Retrospective tax reassessment requires strict compliance with jurisdictional preconditions; filing a return under compulsion does not waive objection.
Retrospective substitution of section 34 by the 1948 Amendment Act made the amended provision applicable to notices issued after the amendment's commencement date, so proceedings had to satisfy the substituted section. The proviso requiring recorded reasons and the Commissioner's satisfaction was a jurisdictional precondition, not a procedural formality, and non-compliance rendered the reassessment invalid. Filing a return in response to the notice did not waive objection, because compliance was compulsory and waiver could not cure absence of jurisdiction. The reassessment proceedings were therefore legally unsustainable.
Issues: (i) Whether the amended section 34 of the Indian Income-tax Act, 1922 applied to notices issued after the commencement date fixed by the amending Act by reason of the statutory fiction created by section 1 of the 1948 Amendment Act; (ii) whether compliance with the proviso to section 34(1), including recording reasons and obtaining the Commissioner's satisfaction, was a mandatory condition for valid initiation of proceedings; and (iii) whether the assessee waived objection to the validity of the proceedings by filing a return in response to the notice.
Issue (i): Whether the amended section 34 of the Indian Income-tax Act, 1922 applied to notices issued after the commencement date fixed by the amending Act by reason of the statutory fiction created by section 1 of the 1948 Amendment Act.
Analysis: Section 1 of the Income-tax and Business Profits Tax (Amendment) Act, 1948 expressly gave retrospective effect to the amendment of section 34 from 30 March 1948. The legal fiction created by the statute had to be carried to its logical consequence, so the substituted section 34 was treated as having been in force on the date when the notices were issued. The old section 34 could not therefore govern the proceedings.
Conclusion: The amended section 34 applied to the notices and the proceedings had to satisfy the substituted provision.
Issue (ii): Whether compliance with the proviso to section 34(1), including recording reasons and obtaining the Commissioner's satisfaction, was a mandatory condition for valid initiation of proceedings.
Analysis: The proviso to section 34(1) expressly prohibited issue of notice unless reasons were recorded and the Commissioner was satisfied that it was a fit case. These requirements were treated as going to the root of jurisdiction, not as mere procedural formalities. Since the statutory preconditions were not fulfilled, the Income-tax Officer lacked authority to proceed validly under section 34.
Conclusion: Compliance with the proviso was mandatory, and failure to comply rendered the proceedings invalid.
Issue (iii): Whether the assessee waived objection to the validity of the proceedings by filing a return in response to the notice.
Analysis: Filing a return in response to a notice issued under section 34 was an obligation and not a voluntary election. A return filed under compulsion could not amount to waiver, and in any event waiver could not confer jurisdiction where the statutory conditions for jurisdiction were absent.
Conclusion: There was no waiver by the assessee.
Final Conclusion: The reassessment proceedings under section 34 were not legally valid, and the questions referred were answered against the revenue and in favour of the assessee.
Ratio Decidendi: When a statute retrospectively substitutes a provision and attaches mandatory preconditions to the exercise of power, those conditions are jurisdictional and must be strictly complied with; non-compliance cannot be cured by waiver or by participation under compulsion.