1955 (7) TMI 34 - HC - Income Tax

Court rules against Income Tax Officer invoking Section 34 for pending assessment. Assessee awarded costs.

Mannalal Modi Versus Commr. of Income Tax

Mannalal Modi Versus Commr. of Income Tax - [1956] 29 ITR 30 (Orissa) Issues Involved:1. Whether the Income Tax Officer was justified in invoking Section 34 of the Income Tax Act.2. Whether the assessment under Section 34 was valid given that the assessee had already filed a return.3. Whether income can be said to have 'escaped assessment' if a return was filed but not assessed.Issue-wise Detailed Analysis:1. Justification for Invoking Section 34:The primary issue was whether the Income Tax Officer (ITO) was justified in invoking Section 34 of the Income Tax Act. The court examined the language of Section 34, which states that the jurisdiction to act arises only when the ITO discovers that income chargeable to tax has escaped assessment, been under-assessed, or assessed at too low a rate. The court emphasized that the term 'escaped assessment' must be interpreted correctly. It was argued by the appellant's counsel that merely not assessing income does not equate to income escaping assessment, especially when a return had been filed.2. Validity of Assessment under Section 34:The court scrutinized whether the assessment made under Section 34 was valid, given that the assessee had already filed a return on 19-10-1944. The court referred to several precedents, including the Privy Council's decision in 'Rajendranath Mukerjee v. Commissioner of Income Tax Bengal', which established that income that has been duly returned cannot be said to have 'escaped assessment.' The court also cited 'Harakchand Makanji and Co. v. Commissioner of Income Tax, Bombay City', where it was held that if an assessee voluntarily makes a return, there is no need for a notice under Section 34.3. Interpretation of 'Escaped Assessment':The court delved into whether income could be said to have 'escaped assessment' if a return was filed but not assessed. The court noted that the terminology of Section 34 before and after the 1939 amendment remained the same regarding 'income, profits or gains chargeable to Income Tax have escaped assessment.' The court relied on the Supreme Court's decision in 'Chatturam Horilram Ltd. v. Commr. of Income Tax, B & O', which distinguished between non-assessment and escapement due to a legal lacuna. The court concluded that in the present case, the return was pending and not assessed, thus it could not be said that the income had escaped assessment.Conclusion:The court held that the ITO was not justified in invoking Section 34 as the return filed by the assessee was still pending and could have been assessed under Section 23. The court answered the reference question in the negative, stating that the assessment under Section 34 was not valid. The assessee was entitled to costs, and the hearing fee was set at one hundred rupees.