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Bidhu Bhusan Sarcar (Deceased) Vs. Commissioner of Income-tax, CalcuttA. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 22 of 1960
Reported in[1966]59ITR531(Cal)
AppellantBidhu Bhusan Sarcar (Deceased)
RespondentCommissioner of Income-tax, CalcuttA.
Cases ReferredY. Narayana Chetty v. Income
Excerpt:
- ray j. - bidhu bhusan sarcar, since deceased, and hereinafter referred to as the assessee, used to be assessed in the district of 24-parganas. on december 22, 1947, the assessee filed a voluntary return before the income-tax officer, district 24-parganas, for the assessment year 1947-48 declaring a net loss of rs. 330. no notice under section 22(2) of the indian income-tax act was issued to the assessee though a general notice had been issued. subsequently, on account of the change in the assessees field of business, the territorial jurisdiction of the assessee fell within the office of the income-tax officer, district i (calcutta). the file of the assessee was transferred to the income-tax officer, district i(2), where it came within the jurisdiction of the 8th additional income-tax.....
Judgment:

RAY J. - Bidhu Bhusan Sarcar, since deceased, and hereinafter referred to as the assessee, used to be assessed in the District of 24-Parganas. On December 22, 1947, the assessee filed a voluntary return before the Income-tax Officer, District 24-Parganas, for the assessment year 1947-48 declaring a net loss of Rs. 330. No notice under section 22(2) of the Indian Income-tax Act was issued to the assessee though a general notice had been issued. Subsequently, on account of the change in the assessees field of business, the territorial jurisdiction of the assessee fell within the office of the Income-tax Officer, District I (Calcutta). The file of the assessee was transferred to the Income-tax Officer, District I(2), where it came within the jurisdiction of the 8th Additional Income-tax Officer.

On or about January 16, 1949, the 8th Additional Income-tax Officer, District I(2), took action under section 34 of the Income-tax Act, presumably because he considered that the voluntary return declaring a loss of Rs. 330 filed before the Income-tax Officer, 24-Parganas, was invalid and could not be acted upon. The notice under section 34 was issued on February 23, 1950, by the Additional Income-tax Officer. The 8th Additional Income-tax Officer issued a notice under section 22(4) of the Income-tax Act, perhaps on January 15, 1952. Meanwhile, on March 31, 1949, the assessee had voluntarily filed another return for the same assessment year with the Income-tax Officer, District I(2), declaring a loss Rs. 11,33,940. On receipt of this return a new file was started by the Income-tax Officer, District I(2). On February 4, 1952, the 8th Additional Income-tax Officer passed an order filing the case as there was already another file of the assessee in the same district.

The Income-tax Officer, District I(2), acting on the return filed on 31st March, 1949, issued a notice under section 23(2) on August 1, 1950. On February 12, 1952, he cancelled the proceeding on the view that a voluntary return of loss was not valid. He thereafter took action under section 34 and issued a notice under that section on February 12/14, 1952. These proceedings resulted in an assessment under section 23(4)/34 January 31, 1953. Against this assessment the assessee filed an appeal before the Appellate Assistant Commissioner. In appeal it was pointed out by the Income-tax Officer that he had no jurisdiction over the assessee as there was already a file with the 8th Additional Income-tax Officer. The Appellate Assistant Commissioner on 27th December, 1955, set aside the assessment dated January 31, 1953, made by the Income-tax Officer, District I(2), with a direction that the assessment should be completed according to law by an officer having proper jurisdiction overs the case. Against the decision of the Appellate Assistant Commissioner the assessee went up on appeal before the Appellate Tribunal because the assessees grievance was that the Appellate Assistant Commissioner ought to have annulled the assessment without giving a direction for making a fresh assessment. The Tribunal on 23rd April, 1957, held that the assessees contention was well founded and cancelled the assessment.

