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Commissioner of Income-tax, Bombay City Ii Vs. Bhagwandas Amersey - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 68 of 1960
Judge
Reported in[1963]50ITR239(Bom)
ActsIncome Tax Act, 1922 - Sections 22(2), 22(3), 34, 34(1) and 34(3)
AppellantCommissioner of Income-tax, Bombay City Ii
RespondentBhagwandas Amersey
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateS.P. Mehta, Adv.
Excerpt:
.....income-tax act. mehta says, the income-tax officer could have and ought to have proceeded on the return filed by the assessee on the 20th of may, 1953. inasmuch as he has not proceeded to do so, but has adopted a course which was not permissible in law, the assessment order made by him is bad. it is well settled that the issue of the prescribed notice is a condition precedent to the assumption of jurisdiction vested by section 34(1), and where such notice was never issued, it cannot be viewed as a case falling within section 34(1)(a), for the purpose of section 34(3).'11. in our opinion, the voluntary return filed by the assessee on the 20th of may, 1953, was, as observed by the madras :high court, non est in law and did not preclude the income-tax officer from initiating proceedings..........year in which the date on which the draft was taken fell and in view of the fact that the return filed by him for the year 1945-46 was not valid, action under section 34 was called for the assessment year 1945-46. in response to this notice, the assessee submitted a return on the 10th of august, 1953, showing a loss of rs. 3,425 from business. on the 27th of february, 1954, the income-tax officer made an order in the earlier assessment proceedings initiated under-section 34(1)(a) for the assessment year 1944-45 accepting the assessee's plea that the return for that year was nil since the amount of the draft related to the s. y. 2000 for which the relevant assessment year was 1945-46. on the same day, he also completed the assessment proceedings which he had initiated on his.....
Judgment:

V.S. Desai, J.

1. The question, which is referred on this reference under section 66(1) of the Indian Income-tax Act, is as follows :

'Whether, on the facts and circumstances of the case, the proceedings initiated under section 34(1)(a) for the assessment year 1945-46 and the assessment made in pursuance thereto were bad in law ?'

2. The assessee was assessed to tax for the assessment year 1946-47 on his income from a share in a certain registered firm in which he was a partner. In the year 1953 the Income-tax Officer at Bhavnagar addressed a letter to the Income-tax Officer, B-II Ward, Bombay, requesting the latter to make inquiries in respect of a draft favouring self for Rs. 66,000 which the assessee had taken on the 23rd of March, 1944, on the Bank of Baroda Limited, Bombay, and which wash cashed through payee's account with the Exchange Bank of India and Africa Ltd. This letter, appears, inadvertently bore the assessee's address on its cover and was consequently first received by the assessee himself. The assessee on reading the contents found that it was meant for the Income-tax Officer, B-II Ward, Bombay, and accordingly passed it on to the officer concerned on the 24th March, 1953. Thereafter on the 28th March, 1953, the Income-tax Officer issued a notice to the assessee under section 34(1)(a) for the assessment year 1944-45 and got it served by affixation on the 31st of March, 1953. On the 10th of July, 1953, the assessee stated before the Income-tax Officer that in response to the notice received by him he had already submitted a return for the assessment year 1944-45 for which his previous accounting year was S. Y. 1999. He had, however, no business in the S. Y. 1999. For the S. Y. 2000 he had maintained a note book and for the subsequent Samvat years corresponding to assessment years 1946-47 onwards, the assessee has been assessed to tax. The draft dated 23rd March, 1944, pertains to the S. Y. 2000 and action under section 34 may be taken for the assessment year 1945-46. In the meanwhile on the 20th of May, 1953, the assessee also filed a voluntary return for the assessment year 1945-46 showing a loss of Rs. 3,418 and in column 'G' of the said return he declared :

'Cash deposits in my account with the Exchange Bank of India. As the business suffered loss it was not returned in the prescribed form.'

