1962 (10) TMI 77 - HC - Income Tax

Summary

Issues Involved:
1. Validity of proceedings under section 34 for the assessment years 1944-45, 1945-46, 1946-47, and 1947-48.
2. Validity of reassessment under section 34 and alteration of the share income of the assessee in his personal assessment for the years 1944-45, 1945-46, 1946-47, and 1947-48 without a reassessment of the firm in the first instance.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 34:
The primary question was whether the reassessment proceedings for the years 1944-45 to 1947-48 fell within the scope of section 34(1)(a) of the Indian Income-tax Act. Section 34(1)(a) allows reassessment if there is an omission or failure by the assessee to disclose fully and truly all material facts necessary for his assessment. The court noted that for the proceedings to be valid under section 34(1)(a), there must be a deliberate and wilful suppression of material facts by the assessee.

The court referred to the Supreme Court's interpretation in Calcutta Discount Co. Ltd. v. Commissioner of Income-tax, which clarified that the duty of the assessee is to disclose all primary relevant facts. The court found that the assessee had disclosed his half share in the firm and had invited the assessing officer to ascertain the correct share income. The court concluded that the assessee had done all that was necessary and there was no evidence of non-disclosure of material facts. Therefore, the proceedings under section 34(1)(a) were not valid.

2. Validity of Reassessment and Alteration of Share Income:
Since the first question was answered in favor of the assessee, it was unnecessary to address the second question. However, the court noted that both the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal had erroneously justified the reassessment under section 35(5) of the Act. Section 35(5) allows for rectification of a mistake apparent from the record within four years from the date of the final order passed in the case of the firm.

The court cited the Supreme Court's decisions in Lakshminarayana Chetty v. First Additional Income-tax Officer, Nellore, and Income-tax Officer v. S.K. Habibullah, which clarified that section 35(5) cannot be applied retrospectively to assessments made prior to April 1, 1952. Since the individual assessments of the assessee were made in 1948-49, section 35(5) could not be invoked.

Conclusion:
The court concluded that the reassessment proceedings under section 34(1)(a) were not valid due to the absence of non-disclosure of material facts by the assessee. Consequently, the reassessment and alteration of the share income of the assessee without a reassessment of the firm were also invalid. The assessee was entitled to costs from the department, with counsel's fee set at Rs. 250.