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PETITIONER: COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: S.   RAMAN CHETTIAR

DATE OF JUDGMENT: 27/10/1964

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1965 AIR 1031            1965 SCR  (1) 883  CITATOR INFO :  D          1969 SC 496  (3,6)  APL        1969 SC 831  (4)  D          1974 SC1985  (12)  R          1986 SC1853  (17)

ACT: Indian Income-tax Act (11 of 1922), ss. 22(3) and 34-Invalid notice  under s. 34-Return submitted-Subsequent  proceedings under s. 34-If can be taken ignoring return.

HEADNOTE: In response to a notice dated 3rd April 1948, under s. 34 of the  Indian  Income-tax Act, 1922,  the  assessee  submitted returns  for the assessment years 1944-45 and 1945-46.   The Income-tax  Officer dropped proceedings for the former  year and  determined the net taxable income for the latter  year. The   see   appealed  first  to  the   Appellate   Assistant Commissioner  and  then  to  the  Appellate  Tribunal.   The Tribunal allowed the appeal in part, held that a portion  of the profit determined was assessable in the assessment  year 1944-45  and  observed, that the Income-tax Officer  was  at liberty to take appropriate action.  The Income-tax  Officer again  issued  a  notice under s.  34  after  obtaining  the sanction  of the Commissioner, as required by  the  Amending Act  48  of  1948 (passed on 8th September  1948,  but  made retrospective  from  30th  March 1948), in  respect  of  the assessment  year  1944-45.  He brought to  tax,  the  amount determined  by the Tribunal as the profit of the year.   The assessee’s  appeals to the Appellate Assistant  Commissioner and  the  Appellate Tribunal were  unsuccessful.   The  High Court,  on  a  reference, held in  favour  of  the  assessee holding  that  the; reassessment under s. 34  for  the  year 1944-45  was  not valid.  The Commissioner appealed  to  the Supreme Court. HELD  :  The first return submitted by the  assessee  was  a valid  return  under  s. 22(3).  The  Department  could  not therefore,  ignore  it and issue notice under s. 34  on  the assumption that there had been an omission or failure on the part of the assessee to make a return under s. 22. [884 B-C; 887 C] Section 22(3) permits an assessee to furnish a return at any

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time before the assessment is made, that is, before the time mentioned in s. 34(3).  It need not be a voluntary return in the  sense  that it must be suo motu.  If the  first  notice under  s. 34 was held to be bad because  the  Commissioner’& sanction  was not obtained as required by the  amendment  of 1948,  it did not follow that a return made in pursuance  of it must also be treated as bad.  If a return otherwise valid is filed by an assessee before the receipt of a valid notice under s. 34, it has to be treated as a valid return within s.   22(3). [886 F-H; 889 C-D, F] Commissioner  of  Income-tax, Bihar and Orissa  v.  Maharaja Pratap  Singh  Bahadur  of Gidhaur, (1961)  41  I.T.R.  421, distinguished, Commissioner  of  Income-tax,  Bombay  City.  v.  Ranchoddas Karsondas, (1959) 36 I.T.R. 569, referred to. R.   K.  Das  &  Co. v.  Commissioner  of  Income-tax,  West Bengal, (1956) 30 I.T.R. 439, overruled.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1096 of 1963. Appeal  by special leave from the judgment dated January  3, 1961  of the Madras High Court in Case Referred No.  114  of 1956.. L2Sup/65-13                             884 K.   N.  Rajgopala Sastri, R. H. Dhebar and R. N.  Sachthey, for the appellant. S. Swaminathan and R. Gopalakrishnan, for the respondent. The Judgment of the Court was delivered by Sikri J. This is an appeal by special leave directed against the judgment of the Madras High Court answering the question ’whether the reassessment under s. 34 (of the Indian  Income Tax  Act,  1922) completed on 30th June, 1953 for  the  year 1944-45  is valid’ in the negative.  The relevant facts  are as follows The respondent, hereinafter referred to as the assessee is a Hindu  undivided family.  For the assessment  years  1944-45 and  1945-46, the assessee filed no returns under s.  22  of the  Indian Income Tax Act, hereinafter referred to  as  the Act, nor were any notices issued under s. 22(2) of the  Act. On  April  3, 1948, the Income Tax  Officer  issued  notices under S. 34 for both the assessment years.  At that time  it was not necessary to obtain sanction of the Commissioner  of Income  Tax  and none was obtained.  The  assessee  filed  a return for the assessment year 1944-45 on September 4, 1948, showing  an  income  of Rs. 4,053 which was  below  the  HUF taxable  limit  of  Rs. 7,200.  The assessee  also  filed  a return for the assessment year 1945-46.  It appears that the Income  Tax  Officer dropped proceedings for 1944-45  as  in fructuous, but for the assessment year 1945-46, he passed an order  on  October  27, 1950, determining  the  net  taxable income  as  Rs.  1,20,603.  The  assessee  appealed  to  the Appellate  Assistant ,Commissioner and then appealed to  the Appellate  Tribunal.   On November 19, 1952,  the  Appellate Tribunal  allowed the appeal in part. It held that out of  a total profit of Rs. 79,760 arising from the sale of  certain properties, only Rs. 33,000 was assessable in the assessment year 1945-46 and Rs. 46,760 was assessable in the assessment year 1944-45.  The Appellate Tribunal ,observed thus in  the order:               "The Income Tax Officer is at liberty to  take               such  action  as he may be advised  about  the