3. On the 29th of July, 1953, the Income-tax Officer issued a notice to the assessee under section 34(1)(a) for the assessment year 1945-46. He noted on record while issuing this notice that in response to the notice issued under section 34 for the year 1944-45 the assessee had pointed out that as the date on which the draft was taken out fell in the S. Y. 2000 action under section 34 should be taken for the assessment year 1945-46; that the assessee had already submitted a voluntary return for the year 1945-46 showing the accounting year as S. Y. 2000 but returning a loss of Rs. 3,418 and that in the circumstances explained by the assessee relating to the accounting year in which the date on which the draft was taken fell and in view of the fact that the return filed by him for the year 1945-46 was not valid, action under section 34 was called for the assessment year 1945-46. In response to this notice, the assessee submitted a return on the 10th of August, 1953, showing a loss of Rs. 3,425 from business. On the 27th of February, 1954, the Income-tax Officer made an order in the earlier assessment proceedings initiated under-section 34(1)(a) for the assessment year 1944-45 accepting the assessee's plea that the return for that year was nil since the amount of the draft related to the S. Y. 2000 for which the relevant assessment year was 1945-46. On the same day, he also completed the assessment proceedings which he had initiated on his notice under section 34 dated 29th July, 1953. The voluntary return, which the assessee had filed on the 20th of May, 1953, was ignored and not proceeded with by the Income-tax Officer. In the course of the said proceedings initiated on the notice under section 34, the assessee did not protest that the notice under the said section or the assumption of jurisdiction under that section was bad in law. From the order of assessment passed by the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner and in the said appeal raised the contention that the proceedings initiated under section 34 were bad in law. On the merits, he disputed the quantum of Rs. 56,000 assessed in the said assessment proceedings. The Appellate Assistant Commissioner took the view that the contention of the assessee, that the proceedings under section 34 were bad in law, was well-founded and supported by the decision of this court in Ranchhoddas Karsondas v. Commissioner of Income-tax : [1954]26ITR105(Bom) . He accordingly allowed the appeal and set aside the order of assessment made by the Income-tax Officer. The department then appealed to the Income-tax Appellate Tribunal. The Tribunal also took the view that the ratio decidendi of the Supreme Court decision in Commissioner of Income-tax v. Ranchhoddas Karsondas : [1959]36ITR569(SC) , affirming the decision of the Bombay High Court in Ranchhodas Karsondas v. Commissioner of Income-tax : [1954]26ITR105(Bom) , applied to the present case and the proceedings initiated under section 34(1)(a) for the assessment year 1945-46 as well as the order of assessment made in the said proceedings were bad in law. At the instance of the department, it then drew up a statement of case and referred to this court the question, which we have already stated.

4. Now from the facts which we have already stated, it will be clear that, in the present case, the end of the relevant assessment year was on the 31st of March, 1946. No assessment proceedings had been commenced against the assessee and no assessment order was made within four years from the end of the assessment year, i.e., till 31st March, 1950. A voluntary return for the said assessment year was filed by the assessee on the 20th of May, 1953, which was more than seven years after the end of the relevant assessment year. This voluntary return was ignored by the Income-tax Officer and he had issued a notice under section 34(1)(a) on the 29th of July, 1953. In response to this notice, a return was filed by the assessee on the 10th of August, 1953, and the assessment was completed by the Income-tax Officer on the 27th of February, 1954. Now, the contention of the assessee which has prevailed before the Appellate Assistant Commissioner and the Tribunal is that since a voluntary return had been submitted by the assessee, the Income-tax Officer had no jurisdiction to initiate proceedings under section 34(1)(a) and consequently the initiation of the said proceedings and the order made thereon are illegal and invalid in law. The contention was based on the provisions of section 22(3) and was sought to by the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas : [1959]36ITR569(SC) affirming a decision of this court in Ranchhoddas Karsondas v. Commissioner of Income-tax : [1954]26ITR105(Bom) . It was argued that section 22(3) permitted the assessee to furnish a return or a revised return at any time before an assessment was actually made by the Income-tax Officer; and where such a return was filed by the assessee, assessment had to be made on that return and the Income-tax Officer, ignoring the said return, could not have recourse to the proceedings under section 34(1)(a) even though, if the said return had not been filed by the assessee, the Income-tax Officer would have been justified in initiating the proceedings under section 34. It was argued that since the voluntary return had been filed by the assessee in the present case, the Income-tax Officer had no jurisdiction to resort to the proceedings under section 34(1)(a) and make an assessment order in the said proceedings. In support of this submission reliance was placed on the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas : [1959]36ITR569(SC) It was held in that case that a return in answer to the general notice under section 22(1) of the Indian Income-tax Act can, under section 22(3), be filed at any time before assessment and for this there is no limit of time. It was further held :

