Esthuri Aswathiah Vs. The Income-Tax
Officer, Mysore State [1960] INSC 259 (5 December 1960)
SHAH, J.C.
KAPUR, J.L.
HIDAYATULLAH, M.
CITATION: 1961 AIR 1149 1961 SCR (2) 911
CITATOR INFO :
RF 1967 SC 916 (8)
ACT:
Income Tax--Reassessment--Notice issued by
Income--tax Offi- cer--if without jurisdiction--Indian Income-tax Act, 1922 (11
of 1922), ss. 34(1)(a), 23(1), 22(3)--Finance Act, 1950 (XXV of 1950), S.
13(1)--Part--B States (Taxation Concessions) Order, 1950, cl. 5(1).
HEADNOTE:
The appellants, a Hindu undivided family,
carrying on business in the former State of Mysore, were assessed under the Mysore Income-tax Act for the year of assessment 1949-50 corresponding to the year of
account July 1, 1948, to June 30, 1949. The Indian Income-tax Act came into
force in that area in April 1, 1950, and on December 26, 1950, notice under s. 22(2) of that Act was served upon the appellants to submit their return for
the assessment year 1950-51. On September 8, 1952, the appellants submitted
their return stating that they had no assessable income for that year.
The Income Tax Officer passed on that return
an order, "no proceeding", and closed the assessment. When the
appellants submitted their return for the next assessment year, their books of
account disclosed an opening cash credit balance of Rs. 1,87,000 and odd on
July 1. 1949. They failed to produce the books of account of the previous
years, and the Income-tax Officer held that Rs. 1,37,000 out of the said
opening balance represented income from an undisclosed source. The appellants
submitted a fresh return for the assessment year 1950-51 purporting to do so
under s. 22(3) of the Indian Income tax Act. Pursuant to the direction of the
Appellate Assistant Commissioner, the Income Tax Officer on October 15, 1957, served on the appellants a notice under s. 34 of the Act and thereupon the
appellants moved the High Court under Art. 226 for an order quashing the said
notice and the proceeding as without jurisdiction. The High Court dismissed the
petition.
Held, that it was not correct to say that the
issue of the notice for reassessment was without jurisdiction as the assessment
was yet pending.
Under S. 23(1) of the Indian Income-tax Act,
it is open to the Income-tax Officer, if he is satisfied as to correctness of
the return filed by the assessee, to assess the income and determine the sum
payable on the basis of the return without requiring the assessee either to be
present or to Produce evidence. The order 'no proceeding recorded on the.
return must, therefore, mean that the Income
Tax Officer bad accepted the previous return and assessed the income as nil.
A revised return under s. 22(3) filed by the
assessee may be 912 entertained only before the order of assessment and not
thereafter. Lodging of such a return after the assessment is no bar to
reassessment under s. 34(1) of the Act.
It could not be said, having regard to the
provisions of s. 13(1) of the Finance Act (XXV of 1950) and cl. 5(1) of Part.
B States (Taxation Concessions) Order 1950,
issued by the Central Government under s. 60A of the Indian Income-tax Act,
that for the assessment year 1950-51 the appellants were assessable under the
Mysore Income-tax Act and not under the Indian Income-tax Act.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 200 of 1960.
Appeal from the Judgment and Order dated the
19th March, 1959, of the Mysore High Court, Bangalore, in Writ Petition No. 263
of 1957.
K.Srinivasan and R. Gopalakrishnan, for the
appellant.
A. N. Kirpal and D. Gupta, for the
respondent.
1960. December 5. The Judgment of the Court
was delivered by SHAH, J.-This appeal with certificate of fitness granted by
the High Court of Judicature of Mysore is from an order rejecting the petition
of the appellant for a writ to quash a notice of reassessment under s. 34 of
the Indian Income Tax Act.
The appellants are a Hindu Undivided Family
carrying on business in groundnuts and other commodities at Goribidnur, Kolar
District, in the territory which formed part of the former State of Mysore. The
Mysore Income Tax Act was repealed and the Indian' Income Tax Act was brought
into force in the Part-B State of Mysore as from April 1, 1950.
