TMI Blog1968 (11) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner produced the books of account before respondent No. 2 as required and respondent No. 2 asked the petitioner to explain why there was a difference between the amounts of certain commission paid by Searsole Coal Co. Ltd. to the petitioner as disclosed by that company and the amounts shown in the returns filed by the petitioner. On January 27, 1964, the petitioner received two notices under sections 154/155 of the Income-tax Act, 1961. By these notices the petitioner was informed that in respect of the assessments for the years 1956-57 and 1957-58 there were mistakes apparent from the record within the meaning of sections 154/155 of the said 1961 Act, and rectification of such mistakes would have the effect of increasing the petitioner's liability. The appellant wrote to respondent No. 2 that on principle he had no objection to rectification of the error as in his view the commission amount received from Searsole Coal Co. Ltd. and disallowed in their hands in the income-tax proceedings should not have been completely excluded while computing the taxable income. He, however, added that the same should have been considered for rate purposes. It is under these circumstances tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is filed after the commencement of the 1961 Act otherwise than in pursuance of a notice under section 34 of the repealed Act (1922 Act) by any person for the assessment year ending on March 31, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in the 1922 Act. The provisions contained in section 297(2)(a) and (b) of the Income-tax Act, 1961, indicate that assessment proceedings under the Indian Income-tax Act, 1922, may be continued as if the 1922 Income-tax Act had not been repealed. In the present case, assessment was done under the 1922 Act. It is not disputed that rectification in the present case would also be under the 1922 Act. Counsel for the appellant contended that inasmuch as the rectification would be under the 1922 Act, only a notice under the 1922 Act would clothe the authorities with jurisdiction to rectify under the 1922 Act. Therefore, it was said that the issue of a notice under section 154 of the Income-tax Act, 1961, did not invest the revenue with jurisdiction to rectify under the 1922 Act. The meaning of the word "assessment" in the Indian Income-tax Act of 1922 in the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued in that case under the 1961 Act when the authority of the revenue to rectify the assessment was impeached. The Supreme Court further said in Sankappa's case that section 297 of the 1961 Act permitted the Income-tax Officer to proceed in accordance with the provisions of the Act of 1922, and that he rightly proposed to take action under section 35 of the 1922 Act on the basis of rectification in the assessment of the firm under section 35 of those cases. At this stage reference may also be made to another recent decision of the Supreme Court in the case of Kalawati Devi Harlalka v. Commissioner of Income-tax. In Kalawati Devi's case, assessments were made on February 7, 1961, for the assessment years 1952-53 to 1960-61, under the Income-tax Act of 1922. On January 24, 1963, after the repeal of 1922 Act, the Commissioner issued a notice under section 33B of the Income-tax Act of 1922 for reassessment. It was held that the Commissioner had jurisdiction to issue notices under section 33B of the Act of 1922, in view of section 297(2) of the Act of 1961. These authorities of the Supreme Court indicate that the jurisdiction of the revenue to rectify flows from the operation of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, it will appear that the notice is the foundation of jurisdiction. In other words, a notice under section 34 of the Act of 1922 is a jurisdictional fact. Notice under sections 33B and 35 of the Act of 1922 is spoken of in order to give the assessee an opportunity of knowing what the revenue is going to do. Secondly, in cases falling under section 35 of the Act of 1922, there is the possibility of enhancing assessment or the reduction of the refund because of a mistake apparent from the record and the assessee is to be informed of the intention of the revenue to do so. In National Rayon Corporation v. G. R. Bahmani, on which counsel for the appellant relied, it will appear that the Bombay High Court held that the jurisdiction of the Income-tax Officer to make an order of rectification under section 35 of the Act of 1922 depended upon the existence of a mistake apparent from the record. The jurisdiction to rectify flows from a mistake apparent from the record. This decision does not hold that only a notice under section 35 would confer jurisdiction upon the revenue to rectify. The jurisdiction to rectify flows from the provisions contained in the statute in case of mistake ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er that there was no objection. These three features are important. First, that notice has been given, secondly, that the matter was discussed by the assessee and, thirdly, that the assessee did not take any objection to the proceedings as a result of the notice. In that view of the matter it has now to be considered as to whether the issue of a notice under section 154 of the Act of 1961 will have the effect of nullifying the proceedings. The decisions in S. Sankappa's case also indicates that a notice issued under section 154 of the 1961 Act will not render invalid rectification of the assessment under the 1922 Act. The notice need not be construed so rigidly. Counsel for the appellant relied on the decision of the Supreme Court in S. C. Prashar v. Vasantsen Dwarkadas. A firm, P. L., was assessed for the year 1942-1943. The income of another firm, V. D., for the year 1942-43 was assessed and was included in the income of D, a partner of the firm, P. L., which was assessed. By an order passed on a reference to the High Court the order of the Income-tax Officer that the income of the firm of V. D. which was added to the income of D, a partner of the firm, P. L., was upheld. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the position at law "that the exercise of a power will be referable to a jurisdiction which confers the validity upon it and not to a jurisdiction under which it will be nugatory" The exercise of a power in the present case was under the 1922 Act. Parties including both the revenue and the assessee knew that the action was taken under the Act of 1922. The assessee knew of the intention of the revenue to proceed under the Act of 1922. It, therefore, follows that the failure to give notice under section 35 of the 1922 Act, which the appellant impeached as inherent in the lack of initial jurisdiction of the revenue authorities, is unsound from two points of view. First, the jurisdiction flows from the provisions under the 1922 Act and does-not flow from a notice, and, secondly, the exercise of a power is referable to a jurisdiction which confers authority upon it and not to a jurisdiction which will make it nugatory. The reference to section 154 of the 1961 Act in the notice is a mere irregularity at the worst for the reason that the assessee is given notice of possibility of enhancement and is given reasonable opportunity of being heard. The other contention on behalf of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X
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