1. By this reference under section 66(1) of the Indian Income-tax Act, 1922, the question that is referred for determination is :
'Whether proceedings under section 34 for the assessment year 1956-57 were validly initiated against the assessee, Hindu undivided family, and the assessment completed against it within the time-limit applicable to it ?'
2. The case relates to the assessment year 1956-57 for which the relevant previous year is from May 9, 1954, to May 31, 1955. The assessee is a Hindu undivided family, namely, Messrs. Hargovindsingh Narainsing. For the assessment year 1956-57 on May 3, 1956, the Income-tax Officer issued a notice under section 22(2) of the Act, in the name of 'Shri Hargovindsingh Narainsing, C/o. Court Receiver, High Court, Bombay'. This notice was served upon the court receiver on May 7, 1956. In response to this notice the court receiver filed three separate returns for the accounting year under his signature. These returns are for the following periods of the accounting year : (1) From May 9, 1954, to September 27, 1954, i.e., upto the date of death of Hargovindsingh Narainsing, the karta of the Hindu undivided family; (2) from September 28, 1954, to October 28, 1954, i.e., till the date of appointment of the court receiver by the court; and (3) from October 28, 1954, to May 31, 1954, i.e., from the date on which the court receiver took charge of the family property till the close of the accounting year. After these returns were submitted by the court receiver, the Income-tax Officer issued notice under section 23(2) of the Act in the name of the court receiver and thereafter did not proceed to complete the assessment.
3. On September 24, 1958, the Income-tax Officer initiated proceedings against the Hindu undivided family by issuing a notice of the same date in the name of Messrs. Hargovindsingh Narainsing (Hindu undivided family) by present karta, Damodardas Hargovindsingh. In response to that notice under section 34, Damodardas filed a return under protest. He contended before the Income-tax Officer that the initiation of proceedings under section 34 was invalid in law, inter alia, on the ground that the service of the notice issued by the Income-tax Officer under section 34 was bad in law. The Income-tax Officer rejected the contention of the assessee and completed the assessment by his order passed on March 29, 1961. On appeal by the assessee to the Appellate Assistant Commissioner, he also rejected the contention of the assessee that the assessment was invalid in law as the proceedings were wrongly initiated under section 34 of the Act. This contention was rejected by the Appellate Assistant Commissioner and he took the view that as the Income-tax Officer didi not take any action on the return filed by the court receiver, he was entitled to issue notice under section 34 of the Act and based his assessment on the return submitted by the Hindu undivided family.
4. In appeal by the assessee before the Income-tax Tribunal, it was also contended that the initiation of the proceedings under section 34 of the Act was invalid in law, because a notice under section 22(2) of the Act was issued and served upon the court receiver; that pursuant to the said notice the court receiver had submitted three returns pertaining to the accounting period; that so long as no proper order was passed upon these returns, it was not permissible to the Income-tax Officer to issue a notice under section 34 of the Act. While passing its original order, the Tribunal took the view that two of the returns filed by the court receiver were unsigned and were not valid returns and that he was not bound to take cognizance thereof; that the notice under section 22(2) was issued in the name of the Hindu undivided family, but the Hindu undivided family did not file any return in pursuance of the said notice. The Tribunal accordingly took the view that initiation of proceedings was permissible under section 34 of the Act.
5. Later on, by an order of rectification, the Tribunal has rectified the statement made in the original order that the first two returns filed by the court receiver were unsigned and were not valid returns that could be taken cognizance of. After going through the original returns, it was found that all the three returns were signed by the court receiver. Notwithstanding that fact the Tribunal reaffirmed the earlier view that such a factor did not affect the merits of its earlier decision.
6. Mr. Kaka, on behalf of the assessee, has submitted that proceedings under section 34 of the Act will not be initiated, that in fact this section has no application in the present case, because this is not a case where it can be said that income has escaped assessment, until the returns filed by the court receiver pursuant to a notice under section 22(2) of the Act were scrutinized and considered and order passed thereon. On behalf of the revenue, Mr. Hajarnavis stated that the Income-tax officer was entitled to initiate proceedings under section 34 of the Act because there was no valid notice served upon the Hindu undivided family under section 22(2) of the Act as it was served upon court receiver. Secondly, he submitted that in any event the three returns filed by the court receiver pursuant to this notice were invalid in law and that permitted the Income-tax Officer to initiate proceedings under section 34 of the Act.