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             assessee’s  liability  for  the  earlier  year               1944-45." On February 27, 1953, after having obtained the sanction  of the  Commissioner,  the Income Tax Officer issued  a  notice purporting  to be under S. 34 of the Act in respect  of  the assessment year 1944-45.  It is the validity of this  notice that  is now in question.  The Income Tax Officer  paged  an order  on June 30, 1953, assessing the total income  as  Rs. 51,523.  The Appellate Assistant                             885 Commissioner affirmed the order.  He held that the action of the  Income  Tax Officer in starting  proceedings  under  s. 34(1)  (a) was valid.  He further held that in view  of  the finding  of  the  Appellate Tribunal  that  the  Income  Tax Officer  would  be  at  liberty to  take  action  about  the assessee’s  liability  to tax for  1944-45  assessment,  the second proviso to sub-s. (3) of s. 34, as amended by  Amend- ment Act of 1953, was applicable and consequently the  time- limit  specified  in  s. 34 would not  be  applicable.   The Appellate Tribunal, without going into the question  whether s.  34 ( 1 ) (a) could be invoked by the  Revenue,  affirmed the  assessment on the ground that the second proviso to  s. 34(3) of the Act, as amended, applied. At  the  instance of the assessee,  the  Appellate  Tribunal referred  the  question  set out in  the  beginning  of  the judgment.   The High Court, as already stated, answered  the question in the negative.  It held that notwithstanding that the  return filed by the assessee on September 4, 1948,  was the result of an invalid notice, the return itself could not be  ignored  or  disregarded  by  the  Department,  and  the Department cannot issue a further notice under s. 34(1)  (a) of the Act on the assumption that there had been an omission or  failure on the part of the assessee to make a return  of his  income under s. 22. It further held that the  ratio  of the decision of this Court in Commissioner of Income-tax  v. Ranchhodas Karsondas(1) governed the present case. Mr.   Rajagopala  Sastri,  the  learned  counsel   for   the appellant, submits that the return was not voluntary and  as it was made in pursuance of an invalid notice, must also  be treated  as  invalid.  He says that no assessment  could  be made  on  its  basis.   He further says  that  the  case  of Ranchhodas Karsondas(1) is distinguishable. The learned counsel for the assessee raises an objection  to this  new point being urgred at this stage.  He  points  out that  in the statement of the case, filed in this  Court  on behalf of the appellant, one proposition of law is Put thus:               "The  notice  issued  on 3rd  April  1948  and               return filed on 4th September 1948 being valid               the proceedings thus initiated came to an  end               on  27th  October,  1950, and  there  were  no               proceedings pending when the second notice was               issued on 27th February, 1953." This Proposition, he says, admits that the return was valid. On  the  merits he has supported the reasoning of  the  High Court and (1)  [1960 1 S.C.R. 114. 886 added  that in this case assessment could have been made  by the  Income  Tax Officer till March 31, 1949, under  s.  23, treating the return as one made under S. 22. In  our,opinion the appellant is not raising any new  point. It is true that in the above cited proposition the appellant says that the return is valid but this follows the assertion that  the  notice  issued on April 3,  1948  is  valid.   In another  part  of the statement of the  case,  however,  the

