1. Failure to file return under Section 22(1) — subsequent filing of voluntary return showing non-taxable income — issuance of notice under Section 34(1) — validity of assessment. (Para 2 )
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1959 Supreme(SC) 106
SUPREME COURT OF INDIA
8th May,1959.
S.R. DAS, C.J.I., N.H. BHAGWATI AND M. HIDAYATULLAH, JJ.
Commissioner of Income-tax Bombay City II, Appellant
Versus
Ranchhoddas Karsondas, Bombay, Respondent.
Civil Appeal No. 281 of 1955.
Advocate Appeared
M/s. K.N. Rajagopal Sastri and D. Gupta, Advocates, for Appellant; M/s. B. J. Kolah and Ram Ditta Mal, Advocates, for Respondent.
Advocates:
D.GUTPA, K.N.RAJAGOPAL SASTRI, R.J.KOLAG, RAM DITTA MAL
D.GUTPA, K.N.RAJAGOPAL SASTRI, R.J.KOLAG, RAM DITTA MAL
A return showing income below the taxable limit is a valid return. Its filing precludes the tax authorities from issuing a notice under Section 34(1)(a) on the grounds of omission or failure to file a return, thereby limiting the assessment period to the standard four-year window.
Headnote:(A) Income-tax Act - Sections 22(1), 22(3) and 34 - Validity of return showing income below taxable limit - A return showing income below the taxable limit is a valid return in law and not a mere scrap of paper - A person may legitimately file such a return to be on the safe side, and it represents the income as the assessee considers it to be (Paras 16, 17).
(B) Income-tax Act - Section 34(1) - Notice for escaped assessment - Where a return has been filed, there is no omission or failure on the part of the assessee to make a return - Consequently, a notice under Section 34(1)(a) is invalid, and any assessment based on such a notice is equally invalid (Para 17).
Facts of the case:
For the relevant assessment year, a public notice was issued requiring persons with income above the taxable limit to furnish a return. The assessee did not file a return within the specified time but later submitted a voluntary return showing income below the taxable limit. The tax authorities ignored this return and issued a notice under Section 34, subsequently completing the assessment beyond the standard four-year limitation period but within one year of the service of the Section 34 notice.
Findings of Court:
The court held that the voluntary return showing income below the taxable limit was a valid return. Since a return had been filed, the conditions for issuing a notice under Section 34(1)(a) regarding the omission or failure to file a return were not satisfied.
Issues: Whether a return showing income below the taxable limit constitutes a valid return under the Act and whether the issuance of a notice under Section 34 is permissible after such a return has been filed.
Ratio Decidendi: A return showing income below the taxable limit is legally valid. Once such a return is filed, there is no "omission or failure" to file a return, which precludes the tax authorities from issuing a notice under Section 34(1)(a) to extend the limitation period for assessment. An argument of inconvenience to the department is not a decisive argument against the clear meaning of the law of limitation.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether a return showing income below the taxable limit constitutes a valid return, thereby precluding the issuance of a notice under Section 34(1) for failure to file. (Para 3 , 4 , 5 )
3. A return showing income below the taxable limit is a valid return in law; its filing removes the condition of omission or failure required for Section 34(1)(a). (Para 6 , 9 , 11 , 12 , 13 , 14 , 15 , 16 , 17 )
4. Filing a voluntary return, even if showing non-taxable income, precludes the issuance of a notice under Section 34(1)(a) based on omission or failure to furnish a return. (Para 17 )
5. Appeal dismissed; assessment held invalid as the notice under Section 34(1) was improper. (Para 20 , 21 )
6. Does a return showing income below the taxable limit constitute a valid return under the Income-tax Act?
Yes. A return showing income below the taxable limit is a valid return in law. Even if a person is not required to file one, a return filed to be safe or showing deductions is not a mere scrap of paper but a legal return. (Para 16 , 17 )
