Commissioner of Income-Tax, Madras Vs.
S. Raman Chettiar  INSC 239 (27 October 1964)
27/10/1964 SIKRI, S.M.
CITATION: 1965 AIR 1031 1965 SCR (1) 883
D 1969 SC 496 (3,6) APL 1969 SC 831 (4) D 1974
SC1985 (12) R 1986 SC1853 (17)
Indian Income-tax Act (11 of 1922), ss. 22(3)
and 34-Invalid notice under s. 34-Return submitted-Subsequent proceedings under
s. 34-If can be taken ignoring return.
In response to a notice dated 3rd April 1948,
under s. 34 of the Indian Income-tax Act, 1922, the assessee submitted returns
for the assessment years 1944-45 and 1945-46. The Income-tax Officer dropped
proceedings for the former year and determined the net taxable income for the
The see appealed first to the Appellate
Assistant Commissioner and then to the Appellate Tribunal. The Tribunal allowed
the appeal in part, held that a portion of the profit determined was assessable
in the assessment year 1944-45 and observed, that the Income-tax Officer was at
liberty to take appropriate action. The Income-tax Officer again issued a
notice under s. 34 after obtaining the sanction of the Commissioner, as
required by the Amending Act 48 of 1948 (passed on 8th September 1948, but made
retrospective from 30th March 1948), in respect of the assessment year 1944-45.
He brought to tax, the amount determined by the Tribunal as the profit of the
year. The assessee's appeals to the Appellate Assistant Commissioner and the
Appellate Tribunal were unsuccessful. The High Court, on a reference, held in
favour of the assessee holding that the; reassessment under s. 34 for the year
1944-45 was not valid. The Commissioner appealed to the Supreme Court.
HELD : The first return submitted by the
assessee was a valid return under s. 22(3). The Department could not therefore,
ignore it and issue notice under s. 34 on the assumption that there had been an
omission or failure on the part of the assessee to make a return under s. 22.
887 C] Section 22(3) permits an assessee to
furnish a return at any time before the assessment is made, that is, before the
time mentioned in s. 34(3). It need not be a voluntary return in the sense that
it must be suo motu. If the first notice under s. 34 was held to be bad because
the Commissioner'& sanction was not obtained as required by the amendment
of 1948, it did not follow that a return made in pursuance of it must also be
treated as bad. If a return otherwise valid is filed by an assessee before the
receipt of a valid notice under s. 34, it has to be treated as a valid return
within s. 22(3). [886 F-H; 889 C-D, F] Commissioner of Income-tax, Bihar and
Orissa v. Maharaja Pratap Singh Bahadur of Gidhaur, (1961) 41 I.T.R. 421,
distinguished, Commissioner of Income-tax, Bombay City. v. Ranchoddas
Karsondas, (1959) 36 I.T.R. 569, referred to.
R. K. Das & Co. v. Commissioner of
Income-tax, West Bengal, (1956) 30 I.T.R. 439, overruled.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 1096 of 1963.
Appeal by special leave from the judgment
dated January 3, 1961 of the Madras High Court in Case Referred No. 114 of
L2Sup/65-13 884 K. N. Rajgopala Sastri, R. H.
Dhebar and R. N. Sachthey, for the appellant.
S. Swaminathan and R. Gopalakrishnan, for the
The Judgment of the Court was delivered by
Sikri J. This is an appeal by special leave directed against the judgment of
the Madras High Court answering the question 'whether the reassessment under s.
34 (of the Indian Income Tax Act, 1922) completed on 30th June, 1953 for the
year 1944-45 is valid' in the negative. The relevant facts are as follows The
respondent, hereinafter referred to as the assessee is a Hindu undivided
family. For the assessment years 1944-45 and 1945-46, the assessee filed no
returns under s. 22 of the Indian Income Tax Act, hereinafter referred to as
the Act, nor were any notices issued under s. 22(2) of the Act.
