1968 (4) TMI 9 - HC - Income Tax

Summary

Issues:
1. Validity of notice issued by income-tax authorities under section 34(1)(a) of the Indian Income-tax Act, 1922.
2. Applicability of amendments to the Income-tax Act in the Sarguja State.
3. Constitutional validity of the second proviso to section 34(3) of the Income-tax Act.

Analysis:
The petitioner challenged the validity of a notice issued by income-tax authorities under section 34(1)(a) of the Indian Income-tax Act, 1922, for reassessment of escaped income. The firm in question was dissolved in 1947, and a notice for reassessment was issued in 1952 based on high denomination notes declaration. The Tribunal's reference confirmed the validity of the proceedings initiated in 1952. However, a subsequent notice in 1962 was challenged in this petition, seeking to quash the notice and prohibit any further proceedings.

Regarding the applicability of amendments to the Income-tax Act in the Sarguja State, the petitioner argued that only the Act as it stood at the time of the State's merger should apply to the assessment. However, the court held that subsequent amendments applied to the Sarguja State due to the Darbar order's continuation by the State of Madhya Pradesh. After the repeal of the Sarguja Act in 1949, the Indian Income-tax Act was introduced in the merged State, saving the Sarguja Act for earlier assessments but ignoring subsequent amendments for the purpose of reassessment.

The constitutional validity of the second proviso to section 34(3) was also challenged. The court cited a Supreme Court decision emphasizing that the proviso does not confer additional power to make assessments without time limits but only lifts the limitation for certain assessments. In this case, the direction in the order did not support the validity of the notice for reassessment. Additionally, the petitioner argued the proviso's unconstitutionality under article 14 of the Constitution, but the court did not delve into this issue due to the findings on the first two points.

Ultimately, the petition succeeded, and the court quashed the 1962 notice, issuing a writ of prohibition against the income-tax authorities from further proceedings. The respondents were ordered to pay costs, and the security amount was to be refunded to the petitioner.