1969 (11) TMI 22 - HC - Income Tax

Reopening of assessment on ground of grant of excessive relief - ITO was competent to initiate the proceedings under section 34(1)(b) for brining to tax the excessive rebate granted to the assessee

Summary

Issues Involved:
1. Validity of the initiation of proceedings under section 34(1)(b) of the Indian Income-tax Act, 1922.
2. Applicability of section 34(1)(b) in the context of excessive relief and assessment at too low a rate.
3. Jurisdiction of the Income-tax Officer to reassess the income under section 34(1)(b).

Detailed Analysis:

1. Validity of the initiation of proceedings under section 34(1)(b) of the Indian Income-tax Act, 1922:
The primary issue addressed was whether the Income-tax Officer (ITO) was competent to initiate proceedings under section 34(1)(b) for reassessment. The Supreme Court had remanded the case to the High Court to determine the validity of the notice issued by the ITO. The High Court examined the notice and concluded that the ITO had jurisdiction to initiate proceedings under section 34(1)(b), despite an apparent error in the notice. The court held that the jurisdiction exercised by the ITO under section 34(1)(b) is a composite jurisdiction and is not divisible based on the specific situations contemplated in the section. The court emphasized that an error in the notice does not nullify the ITO's jurisdiction if the overall jurisdiction to act under section 34(1)(b) is indisputable.

2. Applicability of section 34(1)(b) in the context of excessive relief and assessment at too low a rate:
The court discussed the interpretation of the term "rate" in section 34(1)(b). The Supreme Court had previously clarified that the term "rate" refers to the standard or measure of tax and not merely a fraction of the total income. The High Court agreed with this interpretation, stating that the rebate of tax and reduction of such rebate are matters of measure or standards of rate. The court concluded that the ITO had jurisdiction to initiate proceedings under section 34(1)(b) to address the issue of excessive relief granted, which had an impact on the rate of tax.

3. Jurisdiction of the Income-tax Officer to reassess the income under section 34(1)(b):
The court examined whether the ITO's jurisdiction to reassess income under section 34(1)(b) was valid, given the specific error in the notice. The court held that the ITO's jurisdiction is not nullified by an error in the notice if the jurisdiction to act under section 34(1)(b) is otherwise valid. The court emphasized that the methodology adopted by the ITO in issuing the notice is not prescribed by law and that an error in the notice does not affect the ITO's jurisdiction to reassess income. The court concluded that the ITO had the jurisdiction to initiate proceedings under section 34(1)(b) and that the reassessment was valid.

Conclusion:
The High Court answered the reframed question in favor of the department and against the assessee, holding that the ITO was competent to initiate proceedings under section 34(1)(b) for bringing to tax the excessive rebate granted to the assessee. The court also refrained from answering the questions in the connected tax cases, as the Tribunal was powerless to enter upon an enquiry of any other aspect of the question until the High Court decided the competency and legality of the initiation of the proceedings under section 34(1)(b).