1968 (1) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Whether the action taken under Section 34 of the Indian Income-tax Act was barred by time.
2. Applicability of the second proviso to Section 34(3) as amended by the Indian Income-tax (Amendment) Act, 1953.
3. Whether Section 4 of the Income-tax (Amendment) Act (1 of 1959) was applicable to the assessments in question.

Detailed Analysis:

Issue 1: Whether the action taken under Section 34 of the Indian Income-tax Act was barred by time.
The primary issue was whether the assessments made under Section 34 were barred by time. The assessments in question pertained to the years 1943-44 and 1944-45. The Income-tax Officer issued notices under Section 34 on April 8, 1954, and the notices were served on April 9, 1954. The assessees argued that the proceedings under Section 34 were illegal and barred by limitation under Section 34(3). They contended that the second proviso to Section 34(3) was not applicable and ultra vires, at least in so far as it sought to apply to the assessments of persons other than the assessees in whose cases the relevant order under Section 33 was passed.

The Tribunal held that the second proviso to Section 34(3), which received the President's assent on May 24, 1953, was applicable retrospectively from April 1, 1952. Since the assessment year in question was 1944-45, the period of limitation under Section 34, if it was eight years, would expire only on March 31, 1953. Therefore, the period of limitation had not expired before the second proviso to Section 34(3) became applicable.

The High Court, however, found that the Tribunal did not provide a clear discussion on why it regarded the cases of seven of the eleven assessees as falling under Section 34(1)(a). The Tribunal's statement that the cases were not disputed before them was challenged by the learned counsel for the assessees, who argued that all the cases were governed by the four-year period of limitation mentioned in Section 34(1)(b) and none fell within the ambit of Section 34(1)(a).

Issue 2: Applicability of the second proviso to Section 34(3) as amended by the Indian Income-tax (Amendment) Act, 1953.
The second proviso to Section 34(3) removes the time limit for taking action for assessment or reassessment on the assessee or any person in consequence of or to give effect to any finding or direction contained in the appellate order. The Tribunal held that the second proviso to Section 34(3) was applicable retrospectively from April 1, 1952, and since the period of eight years had not expired by then, the reassessments were not barred by time.

The High Court, however, found that the Tribunal's order did not provide a clear basis for applying the second proviso to Section 34(3). The High Court pointed out that the Income-tax Officer and the Appellate Assistant Commissioner had not adequately considered whether the cases fell under Section 34(1)(a) or Section 34(1)(b). The High Court concluded that the second proviso to Section 34(3) could not apply to the cases where the period of limitation had already expired before the proviso became applicable.

Issue 3: Whether Section 4 of the Income-tax (Amendment) Act (1 of 1959) was applicable to the assessments in question.
Section 4 of the Income-tax (Amendment) Act (1 of 1959) states that no notice issued under clause (a) of sub-section (1) of Section 34 and no assessment, reassessment, or settlement made in consequence of such notice shall be called into question merely on the ground that the time prescribed had expired.

The High Court examined whether the notices issued were under Section 34(1)(a) or Section 34(1)(b). The High Court found that the notices issued by the Income-tax Officer did not specify whether they were under Section 34(1)(a) or Section 34(1)(b). The High Court concluded that the burden was on the department to prove that the notices were issued under Section 34(1)(a). Based on the material on record, the High Court found that the department had not satisfactorily discharged this burden.

The High Court held that Section 4 of the Income-tax (Amendment) Act (1 of 1959) was not applicable to the eleven cases relating to the assessment year 1944-45. However, in the case of Onkarmal Meghraj for the assessment year 1943-44, the High Court found that the notice was issued under Section 34(1)(a), and therefore, Section 4 of the Income-tax (Amendment) Act (1 of 1959) was applicable.

Conclusion:
1. The High Court concluded that the second proviso to Section 34(3) as amended by Section 18 of the Indian Income-tax (Amendment) Act, 1953, was not applicable to the case of any of the assessees and their assessments were governed by the period of limitation mentioned in the substantive part of Section 34(3).
2. The High Court held that the remedy available to the Income-tax Officer had already become time-barred under Section 34 before the section was amended in 1953 with retrospective effect from April 1, 1952.
3. The High Court held that Section 4 of the Income-tax (Amendment) Act (1 of 1959) was not applicable to the eleven cases relating to the assessment year 1944-45 but was applicable in the case of the assessment of Onkarmal Meghraj for the assessment year 1943-44.

The Commissioner was directed to pay the costs of the assessee for the reference as well as for the notice of motion, which was made absolute.