1968 (7) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Validity of proceedings under section 35 of the Indian Income-tax Act, 1922, post the enactment of the Income-tax Act, 1961.
2. Whether the rectification order made under section 35 is barred by limitation.

Issue-wise Detailed Analysis:

1. Validity of proceedings under section 35 of the Indian Income-tax Act, 1922, post the enactment of the Income-tax Act, 1961:
This issue was not pressed by the petitioner during the hearing, as it was concluded against him by a decision of the Supreme Court in S. Sangappa v. Income-tax Officer. Therefore, the court did not delve into this matter further.

2. Whether the rectification order made under section 35 is barred by limitation:
The primary contention of the petitioner was that the rectification order dated March 16, 1965, was barred by the four-year limitation period prescribed under section 35(5) of the Indian Income-tax Act, 1922. The petitioner argued that the limitation period should be computed from the date of the order passed by the Commissioner of Income-tax on August 31, 1955, under section 33A of the Act, which would make the rectification order time-barred.

The court, however, found this contention untenable. It emphasized the true nature and effect of the Commissioner's order dated August 31, 1955, which directed the Income-tax Officer to re-examine the accounts and modify the assessment accordingly. This directive effectively nullified the finality of the original assessment order dated November 30, 1954, and necessitated a fresh assessment.

The Income-tax Officer, Bombay, in compliance with the Commissioner's directive, passed a fresh assessment order on January 29, 1963, confirming the original estimate of the firm's income at Rs. 26,00,000 due to the non-cooperative attitude of the assessee-firm. This order was deemed a "final order" for the purposes of section 35(5), as it was not appealed or revised further.

The court concluded that the four-year limitation period should be reckoned from January 29, 1963, the date of the fresh assessment order. Consequently, the rectification order passed on March 16, 1965, was well within the limitation period and was not barred by law.

The court also dismissed the argument that a "consequential order" is not contemplated by section 35(5). It held that the Income-tax Officer was bound to give effect to the Commissioner's order, and the fresh assessment order, despite confirming the original estimate, was indeed a final assessment order as envisaged by section 35(5).

In support of its reasoning, the court referred to the Supreme Court's decision in Bhopal Sugar Industries Ltd. v. Income-tax Officer, Bhopal, which underscored the necessity for subordinate tribunals to comply with the directions of superior tribunals to maintain the hierarchy and administration of justice.

Conclusion:
The court found no merit in the writ petition and dismissed it with costs, affirming the validity and timeliness of the rectification order passed under section 35(5) of the Indian Income-tax Act, 1922.