1959 (3) TMI 57 - HC - Income Tax

Court quashes time-barred tax notice, awards costs to petitioner

Pt. Hazari Lal Versus Income-Tax Officer, Dist. II (II), Kanpur

The court allowed the petition, quashing the time-barred notice issued under Section 34 of the Income-tax Act. The court found the notice not covered by ... - Issues Involved:1. Validity of the notice issued under Section 34 of the Income-tax Act.2. Applicability of the second proviso to Section 34(3) of the Income-tax Act.3. Interpretation of the term 'finding' in the context of Section 34(3).4. Jurisdiction of the Appellate Assistant Commissioner of Income-tax.5. Whether the action taken by the Income-tax Officer was 'in consequence of' the finding by the Appellate Assistant Commissioner.6. Appropriateness of relief under Article 226 of the Constitution.Issue-wise Detailed Analysis:1. Validity of the notice issued under Section 34 of the Income-tax Act:The petitioner contested the notice issued under Section 34 of the Income-tax Act on January 4, 1956, arguing it was barred by time. The ordinary period for serving a notice under Section 34(I)(a) was eight years from the last day of the assessment year, making the deadline March 31, 1955. The notice was issued after this period, rendering it time-barred unless the second proviso to Section 34(3) applied.2. Applicability of the second proviso to Section 34(3) of the Income-tax Act:The second proviso to Section 34(3) states that the limitation period does not apply to reassessments made to give effect to any finding or direction in orders under Sections 31, 33, 33A, 33B, 66, or 66A. The opposite party argued that this proviso allowed the notice issued on January 4, 1956, to bypass the limitation period. However, the court needed to determine if this proviso was applicable to the facts of the case.3. Interpretation of the term 'finding' in the context of Section 34(3):The court interpreted 'finding' as a decision on material questions in issue, which must arise in the case and be necessary for passing the final order. The Appellate Assistant Commissioner's finding that the sum of Rs. 12,800 was not income for the assessment year 1947-48 did not necessitate a finding that it was income for the assessment year 1946-47. Thus, the remark that the sum was income for 1946-47 was not a competent finding.4. Jurisdiction of the Appellate Assistant Commissioner of Income-tax:The Appellate Assistant Commissioner's jurisdiction is limited to matters necessary for deciding the appeal. Any findings beyond this scope are without jurisdiction. The court concluded that the Appellate Assistant Commissioner was not competent to record a finding that the sum of Rs. 12,800 was income for the assessment year 1946-47, as it was not essential for deciding the appeal for the assessment year 1947-48.5. Whether the action taken by the Income-tax Officer was 'in consequence of' the finding by the Appellate Assistant Commissioner:The court examined whether the notice for the assessment year 1946-47 was a direct consequence of the Appellate Assistant Commissioner's finding. The term 'in consequence of' implies a direct causal connection. The court found that the Income-tax Officer's action relied on independent facts and circumstances beyond the Appellate Assistant Commissioner's finding, thus breaking the causal chain. Therefore, the notice was not a consequence of the finding.6. Appropriateness of relief under Article 226 of the Constitution:The court considered whether to exercise its powers under Article 226 to grant relief. Given the petitioner would face unnecessary hardship and harassment by undergoing reassessment proceedings, the court decided to grant relief. The notice dated January 4, 1956, was quashed as time-barred, and the petitioner was awarded costs.Conclusion:The petition was allowed, and the notice dated January 4, 1956, was quashed. The court found the notice time-barred and not covered by the second proviso to Section 34(3). The petitioner was entitled to costs of Rs. 400.