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PETITIONER: COMMISSIONER OF INCOME-TAX, BANGALORE

       Vs.

RESPONDENT: C.   M. JAFFAR KHAN (DECEASED) REPRESENTED BY HISWIDOW RAHAM

DATE OF JUDGMENT24/09/1971

BENCH:

ACT: Mysore Income-tax Act 1923, s. 48-Refund granted by  Income- tax Officer under section is an ’assessment’-Income  profits and gains for previous year ending 31st March 1949  assessed under  Mysore  Act not liable to be  assessed  under  Indian Income-tax  Act 1922 by virtue of Part, B States,  (Taxation Concession) Order 1950, Paragraph 5(1)-Section 34 of  Indian Act   has  no  applicability  to  income  covered  by   said paragraph--  Words  ’such  income  profits  and  gains’   in paragraph, interpretation of.

HEADNOTE: The  assessee was a partner in a registered firm.  The  firm filed its income-tax return for the period ending  30-6-1949 under  the Mysore Income-tax Act 1923 and an assessment  was made thereunder.  On 15-3-1950 the assessee filed his return in  respect of his individual income including his share  of income  from  the  aforesaid firm for  the  accounting  year ending  30-6-1949.   This  return was also  made  under  the Mysore  Act.   By an order dated  20-3-1950  the  Income-tax Officer directed a refund of Rs. 641-3-0 to the assessee due to  the difference in the rate of tax applicable to him  and the  maximum  rate.  In the course of  proceedings  for  the assessment years 1951-52 and 1952-53 the Income-tax  Officer was  of the opinion that the assessee’s income  had  escaped assessment  in the accounting year ending 30-6-1949  and  he therefore  issued  a notice to him under s. 34 of  the  Act. The assessee objected to the reopening of the assessment  on the  ground that he had already been assessed for  the  said period under the Mysore Act and that according to  paragraph 5(1)  of the Part B States (Taxation Concession) Order  1950 an assessment under the Indian Income-tax Act 1922 would  be possible  only if, before the appointed day namely  on  1-4- 1950  the  assessee had not been assessed under  the  Mysore Act.   Since  the  refund order had been issued  to  him  he claimed  to  have been assessed under the Mysore  Act.   The Income-tax  Officer  rejected this contention  and  made  an assessment  under s. 34 of the Indian Act on 6-3-1955.   The Appellate  Assistant Commissioner held that  the  assessment under  s. 34 was not valid.  The Appellate Tribunal  was  of the  view that the refund granted by the Income-tax  Officer under  s.  18  of the Mysore Act was not  an  assessment  as contemplated  under  s. 23 of the Indian Act, and  that  the words ’such income profits and gains’ used in paragraph 5(1) of  the  Part  B States  (Taxation  Concession)  Oeder  1950 referred  to  identity of income or sources and that  it  is only  in  cases wherein income has been assessed  under  the Mysore  Act that the Income-tax Officer is  prohibited  from taking  any  further  action  thereon.   On  this  view  the Tribunal  restored the order of the Income-tax Officer.   In

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reference  the High Court held that the refund  order  which was  made on assessee’s return was an order  of  assessment. On appeal by the Revenue in this Court, HELD : (i) The refund order given by the Income-tax  Officer on the return filed by the assessee was an assessment within the meaning of paragraph 5 of the Order.  The assessment  of both the firm as well as the individual had been made  under the Mysore Act for the year ending 30th June 1949 in respect of income of that year.  As such it clearly fell 9 09 within  the provisions of sub-paragraph, (1) of paragraph  5 of  the  Order  which  makes  the  Act  applicable  to  such assessments. [913 A-B; 914 B] Esthuri  Aswathiah v. Income Tax Officer, Mysore  State,  41 I.T.R. 539. relied on. It is also provided in subparagraph (2) of paragraph 5  that where income profits and gains have not been assessed  under the  State law they shall be assessed under the  Indian  Act for  the year ending 31-3-1951 which is the assessment  year 1950-51  in  respect  of  which the  tax  payable  has  been specified  therein.   There  can be no doubt  that  for  the assessment year 1950-51 for which the accounting year is the previous  year  1st April 1949 to 31st March 1950,  the  Act applies  and  assessments would be  made  thereunder.   This would be a hardship because under the concerned tax law of a Part  B State an assessee in that State may have been  taxed already.   It  is in &der to remove this hardship  that  the Order was issued under Section 60A of the Act. [914 C-D] Further,  any  omission to give information, or  failure  to file  a  return or failure to disclose truly and  fully  all material  facts which are a condition of the  re-opening  of assessments  under s. 34 of the Act do hot appertain to  the Income-tax  Officer  under  the Act but  to  the  Income-tax Officer under the Mysore Act.  Even on this reading it would appear   that   Section  34  of  the  Act  would   have   no application., [914 E] (ii)The finding of the Tribunal that an assessment under s. 34 could be made in the present case because the  assessee’s income from property and other sources had not been assessed under  the Mysore Act was wrong.  This reasoning would  lead to the startling conclusion and would imply that there would be two assessments in respect of , the income of an assessee during  one  assessment year, i.e.,  while  assessment  made under  the Mysore Act in respect of income reported  by  the assessee cannot be reopened, the income not disclosed by him would be liable to be assessed under, the Act.  Moreover  if that  reasoning  is  correct  it would  not  be  a  case  of reassessment  under s. 34 but assessment under s. 23 of  the Act.   This  was not the stand taken by the Revenue  at  any stage. The appeals must accordingly be dismissed. [914 G-915 A]