On December 30, 1955, the Commissioner of Income-tax passed an order under section 5(7A) of the Act transferring the case of the assessee from the 8th Additional Income-tax Officer to the Income-tax Officer, District I(2). Thereafter, the Income-tax Officer, District I(2), issued a fresh notice to the assessee under section 34 on 11th February, 1956, and made an assessment under section 23(4)/34 on May 2, 1956. The assessee filed an appeal against the assessment contending that the 8th Additional Income-tax Officer had jurisdiction when he issued the notice on 23rd February, 1950, and unless and until the assessment was completed in pursuance of that valid notice it could not be said that the assessee escaped assessment. The assessee further contended that if assessment was to be completed in pursuance of the notice dated February, 1950, it should have been completed on or before March 31, 1952, or March 31, 1956, as the case fell within the purview of section 34(1) (a) or section 34(1) (b). It was submitted that on the date of the issue of the notification by the Commissioner of Income-tax transferring the jurisdiction over the assessee to the Income-tax Officer, District I(2), the 8th Additional Income-tax Officer who had jurisdiction over the assessee had started valid proceedings in pursuance of a notice under section 34, dated February 23, 1950, and these proceedings did not lapse but remained alive. The assessee contended in appeal that the Income-tax Officer, District I(2), should have continued those proceedings instead of taking recourse to fresh proceedings under section 34 by the issue of notice dated 11th February, 1956. The Appellate Assistant Commissioner accepted the contention of the assessee and held that the notice dated 11th February, 1956, was void ab initio and the assessment should have been completed by March 31, 1956, and was barred because it was completed on May 2, 1956.

The Income-tax Officer being aggrieved filed an appeal before the Appellate Tribunal. It was contended there on behalf of the department that there is no bar against the issue of more than one notice under section 34 and as the assessment dated May 2, 1956, was actually completed within one year from the date of the issue of notice under section 34 dated 11th February, 1956, the assessment was within time. The assessee on the other hand contended that one proceedings under section 34 were initiated by the issue of a valid notice no income could be said to have escaped assessment until that proceeding terminated in an assessment. It was also contended by the assessee that since the proceedings started by the 8th Additional Income-tax Officer were based on a valid notice no income escaped assessment until the assessment was completed on the basis of the notice issued by him. The Appellate Tribunal held that the proceedings started by the 8th Additional Income-tax Officer were filed and were therefore not alive to the continued by the principal Income-tax Officer and the income against which proceedings to assess were initiated by a valid notice did escape assessment because the proceedings were not completed by a valid assessment.

On these facts and circumstances the following questions of law have been referred :

'1. Were the notice under section 34 issued by the principal Income-tax Officer on February 11, 1956, and the assessment raised in pursuance thereof valid in law in view of the fact that the proceedings commenced by the 8th Additional Income-tax Officer under section 34 on the basis of notice dated February 23, 1950, were filed

2. Whether on the facts and circumstances of the case the assessment dated May 2, 1956, made by the principal Income-tax Officer, District I(2) was barred by time ?'

Counsel on behalf of the assessee contended that voluntary returns are valid and once such returns are submitted the Income-tax Officer cannot choose to ignore the return on the ground that the income is shown as below the taxable limit. It was, therefore, urged on behalf of the assessee that the Income-tax Officer had no jurisdiction to issue any notice under section 34 of the Income-tax Act because there was no question of escapement of income-tax until there was completion of assessment on the voluntary returns submitted. On this reasoning counsel for the assessee contended that the notice under section 34 of the Income-tax Act dated February 23, 1950, issued by the 8th Additional Income-tax Officer was invalid and further that the notice under section 34 dated February 11, 1956, issued by the principal Income-tax Officer is equally invalid. On behalf of the assessee reliance was placed on the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas.

The contentions on behalf of the assessee were developed to mean that when the two voluntary returns submitted by the assessee initiated assessment proceedings, so long as these proceedings were not time-barred or ended in an assessment order, no income escaped assessment and there could be no action under 34. It was submitted that the returns were there and there might be or might not have been concealment and, if there was no concealment, assessment would become time-barred after March 31, 1952, and, if there was concealment of income on the returns, then section 28(1) (c) applied and proceedings would remain open for eight years till March 31, 1956.

