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PETITIONER: THE VIth INCOME-TAX OFFICER, CITY CIRCLE II-A, ABANGALORE

       Vs.

RESPONDENT: K.Y. PILLAIAH & SONS

DATE OF JUDGMENT: 18/07/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1968 AIR  260            1968 SCR  (1)   6

ACT: Mysore Income-tax Act of 1923, s. 34-Notice  served within 4 years   of  the  close  of  assessment  year-Completion   of assessment proceeding-Time limit for.

HEADNOTE: The  Income-tax  Officer, Bangalore commenced  a  proceeding under s. 34 of the Mysore Income-tax Act for reassessment of the  income of the respondents for the assessment year 1949- 50 and served a notice in that behalf in March  1951, on the respondents.  The  Income-tax Officer determined  the  total income of the respondents in May 1954, but the order was set aside by the Appellate   Assistant Commissioner in  November 1961,  and  the Income-tax Officer was directed  to  make  a fresh   inquiry,  When  the  Income-tax  Officer   commenced inquiry,  the  respondents applied to the High Court  for  a writ  of  prohibition  and the High Court  passed  an  order restraining  the Income-tax Officer on the ground  that  the assessment  proceeding was barred because of the  expiry  of the period of limitation. In appeal to this Court, Held:  The  High  Court was in error,  because,  though  the Appellate  Assistant  Commissioner  vacated  the  Income-tax Officer’s assessment order of 1954 and remanded the case for further inquiry, the     Appellate  Assistant   Commissioner did  not  set aside the notice of March 1951 served  on  the respondents, If a proper notice was served within the period provided  by the section (four years from the close  of  the assessment  year)  the proceeding could  be  completed  even after  the  expiry of four years for the Act  prescribes  no period for     completion of the proceeding. [8E-G]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2177 of1966. Appeal  by special leave from the judgment and  order  dated July 12, 1963 of the Mysore High Court in Writ Petition  No. 1076 of 1962. Veda  Vyasa,  R. Ganapathy Iyer, R. N. Sachthey  and  S.  P. Nayar, for the appellant.

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R.  Gopalakrishnan, for the respondent. The Judgment of  the Court was delivered by Shah,  J.-The  respondents-a  Hindu  undivided   family-were assessed  for  the assessment year 1949-50 to tax  under  s’ 23  of  the Mysore Income-tax Act on a total income  of  Rs. 10,100/-  The  Second Additional Income-tax  Officer  (Urban Circle),  Bangalore, commenced a proceeding under s.  34  of the Mysore Income-tax Act for re-assessment of the income of the respondents for the 7 assessment year 1949-50, and served a notice in that  behalf on  March 6, 1951.  On May 21, 1954 the  Income-tax  Officer determined  the respondents’ total income at  Rs.  75,957/-. In  appeal  against  the  order,  the  Appellate   Assistant Commissioner of Income-tax.  ’A’ Range, Bangalore, by  order dated November 4, 1961, set aside the order and directed the Income-tax  Officer to make a fresh assessment after  making inquiries on certain matters specified in the order. At  the  request of the respondents under s.  66(2)  of  the Mysore  Income-tax  Act,  the  Commissioner  of  Income-tax, Mysore,  referred the following questions to the High  Court of Mysore:               "1.  On the facts and in-the circumstances  of               the assessee’s case whether within the meaning               of  s. 34 of the Mysore Income-tax Act,  if  a               notice under that section is issued within the               prescribed  period,  whether  the   Income-tax               Officer  can  proceed to assess  or  re-assess               such escaped income after four years from  the               close of the assessment year?               2.    On the facts and in the circumstances of               the  case,  whether  the  Appellate  Assistant               Commissioner of Incometax is competent to  set               aside  and give directions to  the  Income-tax               Officer to re-do the assessment in the  manner               the   Appellate  Assistant   Commissioner   of               Income-tax has done?" At  the  hearing of the reference, the respondents  did  not press  the first question, and the High Court  answered  the second question in the affirmative. The  Income-tax  Officer commenced inquiry directed  by  the Appellate  Assistant  Commissioner.  The  respondent-,  then applied  to the High Court of Mysore for issue of a writ  of prohibition   restraining   the  Income-tax   Officer   from continuing the assessment proceeding for the year 1949-50 on the  plea that the proceeding was because of expiry  of  the period  of  limitation  barred.  The High  Court  of  Mysore upheld  the  contention of the respondents and  allowed  the petition.   In the view of the High Court the provisions  of s.  34  of  the Mysore Income-tax Act  were  "more  or  less similar to Rule 34 of the Mysore Sales Tax Act, 1948.  Hence the present case clearly comes within the rule laid down  by this  Court in M/s K. S. Subbarayappa and Sons v.  State  of Mysore  [(1952)]  Mysore  L. J. 2341 which  means  that  the present  proceedings  are  barred".   The  Commissioner   of Income-tax has appealed to this Court with special leave. The  question  arising  in this appeal must,  it  is  common ground, be determined in the light of the provisions of  the Mysore  Incometax Act, 1923.  Even after the merger  of  the State of Mysore with 8 the Union of India a proceeding for assessment of income-tax relating to the assessment year 1949-50 has to be heard  and disposed of under the Mysore Act.  Section 34 of the  Mysore Incometax Act reads as follows -