7. Does the filing of a voluntary return preclude the issuance of a notice under Section 34(1)(a)?
Yes. If a return is filed, there is no omission or failure on the part of the assessee to make a return under Section 22. Consequently, a notice under Section 34(1)(a) becomes improper and invalid. (Para 9 , 17 )
8. Can a notice under Section 34 be issued after a voluntary return is filed under Section 22(3)?
No. Once a return is filed under Section 22(3), the Income-tax Officer may proceed to assess that return. However, they cannot issue a notice under Section 34(1) on the grounds of failure to file a return. (Para 17 )
Judgement
M. HIDAYATULIAH J. : This appeal on a certificate of fitness granted by the High Court of Judicature at Bombay has been filed by the Commissioner of Income-tax, Bombay against Ranchoddas Karsondas of Bombay (hereinafter referred to, as the assessee) under S. 66A of the Indian Income-tax Act
2. The facts leading up to this appeal are as follows: For the assessment year 1945-46, a public notice under S. 22 (1) of the Income-tax Act (hereinafter called the Act) was issued, requiring every person whose total income during the previous year exceeded the maximum amount which was not chargeable to income-tax to furnish, within such period not being less than sixty days as might be specified in the notice, a return of his income in the prescribed form and verified in the prescribed manner. This notice was published on or about 1-5-1945. The assessee did not make a return of his income. The Income-tax Officer, while examining the books of account of a partnership called the "Assar Syndicate" of which the assessee was a partner, found that in the account year corresponding to the assessment year 1945-l946, there were six cash credits aggregating to Rs. 59,026 in the name of the assessee s wife. Before, however, the Income-tax Officer could take any action, the assessee submitted a "voluntary" return on 5-1-1950 of his income for the accounting year 1944-1945 (assessment year 1945-1946) showing a total net income of Rs. 1,935. He added a footnote to the return to the following effect:
"My wife has sold her old ornaments and deposited the sum of Rs. 59026 in the firm of Assar Syndicate in which I am a partner."
The Income-tax Officer did not act on this return, but on 27-2-1950 he issued a notice purporting to be under S. 34 of the Act calling upon the assessee to submit his return. This notice was served on the assessee on 3-3-1950, and in answer thereto, the assessee submitted a similar return on 14-3-1950 showing the same income and adding the same footnote. The Income-tax Officer then issued and served upon the assesses notices under Ss. 22 (4) and 23 (2) of the Act asking him to produce his books of account and to tender any evidence he cared to lead. It appears from the record that these notices were complied with, but on 26-2-1951 the Income-tax Officer included the sum of Rs. 59,026 in the total income of the assessee and assessed him on it for the assessment year 1945-l946.
3. The assessee appealed, in turn, to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. His contentions were three, viz., that the amount of Rs. 59,026 could not and should not have been included in his income, that the amended S.24 of the Act had no retrospective effect, and that the assessment completed on 26-2-1951 was invalid, inasmuch as it was completed four years after the end of the relevant assessment year. Both the Appellate Assistant Commissioner as well as the Tribunal rejected his contentions, but the Tribunal on being moved by him, raised and referred two questions of law under S. 66 (1) of the Act to the High Court of Judicature, Bombay, for its decision. These questions were:
"(1) Whether the notice issued under S. 34 of the Act by the Income-tax Officer on 27-2-1950 after the assessee had filed a voluntary return was valid in law?
(2) Whether the assessment made on 26-2-1951 is valid in law?
4. This reference was heard by the High Court on 18-3-1954, and by a judgment delivered on the same day, Chagla C. J., and Tendolkar J., answered both the questions in the negative. Before the High Court, it was again contended by the assessee that since he had submitted a return under S. 22 (3) of the Act on 5-1-1950, the assessment, if any, had to be completed before 31-3-1950, as required by S. 34 (3) of the Act. He also contended that he was entitled under S. 22 (3) to make a voluntary" return on the date he did, and with a voluntary return before the Income-tax Officer, there was no scope for the issuance of a notice unde
