TMI Blog1973 (11) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... 1922, was served upon the petitioner, by the Income-tax Officer concerned calling upon the petitioner to file his return of income for the assessment year 1961-62, within the time mentioned in the said notice. However, in spite of the said notice, the petitioner, who is the assessee in question, did not file any return because according to him he had no income which could be subjected to income-tax. Even though the petitioner did not file any return of income as demanded by the notice under section 22(2), no order on best judgment basis was passed by the Income-tax Officer under section 23(4) and no further action appears to have been taken in connection with that notice under section 22(2). On April 1, 1962, the Income-tax Act, 1961, came into force. On March 5, 1966, the Income-tax Officer issued a notice under section 148 of the Income-tax Act, 1961, calling upon the petitioner to file his return as in the notice under section 139(2) of the Act of 1961 and this was on the basis that income of the petitioner for the assessment year 1961-62 had escaped assessment. This notice was served on the petitioner on March 15, 1966. Nothing appears to have been done for nearly two and a ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings having been initiated, income could not be said to have escaped assessment unless a final order of assessment was passed in the pending proceedings. Since in the instant case the proceedings had been initiated by issue of notices under section 22(2) and the final order on such proceeding had not been passed by the time the Income-tax Officer initiated reassessment proceedings by the notice dated March 5, 1966, the Income-tax Officer had no jurisdiction to reopen the assessment under section 147(a) of the Act and, therefore, there was no legal duty on the petitioner to comply with the notice issued in excess of jurisdiction, and hence he allowed the appeal and set aside the order of the Income-tax Officer. Against this order of the Appellate Assistant Commissioner ; two appeals were filed by the revenue before the Income-tax Appellate Tribunal and those appeals were pending when the present special civil application was filed in this court on April 28, 1970. Those two, appeals were decided by the Appellate Tribunal by orders dated April 19, 1971. Both the appeals were dismissed by the Appellate Tribunal and the finding of the Appellate Assistant Commissioner that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order in such pending proceedings there cannot be a reopening of the assessment. In Commissioner of Income-tax v. Ranchhoddas Karsondas the Supreme Court held that where in respect of any year a return has been voluntarily submitted before assessment, the Income-tax Officer cannot choose to ignore the return and any notice of reassessment and consequent assessment under section 34 ignoring the return is invalid. Section 34 of the Act of 1922 was in the same terms as sections 147 and 148 of the Act of 1961 and, therefore, in view of this decision it is obvious that once the proceedings have been initiated either by the assessee filing a voluntary return or by the Income-tax Officer issuing notice under section 22(2), those proceedings cannot be ignored by the Income-tax Officer and any notice for reassessment would be invalid and, consequently, the assessment order in such purported reassessment proceedings would also be invalid. The Supreme Court also there held that a return in answer to the general notice under section 22(1) of the Income-tax Act could, under section 22(3), be filed at any time before assessment and for this there was no limit of time. At page 575 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequent assessment, equally so. Mr. Kaji for the petitioner has very strongly relied on the following paragraph from the judgment of Hidayatullah J. on page 576 of the report : "Before leaving this case, we may refer to two other arguments, which were raised. Mr. Rajagopala Sastri pointed out that an assessee might file the 'voluntary' return on the last day showing income less than the taxable limit, and the department would, in that case, be driven to complete the assessment proceedings within a few hours or lose the right to send a notice under section 34(1). An argument ab inconvenienti is not a decisive argument. The Income-tax Officer could have avoided the result by issuing a notice under section 23(2) and not remaining inactive until the period was about to expire. Further, all laws of limitation lead to some inconvenience and hard cases. The remedy is for the legislature to amend the law suitably. The courts can administer the laws as they find them, and they are seldom required to be astute to defeat the law of limitation. This argument is thus no answer to the clear meaning and implications of the Act. Mr. Kaji pointed out that under the Act of 1922, the period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer issued a notice under section 34 of the Act of 1922 for which he had not obtained the sanction of the Commissioner of Income-tax. Pursuant to that notice the assessee filed a return on September 4, 1948, showing an income of Rs. 4,058, which was below the taxable limit of Rs. 7,200, and proceedings for assessment were dropped as infructuous. Later, in proceedings relating to the assessment year 1945-46, the Appellate Tribunal held that a sum of Rs. 46,760 was assessable in 1944-45, and thereupon the Income-tax Officer issued a notice under section 34 on February 27, 1953, in respect of the assessment year 1944-45, and passed an order on June 30, 1953, assessing the assessee to tax on an income of Rs. 51,523. The question before the Supreme Court was, whether the assessment under section 34 made on June 30, 1953, was valid. The Supreme Court held that the return dated September 4, 1948, submitted pursuant to notice under section 34 issued on April 3, 1948, was invalid, still it was a return within section 22(3) and the Income-tax Officer could not ignore or disregard that return and issue a notice under section 34 on the assumption that there had been an omission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the