Assessment proceedings under the Income Tax Act cannot be initiated until previously filed returns are disposed of by a final order.

1The question that calls for consideration is: whether on the facts and in the circumstances of the case, the assessment made by the Income Tax Officer for Assessment Year 1962-63 under S.143(3) read with S.147 of the Income Tax Act, 1961 is valid in law.

2 The case concerns the H.E.H. the Nizam's Second Supplemental Family Trust. The trustees of the Trust filed income tax return for Assessment Year 1962-63 on behalf of the beneficiaries on 2-4-1964. Along with the return they filed an application under S.237 of the Income Tax Act, 1961 (for short "the Act") for refund of tax of Rs 20,050.52 deducted at source on interest on government securities and dividends. S.237 of the Act provides for refund and it is as under:
"237. If any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess."
Under R.41 of the Income Tax Rules, 1962 (for short "the Rules") a claim for refund is to be made in Form 30. This Rule is as under:
"41. (1) A claim for refund under Chap.19 shall be made in Form 30.
(2) The claim under sub-r.(1) shall be accompanied by a return in the form prescribed under S.139 unless the claimant has already made such a return to the Assessing Officer.
(3) Where any part of the total income of a person making a claim for refund of tax consists of dividends or any other income from which tax has been deducted under the provisions of S.192 to 194, S.194A and S.195, the claim shall be accompanied by the certificates prescribed under S.203.
(4) The claim under sub-r.(1) may be presented by the claimant in
person or through a duly authorised agent or may be sent by post." The claim for refund is to be accompanied by return of income in the form prescribed under S.139 of the Act unless the claimant has already made such a return to the Income Tax Officer.

3 Since there was no response from the Income Tax Officer the trustees reminded him on 17-6-1964 for disposal of the refund application. The Income Tax Officer gave a reply on 22-7-1964 stating that the refund could not be granted to the trustees unless the references on the same question for the preceding assessment years filed by the trustees were disposed of by the High Court. A reminder was again sent by the trustees on 23-9-1966 to the Income Tax Officer for grant of refund but again no reply was given by the Income Tax Officer. Thereafter a notice under S.148 of the Act was received by the trustees from the Income Tax Officer requiring them to file return for Assessment Year 1962-63. Return was filed on 3-7-1970 declaring an income of Rs 6,26,200 as long term capital gain. It would appear that on the same day the return was accepted on the income returned by the trustees. The trustees thereafter raised an objection by writing to the Income Tax Officer on 3-7-1970, after they had received the assessment order, that the return filed by them on 2-4-1964 along with refund application was still pending and, therefore, the proceedings initiated under S.147 of the Act were invalid. They also claimed that the assessment made pursuant to the notice under S.148 was equally invalid. To this the Income Tax Officer sent his reply on 16-7-1970 stating that the return filed on 2-4-1964 was disposed of on 10-11-1965 by a note recorded by the Income Tax Officer in his file. This note was recorded on 10-11-1965 in the file pertaining to Assessment Year 1963-64 and was to the following effect:
"In view of the Supreme Court judgment in the case of H.E.H. Nizam, the question of giving credit for tax deducted at source can be considered in the hands of the beneficiaries. Hence, no credit for the tax deducted at source is to be allowed here. The question of refunding the additional surcharge will have to be considered."

4 Against the order of reassessment dated 3-7-1970 t