Back
PATNA HIGH COURT
V.Ramaswami and Sarjoo Prasad JJ.
Firm Jitanram Nirmalram
Versus
Commissioner Of Income Tax
Miscellaneous Judicial Case No. 38 of 1949 ; 39 of 1949 ;
Decided On : FEBRUARY 23, 1951
INCOME TAX - SECTION 34 - VALIDITY OF NOTICE - DISCOVERY OF ESCAPED INCOME - INTERPRETATION OF SECTION 34 - JURISDICTION TO ASSESS TAX - LIABILITY TO PAY TAX - MACHINERY OF ASSESSMENT - WAIVER OF MACHINERY OF TAXATION.
Fact of the Case:
The assessee was assessed under the Excess Profits Tax Act for the chargeable accounting periods corresponding to 1941-12 and 1942-1943. He subsequently filed an application before the Commissioner of Income-tax under Sec.20 of the Excess Profits Tax Act for re-calculation of the amounts. The Commissioner asked for a report from the Income-tax Officer who made recomputation and communicated the result to the applicant on 18th July 1944. The applicant made certain suggestions on 24th July 1944. Three days after the Income-tax Officer issued notice under Sec.34 of the Income-tax Act. The final report was submitted to the Commissioner by the Income-tax Officer on 31st July 1944. On 15th September 1944 the Commissioner passed final order to the effect that there was deficiency of profits and the applicant was not liable to excess profits tax for the years in question. After the receipt, of Section 34 notice the applicant filed the requisite returns and his representative stated that the applicant had no objection to the total income being increased by Rs. 29,842 for 1942-43 and by Rs. 19S82 for 1941-42. The income-tax Officer accordingly made statement on these amounts. Against the order of the Income-tax Officer the applicant preferred appeals to the Appellate Assistant Commissioner but was unsuccessful. The applicant again preferred appeals to the Income-tax Appellate Tribunal but the appeals were dismissed.
Finding of the Court:
The court held that the notice under Sec.34 of the Income-tax Act was valid and the proceeding under Sec.34 of the Income-tax Act was valid. The court also held that the jurisdiction to assess the liability to pay tax cannot on principle depend on the validity of the notice.
Issues: Whether in the circumstances of the case, the proceeding under Sec.34, Income-tax Act, was valid?
Ratio Decidendi: The court held that the phrase "definite information" in Sec.34 cannot be construed in a universal sense; its meaning must depend and must necessarily vary with the circumstances of each case. It is necessary that the information should be more than mere gossip or rumour. But it need not be information of fact nor need it be information of actual escape of tax. So far as the word "discovers" in Sec.34 is concerned it only requires that the Income-tax Officer should have formed an honest and reasonable belief upon material which could reasonably support such belief. In the nature of things, it cannot amount to a conclusion of certainty. Upon the facts stated in this case it is manifest that the notice under Sec.34 has been validly issued.
Final Decision: The court answered the question of law referred by the Income-tax Appellate Tribunal in the affirmative.
Ramaswami, J.
1. This reference is made by the Income-tax Appellate Tribunal under Section 66(2) of the Indian Income-tax Act.
2. The applicant was assessed under the Excess Profits Tax Act in respect of the chargeable accounting periods corresponding to 1941-12 and 1942-1943. He subsequently filed an application before the Commissioner of Income-tax under Sec.20 of the Excess Profits Tax Act for re-calculation of the amounts. The Commissioner asked for a report from the Income-tax Officer who made recomputation and communicated the result to the applicant on 18th July 1944.
The applicant made certain suggestions on 24th July 1944. Three days after the Income-tax Officer issued notice under Sec.34 of the Income-tax Act which is to the following effect: "Whereas in consequence of definite information which has come into my possession I have discovered that your income assessable to income-tax for the year ending 31st March 1943 has (a) escaped assessment, I therefore propose to assess the said income that has escaped assessment. I hereby require you to deliver to me not later than 28-8-44 or within 30 days of the receipt of this notice, a return in the attached form of your total income and total world income assessable for the said year ending 31st March 1943."
The final report was submitted to the Commissioner by the Income-tax Officer on 31st July 1944. On 15th September 1944 the Commissioner passed final order to the effect that there was deficiency of profits and the applicant was not liable to excess profits tax for the years in question. After the receipt, of Section 34 notice the applicant filed the requisite returns and his representative stated that the applicant had no objection to the total income being increased by Rs. 29,842 for 1942-43 and by Rs. 19S82 for 1941-42. The income-tax Officer accordingly made statement on these amounts. Against the order of the Income-tax Officer the applicant preferred appeals to the Appellate Assistant Commissioner but was unsuccessful. The applicant again preferred appeals to the Income-tax Appellate Tribunal but the appeals were dismissed.
3. Pursuant to an order of the High Court under Sec. 68(2) of the Income-tax Act, the Appellate Tribunal has propounded the following question for determination of the High Court: "Whether in the circumstances of the case, the proceeding under Sec.34, income-tax Act, was validly started?"
4. it appeared to us in the course of argument that the question should be reframed as follows so as to bring out the real issue between the parties :
"Whether in the circumstances of the case, the proceeding under Sec.34, Income-tax Act, was valid?"
5. The answer to this question depends upon the construction of Sec.34 of the Indian Income-tax Act, 1922, which enacts:
"If in consequence of definite information which has come into his possession the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under-assessed, or have been assessed at too low a rate, or have been the subject of excessive relief under this Act the Income-tax Officer may, in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year serve on the person liable to pay tax on such income, profits or gains, or in the case of a company, on the principal Officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Sec.22."
6. On behalf of the applicant the argument was addressed that the notice under Sec.34 was not valid since on the date of issue of the notice the final order of the Commissioner of Income-tax with respect to recalculation of the profits of the applicant had not been made. Learned counsel pointed out that it is a neces
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
