1966 (1) TMI 12 - HC - Income Tax

Reopening of assessment under section 34(1) - notice u/s 34 of the IT Act, 1922 for the asst. yr. 1952-53 and the consequent inclusion of the deemed dividend income in the assessee s assessment for 1952-53 were not valid

Summary

Issues:
Assessment year 1952-53, Deemed dividend income, Validity of notice under section 34, Barred by limitation, Second proviso to sub-section (3) of section 34, Finding by appellate authorities, Interpretation of "finding" under Income-tax Act.

Detailed Analysis:
The judgment pertains to a reference under section 66(1) of the Income-tax Act concerning the assessment year 1952-53. The case involves the inclusion of the assessee's share of dividend from a company in his total income. Initially, the dividend was deemed to have been distributed on May 20, 1952, but on appeal by the company, the date was corrected to December 29, 1951. Subsequently, the Appellate Assistant Commissioner annulled the assessment made under section 34 for the year 1953-54 and directed the Income-tax Officer to assess the deemed dividend income in the year 1952-53. The Income-tax Officer issued a notice under section 34(1) on September 2, 1960, reassessing the income, including the deemed dividend amount. The assessee contended that the proceedings were time-barred and not saved by the second proviso to sub-section (3) of section 34. Both the Appellate Assistant Commissioner and the Appellate Tribunal rejected the assessee's argument.

The main issue raised in the reference was the validity of the notice under section 34 for the assessment year 1952-53 and the inclusion of deemed dividend income in the assessee's assessment. The department argued that the proceedings were initiated based on the direction and finding given in the appeal by the assessee. However, the assessee relied on a Supreme Court decision to support the contention that proceedings under section 34 must be related to the assessment year involved in the case. The Supreme Court ruling emphasized that findings by appellate authorities must pertain to the relevant assessment year, and any observations regarding other years do not constitute a valid finding for section 34 purposes. The court concluded that the proceedings in the present case, initiated after the appellate order, were in relation to a different assessment year, rendering them time-barred.

Ultimately, the question framed in the reference was answered in the negative, indicating that the notice under section 34 for the assessment year 1952-53 and the inclusion of deemed dividend income were not valid. Despite the assessee's success in the contention, no order for costs was issued, considering the circumstances of the case. The judgment highlights the importance of adherence to statutory limitations and the necessity for proceedings under section 34 to be directly linked to the relevant assessment year as per judicial interpretation.