The appellants had adopted as their year of;
account July 1 to June 30 of the succeeding year and they were assessed under
the Mysore Income Tax Act on that footing for the year of assessment 1949-50
corresponding to the year of account July 1, 1948,to June 30, 1949. After the
Indian Income Tax Act was applied to the State of Mysore on December 26, 1950,
notice under s. 22(2) of the Indian Income Tax Act was served upon the
appellants requiring them to submit their 913 return of income for the
assessment year 1950-51. On September 8, 1952, the appellants submitted their
return stating that for the year ending June 30, 1949, corresponding to the
assessment year 1949-50, they were assessed under the Mysore Income Tax Act,
that their income for the year ending June 30, 1950, was assessable under the
Indian Income Tax Act in the assessment year 1951-52 and that they had no
assessable income for the assessment year 1950-51. The Income Tax Officer
passed on that return an order "no proceeding" and closed the
assessment. For the assessment year 1951-52, the appellants submitted their
return of income. In the books of account produced by the appellants an opening
cash credit balance of Rs. 1,87,000 odd on July 1, 1949, was disclosed. The
Income Tax Officer called upon the appellants to produce their books of account
of previous years, but the books were not produced on the plea that the same
were lost. In assessing the income of the appellants for the year of account
1949-50, the Income Tax Officer held that Rs. 1,37,000 out of the opening
balance in the books of account dated July 1, 1949, represented income from an
undisclosed source. In appeal, the Appellate Assistant Commissioner observed
that the appellants not having exercised their option under s. 2(ii) of the
Indian Income Tax Act, and in the absence "of any system of accounting
adopted" by them, the only course open to the Income Tax Officer was to
take the financial year ending March 31, 1950, as the previous year for the
income from an undisclosed source, and directed the Income Tax Officer to
consider this credit in the assessment for the year 1950-51 after giving
opportunity to the appellants to explain the nature and source thereof. Before
the appeal was disposed of by the Appellate Assistant Commissioner, the
appellants had submitted a fresh return for the assessment year 195051
purporting to do so under s. 22(3) of the Indian Income Tax Act. Pursuant to
the direction of the Appellate Assistant Commissioner, the Income Tax Officer
issued a notice of reassessment under s. 34 of the Income Tax Act and served it
on October 15, 1957, 914 calling upon the appellants to submit a fresh return.
The appellants thereupon submitted a petition under Art. 226 of the
Constitution to the High Court of Mysore praying for an order declaring that
the notice under s. 34 was without jurisdiction and for quashing the notice and
proceeding consequent thereon. This petition was dismissed by the High Court,
but the High Court, on the application of the appellants, certified that the
appeal was a fit one for appeal to this court.
Section 34(1) of the Indian Income Tax Act at
the relevant time in so far as it is material provided:
"(1) If- (a)..the Income Tax Officer has
reason to believe that by reason of the omission or failure on the part of the
assessee to make a return of his income under s. 22 for any year or to disclose
fully and truly all material facts necessary for his assessment for that year,
income, profits or gains chargeable to income tax have escaped assessment for
that year, or (b)..notwithstanding that there has been no omission or failure
as mentioned in clause (a) on the part of the assessee, the Income Tax Officer
has in consequence of information in his possession reason to believe that
income, profits or gains chargeable to income-tax have escaped assessment for
any year, he may in cases falling under el.
(a) at any time within eight years and in
cases falling cl.
(b) within four years of the end of that
year, serve on the assessee a notice containing all or any of the requirements
which may be included in a notice under sub-s. (2) of s. 22 and may proceed to
assess or reassess such income, profits or gains; and the provisions of this
Act shall, so far as may be, apply accordingly as if the notice were a notice
issued under that sub-section." In the course of the assessment
proceedings for 1951-52, the appellants produced their books of account
containing an entry dated July 1, 1949, showing an opening cash balance of Rs.
1,87,000 odd which was not satisfactorily explained.
Though called upon, they did not produce
their books of account for the earlier year. The appellants had failed to
disclose in their return for the assessment year 1950-51 any 915 income. In the
circumstances, the Income Tax Officer had reason to believe that by reason of
failure on the part of the appellants to disclose fully and truly all' material
facts necessary for assessment for that year, income chargeable to tax had
escaped assessment. The Income Tax Officer had therefore jurisdiction to issue
the notice for reassessment.
The submission that the previous return
submitted on September 8, 1952, "had not been disposed of" and until
the assessment pursuant to that return was made, no notice under s. 34(1) for
reassessment could be issued, has in our judgment no substance. The Income Tax
Officer had disposed of the assessment proceeding accepting the submission made
by the appellants that they had no income for the assessment year 1950-51.
