amount of Rs. 62,500 was liable to tax under section 4(1)(b)(iii) of the Indian Income-tax Act. The Appellate Tribunal found that the remittances were made from the personal account of the assessee in the books of the Gwalior branch to its account at Agra. It was established that the amounts credited to the assessee's account at Gwalior, which included profits from earlier years, were taxable when brought into the taxable territories, i.e., from Gwalior to Agra. The Tribunal concluded that these remittances fell within the ambit of section 4(1)(b)(iii), and the court affirmed this finding, holding that the amount was indeed taxable under the said section.

Conclusion:
- Question No. 1: The reopening of the case falls under section 34(1)(a).
- Question No. 2: The service of the notice by affixture was not in accordance with law.
- Question No. 3: The amount of Rs. 62,500 is liable to tax under section 4(1)(b)(iii).

A copy of this judgment will be sent to the Income-tax Appellate Tribunal, and there is no order as to costs.