1968 (11) TMI 20 - HC - Income Tax

Proceedings under section 147 - was right in law in holding that Appellate Assistant Commissioner conferred no jurisdiction on the Income-tax Officer to initiate proceedings under section 147 - Tribunal was right in holding that those proceedings under section 147 were barred by time

Summary

Issues:
Assessment of investment as firm's income, validity of direction by Appellate Assistant Commissioner, time-barred proceedings under section 147 of Income-tax Act.

Analysis:
The case involved partners of a firm who had invested in another concern, leading to a dispute on the treatment of this investment as the firm's income during assessment. The Income-tax Officer initially assessed the invested sum as the firm's income, but the Appellate Assistant Commissioner overturned this decision, deeming it not taxable income of the firm. However, the Commissioner directed the Income-tax Officer to reassess the individual partners under section 34(3) of the Income-tax Act, leading to further assessments on the partners for the same amount as income from undisclosed sources for the assessment year.

The main issue revolved around the validity of the direction issued by the Appellate Assistant Commissioner in the firm's appeal. The Tribunal held that the direction was invalid as it was beyond the Commissioner's competence under section 31 of the Income-tax Act, 1922. The Tribunal's decision was supported by a Supreme Court ruling emphasizing that the direction by the appellate authority should be necessary for the disposal of the appeal or to provide relief to the appealing assessee, which was not the case here. The Tribunal's view was crucial in determining the jurisdiction of the Income-tax Officer to initiate proceedings under section 147 of the Income-tax Act.

The department argued that the direction could still be the basis for proceedings under section 147 read with section 153 of the new Act, citing Explanation 3 under section 153(3). However, the Tribunal rejected this argument, stating that the direction did not meet the requirements of the Explanation, as it did not involve a finding that the excluded income was that of the partners and the partners were not given an opportunity to be heard before the order was passed. Therefore, the Tribunal concluded that the reassessment proceedings were time-barred, in line with the provisions of the Income-tax Act.

Ultimately, the High Court upheld the Tribunal's decision, ruling in favor of the assessee on both questions referred. The Court agreed that the direction by the Appellate Assistant Commissioner was invalid and conferred no jurisdiction on the Income-tax Officer to initiate proceedings under section 147. Additionally, the Court concurred with the Tribunal that the proceedings under section 147 were indeed time-barred. As a result, the assessees were awarded costs and advocate's fees.