On April 3, 1948, the Income Tax Officer
issued notices under S. 34 for both the assessment years. At that time it was
not necessary to obtain sanction of the Commissioner of Income Tax and none was
obtained. The assessee filed a return for the assessment year 1944-45 on
September 4, 1948, showing an income of Rs. 4,053 which was below the HUF
taxable limit of Rs. 7,200. The assessee also filed a return for the assessment
year 1945-46. It appears that the Income Tax Officer dropped proceedings for
1944-45 as in fructuous, but for the assessment year 1945-46, he passed an
order on October 27, 1950, determining the net taxable income as Rs. 1,20,603.
The assessee appealed to the Appellate Assistant ,Commissioner and then
appealed to the Appellate Tribunal. On November 19, 1952, the Appellate
Tribunal allowed the appeal in part. It held that out of a total profit of Rs.
79,760 arising from the sale of certain properties, only Rs. 33,000 was
assessable in the assessment year 1945-46 and Rs. 46,760 was assessable in the
assessment year 1944-45. The Appellate Tribunal ,observed thus in the order:
"The Income Tax Officer is at liberty to
take such action as he may be advised about the assessee's liability for the
earlier year 1944-45." On February 27, 1953, after having obtained the
sanction of the Commissioner, the Income Tax Officer issued a notice purporting
to be under S. 34 of the Act in respect of the assessment year 1944-45. It is
the validity of this notice that is now in question. The Income Tax Officer
paged an order on June 30, 1953, assessing the total income as Rs. 51,523. The
Appellate Assistant 885 Commissioner affirmed the order. He held that the
action of the Income Tax Officer in starting proceedings under s. 34(1) (a) was
valid. He further held that in view of the finding of the Appellate Tribunal
that the Income Tax Officer would be at liberty to take action about the assessee's
liability to tax for 1944-45 assessment, the second proviso to sub-s. (3) of s.
34, as amended by Amendment Act of 1953, was applicable and consequently the
timelimit specified in s. 34 would not be applicable. The Appellate Tribunal,
without going into the question whether s. 34 ( 1 ) (a) could be invoked by the
Revenue, affirmed the assessment on the ground that the second proviso to s. 34(3)
of the Act, as amended, applied.
At the instance of the assessee, the
Appellate Tribunal referred the question set out in the beginning of the
judgment. The High Court, as already stated, answered the question in the
negative. It held that notwithstanding that the return filed by the assessee on
September 4, 1948, was the result of an invalid notice, the return itself could
not be ignored or disregarded by the Department, and the Department cannot
issue a further notice under s. 34(1) (a) of the Act on the assumption that
there had been an omission or failure on the part of the assessee to make a
return of his income under s. 22. It further held that the ratio of the
decision of this Court in Commissioner of Income-tax v. Ranchhodas Karsondas(1)
governed the present case.
Mr. Rajagopala Sastri, the learned counsel
for the appellant, submits that the return was not voluntary and as it was made
in pursuance of an invalid notice, must also be treated as invalid. He says
that no assessment could be made on its basis. He further says that the case of
Ranchhodas Karsondas(1) is distinguishable.
The learned counsel for the assessee raises
an objection to this new point being urgred at this stage. He points out that
in the statement of the case, filed in this Court on behalf of the appellant,
one proposition of law is Put thus:
"The notice issued on 3rd April 1948 and
return filed on 4th September 1948 being valid the proceedings thus initiated
came to an end on 27th October, 1950, and there were no proceedings pending
when the second notice was issued on 27th February, 1953." This
Proposition, he says, admits that the return was valid.
On the merits he has supported the reasoning
of the High Court and (1) [1960 1 S.C.R. 114.
886 added that in this case assessment could
have been made by the Income Tax Officer till March 31, 1949, under s. 23,
treating the return as one made under S. 22.
In our,opinion the appellant is not raising
any new point.