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             "If   for   any  reason,  profits   or   gains               chargeable   to   income-tax   have    escaped               assessment in any year, or have been  assessed               at too low a rate, the Income-tax Officer may,               at  any time within four years of the  end  of               that  year, serve on the person liable to  pay               tax  on such income, profits or gains,  or  in               the  case  of  a  company,  on  the  principal               officer thereof a notice containing all or any               of the requirements which may be included in a               notice  under sub-section (2) of  section  22,               and  may proceed to assess or  re-assess  such               income, profits or gains and the provision  of               this  Act  shall,  so far  as  may  be,  apply               according  as  if  the notice  were  a  notice               issued under that sub-section". A proceeding for re-assessment under s. 34 of the Mysore Act may be commenced if two conditions co-exist: (i)that the profits and gains chargeable to income-tax  have escaped assessment or have been assessed at too low a  rate, and  (ii) the notice is served within four years of the  end of the year of assessment.  But if a proper notice is served within  the period provided by the section,  the  proceeding may  be completed even after the expiry of four  years  from the close of the assessment year, for the Act prescribes  no period for completion of the proceeding. A notice for re-assessment was in fact served on the respon- dents on March 6, 1951 under s. 34 of the Mysore Act.   That notice  was served within four years of the end of the  year of assessment 1949-50, and the Income-tax Officer was of the view that tie profits or gains chargeable to income-tax  had escaped assessment in the year 1949-50.  It is true that the Appellate  Assistant  Commissioner  vacated  the  order   of assessment dated May 21, 1954, but he did not set aside  the notice served upon the respondents.  He merely remanded  the case  for  further inquiry to be made in the  light  of  the directions given by him.  It is difficult to appreciate  the grounds  on which it could be held that the  proceeding  for re-assessment to tax the income which had escaped assessment in  the  year 1949-50 commenced after due notice  served  on March 1951 was barred.  The High Court was, in our judgment, plainly  in  error in holding that the  proceeding  for  re- assessment was barred. It must also be remembered that the respondents had under an order of the Commissioner obtained a reference on the  first question  set  out  hereinbefore.   That  question  was  not pressed before the High Court, and it must be deemed to have been answered 9 against the respondents.  That question could not thereafter be reagitated by the respondents in a petition for the issue of a writ under Art. 226 of the Constitution. The  appeal is allowed.  The order passed by the High  Court is  set  aside.  The respondents will pay the costs  of  the Commissioner in this Court and in the High Court. Appeal dismissed. V.P.S. 10