On behalf of the assessee it was contended that if the voluntary returns submitted by him were ignored then the notice under section 34 dated February 23, 1950, opened assessment proceedings which would be alive and assessment would have to be completed before March 31, 1956. If no return was submitted pursuant to the notice dated February 23, 1950, it was said that the assessee could have been assessed but without assessment there could not have been another notice under section 34 of the Income-tax Act. Finally, it was contended on behalf of the assessee that the remark of the 8th Additional Income-tax Officer to this effect 'The case filed' is irrelevant as to whether proceedings continued in law. It was said that the word 'filed' is unknown to the Income-tax Act and, if there was a notice under section 22 or under section 34, the Income-tax Officer had the statutory duty to proceed under section 23 and to determine. In other words, the Income-tax Officer could not by passing an order to the effect 'that the case was filed' ignore the provisions of the statute which cast the statutory duty on him to assess. The words 'shall determine' in section 23 are mandatory and imperative. If the 8th Additional Income-tax Officer dropped the proceedings as was suggested by the Tribunal there would be no case or proceedings upon which there could be any case to be transferred. Proceedings under section 34(1) (a) of the Act used to be initiated at the relevant time after obtaining the necessary satisfaction of the Commissioner of Income-tax. If proceedings are dropped then the implication is that there is no material upon which the assessee could be proceeded against. There should be a finality to proceedings. There cannot be in the same breath transfer of the case and a dropping of the proceedings in the sense that proceedings were dead. If there were no proceedings pending there could not have been any transfer under section 5(7A) of the Act. The order of transfer is not a trifle. Therefore when there was an order of transfer of the case, the proceedings and the case remained pending and alive.

Counsel on behalf of the Commissioner of Income-tax conceded that the notice dated February 23, 1950, under section 34 issued by the 8th Additional Income-tax Officer would be invalid on the authority of the decision of the Supreme Court in the case of Ranchhoddas. The view of the Calcutta High Court in the case of R. K. Das & Co. v. Commissioner of Income-tax was that a return showing income below the assessable limit was a return which was not valid according to income-tax law whereas the view of the Bombay High Court in the case of Ranchhoddas Karsondas v. Commissioner of Income-tax was that any return submitted by an assessee was valid in law and the assessee was entitled to be assessed on the same. The decision of the Calcutta High Court was given on January 6, 1956, and the decision of the Bombay High Court had been made on March 18, 1954. The Bombay decision was referred to by this court in the case of R. K. Das and was explained and distinguished. Counsel for the department contended that at the relevant time in the present case the Income-tax Officer at Calcutta followed the view of the Calcutta High Court and, therefore, ignored the voluntary returns which showed no assessable income. The Supreme Court in the case of Ranchhoddas accepted the view of the Bombay High Court and held that voluntary return showing income below assessable limits was valid. The decision of the Supreme Court was given on May 8, 1959. In this view of the law, counsel for the Commissioner conceded that the entire proceedings would be bad if it was open to the assessee to contend on the question referred that the notice dated February 23, 1950, had been impeached by the assessee before the Tribunal on the ground that it was issued in the absence of completing assessment on the returns filed.

Counsel for the department contended that the assessee challenged only the notice dated February 11, 1956, and not the notice dated February 23, 1950, under section 34 and in particular the assessee never questioned the validity of the 1950 notice, but as a matter of fact proceeded on the basis that the first notice dated February 23, 1950, was valid and therefore the notice dated February 11, 1956, could not be valid. In the second place it was contended that the assessee attacked the notice dated February 11, 1956, as barred by limitation because the notice dated February 23, 1950, was valid. Reference was made by counsel for the department to the grounds of appeal before the Appellate Assistant Commissioner appearing at pages 11 to 14 of the paper-book. Counsel for the department relied on the recent decision of the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. At page 611 of the report it is stated that it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order. The view of the Bombay High Court in the case of Madanlal Dharnidharka v. Commissioner of Income-tax that all questions of law arising out of the facts found would be questions of law arising out of the order of the Tribunal was not accepted because this would give the applicant asking for reference under section 66(1) of the Income-tax Act a right to canvass questions on which the Tribunal had no opportunity of deciding and it would be enlarging the jurisdiction of the court to a civil court of appeal. The Supreme Court held first that when a question is raised before the Tribunal and is dealt with by it, it is one arising out of its order. Secondly, when a question of law is raised before the Tribunal but the Tribunal does not deal with it, it must be deemed to be dealt with by it and is arising out of its order. Thirdly, when a question is not raised before a Tribunal but the Tribunal deals with it that will also be a question arising out of its order. Fourthly, when a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the finding given by it.

