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HIGH COURT OF CALCUTTA
Sinha
SUSHIL CHANDRA GHOSE - Appellant
Versus
INCOME-TAX OFFICER, DISTRICT V. - Respondent
Matter 190 Of 1956
Decided On : JULY 29, 1957
INCOME TAX - Assessment - Reassessment - Accounting year - Option to declare - Undisclosed income - Assessment year - Section 2 (11) of the Income-tax Act - Section 34 (1) (a) and (3) of the Income-tax Act - Section 23 (3) of the Income-tax Act - Section 29 of the Income-tax Act - Section 46 (5-A) of the Income-tax Act - Section 35 of the Income-tax Act - Section 45 of the Income-tax Act.
Fact of the Case:
The petitioner, a director and shareholder of Amalgamated Jambad Syndicate Ltd., received a sum of Rs. 60,395/- on 28th February, 1945, which was distributed among the shareholders as pre-incorporation assets. The petitioner did not disclose this income in his income-tax return. The Income-tax Officer, upon receiving information about the undisclosed income, initiated reassessment proceedings under Section 34 (1) (a) of the Income-tax Act. The petitioner challenged the reassessment on various grounds, including the validity of the assessment order, the timeliness of the notice of demand, and the legality of the amendment made to the assessment order.
Finding of the Court:
The court held that the undisclosed income was not covered by the petitioner's option to declare a special accounting year under Section 2 (11) of the Income-tax Act. The court also held that the reassessment was not barred by limitation as it was initiated within the eight-year time limit prescribed under Section 34 (1) (a) and (3) of the Income-tax Act. The court further held that the assessment order was valid as it was signed by the Income-tax Officer and the computation was attached to the order in the prescribed form. The court also held that the Income-tax Officer had the power to amend the assessment order under Section 35 of the Income-tax Act, even though the amendment was made after the issuance of the Rule under Section 35. The court dismissed the petitioner's applications for stay of recovery proceedings, holding that the authorities had the discretion to grant or refuse stay and that the petitioner had not shown any improper exercise of discretion.
Issues: 1. Whether the undisclosed income was covered by the petitioner's option to declare a special accounting year under Section 2 (11) of the Income-tax Act? 2. Whether the reassessment was barred by limitation? 3. Whether the assessment order was valid? 4. Whether the Income-tax Officer had the power to amend the assessment order under Section 35 of the Income-tax Act? 5. Whether the authorities were obligated to grant a stay of recovery proceedings upon the filing of an appeal?
Ratio Decidendi: 1. The undisclosed income was not covered by the petitioner's option to declare a special accounting year under Section 2 (11) of the Income-tax Act because it was not disclosed in the petitioner's income-tax return and was not attributable to any specific source of income in respect of which the petitioner had exercised his option. 2. The reassessment was not barred by limitation as it was initiated within the eight-year time limit prescribed under Section 34 (1) (a) and (3) of the Income-tax Act. 3. The assessment order was valid as it was signed by the Income-tax Officer and the computation was attached to the order in the prescribed form. 4. The Income-tax Officer had the power to amend the assessment order under Section 35 of the Income-tax Act, even though the amendment was made after the issuance of the Rule under Section 35. 5. The authorities were not obligated to grant a stay of recovery proceedings upon the filing of an appeal, but they had the discretion to do so. The petitioner had not shown any improper exercise of discretion in this case.
Final Decision: The court discharged the Rules and dismissed the applications. The petitioner was ordered to pay the costs of the respondents with regard to the two applications for contempt. There was no order as to costs with regard to the three Rules.
( 1 ) THESE are three applications arising from a common set of facts. There are also two contempt applications arising therefrom. They have been heard together and it will be convenient to dispose of all the five applications by one judgment.
( 2 ) THE facts in these cases are briefly as follows: the petitioner's assessment for the year 1945-46 was completed on 18tn August, 1945. With regard to the assessment which had been made, he has paid the amount which I am told is Rs. 10,107-7-0. Under Section 2 (11) of the Income-tax Act (hereinafter called the 'act'), the words "previous year" have been defined. The relevant part of the definition is as follows : '' (11 ). 'previous year' means. (i) in respect of any separate source of income, proats and gains, (a) the twelve months ending on 31st day of March next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a dute within the said twelve months in respect of an order ending on any date other than the said 31st day of March, then, at the option of the assessee, the year ending on the date to which his accounts have been made up. "
( 3 ) IN respect of the assessment concluded as aforesaid, the petitioner had exercised his option and declared his accounting year as beginning from 1st May of every year and ending on 30th April next year. According to this, the assessment year 1945-46 would correspond to the accounting year of the assessee from May 1, 1943 to April 30, 1944.
( 4 ) THE petitioner was a director and shareholder of the Amalgamated Jambad Syndicate Ltd. On 28th February, 1945 it was resolved that a sum of Rs. 60,395/- was available in the shape of pre-incorporation assets purchased by the company, against which there was no liability. This amount was distributed among the shareholders including the petitioner, at the rate of Rs. 230/- per share. According to the petitioner, this is neither dividend nor income but capital assets, and he did not disclose it in his income-tax return. On or about 12th March, 1954 Mr. S. N. Sen, the then Income-tax Officer, recommended to the Commissioner of Income-tax that proceedings should be started against the petitioner under Section 34 of the Income-tax Act, because the above income had escaped assessment and was not disclosed by the assessee. The Income-tax Commissioner granted permission. On or about 24th March, 1954 notice was issued under Section 34 upon the petitioner, stating that he had been under-assessed for the year ending 31st March, 1946 and directing him to file a return of total income for the year ending 31st March, 1946. The petitioner thereupon filed a return but contended that the amount above mentioned was not income or dividend and was not liable to payment of income-tax. On 31st January. 1955 the said Mr. S. N. Sen made an assessment order whereby the total income of the petitioner was reassessed at a sum of Rs. 70. 818/ -. A copy of the assessment order is Annexure 'e' to the petition (in Matter No. 79 ). and it will be necessary to refer to it for the purposes of deciding one of the issues raised in this application. On 15th of February, 1956 a notice of demand was issued under Section 29 of the Act, for the sum of Rs. 11,274-7-0. The petitioner applied before the Income-tax Officer lor stay, or to be more accurate, for not being treated as a defaulter, pending the appeal which he preferred shortly atterwards. This application was rejected. It is said that thereafter he made anotner application before the Inspecting Assistant Commissioner of Income-tax, Range IV, Calcutta for stay, and this was also refused. On or about 17th of -April, 1956 the Income-tax Officer issued notices under Section 46 (5-A) of the Act, demanding Rs. 20,608-6-0 from three alleged debtors of the assessee. On or about 10th ot May, 1956 this Rule was issued but was confined to three grounds as set out in paragraph 18 of the petition, in sub-paragraphs (b), (d) a
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