1961 (9) TMI 95 - HC - Income Tax

Summary

Issues Involved
1. Validity of the notice under Section 34 of the Income-tax Act, 1922.
2. Applicability of Section 34(1)(a) versus Section 34(1A).
3. Timeliness of the notice issued on July 25, 1958.
4. Satisfaction of the Central Board of Revenue.
5. Repeated issuance of notices under Section 34.
6. Disclosure of facts by the petitioner.
7. Legality of the transfer from Ward C to Ward A.
8. Entitlement to the benefit of Section 25(4) of the Income-tax Act.

Issue-wise Detailed Analysis

1. Validity of the Notice under Section 34 of the Income-tax Act, 1922
The petitioners challenged the validity of the notice issued on July 25, 1958, under Section 34 of the Income-tax Act, 1922. The notice was issued on the ground that the firm's income for 1945-46 had escaped assessment or had been under-assessed. The petitioners contended that the notice was barred by time and that the Income-tax Officer did not supply reasons to the Central Board of Revenue for obtaining its satisfaction for issuing such a notice.

2. Applicability of Section 34(1)(a) versus Section 34(1A)
The core issue was whether Section 34(1)(a) or Section 34(1A) applied to the case. Section 34(1)(a) allows notices to be issued at any time for assessments of all years subsequent to March 31, 1941, while Section 34(1A) applies to periods between September 1, 1939, and March 31, 1946, with a limitation that no notice can be issued after March 31, 1956. The court observed that the present case is governed by both provisions. However, the learned counsel for the petitioners argued that Section 34(1A) should prevail over Section 34(1)(a) as it is specific to certain periods.

3. Timeliness of the Notice Issued on July 25, 1958
The petitioners argued that the notice issued in 1958 was barred by time under Section 34(1A), which had a limitation period ending on March 31, 1956. The court noted that if the notice is held to be issued under Section 34(1)(a), it would be within time. However, if it is under Section 34(1A), it would be barred by time. The court referred the question of timeliness to a larger bench for a definitive decision.

4. Satisfaction of the Central Board of Revenue
The petitioners contended that they were entitled to know the reasons given to the Central Board of Revenue for issuing the notice. The court held that the petitioners were not entitled to know these reasons as it was a matter between the Income-tax Officer and the Central Board of Revenue. The court concluded that the necessary satisfaction of the Central Board of Revenue was obtained before issuing the impugned notice.

5. Repeated Issuance of Notices under Section 34
The petitioners argued that it was not open to the Income-tax Officer to issue notices under Section 34 repeatedly. The court held that since the first notice was barred by time, it was no notice in the eye of law. Therefore, the impugned notice could not be considered a second notice but must be held to be the first valid notice.

6. Disclosure of Facts by the Petitioner
The petitioners claimed that they had disclosed all relevant facts at the time of the original assessment, making Section 34(1)(a) inapplicable. The court noted that this was a disputed question that should be decided by the Income-tax Officer during the proceedings under Section 34 if the notice was within time.

7. Legality of the Transfer from Ward C to Ward A
The petitioners argued that the transfer of their case from Ward C to Ward A was illegal as no case was pending before the Income-tax Officer on March 18, 1954. The court held that the transfer was valid under the Explanation to Section 5(7-A) of the Income-tax Act, which considers a case pending even if proceedings under the Act may commence after the date of transfer.

8. Entitlement to the Benefit of Section 25(4) of the Income-tax Act
The petitioners claimed entitlement to the benefit of Section 25(4) of the Income-tax Act, which was denied by the respondents. The court held that it was not proper to decide this matter at this stage and left it to be determined by the Income-tax Officer.

Conclusion
The full bench concluded that the notice issued on July 25, 1958, was barred by time under Section 34(1A) of the Income-tax Act. The case was referred back to a single judge for disposing of the writ petition in accordance with this finding.