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PETITIONER: THE COMMISSIONER OF INCOME-TAX, ANDHRAPRADESH, HYDERABAD

       Vs.

RESPONDENT: K.ADINARAYANA MURTY

DATE OF JUDGMENT: 03/04/1967

BENCH:

ACT: Indian  Income-tax  Act,  1922,  s.34-Notice  of  reassement issued to assessee in status of individual-Return  filed  in status  of  HUF-Appellate  Authority  holding  that  correct status was HUF-Another notice under v. 34  issued-Assessment on  return filed in  response to second  notice-Validity  of assessment.

HEADNOTE: The  respondent had two sons.  Prior to the assessment  year 1954-55 the Income-tax Authorities assessed him as had of  a Hindu  undivided family.  In 1954-55 the Income-tax  Officer held   that  he  was  an  ’individual’  and   assessed   him accordingly.  Thereafter, having obtained sanction from  the Commissioner  he issued to the respondent a notice under  s. 34 of the Income-tax Act 1922 in respect of the year 1949-50 in  the status of an individual.  A return was filed by  the respondent in response to the notice.  However in the appeal relating  to  1954-55 the Appellate  Assistant  Commissioner held thatthe  correct status of the assessee was that of  a Hindu undivided family. The Income-tax Officer then  issued another notice under s. 34 to therespondent in respect  of 1949-50  in the status of a Hindu undivided family.   On  he return filed in response to this second notice the Incometax Officer  made an assessment adding certain "escaped  income" -to that originally assessed for 1949-50.  In reference, the High  Court held that the first of the notices under  s.  34 was  not  invalid in law and consequently the issue  of  the second  notice  was  illegal  and  the  assessment  made  in pursuance  of it was illegal.  The Revenue appealed to  this Court. HELD   :  Under  the  scheme  of  the  Income-tax  Act   the Individual’ and the ’Hindu undivided family’ are treated  as separate units of assessment and if a notice under s. 34  of the  Act is wrongly issued to the assessee in the status  of an  ’individual’  and not in the correct  status  of  ’Hindu undivided family’, the notice is illegal and ultra-vires and without jurisdiction. [391F-G] The  Income-tax Officer was therefore justified in  ignoring the first notice under s. 34 of the Act and the return filed by the assessee in response to that notice and  consequently the  assessment made by the Income-tax Officer  pursuant  to the second notice was a valid assessment. [391H]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 632 of 1966. Appeal  by special leave from the judgment and  Order  dated

