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Khimchand Amarchand Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 49 of 1960
Judge
Reported in[1963]48ITR102(Bom)
ActsIncome Tax Act, 1922 - Sections 34(1) and 34(3)
AppellantKhimchand Amarchand
RespondentCommissioner of Income-tax, Bombay City I
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
direct taxation - reassessment - sections 34 (1) and 34 (3) of income tax act, 1922 - whether reassessment order made under section 34 was time barred - in present case income tax officer had no jurisdiction to make assessment order on 14.02.1957 as said date was beyond period prescribed under section 34 (3) - provisions of section 28 (1) (c) not applicable in present case as it was not order of assessment but was order of reassessment - held, reassessment made under section 34 was invalid. - - against this order of assessment, the assessee appealed to the appellate assistant commissioner on the ground that the order was bad since a notice under section 34 had not been issued before making the said assessment. in the assessment order, the income-tax officer stated that it was made in..........on this reference under section 66(1) of the indian income-tax act, 1922, is whether the reassessment order made on the assessee under section 34 was barred by time. 2. the assessee is a firm of share and stock brokers and it also has its own business of dealing in shares and securities. during the previous year relating to the assessment year 1951-52, the assessee firm obtained a surplus of rs. 31,065 on the redemption of certain sterling securities which it had held as stock-in-trade consisting of m. & s. m. railway stock and cawnpore electric debenture stock. for the assessment year 1951-52, in the return which the assessee filed, the taxable income shown by it was rs. 71,399 which did not include the aforesaid amount of rs. 31,065. it appears that the income-tax officer,.....
Judgment:

V.S. Desai, J.

1. The short question which arises for determination on this reference under section 66(1) of the Indian Income-tax Act, 1922, is whether the reassessment order made on the assessee under section 34 was barred by time.

