1955 (10) TMI 36 - HC - Income Tax

Income-tax Officer's Jurisdiction Challenged & Proviso Deemed Unconstitutional

S.C. Prashar Versus Vasantsen Dwarkadas

The Court held that the Income-tax Officer lacked jurisdiction in issuing a notice under section 34 after the statutory period had expired. The second ... - Issues Involved:1. Competence of the Income-tax Officer to issue the notice under section 34.2. Whether the grant of a writ of prohibition is discretionary or demandable of right.3. Validity of the reopening of the assessment under section 34.4. Constitutionality of the second proviso to section 34(3) under Article 14 of the Constitution.Issue-wise Detailed Analysis:1. Competence of the Income-tax Officer to issue the notice under section 34:The petitioners challenged the competence of the Income-tax Officer to issue the notice under section 34 of the Income-tax Act, arguing that the notice dated April 30, 1954, was issued after the statutory period of eight years had expired. The notice was based on a finding by the Income-tax Tribunal that the income of Vasantsen Dwarkadas belonged to the firm of Purshottum Laxmidas. The Tribunal's finding was upheld by the High Court in 1952. However, the petitioners contended that the second proviso to section 34(3), amended by Act XXV of 1953, which came into force on April 1, 1952, could not retrospectively revive the right to issue the notice after the period of eight years had already expired.2. Whether the grant of a writ of prohibition is discretionary or demandable of right:The Court examined whether the grant of a writ of prohibition is always discretionary or demandable of right. It was argued that where there is a patent lack of jurisdiction, the writ should issue almost as a matter of course. The Court concluded that the Income-tax Officer acted without jurisdiction in issuing the notice beyond the prescribed time limit, and thus, the writ of prohibition should be granted.3. Validity of the reopening of the assessment under section 34:The Court held that the newly amended second proviso to section 34(3) could not be applied retrospectively to revive the right to issue a notice that had already become time-barred. The general principle is that once a final assessment is complete, it cannot be reopened except under sections 34 and 35 within the time limits prescribed. The Court found that there was no clear indication in the proviso that it should apply to orders final at the date when it came into force.4. Constitutionality of the second proviso to section 34(3) under Article 14 of the Constitution:The petitioners argued that the second proviso to section 34(3) violated Article 14 of the Constitution as it discriminated against a section of assessees by exposing them to the risk of having their assessments reopened without any time limit. The Court agreed that the proviso created an unreasonable classification by treating persons against whom a finding or direction is given differently from other assessees. The Court held that the classification was arbitrary and lacked a rational basis, thus violating Article 14. The proviso was deemed ultra vires to the extent it affected persons other than the assessee who were not parties to the proceedings.Conclusion:The Court concluded that the Income-tax Officer acted without jurisdiction in issuing the notice under section 34 after the statutory period had expired. The second proviso to section 34(3) was held to be unconstitutional to the extent it affected persons other than the assessee, violating Article 14 of the Constitution. Consequently, a writ of prohibition was issued restraining the Income-tax Officer from proceeding further with the notice. The appeal by the respondents was dismissed, and the petitioners were awarded costs.