The VI th Income-Tax Officer, City
Circle II-A, A Bangalore Vs. K.Y. Pillaiah & Sons  INSC 154 (18 July
18/07/1967 SHAH, J.C.
CITATION: 1968 AIR 260 1968 SCR (1) 6
Mysore Income-tax Act of 1923, s. 34-Notice
served within 4 years of the close of assessment year-Completion of assessment
proceeding-Time limit for.
The Income-tax Officer, Bangalore commenced a
proceeding under s. 34 of the Mysore Income-tax Act for reassessment of the
income of the respondents for the assessment year 194950 and served a notice in
that behalf in March 1951, on the respondents. The Income-tax Officer
determined the total income of the respondents in May 1954, but the order was
set aside by the Appellate Assistant Commissioner in November 1961, and the
Income-tax Officer was directed to make a fresh inquiry, When the Income-tax
Officer commenced inquiry, the respondents applied to the High Court for a writ
of prohibition and the High Court passed an order restraining the Income-tax
Officer on the ground that the assessment proceeding was barred because of the
expiry of the period of limitation.
In appeal to this Court, Held: The High Court
was in error, because, though the Appellate Assistant Commissioner vacated the
Income-tax Officer's assessment order of 1954 and remanded the case for further
inquiry, the Appellate Assistant Commissioner did not set aside the notice of
March 1951 served on the respondents, If a proper notice was served within the
period provided by the section (four years from the close of the assessment
year) the proceeding could be completed even after the expiry of four years for
the Act prescribes no period for completion of the proceeding. [8E-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2177 of1966.
Appeal by special leave from the judgment and
order dated July 12, 1963 of the Mysore High Court in Writ Petition No. 1076 of
Veda Vyasa, R. Ganapathy Iyer, R. N. Sachthey
and S. P. Nayar, for the appellant.
R. Gopalakrishnan, for the respondent. The
Judgment of the Court was delivered by Shah, J.-The respondents-a Hindu
undivided family-were assessed for the assessment year 1949-50 to tax under s'
23 of the Mysore Income-tax Act on a total income of Rs. 10,100/The Second Additional
Income-tax Officer (Urban Circle), Bangalore, commenced a proceeding under s.
34 of the Mysore Income-tax Act for re-assessment of the income of the
respondents for the 7 assessment year 1949-50, and served a notice in that
behalf on March 6, 1951. On May 21, 1954 the Income-tax Officer determined the
respondents' total income at Rs. 75,957/-.
In appeal against the order, the Appellate
Assistant Commissioner of Income-tax. 'A' Range, Bangalore, by order dated
November 4, 1961, set aside the order and directed the Income-tax Officer to
make a fresh assessment after making inquiries on certain matters specified in
At the request of the respondents under s.
66(2) of the Mysore Income-tax Act, the Commissioner of Income-tax, Mysore,
referred the following questions to the High Court of Mysore:
"1. On the facts and in-the
circumstances of the assessee's case whether within the meaning of s. 34 of the
Mysore Income-tax Act, if a notice under that section is issued within the
prescribed period, whether the Income-tax Officer can proceed to assess or
re-assess such escaped income after four years from the close of the assessment
2. On the facts and in the circumstances of
the case, whether the Appellate Assistant Commissioner of Income tax is
competent to set aside and give directions to the Income-tax Officer to re-do
the assessment in the manner the Appellate Assistant Commissioner of Income-tax
has done?" At the hearing of the reference, the respondents did not press
the first question, and the High Court answered the second question in the
The Income-tax Officer commenced inquiry
directed by the Appellate Assistant Commissioner. The respondent-, then applied
to the High Court of Mysore for issue of a writ of prohibition restraining the
Income-tax Officer from continuing the assessment proceeding for the year
1949-50 on the plea that the proceeding was because of expiry of the period of
limitation barred. The High Court of Mysore upheld the contention of the
respondents and allowed the petition. In the view of the High Court the
provisions of s. 34 of the Mysore Income-tax Act were "more or less
similar to Rule 34 of the Mysore Sales Tax Act, 1948. Hence the present case
clearly comes within the rule laid down by this Court in M/s K. S. Subbarayappa
and Sons v. State of Mysore [(1952)] Mysore L. J. 2341 which means that the
present proceedings are barred". The Commissioner of Income-tax has
appealed to this Court with special leave.
The question arising in this appeal must, it
is common ground, be determined in the light of the provisions of the Mysore
Income tax Act, 1923. Even after the merger of the State of Mysore with 8 the
Union of India a proceeding for assessment of income-tax relating to the
assessment year 1949-50 has to be heard and disposed of under the Mysore Act.
Section 34 of the Mysore Income tax Act reads as follows "If for any
reason, profits or gains chargeable to income-tax have escaped assessment in
any year, or have been assessed at too low a rate, the Income-tax Officer may,
at any time within four years of the end of that year, serve on the person
liable to pay tax on such income, profits or gains, or in the case of a
company, on the principal officer thereof a notice containing all or any of the
requirements which may be included in a notice under sub-section (2) of section
22, and may proceed to assess or re-assess such income, profits or gains and
the provision of this Act shall, so far as may be, apply according as if the
notice were a notice issued under that sub-section".
A proceeding for re-assessment under s. 34 of
the Mysore Act may be commenced if two conditions co-exist:
(i)that the profits and gains chargeable to
income-tax have escaped assessment or have been assessed at too low a rate, and
(ii) the notice is served within four years of the end of the year of
assessment. But if a proper notice is served within the period provided by the
section, the proceeding may be completed even after the expiry of four years
from the close of the assessment year, for the Act prescribes no period for
completion of the proceeding.
A notice for re-assessment was in fact served
on the respondents on March 6, 1951 under s. 34 of the Mysore Act. That notice
was served within four years of the end of the year of assessment 1949-50, and
the Income-tax Officer was of the view that tie profits or gains chargeable to
income-tax had escaped assessment in the year 1949-50. It is true that the
Appellate Assistant Commissioner vacated the order of assessment dated May 21,
1954, but he did not set aside the notice served upon the respondents. He
merely remanded the case for further inquiry to be made in the light of the
directions given by him. It is difficult to appreciate the grounds on which it
could be held that the proceeding for re-assessment to tax the income which had
escaped assessment in the year 1949-50 commenced after due notice served on
March 1951 was barred. The High Court was, in our judgment, plainly in error in
holding that the proceeding for reassessment was barred.
It must also be remembered that the
respondents had under an order of the Commissioner obtained a reference on the
first question set out hereinbefore. That question was not pressed before the
High Court, and it must be deemed to have been answered 9 against the
respondents. That question could not thereafter be re agitated by the
respondents in a petition for the issue of a writ under Art. 226 of the
The appeal is allowed. The order passed by
the High Court is set aside. The respondents will pay the costs of the
Commissioner in this Court and in the High Court.