1968 (7) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Income-tax Officer to re-open the assessment.
3. Assessment of income in the hands of an association of persons versus individual members.
4. Legal implications of prior assessments and the option exercised by the Income-tax Officer.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income-tax Act, 1961:
The petitioner sought a writ of prohibition to restrain the Sixth Income-tax Officer, Circle II, Coimbatore, from making any assessment pursuant to the notice dated September 11, 1964, issued under section 148 of the Income-tax Act, 1961. The petitioner argued that the material on which the respondent concluded there was an escapement of tax was not furnished to him. Furthermore, the petitioner contended that the income had already been assessed in the hands of the individual members, and thus, the department had no jurisdiction to assess the same income again in the hands of the association of persons.

2. Jurisdiction of the Income-tax Officer to Re-open the Assessment:
The department, in its counter-affidavit, conceded that certain materials were available during the original assessment. However, it argued that these materials were insufficient to conclude that there was an association of persons involved in a joint venture. The department justified the re-opening of the assessment under section 148, similar to section 34 of the earlier Act, due to the alleged lack of sufficient information at the time of the original assessment. The petitioner countered that the Income-tax Officer had sufficient material during the original assessment and had elected to assess him individually, which precluded the officer from re-opening the assessment.

3. Assessment of Income in the Hands of an Association of Persons versus Individual Members:
The court examined the relevant statutory provisions, including sections 3, 14(2)(b), 44, and 63 of the Indian Income-tax Act, 1922. It was observed that the Income-tax Officer has the option to assess either the association of persons or the individual members. Once an option is exercised, it cannot be lightly given up to re-open a closed assessment. The court noted that the Income-tax Officer had sufficient material to assess the petitioner as an individual and not as a member of an association of persons. The court emphasized that the officer cannot re-open an assessment by invoking section 148 if he had already elected to assess the petitioner individually based on the available material.

4. Legal Implications of Prior Assessments and the Option Exercised by the Income-tax Officer:
The court referred to various judicial precedents, including the Supreme Court's observations in Commissioner of Income-tax v. Rao Thakur Narayan Singh and Commissioner of Income-tax v. Murlidhar Jhawar and Purna Ginning and Pressing Factory. These cases established that the Income-tax Officer cannot re-open an assessment once an option has been exercised to assess the income in the hands of individual members. The court concluded that the respondent had no jurisdiction to re-open the assessment under section 148, as the essential facts were already available during the original assessment, and the officer had consciously elected to assess the petitioner individually.

Conclusion:
The court held that the impugned notice issued by the respondent was without jurisdiction. The petitioner was entitled to a writ of prohibition restraining the respondent from making any assessment as proposed in the impugned notice. The rule nisi was made absolute, and the writ petition was allowed with costs.