Lawyers Directory Listing
Chat with us free on WhatsApp — tell us your city and legal matter and our team connects you with the right lawyer. No form, no fee.
Case Referred No. 44 of 1955 decided on 8th February 1960.
Ss. 22, 23 & 34‑Re‑assessment ‑Assessee submitting return showing no income‑Income‑tax Officer taking no action on return‑Initiation of re‑assessment proceedings‑‑Invalidity.
The assessee took a toddy lease operative for the period October 1, 1943, to September 30, 1944. His claim was that he had sustained a loss during that period. In response to a notice under section 34 of the Income‑tax Act, he submitted a return on March 29, 1946, for the assessment year 1944‑45 showing loss and treating the period October 1, 1943 to September 30, 1944, as the previous year. On the same day he also submitted a return for the assessment year 1945‑46 treating the period October 1, 1944, to September 30, 1945, as the previous year and showing no income. The Income‑tax Officer declared the assessee not assessable for the year 1944‑45 but took no action on the return for the assessment year 1945‑46. Later, on February 27, 1950, the Income‑tax Officer issued a notice of re‑assessment under section 34 of the Income‑tax Act and completed the proceedings:
Held, whether the particulars furnished in the return were correct or not, as the assessee had in fact submitted a return for the year 1945‑46, and the Officer had not made an assessment, the assessment for 1945‑46 remained undisposed of and the Income tax‑Officer was therefore not entitled to initiate proceedings under section 34 for that year.
Commissioner of Income‑tax v. Ranchhoddas, Karsondas (1959) 36 I T R 569 ref.
In compliance with the requisition of the High Court of Judicature at Madras under section 66 (2) of the Indian Income tax Act in Civil Miscellaneous Petition No. 4225 of 1954, dated January 18, 1955, we state a case agreed to by both the parties, and refer it to the High Court of Judicature at Madras. The question of law on which the Tribunal has been directed to state a case are as follows:--
"(i) Whether on the facts and in the circumstances of the case the assessment made on the assessee is valid in law.
(ii) Whether on the facts and in the circumstances of the case the Income‑tax Officer was correct in adopting the period October 1, 1943, to September 30, 1944, as the previous year for the assessment year 1945‑46 in view of the provisions of section 2 (11) (a) of the Act."
We shall, therefore, confine ourselves, as far as possible to the facts relevant to those questions.
2. The assessee took a lease of toddy shop No. 46, Paganeri, for the abkari year October 1, 1943, to September 30, 1944. This was the only abkari contract that he ever took. He had no other business too either before or after the aforesaid period.
3. On information received from the Abkari department that the assessee had made a profit of Rs. 16,639 on the aforesaid lease, the Income‑tax Officer issued a notice under section 34 read with section 23 (2) for assessment year 1944‑45 and a notice under section 22 (2) for assessment year 1945‑46 on January 22, 1946, in response to which the assessee made his returns on February 29, 1946, showing a loss for the assessment year 1944‑45 and nil for the assessment year 1945‑46. He also declared that "previous year" in these returns as ending on September 30, 1944, and September 30, 1945 for the respective years. The returns were not accompanied by any statements of profit or loss.
4. For the assessment year 1944‑45 the Income‑tax Officer issued a notice under section 23 (2) on June 21, 1948. He did not take any further steps on the 1945‑46 return.
5. In response to the aforesaid notice, the assessee appeared in person on July 19, 1948 and stated that he had no books or evidence to produce and filed an affidavit, copies of the Tamil original and the English translation of which are annexed hereto as annexures A‑1 and A‑2', respectively and form part of the case, in which inter alia he armed to have suffered a loss of Rs. 1,241‑12‑0 in the aforesaid abkari lease for the abovesaid abkari year October 1, 1943, to September 30, 1944. As the Income‑tax Officer found that the toddy business in question lasted for only one year and that it ended on September 30, 1944, he declared him not assessable for 1944‑45 with the following note in the order sheet under date February 5, 1949:
"In this case assessment will be made for 1945‑46. The assessee will be declared not assessable for 1944‑45."