It was therefore rightly contended on behalf of the Commissioner that, on the question referred it was not open to the assessee to contend that the notice dated February 23, 1950, under section 34 was invalid on the ground that the same was issued without completing the assessment on the voluntary returns submitted on December 22, 1947, and March 31, 1949.

The question referred is also whether the notice dated February 11, 1956, and the assessment thereto was valid in view of the fact that proceedings commenced on the basis of notice dated February 23, 1950, were 'filed'. The validity of the notice dated February 11, 1956, is impeached on the question referred. The order of the 8th Additional Income-tax Officer by which the notice dated February 23, 1950, was filed is tied up with the question of limitation of the notice dated February 11, 1956. The Commissioner of income-tax transferred the case from the 8th Additional Income-tax Officer to the principal Income-tax Officer, District I(2), on December 30, 1955. This transfer was made under section 5(7A) of the Income-tax Act. Under this section such transfer may be made at any stage of the proceeding and shall not render invalid any notice already issued by the Income-tax Officer from whom the case has been transferred. It was contended on behalf of the Commissioner that this is an enabling section and the Income-tax Officer to whom the case is transferred may give notice if he thinks it to be necessary. Since at 8th Additional Income-tax Officer did not conclude the assessment but filed the case, it meant according to the contentions of the Commissioner that there was no assessment and by the word 'filed' the 8th Additional Income-tax Officer meant that there was no assessable income. Therefore, it was contended that there was no valid notice issued by the 8th Additional Income-tax Officer under section 34 which the principal officer could continue.

Counsel on behalf of the Commissioner relied on the decision in Esthuri Aswathiah v. Income-tax Officer, Mysore State. The assessee was a Hindu undivided family and was assessed under the Mysore Income-tax Act on the assessees year of account July 1, 1948, to June 30, 1949, for the year of assessment 1949-50. The Indian Income-tax Act was made applicable to the State of Mysore from April 1, 1950. After the Indian Income-tax Act was applied, the assessee was served with a notice requiring him to submit return for the assessment year 1950-51. The assessee on September 8, 1952, submitted return for the year 1950-51 stating that for the year ending June 30, 1949, corresponding to the assessment year 1949-50 there was assessment under the Mysore Income-tax Act and that the assessees income for the year ending June 30, 1950, was assessable under the Income-tax Act in the assessment year 1951-52 and that the assessee had no assessable income for the assessment year 1950-51. The Income-tax Officer passed on that return for the year 1950-51 an order 'no proceeding' and closed the assessment. For the assessment year 1951-52, the assessee submitted a return of income. In the books of account produced by the assessee an opening cash credit balance of Rs. 1,87,000 odd on July 1, 1949, was disclosed. The assessee was called upon to produce books but these were not produced on the plea that the same were lost. The Income-tax Officer in assessing the income of the assessee for the year 1949-50 held that Rs. 1,37,000 out of the opening balance in the books dated July 1, 1949, represented income from an undisclosed source. On appeal, the Appellate Assistant Commissioner held that, in the absence of any system of accounting adopted by the assessee and the assessee not having exercised the option under section 2(11) of the Indian Income-tax Act, the Income-tax Officer should take the year ending March 31, 1950, as the previous year for the income of the undisclosed source and directed the Income-tax Officer to consider the credit in the assessment for the year 1950-51 after giving an opportunity to the assessee to explain the nature and source thereof. Before the appeal was disposed of, the assessee had submitted a fresh return for the assessment year 1950-51. The Income-tax Officer pursuant to the direction of the Appellate Assistant Commissioner issued a notice of reassessment under section 34 and served it on October 15, 1957. The assessee applied under article 226 and challenged the notice under section 34 to be without jurisdiction. It was held there that the order of the Income-tax Officer to the effect 'no proceeding', in the circumstances of the case, meant that the Income-tax Officer accepted the return and assessed the income as nil and thereafter the Income-tax Officer could issue a notice for reassessment under section 34 if he had reason to believe that the assessee had failed to disclose material facts.