'Where in respect of any year a return has been voluntarily submitted before assessment, the Income-tax Officer cannot choose to ignore the return and any notice of reassessment and consequent assessment under section 34 ignoring the return is invalid.'

5. It was urged that since there was no limit of time for making a voluntary return, the return made in the present case by the assessee was a good return, which could not be ignored and the notice of reassessment and consequent assessment made by the Income-tax Officer ignoring the said return were invalid.

6. Now, the assessment year in that case, as in the case before us, was 1945-46. The voluntary return was filed by the assessee on the 5th of January, 1950. The notice issued by the Income-tax Officer under section 34 ignoring the said return was on the 27th March, 1950, It was served on the assessee on the 3rd of March, 1950, and the assessee in response to the said notice had filed a return on the 14th of March, 1950. Thereafter, the assessment was completed on the 26th of February, 1951. Their Lordships pointed out that although in the assessment year the assessee had not filed any return of income and no notice under section 22(2) had been served on him the assessee was entitled to file a return under section 22(3) in response to the general notice under section 22(1) before assessment was made and there was no limit of time for making such returns. In the case before their Lordships, the return was field on the 5th of January, 1950, and they pointed out that there was nothing to prevent the Income-tax Officer from taking up that return and proceeding to assess the income of the assessee. If the Income-tax Officer had acted on that return and assessed the assessee before the 31st of March, 1950, the assessment would have been valid. Instead of making the assessment on the voluntary return, which was before him, he chose to ignore it and served on the assessee a notice under section 34(1)(a), which was improper, inasmuch as a return having been already filed, there was neither an omission or failure on the part of the assessee not was there any question of the assessment escaping. The notice under section 34(1)(a) was, therefore, invalid and the consequent assessment equally so.

7. Now, it will be seen that in the case before the Supreme Court the voluntary return was made by the assessee at a time when an assessment order could have been made on the said return accepting it. Under section 34(3), except in the categories specified therein, the period for making an order of assessment is four years from the end of the relevant assessment year. In the case before the Supreme Court the voluntary return was made within this period of four years and, therefore, within the period during which the Income-tax Officer had jurisdiction to make the order of assessment. There was, therefore, nothing to prevent the Income-tax Officer in that case from making the assessment order on the return filed by the assessee and proceedings under section 34 were not required to be resorted to in order to assume jurisdiction to make an assessment order. In the case before us the voluntary return itself was filed beyond the period of four years from the end of the assessment year and the Income-tax Officer could not make an assessment order accepting the said return, because any such order made by him would have been beyond the period of four years and, therefore, barred under section 34(3) of the Act. It was, however, argued that the Supreme Court decision permits the submission that even when the voluntary return is filed beyond the period of four years, the same cannot be ignored and proceedings under section 34(1)(a) cannot be initiated because their Lordships held that a voluntary return under section 24(3) could be made at any time before assessment is made and there is no limit of time for making the same. That was what the Tribunal thought was the ratio decidendi of the Supreme Court decision. We are unable to agree with the view taken by the Tribunal and in our opinion that is not the ratio decidendi of the Supreme Court decision. Their Lordships no doubt observed that a voluntary return under section 24(3) could be made at any time and there was no limit of time for the same. The said observations were made in the context of the provisions of section 24(3) and section 24(3) was a provision which related to the normal assessment which could be made under section 23 on a notice issued under section 22 of the Indian Income-tax Act. The Income-tax Officer has normally to make an order of assessment within a period of four years from the end of the relevant assessment year. In the three excepted categories under section 34(3), an assessment order is capable of being made beyond the period of four years by assuming jurisdiction to make such orders. In the present case, after the period of four years from the end of the relevant assessment year, i.e., 1945-46, was over, the Income-tax Officer could have jurisdiction to make an assessment only if he were to assume that jurisdiction by initiating the proceedings under section 34. In the absence of such jurisdiction assumed by him, his power to make an assessment for the relevant assessment year had come to an end and the voluntary return furnished by the assessee beyond the said period of four years could not invest him with the said jurisdiction. The view that we are taking is also the view taken by the Madras High Court in S. Santosha Nadar v. First Additional Income-tax Officer, Tuticorin : [1961]42ITR715(Mad) . It was held in that case :