Thereupon, the Income‑tax Officer issued a notice under section 34 on February 27, 1950, for assessment year 1945‑46 after obtaining the sanction of the Commissioner of Income‑tax in the manner required by the section as, in his opinion, the entire income in the circumstances, required to be assessed only in that year and not in the earlier year 1944‑45. The assessee responded to this notice and filed a return showing a loss of Rs. 570‑14‑0 for the previous year' declared therein to be April 1, 1944 to September 30, 1944, as follows:
Rs. a. p,
Property 50 0 0
Business loss 620 14 0
Net loss 570 14 0
6. In a covering letter to the aforesaid return, dated 8th May 1950, the assessee's authorised representative challenged the application of section 34 to the assessee's case as no income had escaped assessment. A copy of the letter is annexed hereto as annexure "B" and forms part, of the case. The Income‑tax Officer, nevertheless completed te assessment on November 24, 1950, estimating the profit at Rs. 9,500 holding that the previous year' of the assessee for the assessment was the abkari year 1st October 1943, to 30th September 1944. The following are extracts from the assessment orders:
"In response to notice under section 34 issued in accordance with the provisions of the Act the assessee has filed a return on May 9, 1950, declaring a loss of Rs. 571. In response to notices under sections 23 (2) and 22 (4) his auditor appeared and stated that the assessee has not maintained any accounts to prove the loss returned. Hence it is admitted only an estimate . . . "
"The accounting period for the toddy shops is always the abkari year from 1st October of any year to 30th September of the succeeding year. The business was also done by the assessee for this one year only. Therefore the abkari year October 1, 1943 to September 30, 1944, will be taken as the previous year of the assessee for this assessment . . . . "
7. In his appeal to the Appellate Assistant Commissioner the assessee, inter alia, pleaded the following as his grounds of appeal :‑
"3. Again, the previous year' to be adopted is the financial year and therefore for 1945‑46 assessment the result from April 1, 1944, to September 30, 1944, should have been con sidered in this assessment because the result from October 1, 1943, to March 31, 1944, appears to have been considered in 1944‑ i5 and no assessment made on him for 1944‑45 assessment accepting the loss returned by him. In this position the loss has to be accepted for 1945‑46 assessment as well . . .
4. Again, your petitioner submitted his returns for assess ment year 1944‑45 along with his letter, dated March 29, 1946. No assessments were made on him accepting the loss returned by your petitioner. Therefore there is no definite information' within the meaning of section 34 as to initiate further proceedings against your petitioner for 1945‑46 assess ment. Further the I. T. No. 90 issued by the Income.‑tax Officer for proceedings under section 34 refers only to assessment year 1944‑45 and not to assessment year 1945‑46. Therefore the assessment now made on your petitioner is not a valid and legal assessment . . . . "
8. The Appellate Assistant Commissioner held that all the aforesaid grounds were untenable for the following reasons reproduced from his order :‑
"2. There is a mention in the grounds of appeal that in the body of the notice issued under section 34, the year was wrongly marked. It does not affect the assessment. I find from the records that the proceedings were started for 1945‑46 under section 34. The assessment year was mentioned at the top of the notice also. A mistake in entering the year in the body does not therefore Invalidate the proceedings. In fact, I find that the appellant himself understood the notice to have been issued for 1945‑46 assessment. There is therefore no ground for any objection on that point.
4. In the return, that was submitted, the period of accounting was shown as April 1, 1944 to September 30,;1944 and it is claim ed in the appeal that the income of that period alone should be taken for assessment. It was however admitted that the contract was taken by appellant with effect from October 1, 1943. If really the appellant wanted to adopt the official year as the year of account, then he should have declared the period April 1, 1944, to March 31, 1945, for 1945‑46 assessment. The period that he bas actually shown ends with September 30, 1944. Since a period of six months will not constitute a previous year, the year ended with September 30, 1944, will in the circumstances be the year of account for consideration in this assessment and as already stated, the appellant did have the contract from October 1, 1943. In fact, that period October 1, 1943, to September 30, 1944, coincides with the year of contract and abkari year also. The contention of the appellant that only the income of six months should be taken for this assessment therefore is incorrect . . . "
9. In the appeal, to the Tribunal, that followed, it was contended as follows :‑
(i) If the aforesaid assessment is under section 23 (3) as the caption of the assessment order denotes and not under section 34, as the assessment was made only on November 24, 1950, it is unsustainable as the time limit for such assessment expired on March 31, 1950 itself ;
(ii) if on the other hand, the assessment is under section 34, there was no escapement of income as the assessee had already filed a return for assessment year 1945‑46 under section 22, so that the further proceedings initiated under section 34 are illegal ; and
(iii) alternatively, the previous year' to be adopted is the period April 1, 1944, to September 30, 1944, only.
10. The Tribunal, in paragraphs 2, 3 and 4 of its order, dated April 18, 1953, a copy whereof is annexed hereto as annexure "C" and forms part of the case, held that an inadvertent omission to mention section 34 In the caption could not invalidate the assessment as there was a clear reference in the body of the order itself to the effect that the assessment was being completed under section 34 ; the Income‑tax Officer was satisfied that the income from the toddy shop for the year ended September 30, 1944, normally assessable in 1945‑46 had escaped assessment. As all the formalities laid down in the section had been duly fulfilled, there was no illegality. Regarding the last contention, it held that, as the assessee had exercised his option in favour of the abkari year ended September 30, 1944, the question of adopting the period up to 31st March 1944, as the previous year' for the first assessment year 1944‑45 and the later six months for the assessment year under reference did not arise. For these reasons, it dismissed the assessee's appeal.
