1962 (8) TMI 98 - HC - Income Tax

Court invalidates reassessment due to procedural defects and time limit, rules in favor of assessee.

Commissioner of Income-Tax, Coimbatore Versus Estate of Late Sri N. Veeraswamy Chettiar

Commissioner of Income-Tax, Coimbatore Versus Estate of Late Sri N. Veeraswamy Chettiar - [1963] 49 ITR 13 Issues Involved:1. Validity of reassessment upon a shareholder following an assessment upon the company under section 23A of the Income-tax Act.2. Whether the reassessment made on 11th February, 1957, is valid in law.Issue-wise Detailed Analysis:1. Validity of Reassessment Upon a Shareholder Following an Assessment Upon the Company Under Section 23A of the Income-tax Act:The primary issue raised is the validity of a reassessment upon a shareholder following an assessment upon the company under section 23A of the Income-tax Act. The facts of the case reveal that the Income-tax Officer applied the provisions of section 23A to the company for the assessment years 1947-48 to 1949-50, leading to deemed distribution of dividends to shareholders for their assessment years 1948-49 and 1950-51. Notices under section 34 were issued to the assessee before the actual orders under section 23A were passed on the company. The Appellate Assistant Commissioner initially set aside these orders due to procedural defects. Fresh orders were subsequently made, and further reassessment orders were issued without notice, which were again set aside by the Appellate Assistant Commissioner. The Tribunal later concluded that the Appellate Assistant Commissioner could not issue a direction that effectively destroyed the basis of the appeal and that the proceedings under section 34 were beyond the prescribed time limit.2. Whether the Reassessment Made on 11th February, 1957, is Valid in Law:The question referred to the court was whether the reassessment made on 11th February, 1957, was valid in law. The court noted that the order under section 23A for the assessment year 1947-48 was invalid, making the corresponding assessment on the shareholder for 1948-49 unsustainable. The focus then shifted to the assessment year 1950-51. The court highlighted that the notice under section 34 was issued on 27th October, 1956, beyond the four-year period from the end of the assessment year 1950-51, rendering the reassessment devoid of jurisdiction. The department contended that the second proviso to section 34(3) excluded the bar of limitation due to the direction by the Appellate Assistant Commissioner.The court clarified that the period of limitation should be computed with reference to the assessment year of the shareholder, not the date of the order under section 23A. It cited precedents, including Seethai Achi v. Income-tax Officer and Sardar Baldev Singh v. Commissioner of Income-tax, to support this view. The court found the direction by the Appellate Assistant Commissioner to be based on an erroneous understanding of the law and beyond the scope of section 31 of the Act. It concluded that the direction did not validly remove the bar of limitation, making the reassessment invalid.Conclusion:The court answered the question in the negative, ruling in favor of the assessee and awarding costs. The reassessment made on 11th February, 1957, was held invalid due to being beyond the prescribed time limit and based on an erroneous direction by the Appellate Assistant Commissioner.