JUDGMENT: CIVIL APPEAL JURISDICTION :Civil Appeals Nos. 1306 and  1307 of 1967. Appeals  by special leave from the judgment and order  dated February  4,  October 5, 1966 of the Mysore  High  Court  in I.T.R.C. No. 4 of 1964 and S.C.L.A.P. No. 214 of 1966. B.Sen and R. N. Sachthey, for the appellant (in both  the appeals). The respondent did not appear. The Judgment of the Court was delivered by- P.Jaganmohan  Reddy,  J. The High Court of  Mysore  in  a

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reference under Sec. 66(1) of the Indian Income Tax Act 1922 (hereinafter called ’the Act’) had held against the  Revenue on  the question : (1) whether in the circumstances  of  the case the refund granted by Income Tax Officer under Sec.  48 of the 910 Mysore  Income Tax Act 1923 (hereinafter called ’the  Mysore Act’) amounted to an assessment and, (2) whether the  inter- pretation  placed  by the Income Tax Tribunal on  the  words ’such  income profits and gains’ in paragraph 5 (1)  of  the Part B States (Taxation Concession) Order 1950  (hereinafter called  ’the Order’) is correct ? On the first question  its answer  was  in  the affirmative and on the  second  in  the negative.  Against this Judgment two appeals have been filed by special leave by the Commissioner of Income Tax, Mysore. The  facts which gave rise to the reference before the  High Court are that a registered firm of partnership known as  C. M. Jaffar Khan & Co., Bangalore of which the assessee was  a partner  filed  a return in respect of its  income  for  the period ending 30-6-49 under the Mysore Act and an assessment was  made  thereon in a sum of Rs. 3376-7-0 which  was  duly paid.   On 15-3-50 the assessee filed his return in  respect of his individual income including his share of income  from the  partnership firm for the accounting year ending’  30-6- 49.   This return was also made under the Mysore Act and  it appears  that in respect of this return, by an  order  dated 20-3-1950  the Income Tax Officer directed a refund  of  Rs. 641-3-0 to the assessee due to the difference in the rate of tax  applicable  to  him and the maximum  rate.  It  further appears  that  in  the course of  the  proceedings  for  the assessment years 1951-52 and 1952-53 the Income Tax  Officer was  of the opinion that the assessee’s income  had  escaped assessment  in  the accounting year ending  30-6-49  and  he therefore  issued a notice to him under Sec. 34 of the  Act. The assessee objected to the reopening of the assessment  on the  ground that he had already been assessed in respect  of the income for the year ending 30-6-49 under the Mysore Act; that  a  refund of tax had been given to him,  as  such  the Income  Tax Officer has made an assessment under the  Mysore Act;  and  that  according to paragraph 5 of  the  Order  an assessment  under the Act would be possible only if,  before the  appointed date namely on 1-4-1950 the assessee had  not been assessed under the Mysore Act.  The Income Tax  Officer rejected these contentions on the ground that the assessment made on the firm could not be regarded as an assessment made on  the assessee individually and completed  the  assessment for  the  years 1950-51 on 6-3-55 on a total income  of  Rs. 3,21,821. The assessee appealed to the Income tax Appellate  Assistant Commissioner and raised similar contentions to those  raised before  the Income Tax Officer.  The Income Tax  Officer  on the  other hand contended that as the  respondent  assessee had  disclosed  only a share income from the  firm  ’C.   M. Jaffar  Khan & Co.’ and as the income from the property  and other  sources was not disclosed such profits and gains  had not been assessed under the Mysore 911 Act  and,  therefore, action under Sec. 34 of  the  Act  was fully  justified.   The  Appellate  Assistant   Commissioner however,  rejected the contention of the Income Tax  Officer and held that the re-assessment under Sec. 34 of the Act was not valid.  In this view he set aside the assessment made by the  Income Tax Officer.  The Department filed an appeal  to the  Income Tax Tribunal against the order of the  Appellate Assistant  Commissioner.   The Tribunal however was  of  the