Under s. 23(1) of the Indian Income Tax Act, it is open to the Income Tax
Officer, if he is satisfied that the return made by an assessee under s. 22 is
correct, to assess the income and to determine the sum payable by the assessee
on the basis of the return without requiring the presence of the assessee or
production by him of any evidence. The appellants had in their return dated
September 8, 1952, submitted that they had no assessable income for the year in
question and on this return, the Income Tax Officer had passed the order
"no, proceeding".
Such an order in the circumstances of the
case meant that the Income Tax Officer accepted the return and assessed the
income as "nil". If thereafter, the Income Tax Officer had reason to
believe that the appellants had failed to disclose fully and truly all material
facts necessary for assessment for that year, it was open to him to issue a
notice for reassessment.
Under s. 22, sub-s. (3), an assessee may
submit a revised return if after he has furnished the return under sub-s. (2)
he discovers any omission or wrong statement therein. But such a revised return
can only be filed "at any time before the assessment is made" and not
thereafter. The return dated February 26, 1957, was submitted after the
assessment was made pursuant to the earlier return and it could not be
entertained. Nor could the lodging of such a return 916 debar the Income Tax
Officer from commencing a proceeding for reassessment of the appellant under s.
34(1) of the Indian Income Tax Act.
There is also no substance in the contention
that for the assessment year 1950-51 the assessee could be assessed under the
Mysore Income Tax Act and not under the Indian Income Tax Act. By the Finance
Act XXV of 1950 s. 13, cl. (1), it was provided in so far as it is material
that:
"If immediately before the 1st day of
April, 1950, there is in force in any Part-B State...... any law relating to
income-tax or super-tax or tax on profits of business, that law shall cease to
have effect except for the purposes of the levy, assessment and collection of
income-tax and super- tax in respect of any period not included in the previous
year for the purposes of assessment under the Indian Income Tax Act, 1922 (XI
of 1922), for the year ending on the 31st day of March, 1951, or for any
subsequent year." By virtue of s. 13(1), the Mysore Income Tax Act ceased
to be in operation as from April 1, 1950, except for the purposes of levy,
assessment and collection of income-tax and super tax in respect of any period
which was not included in the previous year for the purposes of assessment
under the Indian Income Tax Act for the assessment year 1950-51. The appellants
had been assessed for the period July 1, 1948, to June 30, 1949, under the
Mysore Income Tax Act. It is manifest that for any account year which was the
previous year in relation to the assessment year 195051, the appellants were
liable to be assessed under the Indian Income Tax Act and not under the
repealed Act. The year of account July 1, 1949, to June 30, 1950, was not a
period prior to such previous year and therefore liability to pay tax in
respect of that period could be assessed not under the Mysore Income Tax Act,
but under the Indian Income Tax Act. It was urged that this interpretation of
s. 13 may, when the account year of an assessee does not coincide with the
financial year lead to double taxation of the income for the account year
ending between April 1, 1949, 917 and March 31, 1950. But in order to avoid the
contingency envisaged by the appellants, the Central Government has, in
exercise of its power under s. 60A of the Indian Income Tax Act, issued the
Part-B States (Taxation Concessions) Order, 1950, which by cl. 5(1) provides
amongst other things, that the income, profits and gains of any previous year
ending after the 31st day of March, 1949, which is a previous year for the
State assessment year 1949-50 shall be assessed under the Act (Indian Income
Tax Act, 1922) for the year ending on the 31st March, 1951, if and only if such
income, profits and gains have not, before the appointed day, been assessed
under the State law. If, in respect of the previous year for the purposes of
the assessment year ending 31st March, 1951, the appellants had been assessed
by any State Government under a law relating to income-tax in force in the
State, the Indian Income Tax authorities would be in- competent to assess
income for that year; but in default of such assessment income of the
appellants for that year was assessable under the Indian Income Tax Act.
The notice under s. 34 was also not issued
after the expiry of the period prescribed in that behalf. The notice was issued
by the Income Tax Officer because he had reason to believe that by reason of
failure on the part of the appellants to disclose fully and truly all material
facts necessary for the assessment for the year 1950-51, income had escaped
assessment. Such a notice fell manifestly within s. 34(1)(a) and could be
issued within eight years, from the end of the year of assessment. The impugned
notice under s. 34 for reassessment of the income of the appellants for the
year 1950-51 was, in our judgment, properly issued and the High Court was right
in dismissing the petition for a writ to quash the notice.
The appeal fails and is dismissed with costs.
Back