Counsel for the Commissioner did not contend that the word 'filed' in the present case meant that there was any assessment but that the 8th Additional Income-tax Officer did not complete the assessment and therefore there was no assessment. It was, therefore, contended that there was no assessment there was escapement of income-tax and the notice dated February 11, 1956, was valid. In the Mysore case it was suggested on behalf of the assessee that the return made on September 8, 1952, had not been disposed of and until the assessment pursuant to that return was made, no notice under section 34(1) could issue. It was held there that the return showed no assessable income and in the facts of that case the order 'no proceeding' was held to be good in the Mysore case. This decision is of no help in the present case which raises the question as to whether limitation should run from the 1950 notice. The order in the present case that the case if filed has been suggested to mean that the case was dropped. When the case was transferred under section 5(7A), it is the case which is transferred. The effect of the order of transfer is therefore that the case is to be proceeded with.

The transfer of a case under section 5(7A) is made at any stage of the proceedings. It is contended on behalf of the assessee that the assessment made on May 2, 1956, is beyond the period of eight years because the notice was issued on February 23, 1950. If no notice had been issued in the year 1950, the Income-tax Officer could have issued a notice within eight years, that is to say, up to March 31, 1956, and then he would have had one years time to complete the assessment from the date of service of the notice. The notice dated February 23, 1950, is not impeached as an invalid notice. It is true that the Income-tax Officer could have given more than one notice and that would have to be within the period of eight years but he would be obliged to make the assessment within one year from the date of service of the first notice. If the notice of the year 1950 is a valid notice, the necessary consequence is that the assessment must be completed within March 31, 1956, though the principal officer chose to give more than one notice. It has been contended that the proceedings initiated by the notice in the month of February, 1950, resulted in no assessment and therefore there should be another notice under section 34. The word 'filed' has no legal significance in the income-tax law. It is a word coined by the Income-tax Officer. The provisions contained in section 34 of the Income-tax Act attract the provisions contained in section 22 of the Income-tax Act with the result that the Income-tax Officer in the event of the assessee not making a return or failing to make a return under section 34 shall make the 'best judgment' assessment. The duty to assess is specifically cast on the Income-tax Officer. He cannot at his will or pleasure drop the proceedings and if he does so the consequence thereof will follow. It was open to the principal officer to proceed to assess when the case was transferred to him because the proceedings were there. To accede to the contention of the Commissioner that it was open to the Income-tax Officer to complete the assessment on the 2nd May 1956, because the notice was issued in the month of February, 1956, would be to ignore the existence of the proceedings initiated by the notice dated February 23, 1950, and to confer on the revenue authorities the benefit of an additional year to complete the assessment which they would not otherwise have had if the Income-tax Officer proceeded with the case when it was transferred to him.

Under the provisions contained in section 34(3) no order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies or of assessment of reassessment in cases falling within clause (a) of sub-section (1) of section 34 shall be made after the expiry of eight years from the end of the year in which the income, profits, or gains were first assessable. It is provided in sub-section (3) of section 34 that where a notice under 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 the year from the date of the service of notice even if such period exceeds the period of eight years. In the present case, the notice under section 34 dated February 23, 1950, was issued under section 34(1) (a) as will appear in the order sheet of the Income-tax Officer dated February 4, 1952, printed at page 27B of the paper-book. Counsel on behalf of the Commissioner of Income-tax did not contend to the contrary.

The Contention on behalf of the assessee that the notice under section 34, dated 11th February, 1956, issued by the Income-tax Officer, District I(2), is barred by limitation is based on the ground that the notice dated February 23, 1950, being issued within eight years the income-tax authorities cannot take recourse to the proviso to sub-section (3) of section 34 by issuing another notice on the eve of the expiry of the eight years from the end of the year in which the income, profits or gains were first assessable.