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view that the refund granted by the Income Tax Officer under Sec.  18  of  the  Mysore  Act  was  not  an  assessment  as contemplated  under  Sec. 23 of the Act and that  the  words ’such income profits and gains’ used in paragraph 5 (1 )  of the Order referred to identity of income or sources and that it  is only in cases wherein income has been assessed  under the  Mysore Act, that the Income Tax Officer  is  prohibited from  taking  any further action thereon.   The  appeal  was therefore-allowed and the assessment made by the Income  tax Officer restored. The  High  Court  following the decision of  this  Court  in Esthuri  Asmathiah v. Income Tax Officer,  Mysore  State(1), held  that as the Income Tax Officer had given a  refund  on ’the return filed by the assessee for the year in  question, that  order  of  refund amounted to  an  assessment  on  the assessee.   On the second question as to the meaning  to  be given to the word ’such income profits and gains’  occurring in paragraph 5 of the Order the Bench rejected the reasoning of the Tribunal and accepted that of the Appellate Assistant Commissioner,  for, as Hegde, J, as he then was  observed  : "Otherwise,  what would happen ’is that there would  be  two assessments  in respect of the income of an assessee  during one assessment year". The contentions of the learned Advocate for the Revenue fol- low  much on the same lines as were the  contentions  before the High Court of Mysore namely that as the assessee did not disclose  his personal income except that of the  income  of the firm, that income would not have been assessed under the Mysore Act, as such, it is open to the Income Tax Officer to make  an  assessment under Sec. 34 of the Act.   He  further contends  that  the object of the Order was to  give  relief from double taxation because of the financial integration of Part  B States of which Mysore wag one, +the  assessment  of income, profits and gains of the previous year endnig  after 31-3-49  which is a previous year for ’the  said  assessment year 1949-50, had to be assessed under the Act for the  year ending  on 31-3-51, but this could be done "if and only  it, such income profits and gains have not before the  appointed day  been assessed under the State Law".. It is  ’therefore submitted  that  as this order was made in exercise  of  the powers  conferred  under Sec. 60(A) of the Act,  any  income profits and 912 gains which have not been assessed under the State raw  will become  assessable under the Act.  Paragraph 5 of the  Order and Sec. 34 of the Act are as follows Paragraph 5(1)               "The income, profits and gains of any previous               year ending after the 31st day of March  1949,               which  is  a  previous  year  for  the   State               assessment  year  1949-50, shall  be  assessed               under ’the Act for the year ending on the 31st               day  of  March 1951, if and only if, such  in-               come, profits and gains have not, ’before  the               appointed  day been assessed under  the  State               law".               (2)Where  the  income,  profits  and  gains               referred to in sub-paragraph (1) have not been               assessed  under the State law, ’they shall  be asses sed under the Act for the year ending on               the  31st  day  of March, 1951,  and  the  tax               payable  thereon shall be determined as  here-               under-               (3)In  this paragraph the State  assessment               year  1949-50 means the assessment year  which

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             commences  on any date between the 1st  April,               1949 and the 31st December, 1949.               Sec. 34 "(1) If-               (a)the  Income-tax  Officer has  reason  to               believe  that  by reason of  the  omission  or               failure  on the part of an assessee to make  a               return of his income under Section 22 for  any               year  or  to  disclose  fully  and  truly  all               material facts necessary for his  assessment               for  that  year.  income,  profits  or   gains               chargeable   to   income-tax   have    escaped               assessment for that year, or....               (b)nowithstanding  that there has  been  no               omission or failure as mentioned in clause (a)               on  the part of the assessee,  the  Income-tax               Officer  has in consequence of information  in               his possession reason to believe that income,               profits or gains chargeable to income-tax have               escaped assessment for any year.... he may  in               cases.  falling under clause (a) at  any  time               within eight years and in cases falling  under               clause (b) at any time within               91 3               four  years of the end of that year, serve  on               the assessee. On  the  admitted  facts  which are not  in  dispute  it  is apparent  that  the  refund order given by  the  Income  Tax Officer on the return filed by the assessee is an assessment within  the meaning of paragraph 5 of the Order.  It was  so held in Esthuri Aswathiah case(1) where on the facts of that case  the  assessee  who  had  filed  his  return  for   the assessment  year  1950-51  disclosing  that  there  was   no assessable income contended that as it had been assessed for the  accounting year ending June 30, 1949 under  the  Mysore Act  there was no assessable income for that year  and  that only the income for the next accounting year ending on  June 30,  1950 was assessable for the year 1951-52.  The-  Income Tax  Officer passed an order "no proceeding" and closed  the assessment.  This decision is not helpful as it did not deal with  the  question that arises before us.  In that  case  a notice  under Sec. 22 of the Act was served on the  assessee requiring  it  to  submit  its  return  of  income  for  the assessment  year 1950-51.  It is in respect of  that  notice that  a return was filed by the assessees to which  we  have made  a  reference  showing that  there  was  no  assessable income.  For the next assessment year 1951-52 the  assessees filed  a  return  and  in the  course  of  those  assessment proceeding  account  books  were  produced  by  them   which disclosed an opening, cash credit balance of Rs.  1,87,000/- as  on 1st July 49.  When the Income tax Officer called  for the books of the earlier year the books were not produced by the assessees.  In the circumstances a sum of Rs. 1,37,000/- out  of  the  opening balance as on 1-7-49  was  treated  as income  from undisclosed sources for the year 1951-52.   But on appeal the Appellate Assistant Commissioner held that the financial  year  ending  31-3-50 ought to be  taken  as  the previous  year for the income from undisclosed sources.   ID he  meantime the appellant submitted a fresh return for  the assessment year 1950-51 on which no action was taken but  on October  15, 1957 the Income tax Officer served a notice  of reassessment  under  See.  34 of the Act  calling  upon  the Appellant  to  submit  a  fresh  return.   That  order   was challenged  in a Writ Petition before the High Court on  the ground  that the Income Tax Officer had no  jurisdiction  to issue a notice of reassessment.  That petition was dismissed