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appellant states that "the return was not a voluntary return and,  therefore, could not be regarded as a return on  which valid  assessment could be made, the case was one  where  no return  had been filed and was also one where income  had  I escaped  assessment.   Clause  (a)  of  section  34(1)   was therefore; applicable and the second notice under section 34 was given within, the period allowed by law". The short question which arises in this case is whether the; return  dated  September 4, 1948, can be  treated  as  valid return  under s. 22(3) of the Act.  Section 22(3) is in  the following terms :               "22(3).   If  any person has not  furnished  a               return  within  the time allowed by  or  under               sub-section (1) or sub-section (2), or  having               furnished a return under either of those  sub-               sections,  discovers  any  omission  or  wrong               statement therein, he may furnish a return  or               a  revised return, as the case may be, at  any               time before the assessment is made." Section 22(3) permits an assessee to furnish a return at any time before the assessment is made.  By virtue of S.  34(3), as  it  stood in 1949, assessment could have  been  made  at least  up  to  March  31, 1949, if  the  return  was  valid. Therefore,  it may be implied, as laid down in  S.  Santosha Nadar  v. First Additional Income-Tax Officer,  Tuticorin(1) and Commissioner of Income-Tax Bombay City II v.  Bhagwandas Amersey(1)  that  the return must be filed before  the  time mentioned   in  S.  34(3).   This  condition  is,   however, satisfied in this case.  Mr. Sastri says that it is  further implicit in s. 22(3) that the return must be voluntary.   We are  unable  to appreciate that every return made  under  S. 22(3) must be a voluntary return, in the sense that it  must be suo motu.  If a return is made in pursuance to a  general notice  under s. 22(1), or a special notice under s.  22(2), it  is  a return made voluntary but not suo motu.  It  is  a return  made  in response to a public notice  or  a  special notice.  If no return is made in response to notices (1) (1961) 421 T.R. 715 (2) (1963)50 I.T.R. 239 887 under  s.  22(1),  and s. 22(2), the  Act  attaches  certain penalties. in our view, it is not correct first to  describe a  return made under s. 22(3) in response to a notice  under s.  22(1)  or  s. 22(2) as Voluntary, and then  say  that  a return  made  in  response to a notice under s.  34  is  not voluntary  just  because  it warns the  assessee  that  some income  has escaped assessment.  In our opinion, both  types of returns are under s. 22(3) of the Act.  In the first type of cases it is directly under s. 22(3).  In case of a notice under  s. 34, it is deemed to be notice under s.  22(2)  and the  return deemed to be a return under s. 22(3).  From  the language  of s. 22(3), we are unable to say that the  return dated September 4, 1948, was not a return within s. 22(3). Mr. Sastri however, says that this Court proceeded on a con- trary view in Commissioner of Income-tax Bihar and Orissa V. Maharaja  Pratap Singh Bahadur of Gidhaur(1).  Let  us  then see  what  was decided by this Court.  Shortly  stated,  the facts in that case were that the Maharajah had  agricultural income  and interest received by him on arrears of rent  for the  four assessment years 1944-45 to 1947-48.   The  lncome Tax  authorities  did not include in his  assessable  income interest  received by him on arrears of rent on  the  ground that  it was agricultural income.  This view was held to  be wrong  by the Privy Council.  The Income Tax Officer  issued notices under s. 34 on August 8, 1948, without obtaining the

