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1933 Supreme(SC) 66
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD MACMILLAN, SIR JOHN WALLIS, AND SIR GEORGE LOWNDES.
SIR RAJENDRA NATH MUKERJEE - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondents
On appeal from the High Court at Calcutta.
Decided On : Dec. 7. 1933.
Solicitors for appellants:Theodore Goddard & Co. Solicitor for respondent: Solicitor, India Office.
Income does not "escape assessment" if a return has been filed and proceedings are pending, even if the final assessment order is passed after the tax year. Such assessments are not subject to the time limits prescribed for escaped assessments under Section 34 of the Income-tax Act.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 22, 23, 34 and 66 - Assessment of unregistered firm - Time limit for assessment - Interpretation of "escaped assessment" - Whether an assessment can be made after the expiry of the tax year without following the procedure under Section 34 - If a return of income has been filed and proceedings are pending, the income is not said to have "escaped assessment" even if the final order is passed after the tax year - No express or implied time limit in Section 23 for completing an assessment once initiated.
(B) Section 34 - Scope - Applies only where income has escaped assessment or been assessed at too low a rate - Does not apply where income has been duly returned and is subject to pending proceedings.
Facts of the case:
An unregistered firm's business was purchased by partners of a registered firm as individuals. The income of the unregistered firm was initially aggregated with that of the registered firm for assessment purposes. Following a judicial determination that the two entities must be assessed separately, the assessment for the unregistered firm was finalized after the expiry of the relevant tax year. The appellants contended that any assessment made after the expiry of the tax year is incompetent unless it falls within the specific time-limited provisions of Section 34.
Findings of Court:
The assessment made after the tax year was legal because the income had not "escaped assessment" within the meaning of Section 34, as a return had been filed and proceedings were pending. There is no other time limit prescribed or necessarily implied in the Act that would invalidate the assessment.
Issues: Whether an assessment can be legally completed after the expiry of the tax year without invoking Section 34, and whether income that has been returned but not yet finally assessed is considered to have "escaped assessment."
Ratio Decidendi: The term "escaped assessment" does not encompass income that has been duly returned and is the subject of pending proceedings. Since Section 23 contains no express time limit, and the income did not "escape assessment" in the statutory sense, the assessment was not barred by time, and the notice requirements of Section 34 were not a prerequisite.
Result: Appeal dismissed.
Legal Category Hierarchy
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taxation
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income tax
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assessment
- limitation period
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partnership taxation
- registered and unregistered firms
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assessment
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income tax
Judgement
Appeal (No. 85 of 1932) from a judgment of the High Court (February 14, 1932) upon a case stated and referred under s. 60 of the Indian Income-tax Act, 1922.
The appeal related to assessments to income-tax and super-tax made upon the appellants, an unregistered firm, for the year 1927-8 under the above Act. The appeal raised questions as to the effect of s. 34 of the Act, and the time within which an assessment can be made.
76 Law. Rep. 61 Ind. App. 10 ( 1933- 1934) Rajendra Nath Mukerjee V. Commissioner of Income-Tax
177
The facts of the case, the three questions referred, and the terms of s. 34 appear from the judgment of the Judicial Committee.
The reference was heard by Rankin C.J., Ghose and Buckland JJ. The judgment of the Court, delivered by the learned Chief Justice, answered the first two questions in the affirmative and the third question in the negative, all three answers being adverse to the appellants contentions.
1933. Nov. 6, 7. Latter K.C. and H. C. Marks for the appellants.
Dunne K.C. and R. P. Hills for the respondent.
The respective contentions appear from the judgment.
Reference was made to In re Lachhiram Basantlal (( 1930) I. L. R. 58 C. 909.); Ganesh Das v. Commissioner of Income-tax (( 1927) I. L. R. 8 Lab. 354.); Commissioner of Income-tax v. Raja of Parlakimedi (( 1929) I. L. R. 49 M. 22.) ; Pickford v. Quicke (( 1927) 13 Tax Cas. 251.) ; Att.-Gen.
v. Aramayo (( 1925) 9 Tax Cas. 446.); and Commissioner of Income-tax v. Bombay Trust Corporation, Ld. (( 1929) L. R. 57 I. A. 49.)
Dec. 7. The judgment of their Lordships was delivered by
LORD MACMILLAN. On November 8, 1930, the income-tax officer for District V., Calcutta, made an assessment order on Burn & Co., an unregistered firm carrying on business in Calcutta, assessing them to income-tax and super-tax for the year 1927-28, under s. 23, sub-s. 1, of the Indian Income-tax Act, 1922. The main question in the present appeal, in which the individual partners of Burn & Co. are the appellants, is whether it was competent to make this assessment on the firm after the expiry on March 31, 1928, of the year in respect of which the assessment was made.
The explanation of the delay in making the assessment is as follows. It appears that towards the end of the year 1926-27 the partners of the registered firm of Martin & Co., which also carried on business in Calcutta, purchased the business and assets of Burn & Co. The purchase was effected not by or on behalf of the firm of Martin & Co., but by the partners of that firm as individuals who contributed funds for the purpose proportionally to their shares in Martin & Co. and became partners in Burn & Co. with the same shares therein as they held in Martin & Co. In the year 1927-28 Martin & Co. was a registered firm while Burn & Co. was unregistered. Under the Income-tax Act registered and unregistered firms are differently taxed in various important respects.
On April 7, 1927, the income-tax officer of District I. issued a notice to Burn & Co. under s. 22, sub-s. 2, calling for a return of their total income for the year to March 31, 1927, with a view to assessing them for the year 1927-28. A similar notice was issued to Martin & Co. on April 8, 1927, by the income-tax officer of District II. When they issued these separate notices the income-tax officers were unaware that the business of Burn & Co. had been bought by the partners of Martin & Co. On September 24, 1927, Martin & Co. made a return of their total income in compliance with the notice issued to them in April, and on January 13, 1928, Burn & Co. made their return. Meantime the purchase of the business of Burn & Co. by the partners of Martin & Co. having come to the knowledge of the income-tax authorities, Burn & Co.s file was transferred to the officer dealing with District II., and on February 25, 1928, he made an assessment on Martin & Co. in respect of the combined incomes returned by Martin & Co. and Burn & Co. on the footing that the b
