1969 (2) TMI 21 - HC - Income Tax

ITO initiated reassessment proceedings and assessed the coparcener s remuneration as Managing Director in the hands of the HUF - primary facts relating to the income were known to the Income Tax Officer - Whether Tribunal was right in holding that the reassessment proceedings instituted under section 34(1)(a) were barred by limitation - yes

Summary

Issues Involved:
1. Whether the reassessment proceedings under section 34(1)(a) for the assessment years 1951-52, 1952-53, and 1953-54 were barred by limitation.
2. Whether the bar of limitation could be saved under the second proviso to section 34(3) of the Indian Income-tax Act, 1922.

Detailed Analysis:

Issue 1: Barred by Limitation
The Tribunal held that the reassessment proceedings initiated under section 34(1)(a) for the assessment years 1951-52, 1952-53, and 1953-54 were barred by limitation. The Tribunal found that all material facts, such as the payment and receipt of the managing director's remuneration, were in the possession of the Income-tax Officer at the time of the original assessments. Therefore, there was no failure or omission on the part of the assessee to disclose any material fact that could attract the provisions of section 34(1)(a). The Tribunal further concluded that the escapement of income was due to a change in judicial decision rather than any omission by the assessee. Consequently, the reassessment notices issued beyond four years but within eight years from the end of the respective assessment years were deemed invalid.

The High Court concurred with the Tribunal, emphasizing that the Income-tax Officer had knowledge of the income and had excluded it based on the High Court's earlier decision. The court referenced the Supreme Court's decision in Calcutta Discount Co. Ltd. v. Income-tax Officer, which clarified that the duty to disclose fully and truly all material facts necessary for assessment was fulfilled since the primary facts were known to the Income-tax Officer. Therefore, the High Court concluded that there was no omission or failure to disclose material facts by the assessee, and the reassessment proceedings were indeed barred by limitation.

Issue 2: Saving the Bar of Limitation
The Tribunal also held that the bar of limitation could not be saved under the second proviso to section 34(3) of the Indian Income-tax Act, 1922. The Tribunal observed that the Supreme Court's decision, which reversed the High Court's earlier ruling, was not an order under section 66A of the Act. Therefore, the second proviso to section 34(3) did not apply.

The High Court agreed with the Tribunal's interpretation. It rejected the revenue's argument that the special leave to appeal to the Supreme Court was a continuation of proceedings under section 66A, which would extend the limitation period. The court referred to the Supreme Court's decision in Income-tax Officer, 'A' Ward, Sitapur v. Murlidhar Bhagwan Das, which held that the assessment or reassessment made in consequence of any finding or direction must relate to the assessment of the year under appeal, revision, or reference. Since the Supreme Court's decision pertained to a different assessment year, the second proviso to section 34(3) did not save the bar of limitation for the years in question.

Conclusion:
The High Court answered both questions in the affirmative, upholding the Tribunal's decisions. The reassessment proceedings for the assessment years 1951-52, 1952-53, and 1953-54 were barred by limitation, and the bar of limitation could not be saved under the second proviso to section 34(3) of the Indian Income-tax Act, 1922. Each party was ordered to bear its own costs.