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April  14,  1964 of the Andhra Pradesh High  Court  in  case referred No. 46 of 1962. B.Sen, Gopal Singh, S. P. Nayyar and R. N. Sachthey, for the appellant. S.  T.  Desai, B. Parthasarathy, and O. C. Mathur,  for  the respondent. 389 The Judgment of the Court was delivered by Ramaswami, J. This appeal is brought, by special leave, from the judgment of the High Court of Andhra Pradesh dated April 14, 1964 in Referred Case No. 46 of 1962. The  respondent,  hereinafter called the  "assessee"  was  a Hindu  Undivided Family consisting of K. Ankineedu  and  his two sons.  For the assessment year 1949-50 corresponding  to the  previous  financial  year ending March  31,  1949,  the assessee submitted a return in response to a notice sent  to him.   The Income-tax Officer computed his total  income  as Rs.  2,429/- only which was below the taxable limit  and  so the  assessee  was declared not liable  to  pay  income-tax. Subsequent  to  the assessment, the Income-tax  Officer  had information that the assessee had done some business as pro- curement  agent for the Government and in this  business  he had  earned  large  profits which  had  escaped  assessment. Accordingly he issued a notice under s. 34 of the Income-tax Act, 1922 (hereinafter called the ’Act’) on March 22,  1957. In  response  to the notice the assessee made  a  return  on April 30, 1957.  Prior to the issue of the above notice  the Income-tax Officer had taken the view in the assessment made for the year 1954-55 that the correct status of the assessee was  not  ’Hindu  Undivided  Family’  but  his  status   was "individual".  In accordance with this view the notice under s.  34  of the Act was issued to the assessee on  March  22, 1957  in the status of an ’individual’.  As the  proceedings under this notice were continuing, but before the assessment could  be made, the Appellate Assistant Commissioner in  the appeal   for  the  assessment  year  1954-55  accepted   the contention of the assessee and held that the. status of  the assessee  was  that  of  ’Hindu  Undivied  Family’and   not’ individual’.   Thereafter,the  Income-tax Officer  issued  a fresh  notice  under s. 34 on February 12,  1958  which  was served  on  the assessee on the same day.  This  notice  was issued  to  assess the income of the assessee  as  a  ’Hindu Undivided  Family’ from the procurement business  which  had escaped  from the original assessment made on  February  10, 1950.   A return in pursuance of the second notice was  duly filed on February 28, 1958 and the assessment was ultimately made  under  s.  34  of the Act  in  the  status  of  ’Hindu Undivided Family’ on August 16, 1958.  In this assessment, a sum of Rs. 60,000/- was included as the income escaping from the  original assessment.  The assessee preferred an  appeal to  the Appellate Assistant Commissioner and contended  that the  proceedings  under-  s. 34 of the Act  were  not  valid because  no  notice could be issued after the  expiry  of  8 years from the close of the ’previous year’ as distinct from the ’assessment year’.  The Appellate Assistant Commissioner accepted the contention raised by the assessee and held that the proceeding was invalid.  The Income-tax Officer took the matter in appeal before 390 the  Income-tax  Appellate Tribunal and  claimed  that  -the period  of limitation for starting proceedings under  S.  34 was to be counted from the end of the ’assessment year’  and not  from  the  end of the ’previous  year’.   The  Tribunal accepted  his  contention  and overruled  the  view  of  the Appellate   Assistant  Commissioner  on  this  point.    The

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assessee  also  contended  that  the  assessment  proceeding started by the second notice dated February 12, 1958 was bad in  law  as he had already made a return on April  30,  1957 which  was  in  pursuance of the first notice  under  S.  34 issued on March 22, 1957.  It appears from the statement  of the  case  that  the  Income-tax  Officer  was  required  to disclose  the  particular  notice  on  which  he  made   the assessment.  The Income-tax Officer said that the assessment was  based  oil the second notice.  The  Appellate  Tribunal took the view that the return filed by the assessee on April 30,  1957  in response to the first notice was not  a  valid return and the Income-tax Officer was not bound to act  upon it.   Accordingly  the  Appellate  Tribunal  held  that  the assessment  made under the second notice was legally  valid. Since the Appellate Assistant Commissioner did not deal with the merits of the assessment the Appellate Tribunal remanded the appeal to the Appellate Assistant Commissioner for being dealt  with on merits.  At the instance of the assessee  the Appellate  Tribunal  stated case to the High  Court  on  the following question of law:               "Whether,   on   the   facts   and   in    the               circumstances  of the case, the assessment  in               pursuance of the notice issued under s. 34  on               12-2-1958 is a valid assessment The  High Court held that the first notice dated  March  22, 1957  was not invalid in law and consequently the  issue  of the  second notice on February 12, 1958 was illegal and  the assessment  made  in  pursuance  of  that  notice  was  also illegal.   The High Court accordingly answered the  question of law in favour of the assessee. The  question presented for determination in this appeal  is whether it was competent for the Income-tax Officer to issue the  second  notice  dated February 12,  1958  and  continue proceedings thereon ignoring the return already filed by the assessee  in  pursuance of the first notice under  the  same section.  It was pointed out by Mr.S.   T.  Desai on  behalf of the assessee that both the notices under s.34 of the  Act were  in identical terms and were addressed to the  assessee in  his  name  and the issue of the second  notice  made  no difference in its contents to the knowledge of the assessee. It was also contended that the assessee filed his return  in the  status of ’Hindu Undivided Family’ in response  to  the first  notice and the Income-tax Officer ought not  to  have ignored  that return.  We are unable to accept the  argument put  forward  on  behalf of the assessee  as  correct.   The Income-tax  Officer  could not have validly  acted  on.  the return filed by the assessee in the status of ’Hindu Undivi- 391 ded Family and assessment made by the Income-tax Officer on such a return would have been invalid in law because  the notice  under  s.  34  had been  issued  in  the  status  of ’individual’ ’and sanction of the Commissioner for the issue of a notice under s. 34 was also obtained on that basis.  We therefore consider that the Income-tax Officer was  entitled to  ignore  the return filed by the assessee as non  est  in law.  It is not disputed that the Income-tax Officer  issued the first notice under s. 34 of the Act on March 22, 1957 to the  assessee in the status of ’individual’.  The  Appellate Tribunal  has stated in para 3 of the statement of the  case that  the  lncome-tax Officer had taken the  view  that  the correct  status  of  the assessee was  ’individual’  and  in accordance  with that view "a notice under s. 34 was  issued to  the  assessee as above for making an assessment  in  the status of ’individual’ ". As there was some ambiguity in the statement  of  the case on this point, we  referred  to  the