It is true that in the above cited
proposition the appellant says that the return is valid but this follows the
assertion that the notice issued on April 3, 1948 is valid. In another part of
the statement of the case, however, the appellant states that "the return
was not a voluntary return and, therefore, could not be regarded as a return on
which valid assessment could be made, the case was one where no return had been
filed and was also one where income had I escaped assessment. Clause (a) of
section 34(1) was therefore; applicable and the second notice under section 34
was given within, the period allowed by law".
The short question which arises in this case
is whether the;
return dated September 4, 1948, can be
treated as valid return under s. 22(3) of the Act. Section 22(3) is in the
following terms :
"22(3). If any person has not furnished
a return within the time allowed by or under sub-section (1) or sub-section
(2), or having furnished a return under either of those subsections, discovers
any omission or wrong statement therein, he may furnish a return or a revised
return, as the case may be, at any time before the assessment is made."
Section 22(3) permits an assessee to furnish a return at any time before the
assessment is made. By virtue of S. 34(3), as it stood in 1949, assessment
could have been made at least up to March 31, 1949, if the return was valid.
Therefore, it may be implied, as laid down in
S. Santosha Nadar v. First Additional Income-Tax Officer, Tuticorin(1) and
Commissioner of Income-Tax Bombay City II v. Bhagwandas Amersey(1) that the
return must be filed before the time mentioned in S. 34(3). This condition is,
however, satisfied in this case. Mr. Sastri says that it is further implicit in
s. 22(3) that the return must be voluntary. We are unable to appreciate that
every return made under S. 22(3) must be a voluntary return, in the sense that
it must be suo motu. If a return is made in pursuance to a general notice under
s. 22(1), or a special notice under s. 22(2), it is a return made voluntary but
not suo motu. It is a return made in response to a public notice or a special
notice. If no return is made in response to notices (1) (1961) 421 T.R. 715 (2)
(1963)50 I.T.R. 239 887 under s. 22(1), and s. 22(2), the Act attaches certain
penalties. in our view, it is not correct first to describe a return made under
s. 22(3) in response to a notice under s. 22(1) or s. 22(2) as Voluntary, and
then say that a return made in response to a notice under s. 34 is not
voluntary just because it warns the assessee that some income has escaped
assessment. In our opinion, both types of returns are under s. 22(3) of the
Act. In the first type of cases it is directly under s. 22(3). In case of a
notice under s. 34, it is deemed to be notice under s. 22(2) and the return
deemed to be a return under s. 22(3). From the language of s. 22(3), we are
unable to say that the return dated September 4, 1948, was not a return within
Mr. Sastri however, says that this Court
proceeded on a contrary view in Commissioner of Income-tax Bihar and Orissa V. Maharaja
Pratap Singh Bahadur of Gidhaur(1). Let us then see what was decided by this
Court. Shortly stated, the facts in that case were that the Maharajah had
agricultural income and interest received by him on arrears of rent for the
four assessment years 1944-45 to 1947-48. The lncome Tax authorities did not
include in his assessable income interest received by him on arrears of rent on
the ground that it was agricultural income. This view was held to be wrong by
the Privy Council. The Income Tax Officer issued notices under s. 34 on August
8, 1948, without obtaining the approval of the Commissioner. Section 34 was
amended by the Income-Tax Business Profits Tax (Amendment) Act, 1948 (XLVIII of
1948). Assessments were made on the basis of the above notices dated August 3,
1948. The question referred to the High Court was: "Whether in the
circumstances of the case assessment proceedings were validly initiated under
s. 34 of the Indian Income Tax Act". This Court held that:
"As the Amending Act repealed the
original section 34 not from the day it was promulgated but from an earlier
date, March 30, 1948, and substituted in its place the reenacted section
containing the proviso, and provided that the reenacted section shall be deemed
to have come into force with retrospective effect on March 30, 1948, the
application of section 6 of the General Clauses Act was excluded. As the
notices were, all issued on August 8, 1948, at a time when on the statute book
must be deemed to be existing a provision enjoining a duty upon the Income Tax
Officer to record his reasons and (1)  2 S.C.R. 760.
