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 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
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
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
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
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