2. The assessee is a firm of share and stock brokers and it also has its own business of dealing in shares and securities. During the previous year relating to the assessment year 1951-52, the assessee firm obtained a surplus of Rs. 31,065 on the redemption of certain sterling securities which it had held as stock-in-trade consisting of M. & S. M. Railway stock and Cawnpore Electric debenture stock. For the assessment year 1951-52, in the return which the assessee filed, the taxable income shown by it was Rs. 71,399 which did not include the aforesaid amount of Rs. 31,065. It appears that the Income-tax Officer, however was aware of the said surplus from the information which was laid before him on the record of the case. The assessment order for this year was made by the Income-tax Officer sometime in March, 1954, on the income of Rs. 71,399. Subsequent thereto, as a result of certain discussions between the Income-tax Officer and the assessee's representative with regard to the liability to tax of the said amount of Rs. 31,065 the assessee at the instance of the Income-tax Officer filed a fresh return of income for the assessment year 1951-52 on the 5th February, 1955. In this return again, the assessee declared a sum of Rs. 71,399 as its taxable income and added a note : 'The income is as ascertained and the figures are as dictated by you and subject to the letter of date of our accountants.' The supplementary assessment was thereafter made by the Income-tax Officer on the 12th February, 1955, including the amount of Rs. 31,065 in the assessable income. Against this order of assessment, the assessee appealed to the Appellate Assistant Commissioner on the ground that the order was bad since a notice under section 34 had not been issued before making the said assessment. This contention was accepted by the Appellate Assistant Commissioner and that assessment order was set aside. Thereafter, a fresh notice under section 34 was issued by the Income-tax Officer to the assessee on the 31st January, 1956, and it was served on the assessee on the 4th February, 1956. In response to the said notice, the assessee submitted a return in which again he declared its taxable income at Rs. 71,399 and added a note that it was 'subject to our letter dated February 18, 1956'. In section D of the return, the assessee stated that the surplus of redemption amounts received from M.& S.M. Railway stock and Cawnpore Electric debenture stock was of Rs. 31,065. The reassessment was completed by the Income-tax Officer on 14th February, 1957 on a total income of Rs. 1,02,464 which was made up of Rs. 71,399 stated as its taxable income by the assessee, plus Rs. 31,065 the amount of the surplus. In the assessment order, the Income-tax Officer stated that it was made in pursuance of a notice issued under section 34(1)(a), although the notice which was issued did not, in fact, state that it was under section 34(1)(a). In the appeal against the reassessment order before the Appellate Assistant Commissioner it was contended by the assessee that the reassessment under section 34(1)(a) was not justified as the assessee had not failed or omitted to disclose fully and truly all material facts necessary for its assessment at the time of original assessment. The Appellate Assistant Commissioner accepted this contention in regard to the facts relating to a part of the surplus which constituted the surplus made on Cawnpore Electric debenture stock, but not in regard to the remainder which was in respect of M. & S.M. Railway stock. Before the Tribunal the assessee contended that the initiation of the proceedings under section 34(1)(a) was not justified as the assessee had not failed or omitted to disclose fully and truly the material facts necessary for its assessment at the time of its original assessment in respect of the entire surplus and not only in respect of a part thereof as held by the Appellate Assistant Commissioner. It was further contended that even if the reassessment proceedings were regarded as having been initiated under section 34(1)(b), the order of reassessment made was barred by time, inasmuch as it had been made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable and also beyond one year from the date on which the service of notice under section 34 had been made on the assessee. On the other hand, the contention of the department was that the initiation of the proceedings was justified under section 34(1)(a) and therefore the order made was not barred by limitation. In the alternative, the department contended that the proceedings could be said to have been initiated under section 34(1)(b), but the four years' period of limitation under section 34(3) did not apply since the provisions of section 28(1)(c) were attracted to the case. The tribunal held that the initiation of the reassessment proceedings could not be justified under section 34(1)(a), but they could be regarded as having been initiated under section 34(1)(b). It accepted the department's contention that the provisions of section 28(1)(c) were attracted in the present case and, consequently, the reassessment order passed by the Income-tax Officer could be made even after the period of four years, and it was not barred by time. It accordingly dismissed the assessee's appeal. On an application made by the assessee under section 66(1), the Tribunal then drew up the statement of the case and referred to this court the following question :

'Whether, on the facts and in the circumstances of the case, the reassessment made under section 34 of the Act on February 14, 1957, was valid and in accordance with the law ?'

3. Now, the reassessment order was made in respect of the income, profits and gains which were first assessable in the assessment year 1951-52, for which the relevant previous year was the calendar year 1950. The notice under section 34 was served on the assessee on the 4th February, 1956, and the reassessment order was made on the 14th February, 1957. It will thus be seen that the reassessment order was made after the expiry of the four years from the end of the year in which the income profits and gains were first assessable and it was also made after the expiry of one year from the date of service of notice under section 34 on the assessee. Now, if the initiation of the proceedings was under section 34(1)(a), there was no question of limitation either in the initiation of the proceedings or in the making of an order of reassessment. If the initiation of proceedings, however was under section 34(1)(b), the proceedings had to be initiated within four years of the end of the assessment year in which the income, profits and gains were first assessable. In the present case, the assessment year was 1951-52 and, therefore, four years for the initiation of proceedings under section 34(1)(b) extended up to 31st March, 1956. The notice given in the present case was issued on the 31st January, 1956 and served on the assessee on 4th February, 1956. The initiation of proceedings, therefore, was within the time allowed under section 34(1)(b). It was, however, argued on behalf of the assessee that even though the proceedings could be regarded as having been initiated within time allowed under section 34(1)(b). It was, however, argued on behalf of the assessee that even though the proceedings could be regarded as having been initiated within time under section 34(1)(b) in the present case, the Income-tax Officer had no jurisdiction to make an assessment order on the the date on which he made it, namely, 14th February, 1957, as the said date was beyond the period prescribed under section 34(3). The Tribunal did not accept this contention of the assessee, because it took the view that the case attracted the application of section 28(1)(c) and, therefore, the order fell in the excepted category to which the four years' period did not apply. Section 34(3) reads as follows :

