1969 (2) TMI 52 - HC - Income Tax

Notice for reassessment - petitioner challenging the notices and contended that there could be no assessment after the expiry of four years from the end of the assessment years - held that notice issued is invalid

Summary

Issues Involved:
1. Tax liability of the petitioner for assessment years 1951-52 to 1957-58.
2. Validity of the will executed by Ramnath.
3. Applicability of the proviso to section 13 of the Income-tax Act, 1961.
4. Validity and constitutionality of the second proviso to sub-section (3) of section 34 of the Income-tax Act, 1922.
5. Validity of the notices issued under section 23(2) of the Indian Income-tax Act, 1922, or section 143(2) of the Income-tax Act, 1961.
6. Preliminary objections raised by the department.

Detailed Analysis:

1. Tax Liability of the Petitioner for Assessment Years 1951-52 to 1957-58:
The petitioner was assessed as a joint Hindu family firm during the assessment years 1951-52 to 1957-58. The assessments for the years 1951-52, 1952-53, and 1953-54 were challenged and disposed of by the Appellate Assistant Commissioner of Income-tax and further by the Income-tax Appellate Tribunal. The Tribunal consolidated the appeals due to common contentions and upheld the department's view that the sums paid under Ramnath's will were merely appropriations of income after it had accrued to the family.

2. Validity of the Will Executed by Ramnath:
Ramnath, assessed as a Hindu undivided family during his lifetime, executed a will disposing of his property and business. The Income-tax Officer and the Appellate Assistant Commissioner disallowed certain sums paid under the will, considering them appropriations of income. The Tribunal directed the Income-tax Officer to give the assessee an opportunity to prove Ramnath's status as an individual who could bequeath his property by will. If proven, the payments would be allowed as deductions.

3. Applicability of the Proviso to Section 13 of the Income-tax Act, 1961:
The Income-tax Officer applied the proviso to section 13, making ad hoc additions to the income due to defects in the accounting manner. The Tribunal found that the Income-tax Officer did not properly appreciate the cumulative effect of the facts and the nature of accounts. The Tribunal set aside the assessments and directed the Income-tax Officer to make specific additions for the defects noticed, giving the assessee a proper opportunity to state and prove his case.

4. Validity and Constitutionality of the Second Proviso to Sub-section (3) of Section 34 of the Income-tax Act, 1922:
The petitioner challenged the second proviso to sub-section (3) of section 34 as ultra vires article 14 of the Constitution. The court held that the second proviso is valid and intra vires except to the extent it applies to "any person" other than the assessee. The court observed that the proviso lifts the bar of limitation for making an assessment or reassessment in consequence of a finding or direction given by an appellate or revisional authority.

5. Validity of the Notices Issued Under Section 23(2) of the Indian Income-tax Act, 1922, or Section 143(2) of the Income-tax Act, 1961:
The petitioner challenged the notices issued by the Income-tax Officer for the seven assessment years. The court held that the notices, even if described under section 23(2), could be taken as notices under section 34 issued in consequence of the order passed by the appellate authority. The second proviso to section 34(3) applies, lifting the bar of limitation, and the notices were deemed valid.

6. Preliminary Objections Raised by the Department:
The department contended that the orders of the Appellate Tribunal and the Appellate Assistant Commissioner were not challenged by the petitioner and had become final. The petitioner argued that the challenge to the notices was sufficient, and if the notices were quashed, the assessments would become ineffective. The court found substance in the petitioner's contentions and heard the case fully on all questions raised.

Conclusion:
The court dismissed the petition, holding that the second proviso to section 34(3) is valid and applies to the case, lifting the bar of limitation for making assessments in consequence of the appellate authority's directions. The notices issued were valid, and the proceedings for reassessment could continue. The petition was dismissed with costs.