On behalf of the department, reliance was placed on the decision in Jagmohan Goenka v. K. D. Banerjee, the decision of the Supreme Court in Chatturam Horilram v. Commissioner of Income-tax, the decision of the Patna High Court in State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga, the decision of the Supreme Court in Maharajadhiraja Sir Kameshwar Singh v. State of Bihar and the decision in Atmaram v. Commissioner of Income-tax, in support of the proposition that there can be more than one notice under section 34 of the Income-tax Act.

In the case of Atmaram v. Commissioner of Income-tax, it has been held that there is no bar to a fresh notice of reassessment even though proceedings on a previous notice which are still pending have not been finally disposed of. The income in that case was assessed for the year 1947-48 on August 8, 1951. Subsequently, on examination of the books of the assessee in other proceedings, it transpired that the assessees personal account had escaped consideration in the assessment. A notice under section 34 was issued. Some time later on February 8, 1954, while proceedings on the notice were pending, the Income-tax Officer served another notice under section 34. A revised assessment in pursuance of both the notices was then made. The assessees contention was that the issue of the second notice on February 8, 1954, was illegal as the proceedings commenced on the first notice dated March 12, 1952, were pending and not yet completed. There was no aspect of limitation and the assessment was proceeding. In the present case the second notice even if issued in the course of proceedings will not save limitation, because limitation will be reckoned from the first notice. The issue of more than one notice may be justified in cases where further information is called for. It is one thing to say that there can be more than one notice under section 34 and it is entirely a different matter to suggest that limitation will be saved by taking recourse to the later notices.

In Jagmohan Goenkas case, notice under section 22(2), read with section 34 of the Income-tax Act, was served upon the assessee for reopening the assessment for the year 1946-47. The reassessment was made on June 29, 1948. On March 26, 1951, a notice was issued under section 34 for reopening the assessment for the year 1942-43. A similar notice was issued on respect of the assessment year 1946-47. The decision was concerned with the second notice under section 34 in respect to the assessment year 1946-47. It was contended there that a notice for reassessment for the second time could not be issued. It was held that within the time-limit there was no restriction imposed as to the number of proceedings to be taken in reopening the assessment, whether by way of assessment or reassessment, computation or recomputation. Thus, in Goenkas case, there was a normal assessment and thereafter a second notice under section 34 was issued. The present case is not one of reassessment after an assessment had been made.

In Chatturam Horilams case an assessment was made in respect of the year 1939-40 and it was set aside on March 28, 1942, on the ground that the Indian Finance Act, 1939, was not in force during the assessment year 1939-40 in Chotanagpur where the assessee carried on business. On June 30, 1942, the Indian Finance Act, 1939, was brought into force in Chotanagpur retrospectively as from March 30, 1939. The Income-tax Officer passed on February 8, 1944, an order that the income of the assessee for the year 1939-40 had escaped assessment and issued to the assessee on February 12, 1944, a notice under section 34. The ratio in Chatturam Horilrams case was that the earlier proceedings failed to result in a valid assessment owing to some lacuna other than that attributable to the assessing authorities and, therefore, it was a case of chargeable income escaping assessment and not a case of mere non-assessment of income itself.

In the Darbhanga case the assessee submitted a return and claimed a deduction under the Bihar agricultural Income-tax Act. The deduction was allowed by the Income-tax Officer on December 28, 1945, in respect of the assessment year 1944-45. On March 22, 1946, the Income-tax Officer issued a notice under section 26 of the Bihar Agricultural Income-tax Act that some agricultural income escaped assessment and thereafter a supplementary order was passed. Section 26 of the Bihar Agricultural Income-tax prior to its amendments. In the Darbhanga case the question was whether the income which was returned but was held to be exempt from tax could be said to have escaped assessment. The language of section 26 of the Bihar Agricultural Income-tax Act was that if for any reason an agricultural income chargeable to agricultural income-tax escaped assessment for any definite year the Agricultural Income-tax Officer might proceed to assess such income. The words 'any reason' were held to be of wide import to dispense with the conditions laid down in section 34 of the Indian Income-tax Act. As to the meaning of the words 'escape assessment' the decision of the Supreme Court in the Darbhanga case was that the Agricultural Income-tax Officer was competent under section 26 of the Bihar Act to assess any item of income which he had omitted to tax earlier though in the return that income was included and the Agricultural Income-tax Officer then thought that it was exempt. These decisions do not aid the solution of the question of limitation raised in the present case.