7. Notice under section 22 of the Act was issued by the Income-tax Officer on May 3, 1956, in the name of Shri Hargovindsingh Narainsing, C/o Court Receiver, High Court, Bombay, and it was served on the court receiver on May 17, 1956. It is not disputed in the present case that the litigation between the members in the family was pending and at the relevant time during the course of the said litigation, the court receiver was appointed receiver, of the property of the joint family. As the assets of the joint family were at the relevant time in charge and control of the court receiver, High Court, Bombay, a notice upon the Hindu undivided family of Messrs. Hargovindsingh Narayansingh was rightly and validly served upon the court receiver. We see no substance in the contention that service upon the court receiver was invalid in law and consequently authorised the Income-tax Officer to initiate proceedings under section 34 of the Act.
8. The second contention of Mr. Hajarnavis, on behalf of the revenue, is that the three separate returns submitted by the court receiver in respect of the accounting year are invalid. It is unnecessary to consider the question whether in law they are invalid. The Tribunal held the returns to be invalid because two of them, according to the Tribunal, were not signed by the court receiver, but later on upon re-examination, it was found that it was an incorrect statement of facts. Even assuming that the returns are invalid in law, that does not permit an Income-tax Officer to initiate proceedings under section 34 of the Act. Even if it is assumed that the three returns filed by the court receiver for the accounting period are invalid in law, it is well-settled that merely because the return filed is invalid that does not authorise an Income-tax Officer to initiate proceedings under section 34 of the Act. In Commissioner of Income-tax v. A. J. Zaveri, it was held by the Income-tax officer that there was no legal and valid return filed by the assessee for the first year of assessment, viz., 1951-52, because the return purported to be filed by the assessee for the said year was invalid in as much as it was not signed by the assessee. While dealing with these contentions, this court pointed out that the view of the circumstances pointed out by the Tribunal there could be no doubt whatsoever that the assessee could not be said to have omitted or failed to make a return of his income. It may be that the return filed by him may not have been in strict compliance with the formalities. There is, however, no doubt that irregularities, if there are to be any in the filing of the said return, were ignored by the department and the same was accepted as a valid return on which further process of assessment can be gone into. It was not, therefore, possible for the department to treat it as no return or invalid return so as to permit it to take action under section 34(1)(a).
9. Somewhat similar question arose for consideration in Bibi Gurdarshan Kaur v. Commissioner of Income-tax. In that case, the assessee, who was a partner in a firm having a seven annas share in it voluntarily filed a return for the assessment year b1948-49, on September 3, 1951, in which she indicated merely that she had the seven annas share in the firm but did not specify the amount of profits which accrued to her towards her share. The Income-tax officer served a notice under section 23(2) of the Indian Income-tax Act, 1922, on the basis of that return and the notice was complied with. In the personal account of the assessee in the books of the firm he discovered a credit of Rs. 50,000 in regard to which he did not accept her explanation as to the source. Three years later, the Income-tax officer issued a notice under section 34(1)(a) treating the return submitted by the assessee as a nullity. Pursuant to that notice, he also made an assessment. With regard to the same assessee the Income-tax Officer had not only entertained similar returns for the assessment years 1949-50 to 1951-52, but also made assessments on the basis of those returns under section 23 (3). On this fact, the Punjab High Court took the view that as the Income-tax Officer had not only entertained the return, but acted on it by issuing a notice under section 23 (2) and had not at that stage raised an objection on the ground that the return was invalid, and he could have by resort to section 23(3) removed any lacuna in the return, the return filed by the assessee on September 3, 1951, was a valid return. That return still remained undisposed of and, therefore, the assessment proceedings initiated by a notice under section 34(1)(a) were without jurisdiction.
10. In the case before us, pursuant to the notice under section 22(2) of the Act, not only the court receiver has submitted three separate returns for the relevant accounting year, but after they were received by the Income-tax Officer, he issued notice under section 23(2) of the Act in the name of the court receiver, but did not carry on the proceedings further. The Income-tax Officer was entitled to scrutinise the income shown by those returns and pass appropriate orders in respect of the liability of the Hindu undivided family. This cannot be regarded as a case where no return is filed by the Hindu undivided family, or that its income has escaped assessment. Under the circumstances, proceedings under section 34 are without jurisdiction. Our answer to the first part of the question is in the negative. So far as the second part of the question is concerned, it is unnecessary to decide. The revenue to pay the costs of the assessee.