partition and, thereafter, on March 2, 1957, the Income-tax Officer issued notices under section 34 to the respondent-family for the assessment years 1950-51 to 1952-53 and completed the assessments for those years. On these facts the Supreme Court held that the order of the Income-tax Officer, dated June 18, 1953, was not an order terminating the proceedings, with the result that there was no disposal of the voluntary returns submitted by the respondent-family for the assessment years 1950-51 to 1952-53. Ignoring those returns the Income-tax Officer could not issue notices of reassessment under section 34 and the reassessment proceedings for the three years were, therefore, invalid. Here also the Supreme Court referred to and applied the principles laid down in the decisions in Commissioner of Income-tax v. Ranchhoddas Karsondas, and Estate of Late A. M. K. M. Karuppan Chettiar. In B. R. Bamasi v. Commissioner of Income-tax, a similar problem arose before the Bombay High Court. The decision of the Division Bench was delivered by Mody, Actg. C.J., and at page 244 it has been pointed out that the assessee in that case had filed a voluntary return on March 28, 1952. Nonethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn or by the Income-tax Officer issuing the notice under section 22(2), it is not open to the Income-tax Officer to resort to reassessment proceedings under section 34(1)(a) or under sections 147 and 148 of the Act of 1961 without finalising the assessment in the proceedings initiated earlier either by the action of the assessee or by the action of the Income-tax Officer. The question next arises as to whether the expiry of the period of limitation prescribed by the relevant section of the Act of 1922 or the Act of 1961 would make any difference. Relying on the passage from the decision of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, at page 576, which we have already cited, Mr. Kaji contended that the Income-tax Officer could have avoided the bar of limitation by issuing the notice under section 23(2) and not remaining inactive until the period was about to expire. He also pointed out that an argument ab inconvenienti is not a decisive argument as held by the Supreme Court in that passage and all laws of limitation lead to some inconvenience and hard cases and the Supreme Court had there held that the argument about bar of limitation was no answer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of assessment, but includes all steps taken for the purpose of levying the tax and during the process of taxation. The Supreme Court held that no doubt that was true but the wide denotation of the word "assessment" did not really assist the appellant before the Supreme Court ; it only showed that along with the order of assessment which is an important act in the process of taxation, other acts and steps adopted in the course of taxation are also included in the word ; but it is with this "most critical act in the process of taxation" with which they were concerned in the appeal. Then it was further contended before the Supreme Court on behalf of the assessee that the word "escaped" in "income escaping assessment" according to the Oxford English Dictionary meant "to elude (observations, search, etc.) ; to elude the notice of a person" ; and the contention was that it is only where income has not been returned for assessment that it can be reasonably said that income has escaped assessment. The dictionary meaning of the word did not support this contention according to the Supreme Court. According to the same dictionary, the word "escape" also meant "to get clear away from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this decision of the Supreme Court, under section 34(1)(b). In Commissioner of Income-tax v. Narsee Nagsee Co., the case was again considered by the Supreme Court and the words "escaping income" were interpreted by the Supreme Court. At page 313 of the report, Kapur J., delivering the judgment of the Supreme Court, has observed : "The words 'escaping income' in the Indian Income-tax Act, 1922, were interpreted as being applicable to a case where a person received notice under section 22(2) of the Income-tax Act but the process ended in no assessment as to a case where there was no assessment at all because no notice was issued under section 22(2) of the Income-tax Act ; in other words, it includes cases where the process of assessment did not commence because no notice was given under section 22(2) of the Income-tax Act due to inadvertence, oversight, negligence or any other cause as to cases where such notice proved abortive or ineffective. Both are cases of escaped assessment." In this connection the Supreme Court referred to the case of Commissioner of Income-tax v. Pirojbai N. Contractor, and also to its own earlier decision in Maharaj Kumar Kamal Singh v. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remain undisposed of and the Income-tax Officer would then be precluded by the bar of limitation from making the assessment on the basis of that return. In every case, whenever the Income-tax Officer seeks to invoke the jurisdiction under section 34(1), he must ask himself the question whether it is open to him to bring the income to assessment by exercising his powers under section 23. If he cannot, either because the assessment order under section 23 has been made and is, therefore, final, so far as he is concerned or, although no assessment order has been made, he is precluded from making an assessment because of the bar of limitation, income which was liable to assessment must be said to have escaped assessment. We thus find support for our conclusion in this decision of the Allahabad High Court. In view of these conclusions of ours, it is clear that at least as regards the notice issued on March 18, 1970, which was received by the assessee on March 20, 1970, income for the assessment year 1961-62 had escaped assessment even though it had so escaped assessment because after March 31, 1966, the Income-tax Officer was precluded by the bar of limitation from passing any assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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