K. Srinivasan for the Assessee.
C. S. Rama Rao Sahib and S. Ranganathan for the Commis sioner.
The assessee took a toddy lease operative for what was known as the abkari (toddy) year October, 1, 1943, to September 30, 1944. His own claim all allong was that he sustained a loss over that contract as a whole. Whether that claim is well founded or not, it may not be necessary to decide at this stage. In response to a notice issued under section 34 of the Act for the assessment year 1944‑45, the assessee filed a return on March 29, 1946. In that return, he showed the whole period October 1, 1943, to September 30, 1944, as the "previous year", that is, in relation to the assessment year 1944‑45, and in that return he claimed be had sustained a loss. On the same date. March 29. 1946, the assessee also filed a return for 1945‑46 in which he treated the period October 1, 1944 to September 30, 1945; as the previous year in relation to the assessment year 1945‑46. For that period, October 1, 1944, to September 30, 1945, the assessee showed no income. It should be remembered that the toddy lease expired on September 30, 1944. Subsequently, the assessee filed an affidavit when he appeared before the Income‑tax Officer on July 19, 1948. That affidavit has been referred to as Annexure A‑1. In that affidavit, the assessee explained that he had incurred a loss of Rs. 1,241‑12‑0 over the contract as a whole. Then there was this passage in that affidavit:
"From the abovesaid particulars it will be seen that I have incurred a loss of Rs. 620‑14‑0 for the assessment year 1944‑45 and the balance of loss not less than Rs. 620‑14‑0 for the assessment year 1945‑46."
Again, whether that contention was correct or not does not arise for consideration at this stage.
On the basis of the returns and this affidavit, what the income‑tax Officer did on February 5, 1949 was evidenced by a note made in the proceedings of 1944‑45
"In this case, assessment will be made for 1945‑46. The assessee will be declared not assessable for 1944‑45."
The Income‑tax Officer however took no further action on the return for the assessment year 1945‑46 filed on March 29, 1946, as further explained by the affidavit, annexure A‑1.
On February 27, 1950, the Income‑tax Officer issued a notice under section 34 in relation to the assessment year 1945‑46, Despite the objection taken by the assessee, assessment proceedings for 1945‑46 were completed, and that assessment was ultimately upheld by the Tribunal.
It is against this background we have to answer the two questions referred to this Court under section 66 (2) of the Income‑tax Act
"1. Whether on the facts and in the circumstances of the case the assessment made on the assessee is valid in law.
2. Whether on the facts and in the circumstances of the case the Income‑tax Officer was correct in adopting the period 1st October 1943 to 30th September 1944, as the previous year for the assessment year 1945‑46 in view of the provisions of section 2 (xi) (a) of the Act."
The second question can arise for consideration only if the first question is answered against the assessee and in favour of the Department, that is, only if it is held that the initiation of proceeding for the assessment year 1945‑46 with notice under section 34 of the Act was valid.
Factually the position was that in relation to 1945‑46, the assessee submitted a return on March 29, 1946. Particulars furnished in that return may or may not be correct ; none the less, it was a return. The claim made by the assessee, that he had no income at all assessable for the year might have been incorrect. Equally the claim made that for purposes of assessment year 1945‑46, the relevant previous year was from October 1, 1944, to September 30, 1945, may be incorrect. As we said, the correctness or incorrectness of the statements made in the return filed on March 29, 1946, for the assessment year 1945‑46 still left the assessee in the position that he had filed a return for 1945‑46. It should be remembered that with reference to the return for this assessment year 1944‑45, also filed on March 29, 1946, what the Income‑tax Officer did was that to reserve consideration of the assessment for 1945‑46. That assessment was not undertaken, and was certainly not completed on the face of the return for 1945‑46 filed by the assessee on March 29, 1946. What, however, the Income‑tax Officer did was to retain the return for 1945‑46 filed on March 29, 1946, remain undisposed off ; but he initiated proceedings under section 34 of the Act with a notice issued in 1950.
The contention of the learned counsel for the assessee, that, under these circumstances, the Income‑tax Officer was not entitled to initiate proceedings under section 34 of the Act is well founded, and is supported by authority : Commissioner of Income‑tax v. Ranchhoddas Karsondas ((1959) 36 I T R 569), the relevant passage is at pages 575 and 576. Since the first question has to be answered against the Department and in favour of the assessee, that the initiation of proceedings under section 34 of the Act was not valid, the assessment itself, which was based on that invalid notice under section 34 of the Act, has to be set aside. We answer the first question in the negative and in favour of the assessee. As we have pointed out earlier, in view of the answer to the first question, on the basis of which the entire assessment goes, there is no need to answer the second question. As the assessee has succeeded in the reference, he will be entitled to the costs: Counsel's fee Rs. 250.
Reference answered accordingly.
Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.
🔍 Find a Lawyer