1966 (4) TMI 73 - HC - Income Tax

Court upholds Income-tax Officer's power under section 34(1)(a) despite changes, deems fixed deposits as business income.

DAULATRAM RAWATMULL Versus COMMISSIONER OF INCOME-TAX, CALCUTTA.

The court upheld the Income-tax Officer's authority to reopen the assessment under section 34(1)(a) despite the introduction of section 34(1A), ... - Issues Involved:1. Authority of the Income-tax Officer to reopen the assessment under section 34(1)(a) after the introduction of section 34(1A).2. Assessability of fixed deposits for the assessment year 1946-47.Issue-wise Detailed Analysis:1. Authority of the Income-tax Officer to Reopen the Assessment under Section 34(1)(a):The first question pertains to whether the Income-tax Officer was justified in reopening the assessment under section 34(1)(a) after the introduction of section 34(1A). The assessee argued that the initiation of proceedings for reassessment should have been made under section 34(1A) and not under section 34(1)(a), rendering the entire proceedings void and inoperative in law. The court analyzed legislative changes, including the introduction of sub-sections (1A), (1B), (1C), and (1D) in section 34 by the Income-tax (Amendment) Act, 1954.The Supreme Court's decision in K.S. Rashid & Son v. Income-tax Officer was referenced, which upheld the validity of section 34(1A) and did not find it in contravention of Article 14 of the Constitution. The court noted that section 34(1A) was intended to deal with cases where income had escaped assessment during a specified period and amounted to Rs. 1 lakh or more. The court concluded that the Income-tax Officer retained the authority to act under section 34(1)(a) even after the introduction of section 34(1A), as the latter was meant to enlarge, not curtail, the officer's powers. The court held that the Income-tax Officer was justified in reopening the assessment under section 34(1)(a), answering the first question in the affirmative.2. Assessability of Fixed Deposits for the Assessment Year 1946-47:The fourth question addressed whether the fixed deposits were assessable for the assessment year 1946-47. The fixed deposits were made in the financial year 1944-45. The assessee contended that if the fixed deposits were treated as income from an undisclosed source, they should be assessable for the assessment year 1945-46, not 1946-47. The court examined whether the fixed deposits represented income from business or from an undisclosed source.The Tribunal inferred that the fixed deposits were secret profits from the assessee's business, based on various facts such as the nature of the business, lack of verifiable accounts, and substantial turnover. The court noted that concealed income credited in business books could reasonably be inferred as business income, as established in Lakhmichand Baijnath v. Commissioner of Income-tax. The court held that the fixed deposits represented business income and were assessable for the assessment year 1946-47, answering the fourth question in the affirmative.Conclusion:The court answered both the first and fourth questions in favor of the revenue. The Income-tax Officer was justified in reopening the assessment under section 34(1)(a), and the fixed deposits were assessable for the assessment year 1946-47. The assessee was ordered to pay the costs of the reference to the Commissioner of Income-tax.