888 submit for the approval of the
Commissioner before issuing notice under section 34, unless that approval was
obtained the notices could not be issued. The notices issued by the Income-Tax
Officer without complying with the conditions laid down in the proviso to
section 34(1) as re-enacted were invalid, and the entire proceedings for
reassessment were illegal." In view of the question referred to the High
Court, this Court was not really concerned with the validity of the returns
made, but Mr. Sastri relies on certain observation made by the High Court and
this Court. When the reference was before the Patna High Court in Commissioner
of IncomeTax, Bihar and Orissa v. Maharaja Pratap Singh Bahadur(1), the learned
counsel had contended that it was physically impossible for the Income Tax
Officer to comply with the requirements of the amended s. 34 on August 8, 1948.
The High Court, regarding this contention, observed that "the argument is
correct, but the Income Tax Department was not prejudiced because notices under
s. 34 could be reissued after the 8th of September, the date of the Amending
Act, and after complying with the requirements of the amended section 34".
This Court, in the appeal from the above decision, after holding that the
notices were invalid, observed:
"Indeed, there was time enough for fresh
notices to have been issued, and we fail to see why the old notices were not
recalled and fresh ones issued." These observations certainly show that
this Court assumed that fresh notices could have been issued in that case. Mr. Sastri
says that the Department has done exactly what the Supreme Court indicated in
that case should be done. But, apart from the fact that there is no discussion
on the question of the validity of the return, it is possible to say that on
the facts in that case fresh notices could have been issued. In Maharajah
Pratap Singh, s(2) case, the Maharajah had filed returns for four assessment
years 194445 to 1947-48 under s. 22, and assessments had been made but the
income of the assessee with regard to interest on arrears of rent was not
included. His returns in pursuance to a notice under s. 34 could not be treated
as a return under s. 22(3) because he had already filed returns and was not
purporting to revise his previous returns. But in the present case the assessee
had never filed a return under s. 22. The first return he filed was in response
to (1)  30 I.T.R. 484.
(2) (1961) 2 S.C.R. 760.
notice under s. 34, but he could have filed
this return even without a notice under s. 34, for the four years prescribed by
s. 34(3).ad not expired.
This Court in Commissioner of Income-tax
Bombay City v. Ranchhoddas Karsondas(1) held that a return showing income below
taxable limit was a good return and the Income Tax Officer could not choose to
ignore the return and issue a notice under s. 34, Hidayatullah J., speaking for
the Court, observed that "it is a little difficult to understand how the
existence of a return can be ignored once it is filed".
But this case is not of much help in
Determining whether the return in this case is a good return within s.22(3) of
Mr. Sastri further contends that if the
notice under s. 34 is held to be bad, it must follow that the return made in
pursuance of it must also be treated as bad. We are satisfied that there is no
substance in this contention.
The decision of the Calcutta High Court in R.
K. Das & Co. v. Commissioner of Income-Tax West Bengal(1) certainly
supports Mr. Sastri's contention but, with respect, we are unable to agree with
the reasoning of the High Court. Apart from the fact that this Court did not
approve of this decision in Ranchhoddas Karsondas's case("), we are unable
to appreciate that if the Income Tax Officer had based his assessment on the
return treating it to be a return under s. 22(3). the assessment would not
stand a moment's scrutiny.
We think that some confusion has crept into
this branch of the Income Tax Law by the use of the words 'voluntary return'
and a' non-voluntary return'. Section 22(3) does not use this expression and
whatever the impelling cause or motive if a return otherwise valid is filed by
an assessee before the receipt of a valid notice under s. 34, it is to be
treated as a return within s. 22(3) for it falls within the language of the
In the result we agree with the High Court
that the question referred to the High Court must be answered in the negative.
Accordingly we dismiss the appeal with costs.
(1)  1 S.C.R. 114.
(2)  30 I. T.R. 439.