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original  file of the income-tax proceedings  and  satisfied ourselves  that the assertion of fact made in the  statement of  the  case is correct.  It appears that on  February  13, 1957 the Income-tax Officer had applied for the sanction  of the  Commissioner  for  instituting  proceedings  under   s. 34(1)(a)  of  the  Act  against  the  assessee  to  make  an assessment  in the status of an ’individual’ with regard  to the   procurement   agency  business.    Sanction   of   the Commissioner  was  given to the proposal of  the  Income-tax Officer  and thereafter the first notice under s. 34 of  the Act was issued on March 22, 1957.  In this state of facts we are  of  opinion that the proceeding taken under  the  first notice  under s. 34 of the Act was invalid and ultra  vires. The  correct  status  of the assessee  was  that  of  ’Hindu Undivided  Family’  as was held by the  Appellate  Assistant Commissioner  in  the assessment for the  year  1954-55  and since  the  first  notice  under s. 34  was  issued  to  the assessee  as an ’individual’ for making assessment  in  that status, it is manifest that the proceedings taken under that notice  were  illegal and without jurisdiction.   Under  the scheme of the Income-tax Act the ’Individual’ and the ’Hindu Undivided  Family’ are treated as separate units of  assess- ment  and  if  a notice under s. 34 of the  Act  is  wrongly issued to the assessee in the status of an ’individual’  and not  in the correct status of ’Hindu Undivided  Family’  the notice  is  illegal  and all proceedings  taken  under  that notice  are  ultra vires and without jurisdiction.   It  was contended by Mr. S. T. Desai on behalf of the assessee  that the  return  was filed by the assessee in  response  to  the first  notice in the character of ’Hindu Undivided  Family’. But  the submission of the return by the assessee  will  not make  any difference to the character of the proceedings  in pursuance  of  the  first notice which must be  held  to  be illegal and ultra vires for the reasons already stated.   We are therefore of the opinion that the Income-tax Officer was legally justified in ignoring the first notice issued  under s.  34  of the Act and the return filed by the  assessee  in response to that notice and consequently the assessment made by the Income- 392 tax  Officer  in pursuance of the second  notice  issued  on February 12, 1958 was a valid assessment. We accordingly allow this appeal, set aside, the judgment of the  High Court of Andhra Pradesh dated April 14,  1964  and hold  that  the question of law referred to the  High  Court should  be  answered  in the  affirmative  and  against  the assessee.   There  will  be no order as  to  costs  in  this appeal. G.C. Appeal allowed. 393