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approval of the Commissioner.  Section 34 was amended by the Income-Tax  Business  Profits  Tax  (Amendment)  Act,   1948 (XLVIII of 1948).  Assessments were made on the basis of the above  notices dated August 3, 1948.  The question  referred to the High Court was: "Whether in the circumstances of  the case assessment proceedings were validly initiated under  s. 34 of the Indian Income Tax Act".  This Court held that:               "As  the  Amending Act repealed  the  original               section 34 not from the day it was promulgated               but from an earlier date, March 30, 1948,  and               substituted in its place the reenacted section               containing the proviso, and provided that  the               reenacted section shall be deemed to have come               into force with retrospective effect on  March               30, 1948, the application of section 6 of  the               General  Clauses  Act was  excluded.   As  the               notices were, all issued on August 8, 1948, at               a time when on the statute book must be deemed               to  be existing a provision enjoining  a  duty               upon  the  Income Tax Officer  to  record  his               reasons and               (1)   [1961] 2 S.C.R. 760.               888               submit  for the approval of  the  Commissioner               before issuing notice under section 34, unless               that  approval was obtained the notices  could               not  be  issued.  The notices  issued  by  the               Income-Tax Officer without complying with  the               conditions laid down in the proviso to section               34(1)  as  re-enacted were  invalid,  and  the               entire   proceedings  for  reassessment   were               illegal." In  view  of the question referred to the High  Court,  this Court  was  not really concerned with the  validity  of  the returns  made, but Mr. Sastri relies on certain  observation made  by the High Court and this Court.  When the  reference was  before the Patna High Court in Commissioner of  Income- Tax,  Bihar and Orissa v. Maharaja Pratap Singh  Bahadur(1), the  learned  counsel had contended that it  was  physically impossible  for  the Income Tax Officer to comply  with  the requirements  of the amended s. 34 on August 8,  1948.   The High  Court, regarding this contention, observed  that  "the argument  is correct, but the Income Tax Department was  not prejudiced  because  notices under s. 34 could  be  reissued after  the 8th of September, the date of the  Amending  Act, and  after  complying with the requirements of  the  amended section  34".   This  Court, in the appeal  from  the  above decision,  after  holding  that the  notices  were  invalid, observed:               "Indeed,  there  was  time  enough  for  fresh               notices  to have been issued, and we  fail  to               see why the old notices were not recalled  and               fresh ones issued." These  observations certainly show that this  Court  assumed that fresh notices could have been issued in that case.  Mr. Sastri  says that the Department has done exactly  what  the Supreme  Court indicated in that case should be done.   But, apart  from  the  fact that there is no  discussion  on  the question  of the validity of the return, it is  possible  to say that on the facts in that case fresh notices could  have been  issued.   In Maharajah Pratap Singh,  s(2)  case,  the Maharajah had filed returns for four assessment years  1944- 45 to 1947-48 under s. 22, and assessments had been made but the  income  of  the assessee with  regard  to  interest  on arrears of rent was not included.  His returns in  pursuance

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to  a  notice under s. 34 could not be treated as  a  return under s. 22(3) because he had already filed returns and  was not  purporting to revise his previous returns.  But in  the present case the assessee had never filed a return under  s. 22.  The first return he filed was in response to (1) [1956] 30 I.T.R. 484. (2) (1961) 2 S.C.R. 760. notice under s. 34, but he could have filed this return even without a notice under s. 34, for the four years  prescribed by s. 34(3).ad not expired. This  Court  in Commissioner of Income-tax  Bombay  City  v. Ranchhoddas  Karsondas(1) held that a return showing  income below  taxable  limit was a good return and the  Income  Tax Officer  could not choose to ignore the return and  issue  a notice under s. 34, Hidayatullah J., speaking for the Court, observed  that "it is a little difficult to  understand  how the existence of a return can be ignored once it is  filed". But this case is not of much help in Determining whether the return  in this case is a good return within s.22(3) of  the Act. Mr.  Sastri further contends that if the notice under s.  34 is  held to be bad, it must follow that the return  made  in pursuance  of  it  must  also be treated  as  bad.   We  are satisfied  that  there is no substance in  this  contention. The  decision of the Calcutta High Court in R. K. Das &  Co. v.  Commissioner  of  Income-Tax  West  Bengal(1)  certainly supports  Mr. Sastri’s contention but, with respect, we  are unable to agree with the reasoning of the High Court.  Apart from  the  fact  that this Court did  not  approve  of  this decision  in Ranchhoddas Karsondas’s case("), we are  unable to  appreciate that if the Income Tax Officer had based  his assessment on the return treating it to be a return under s. 22(3). the assessment would not stand a moment’s scrutiny. We  think that some confusion has crept into this branch  of the  Income  Tax  Law by the use  of  the  words  ’voluntary return’ and a’ non-voluntary  return’.  Section  22(3)  does not use this expression and whatever the impelling cause  or motive  if a return otherwise valid is filed by an  assessee before  the receipt of a valid notice under s. 34, it is  to be  treated as a return within s. 22(3) for it falls  within the language of the sub-section. In the result we agree with the High Court that the question referred to the High Court must be answered in the negative. Accordingly we dismiss the appeal with costs. Appeal dismissed. (1) [1960] 1 S.C.R. 114. (2) [1956] 30 I. T.R. 439. 890