1967 (7) TMI 38 - HC - Income Tax

Indian Income Tax Act, 1922 - assessment u/s 23(3) r/w section 34 and second proviso to section 34(3) - validity

Summary

Issues:
Assessment of interest income for two loans advanced by a partnership firm to another company for different assessment years, jurisdiction of assessment under section 34 of the Indian Income-tax Act, 1922, interpretation of the second proviso to section 34(3) regarding the bar of limitation for making assessments.

Analysis:
The judgment pertains to the assessment of interest income by the Income-tax Officer for two loans advanced by a partnership firm to another company. The firm advanced loans of Rs. 97,00,000 and Rs. 5,10,000 on different dates in 1946. The Income-tax Officer assessed a portion of the interest income for the assessment year 1947-48 and the balance for 1948-49 based on the mercantile system of accounting followed by the assessee. The Appellate Assistant Commissioner excluded a portion of the interest income from the assessment for 1947-48 as it did not accrue during the relevant period. However, the Income-tax Officer initiated proceedings under section 34 for the assessment year 1948-49 to tax the excluded amount, which was contested by the assessee.

The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal had differing views on the jurisdiction of assessment under section 34(1)(a) or (b) and the applicability of the second proviso to section 34(3) regarding the limitation for making assessments. The Tribunal referred a question of law to the High Court concerning the validity of the assessment for the year 1948-49 under section 23(3) read with section 34 and the second proviso to section 34(3).

The High Court analyzed the interpretation of the second proviso to section 34(3) in light of a recent Supreme Court judgment, clarifying that the proviso does not allow the Income-tax Officer to ignore the limitation for assessments of escaped income for years not subject to appeal or revision. Therefore, the assessment proceedings under section 34(1)(b) were held to be time-barred, and the question referred to the court was answered in the negative.

The High Court also dismissed a challenge to the Tribunal's classification of the case under section 34(1)(b) instead of section 34(1)(a), as the specific question was not referred to the court. The judgment concluded by stating that each party would bear its own costs in the case.

In summary, the judgment clarified the jurisdiction of assessment under section 34, interpreted the second proviso to section 34(3) regarding the limitation for assessments, and ultimately held that the assessment proceedings for the year 1948-49 were time-barred.