'34. (3) No order of assessment or reassessment, other than an order of assessment under section 23 to which clause(c) of sub-section(1) of section 28 applies or an order of assessment or reassessment in cases falling within clause (a) of sub-section (1) or sub-section (1A) of this section shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable : Provided that where a notice under clause(b) of sub-section (1) has been issued within the time therein limited, the assessment or reassessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if at the time of the assessment or reassessment the four years aforesaid have already elapsed.'

4. Now, this provision fixes the period of making an order of assessment or reassessment at four years except in the three categories specified in the said section. The three categories which are expected from the operation of four years rule are : (1) an order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies; (2) an order of assessment or reassessment in cases falling within clause (a) of sub-section 34; and (3) an order of assessment or reassessment in cases falling within sub-section (1A) of section 34. Now, the present case does not fall in any of these three categories. It is not an order of assessment, but an order reassessment. If it was an order of assessment, then by reason of the conclusion of the Tribunal that the provisions of section 28(1)(c) are attracted in the case, it could have fallen in the first category. Since, however, it is not and order of assessment but of reassessment, it would not come within that category. On the finding of the Tribunal that the notice could not be justified under section 34(1)(a). Therefore, it does not fall in the second category also. It admittedly does not fall in the third category which relates to order of assessment or reassessment under sub-section (1A) of section 34. Mr. Palkhivala for the assessee argued that the conclusion of the Tribunal that the provisions of section 28(1)(c) are attracted in the present case is not correct. It is not, however, necessary to deal with that contention, because, even if the said conclusion of the Tribunal were correct, it would have been only relevant if the order was an order of assessment and not of reassessment. In our opinion, therefore, on the conclusions of fact arrived at by the Tribunal that the initiation of the proceedings in the present case was not justified under section 34(1)(a), but could only be regarded as under section 34(1)(b), the order of reassessment passed by the Income-tax Officer is clearly barred by time.

5. Mr. Joshi, for the revenue, has however, argued that the conclusion of the Tribunal that the initiation of the proceedings in the present case was not justified under section 34(1)(a) is not correct. He has contended that on the facts and in the circumstances of the case the proceedings of reassessment initiated in the present case could be regarded as having validly been under section 34(1)(a) and, therefore, the order of reassessment passed by the Income-tax Officer is not affected by the bar of limitation. Now, the conclusion of the Tribunal that the proceedings in the present case could not be justified under section 34(1)(a) is based on its finding of fact that the assessee had ot failed or omitted to disclose fully and truly all material facts necessary for its assessment at the time of the original assessment in respect of the entire amount of the surplus both on the Cawnpore Electric debenture stock as well as M. & S. M. Railway stock. If the finding of fact cannot be disturbed or interfered with, the conclusion drawn by the Tribunal therefrom is unavoidable and unassailable. Mr. Joshi wanted to argue that the finding of fact arrived at by the Tribunal was vitiated inasmuch as there was no material on record in support thereof. We cannot entertain this argument in the absence of any question having been raised as to whether there was any material on the record to justify the said finding. Mr. Joshi has argued that the question as is framed on the present reference would involve challenge to the said finding of the Tribunal. We do not agree with this submission of Mr. Joshi. The scope of the question as is framed on the present reference and which we are asked to consider is on the basis of the facts found by the Tribunal and related to whether, in the present proceedings, which were initiated under section 34(1)(b), the order of reassessment passed is within time by reason of the fact that section 28(1)(c) is attracted to the case. This would also be clear from the questions which were suggested for being framed by the departmental representative to the Tribunal as contained in paragraph 6 of the statement of the case.

6. In the view that we are taking, our answer to the question referred to us by the Tribunal is in the negative. The assessee will get its costs from the department.

7. Question answered in the negative.


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