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PETITIONER: ESTHURI ASWATHIAH

       Vs.

RESPONDENT: THE INCOME-TAX OFFICER, MYSORE STATE

DATE OF JUDGMENT: 05/12/1960

BENCH: SHAH, J.C. BENCH: SHAH, J.C. KAPUR, J.L. HIDAYATULLAH, M.

CITATION:  1961 AIR 1149            1961 SCR  (2) 911  CITATOR INFO :  RF         1967 SC 916  (8)

ACT: Income Tax--Reassessment--Notice issued by Income--tax Offi- cer--if  without jurisdiction--Indian Income-tax  Act,  1922 (11 of 1922), ss. 34(1)(a), 23(1), 22(3)--Finance Act,  1950 (XXV of 1950), S.   13(1)--Part--B     States      (Taxation Concessions) Order, 1950, cl. 5(1).

HEADNOTE: The  appellants,  a  Hindu  undivided  family,  carrying  on business in the former State of Mysore, were assessed  under the Mysore Income-tax Act for the year of assessment 1949-50 corresponding  to the year of account July 1, 1948, to  June 30, 1949.  The Indian Income-tax Act came into force in that area  in  April 1, 1950, and on December  26,  1950,  notice under s. 22(2) of that Act was served upon the appellants to submit  their  return for the assessment year  1950-51.   On September  8,  1952, the appellants submitted  their  return stating  that they had no assessable income for  that  year. The  Income Tax Officer passed on that return an order,  "no proceeding", and closed the assessment.  When the appellants submitted  their return for the next assessment year,  their books of account disclosed an opening cash credit balance of Rs.  1,87,000  and  odd on July 1.  1949.   They  failed  to produce the books of account of the previous years, and  the Income-tax  Officer held that Rs. 1,37,000 out of  the  said opening  balance  represented  income  from  an  undisclosed source.   The  appellants submitted a fresh return  for  the assessment  year 1950-51 purporting to do so under s.  22(3) of  the Indian Incometax Act.  Pursuant to the direction  of the Appellate Assistant Commissioner, the Income Tax Officer on October 15, 1957, served on the appellants a notice under s. 34 of the Act and thereupon the appellants moved the High Court  under Art. 226 for an order quashing the said  notice and the proceeding as without jurisdiction.  The High  Court dismissed the petition. Held,  that it was not correct to say that the issue of  the notice  for  reassessment was without  jurisdiction  as  the assessment was yet pending. Under  S. 23(1) of the Indian Income-tax Act, it is open  to

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the Income-tax Officer, if he is satisfied as to correctness of  the return filed by the assessee, to assess  the  income and  determine  the sum payable on the basis of  the  return without  requiring the assessee either to be present  or  to Produce evidence.  The order ’no proceeding recorded on the. return must, therefore, mean that the Income Tax Officer bad accepted the previous return and assessed the income as nil. A revised return under s. 22(3) filed by the assessee may be 912 entertained  only  before the order of  assessment  and  not thereafter.   Lodging of such a return after the  assessment is no bar  to reassessment under s. 34(1) of the Act. It could not be said, having regard to the provisions of  s. 13(1) of the Finance Act (XXV of 1950) and cl. 5(1) of Part. B  States (Taxation Concessions) Order 1950, issued  by  the Central  Government  under s. 60A of the  Indian  Income-tax Act,  that  for the assessment year 1950-51  the  appellants were  assessable  under the Mysore Income-tax  Act  and  not under the Indian Income-tax Act.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 200 of 1960. Appeal  from  the Judgment and Order dated the  19th  March, 1959, of the Mysore High Court, Bangalore, in Writ  Petition No. 263 of 1957. K.Srinivasan and R. Gopalakrishnan, for the appellant. A. N. Kirpal and D. Gupta, for the respondent. 1960.   December 5. The Judgment of the Court was  delivered by SHAH, J.-This appeal with certificate of fitness granted  by the  High  Court of Judicature of Mysore is  from  an  order rejecting the petition of the appellant for a writ to  quash a notice of reassessment under s.  34  of the Indian  Income Tax Act. The  appellants  are a Hindu Undivided  Family  carrying  on business in groundnuts and other commodities at  Goribidnur, Kolar  District, in the territory which formed part  of  the former  State  of  Mysore.  The Mysore Income  Tax  Act  was repealed  and  the Indian’ Income Tax Act was  brought  into force  in the Part-B State of Mysore as from April 1,  1950. The appellants had adopted as their year of; account July  1 to  June  30 of the succeeding year and they  were  assessed under the Mysore Income Tax Act on that footing for the year of  assessment 1949-50 corresponding to the year of  account July 1, 1948,to June 30, 1949.  After the Indian Income  Tax Act was applied to the State of Mysore on December 26, 1950, notice  under  s.  22(2) of the Indian Income  Tax  Act  was served upon the appellants requiring them to submit their 913 return  of  income  for the  assessment  year  1950-51.   On September  8,  1952, the appellants submitted  their  return stating   that   for  the  year  ending   June   30,   1949, corresponding  to  the assessment year  1949-50,  they  were assessed under the Mysore Income Tax Act, that their  income for the year ending June 30, 1950, was assessable under  the Indian  Income  Tax Act in the assessment year  1951-52  and that  they had no assessable income for the assessment  year 1950-51.   The Income Tax Officer passed on that  return  an order  "no proceeding" and closed the assessment.   For  the assessment  year  1951-52, the  appellants  submitted  their return  of income.  In the books of account produced by  the appellants  an opening cash credit balance of  Rs.  1,87,000 odd on July 1, 1949, was disclosed.  The Income Tax  Officer