In the present case if the proceedings started by the 8th Additional Income-tax Officer by issue of the notice dated February 23, 1950, were valid, as is the case here, then the proceedings were pending, to be continued by the principal Income-tax Officer where the case was transferred by him by order dated December 31, 1955, and the assessment proceedings were required to have been completed before March 31, 1956. It cannot be said that the notice dated February 23, 1950, was abrogated by the transfer of the case. In the case of Lachhiram Basantlal Rankin C.J. said that illegal proceedings before special officer cannot have any effect to abrogated a notice properly issued before the case was transferred to the special office. In the present case when the notice was issued by the 8th Additional Income-tax Officer he had jurisdiction and the proceedings which were then being conducted by the principal officer were illegal. Therefore when the transfer of the case was made under section 5(7A) it cannot in any opinion be said that the notice issued by the Additional Income-tax Officer had been wiped out or did not remain alive. If there was no case, there could not be any transfer of the case. The provisions contained in section 5(7C) were invoked by counsel for the Commissioner of show that in that sub-section (7C) it is said that the officer may continue the proceedings whereas in sub-section (7A) there is no such provision with the result that under sub-section (7A) the officer to whom the case is transferred has the option of continuing the proceedings and if he wished to start fresh proceedings these are valid and therefore the February, 1956, notice is also valid. I am unable to accept the contention. First, sub-section (7A) does not leave any such choice to continue because the case is transferred and therefore he is to continue. Secondly, sub-section (7A) is the basis of the order in the present case. Thirdly, sub-section (7C) deals with the succession of officers and continuance of proceedings with a right on the part of the assessee to be reheard. Even if both the sub-sections (7A) and (7C) are read together, these do not have the effect of putting out of existence or nullifying the proceedings started by the 1950 notice. Fourthly, the question of limitation is not answered by these sub-sections.

In the case of Rajendranath Mukerjee v. Commissioner of Income-tax it was said that income could not be said to have escaped assessment within the meaning of section 34 if assessment proceedings in respect of that income were pending and not yet terminated in a final assessment. Therefore, the notice dated February 23, 1950, initiated assessment proceedings which were pending on the date of the transfer of the case to the principal Income-tax Officer and there could not be escapement of income to attract another notice under section 34. In deciding the questions of limitation the validity of the notice is itself in issue. In the case of Y. Narayana Chetty v. Income-tax Officer, Nellore, the Supreme Court said that the notice under section 34 for the purpose of initiating reassessment proceeding is not a mere procedural requirement and the proceedings taken by the Income-tax Officer in pursuance of an invalid notice would be illegal and void. In Narayana Chettys case the question arose as to whether proceedings under section 34(1) (b) could be held to be valid without the service of a notice. At page 392 of the report it was said that if the notice issued is shown to be invalid then the valid notice would be illegal and void. It is in this context that the assessee brings in aid the decision of the Supreme Court in Ranchhoddass case as also the decision in Rajendranaths case that if there is a pending proceeding there is no escapement until there has been an assessment. The provisions of section 34 attract the provisions of section 22 and other provisions of the Indian Income-tax Act with the result that if there is a pending proceeding there is no escapement of income-tax and secondly, if there is a return, there is no escapement until there has been an assessment on that return.

To sum up. In the present case the notice dated February 23, 1950, is valid and the revenue authorities cannot extend the period of limitation by assessing after the expiry of eight years by issuing a second notice on the eve of the expiry of eight years to obtain a period of one additional year from the date of the service of the second notice. The assessment is therefore barred by limitation because the assessment should have been completed by March 31, 1956.

The assessee is entitled to costs. Certificate for two counsel.

G. K. MITTER J. - I agree.


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