1966 (2) TMI 12 - HC - Income Tax

Summary

Issues:
Validity of cancellation of registration under rule 6B for assessment years 1954-55 and 1955-56.
Validity of initiation of proceedings under section 34 of the Indian Income-tax Act.

Analysis:
The case involved two references made by the Income-tax Appellate Tribunal under section 66(1) of the Income-tax Act concerning assessment years 1954-55 and 1955-56. The assessments for those years were initially completed after allowing registration of the assessee as a registered firm under section 26A of the Income-tax Act. However, discrepancies were later discovered by the Income-tax Officer between the assessee's operations and the partnership deed, leading to the refusal of renewal of registration under section 26A and subsequent cancellation of registration under rule 6B for the mentioned assessment years.

The assessee challenged the cancellation of registration under rule 6B and contended that the reassessment under section 34 was invalid due to the alleged illegal order under rule 6B. Both the Appellate Assistant Commissioner and the Appellate Tribunal upheld the assessment made under section 34, rejecting the assessee's arguments. The main question for consideration was whether the proceedings under section 34 were validly initiated considering the cancellation of registration under rule 6B.

The court emphasized that the validity of the order under rule 6B was not the subject of scrutiny in the appeal under section 34. The cancellation of registration provided fresh material for the Income-tax Officer to believe there was an escapement of income, justifying the initiation of proceedings under section 34. It was noted that the assessee did not challenge the proceedings under section 34 on the grounds of sub-section 34(1)(b) or the time limitation for reassessment.

The court highlighted that the forum to challenge the order under rule 6B was different and that the assessee could seek redress in that forum, subject to the question of limitation. Ultimately, the court answered the reframed question in the affirmative, concluding that the proceedings under section 34 were validly initiated. No costs were awarded in this case due to the circumstances.