1971 (12) TMI 26 - HC - Income Tax

This is a special appeal against the judgment dismissing the writ petition filed by the appellant, challenging a notice dated September 14, 1961, issued under section 34(1)(a) - Whether the reassessment notice for the assessment year 1946-47 served on 16th September, 1961 is saved by s. 34(4)?

Issues Involved:
1. Whether the writ petition should be dismissed due to laches of the appellant.
2. Whether the notice issued was time-barred or saved by sub-section (4) of section 34 of the Indian Income-tax Act.
3. Whether the conditions precedent for the issue of the notice under section 34(1)(a) were satisfied.

Issue-Wise Detailed Analysis:

1. Laches of the Appellant:
The first issue considered was whether the writ petition deserved dismissal on account of laches (delay) by the appellant. Although it was observed that the petition was prima facie belated, the court did not dismiss it on this ground. The court noted that the delay in issuing the impugned notice after the discovery of the escaped income was significant and primarily due to the Income-tax Officer's mistake in initially including it in the income for the year 1946. Compared to this delay, the delay by the assessee in filing the writ petition was deemed insignificant. Therefore, the writ petition was not dismissed on the ground of laches.

2. Time-Barred Notice:
The second issue was whether the notice issued under section 34(1)(a) was time-barred or saved by sub-section (4) of section 34. The court examined the amendments made to section 34(1)(a) in 1948, 1956, and 1959. The relevant portion of section 34(1)(a) after the 1948 amendment allowed the Income-tax Officer to serve a notice within eight years. The 1956 amendment removed the time limit for cases under clause (a) and introduced a proviso limiting the notice period to eight years unless the escaped income was Rs. 1 lakh or more. Sub-section (4) of section 34, introduced in 1959, allowed notices to be issued notwithstanding the expiry of the eight-year period specified before the 1956 amendment.

The court noted that the escaped income in this case was Rs. 20,000, less than Rs. 1 lakh. The question was whether sub-section (4) of section 34 saved the notice issued more than eight years after the relevant year. The court referred to the Supreme Court's decision in Hussain Bhai v. Commissioner of Income-tax, which clarified that section 4 of the 1959 Amendment Act did not save notices issued more than eight years after the relevant year if the escaped income was less than Rs. 1 lakh. The court concluded that the limitation prescribed by the 1956 amendment applied to the impugned notice, and since the notice was issued after the 1956 amendment, it was not saved by sub-section (4) of section 34. Therefore, the notice was time-barred, and the Income-tax Officer had no jurisdiction to issue it or proceed with the assessment based on it.

3. Conditions Precedent for Issuing the Notice:
The third issue was whether the conditions precedent for the issue of the notice under section 34(1)(a) were satisfied. Since the court held that the notice was time-barred and illegal for that reason, it was unnecessary to consider whether the conditions precedent for issuing the notice were satisfied.

Conclusion:
The appeal was allowed, and the judgment of Manchanda J. was set aside. The writ petition was allowed, and the impugned notice dated September 14, 1961, along with all further proceedings taken in pursuance thereof, was quashed. The appellant was entitled to costs of the appeal and the writ petition from the respondent.

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