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by  the High Court.  In an appeal by certificate this  Court held that since the Income-tax Officer had, passed an  order thereon ’no proceeding’, it mean," that he had accepted  the return  submitted by the Appellant, and assessed the  income as nil and if thereafter he, had reason to believe that  the Appellants  had  failed  to disclose  fully  and  truly  all material  facts necessary for assessment for that  year,  it was open to him (1)  41 I.T.R. 539. 914 to  issue a notice for reassessment under Sec. 34.   It  was further  held that the Appellant was liable to  be  assessed under  the  Indian  Income-tax Act 1922 and  not  under  the Mysore Income-tax Act for the year 1950-51.  The facts in these appeals before us are different in  that the assessment of both the firm as well as of the individual had been made under the Mysore Act for the year ending  30th June,  ’49 in respect of income of that year.  As  such,  it clearly  falls within the provision of sub-paragraph (1)  of paragraph 5 of the Order which makes the Act inapplicable to such assessments.  It is also provided in sub-paragraph  (2) of Paragraph 5 that where income, profits and gains have not been  assessed  under the State law they shall  be  assessed under  the  Act  for the year ending 31-3-51  which  is  the assessment  year  1950-  5 1, in respect of  which  the  tax payable  has been specified therein.  There can be no  doubt that  for  the  assessment  year  1950-51,  for  which   the accounting year is the previous year 1st April 1949 to  31st March  1950, the Act applies and assessments would  be  made thereunder.   This would be a hardship because under any  of the concerned tax law of a Part B State an assessee in  that State may have been taxed already.  It is in order to remove this  hardship that the order was issued under Sec. 60 A  of the  Act.   This  apart  it may also  be  noticed  that  any omission to give information, or failure to file a return or failure to disclose truly and fully all material facts which are  a condition of the reopening of assessments under  Sec. 34  of  the Act do not appertain to the Income  Tax  Officer under the Act but to the Income Tax Officer under the Mysore Act.  Even on this reading it appears to us that Sec. 34  of the Act would have no application.  The learned counsel  for the  Revenue was not able to meet this point.  The  Tribunal thought  that there was some substance in  the  Departmental representative’s contention on the second question, that the words ’such income’ profits and gains used in paragraph 5(1) of  the order ’refer to identity of income or sources;  that it is only in cases where the income had been assessed under the  Mysore Act; that the Income-tax Officer  is  prohibited from  taking further action thereon’ and as such ’it  cannot be said that the assessee had been assessed on incomes  such as  property income and income under other sources’, and  it is these that have been brought to assessment under Sec.  34 of the Income-tax Act".  As rightly pointed out by the  High Court   that  this  reasoning  would  It--ad  to   startling conclusions  and  would  imply  that  there  would  be   two assessments  in respect of the income of an assessee  during one  assessment  year i.e. while assessment made  under  the Mysore  Act  in respect of income reported by  the  assessee cannot be reopened, the income not disclosed to him would be liable to be assessed under the Act.  Apart 915 from  the incongruity in this reasoning pointed out  by  the High  Court  it  appears to us that  if  that  reasoning  is correct it would not be a case of reassessment under Sec. 34 but assessment under Sec. 23 of the Act.  This is  certainly

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not  the stand taken by the Revenue either before  the  High Court  or  before  us.  In  the  circumstances  the  answers returned  by the High Court do not require any  interference and the appeals are accordingly dismissed.  There will be no order as to costs since the respondents are ex-parte. G. C.                 Appeals dismissed. 916