'That it was well-settled that where an assessee had filed his return before the completion of assessment within the period allowed by law, proceedings could not be commenced by the assessing authority under section 34 of the Income-tax Act. But this principle did not extend to a case where the return was filed after the expiry of the period of four years specified in section 34(3).'

8. The facts in the Madras case were similar to the case before us. The relevant assessment year in that case was 1945-46 and the voluntary return was filed by the assessee on March 20, 1954. This return was ignored by the Income-tax Officer and notice was issued under section 34 on March 25, 1954, and the reassessment was made on the proceedings so initiated. The learned judges accepted the contention of the department that the normal period of limitation barring the exceptions for which section 34(3) provided for making an assessment being four years a voluntary return filed after the said period of four years could not lead to any lawful assessment and had, therefore, to be treated as non est in law. The learned judges took the view that the principle laid down in the Supreme Court decision in Commissioner of Income-tax v. Ranchhoddas Karsondas : [1959]36ITR569(SC) could not be extended to cases where the voluntary return was submitted after the expiry of the four years' period of limitation for making a normal assessment. After the said period of four years was over, in order to make an order of assessment, recourse had to be had to section 34(1) and such recourse could be only had on the ground that no return had been filed, i.e., no return had been filed before the assessment could be lawfully completed without recourse to section 34(1).

9. Mr. Mehta contended that although normally an assessment order could be made within a period of four years from the end of the relevant assessment year, in certain cases the said period went beyond four years also as for instance in the three categories specified under section 34(3). It is not as if that when the four years' period is over, no assessment can be made because such assessment is capable of being made by resorting to the provisions of section 34(1)(a). If a voluntary return is made by the assessee beyond the period of four years, such a return could be deemed to have been made by him in pursuance of a proceeding initiated under section 34 and could be dealt with on that footing by the Income-tax Officer. In the present case, Mr. Mehta says, the Income-tax Officer could have and ought to have proceeded on the return filed by the assessee on the 20th of May, 1953. Inasmuch as he has not proceeded to do so, but has adopted a course which was not permissible in law, the assessment order made by him is bad.

10. Now, at the time when the voluntary return was filed by the assessee, no proceedings under section 34 had been initiated by the Income-tax Officer, and it is not possible to regard the said voluntary return as having been made in pursuance of a proceeding under section 34 which had not been initiated. Once the normal period of four years is over, the jurisdiction of the Income-tax Officer to make an assessment order could be invoked by him if he enables himself to have such jurisdiction by initiating proceedings under section 34. Unless the said proceedings have been initiated, no jurisdiction comes to be possessed by the Income-tax Officer and the mere filing of a voluntary return by the assessee could not invest him with such jurisdiction. As observed in the Madras case, to which reference has already been made :

'The expression 'an order of assessment in cases falling under section 34(1)(a)' in section 34(3) cannot be construed to mean an order of assessment in a case which could have been dealt with under section 34(1)(a) but which was not so dealt with. It is well settled that the issue of the prescribed notice is a condition precedent to the assumption of jurisdiction vested by section 34(1), and where such notice was never issued, it cannot be viewed as a case falling within section 34(1)(a), for the purpose of section 34(3).'

11. In our opinion, the voluntary return filed by the assessee on the 20th of May, 1953, was, as observed by the Madras : High Court, non est in law and did not preclude the Income-tax Officer from initiating proceedings under section 34 and making an assessment order thereon ignoring the said voluntary return filed by the assessee.

12. Our answer, therefore, to the question referred to us is in the negative. The department will get its costs from the assessee.


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