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called upon the appellants to produce their books of account of  previous years, but the books were not produced  on  the plea  that the same were lost.  In assessing the  income  of the  appellants for the year of account 1949-50, the  Income Tax  Officer  held  that Rs. 1,37,000  out  of  the  opening balance  in  the  books  of  account  dated  July  1,  1949, represented  income from an undisclosed source.  In  appeal, the  Appellate  Assistant  Commissioner  observed  that  the appellants not having exercised their option under s.  2(ii) of  the  Indian Income Tax Act, and in the absence  "of  any system of accounting adopted" by them, the only course  open to  the  Income Tax Officer was to take the  financial  year ending  March 31, 1950, as the previous year for the  income from  an  undisclosed source, and directed  the  Income  Tax Officer  to consider this credit in the assessment  for  the year  1950-51 after giving opportunity to the appellants  to explain  the nature and source thereof.  Before  the  appeal was disposed of by the Appellate Assistant Commissioner, the appellants  had submitted a fresh return for the  assessment year 195051 purporting to do so under s. 22(3) of the Indian Income Tax Act.  Pursuant to the direction of the  Appellate Assistant  Commissioner,  the Income Tax  Officer  issued  a notice of reassessment under s. 34 of the Income Tax Act and served it on October 15, 1957, 914 calling  upon the appellants to submit a fresh return.   The appellants thereupon submitted a petition under Art. 226  of the Constitution to the High Court of Mysore praying for  an order  declaring  that the notice under s.  34  was  without jurisdiction  and  for quashing the  notice  and  proceeding consequent thereon.  This petition was dismissed by the High Court,  but  the  High  Court, on  the  application  of  the appellants,  certified  that the appeal was a  fit  one  for appeal to this court. Section  34(1) of the Indian Income Tax Act at the  relevant time in so far as it is material provided: "(1) If- (a)..the  Income Tax Officer has reason to believe  that  by reason  of  the  omission  or failure on  the  part  of  the assessee to make a return of his income under s. 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 incometax have escaped assessment for that year, or (b)..notwithstanding  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  el. (a) at any time within eight years and in cases falling  cl. (b) within four years of the end of that year, serve on  the assessee a notice containing all or any of the  requirements which may be included in a notice under sub-s. (2) of s.  22 and  may proceed to assess or reassess such income,  profits or  gains; and the provisions of this Act shall, so  far  as may  be,  apply accordingly as if the notice were  a  notice issued under that sub-section." In the course of the assessment proceedings for 1951-52, the appellants  produced  their books of account  containing  an entry dated July 1, 1949, showing an opening cash balance of Rs.  1,87,000  odd which was not  satisfactorily  explained. Though  called  upon, they did not produce  their  books  of account for the earlier year.  The appellants had failed  to disclose in their return for the assessment year 1950-51 any

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915 income.   In the circumstances, the Income Tax  Officer  had reason  to believe that by reason of failure on the part  of the  appellants  to disclose fully and truly  all’  material facts  necessary  for  assessment  for  that  year,   income chargeable  to tax had escaped assessment.  The  Income  Tax Officer  had therefore jurisdiction to issue the notice  for reassessment. The  submission  that  the  previous  return  submitted   on September 8, 1952, "had not been disposed of" and until  the assessment pursuant to that return was made, no notice under s.  34(1)  for  reassessment could be  issued,  has  in  our judgment no substance.  The Income Tax Officer had  disposed of  the assessment proceeding accepting the submission  made by the appellants that they had no income for the assessment year 1950-51.  Under s. 23(1) of the Indian Income Tax  Act, it  is  open to the Income Tax Officer, if he  is  satisfied that the return made by an assessee under s. 22 is  correct, to assess the income and to determine the sum payable by the assessee  on the basis of the return without  requiring  the presence  of  the  assessee  or production  by  him  of  any evidence.    The  appellants  had  in  their  return   dated September  8,  1952, submitted that they had  no  assessable income  for  the year in question and on  this  return,  the Income  Tax Officer had passed the order  "no,  proceeding". Such  an order in the circumstances of the case  meant  that the Income Tax Officer accepted the return and assessed  the income as "nil".  If thereafter, the Income Tax Officer  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 to issue  a  notice  for reassessment. Under  s. 22, sub-s. (3), an assessee may submit  a  revised return if after he has furnished the return under sub-s. (2) he  discovers any omission or wrong statement therein.   But such a revised return can only be filed "at any time  before the  assessment  is made" and not  thereafter.   The  return dated February 26, 1957, was submitted after the  assessment was made pursuant to the earlier return and it could not  be entertained.  Nor could the lodging of such a return 916 debar  the Income Tax Officer from commencing  a  proceeding for reassessment of the appellant under s.   34(1)  of   the Indian Income Tax Act. There  is also no substance in the contention that  for  the assessment year 1950-51 the assessee could be assessed under the  Mysore Income Tax Act and not under the  Indian  Income Tax Act.  By the Finance Act XXV of 1950 s. 13, cl. (1),  it was provided in so far as it is material that: "If immediately before the 1st day of April, 1950, there  is in  force  in  any Part-B State...... any  law  relating  to income-tax or super-tax or tax on profits of business,  that law  shall cease to have effect except for the  purposes  of the levy, assessment and collection of income-tax and super- tax  in respect of any period not included in  the  previous year for the purposes of assessment under the Indian  Income Tax Act, 1922 (XI of 1922), for the year ending on the  31st day of March, 1951, or for any subsequent year." By  virtue of s. 13(1), the Mysore Income Tax Act ceased  to be  in  operation  as from April 1,  1950,  except  for  the purposes  of levy, assessment and collection  of  income-tax and  super  tax  in  respect of any  period  which  was  not included in the previous year for the purposes of assessment under  the  Indian Income Tax Act for  the  assessment  year 1950-51.   The appellants had been assessed for  the  period

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July 1, 1948, to June 30, 1949, under the Mysore Income  Tax Act.  It is manifest that for any account year which was the previous year in relation to the assessment year 195051, the appellants  were  liable  to be assessed  under  the  Indian Income Tax Act and not under the repealed Act.  The year  of account  July  1, 1949, to June 30, 1950, was not  a  period prior  to such previous year and therefore liability to  pay tax  in respect of that period could be assessed  not  under the  Mysore Income Tax Act, but under the Indian Income  Tax Act.   It was urged that this interpretation of s.  13  may, when the account year of an assessee does not coincide  with the financial year lead to double taxation of the income for the account year ending between April 1, 1949, 917 and  March 31, 1950.  But in order to avoid the  contingency envisaged by the appellants, the Central Government has,  in exercise of its power under s. 60A of the Indian Income  Tax Act, issued the Part-B States (Taxation Concessions)  Order, 1950, which by cl. 5(1) provides amongst other things,  that 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 (Indian Income Tax Act, 1922) for  the  year ending on the 31st March, 1951, if and only if such  income, profits  and gains have not, before the appointed day,  been assessed  under  the  State  law.  If,  in  respect  of  the previous year for the purposes of the assessment year ending 31st  March, 1951, the appellants had been assessed  by  any State Government under a law relating to income-tax in force in the State, the Indian Income Tax authorities would be in- competent to assess income for that year; but in default  of such  assessment income of the appellants for that year  was assessable under the Indian Income Tax Act. The notice under s. 34 was also not issued after the  expiry of  the  period prescribed in that behalf.  The  notice  was issued  by the Income Tax Officer because he had  reason  to believe  that  by  reason  of failure on  the  part  of  the appellants  to disclose fully and truly all  material  facts necessary  for  the  assessment for the  the  year  1950-51, income   had  escaped  assessment.   Such  a   notice   fell manifestly  within  s. 34(1)(a) and could be  issued  within eight  years, from the end of the year of  assessment.   The impugned  notice under s. 34 for reassessment of the  income of the appellants for the year 1950-51 was, in our judgment, properly  issued and the High Court was right in  dismissing the petition for a writ to quash the notice. The appeal fails and is dismissed with costs. 116 918