1961 (9) TMI 104 - HC - Income Tax

Court upholds validity of notice under Indian Income-tax Act; reassessment of total income allowed.

Dharam Vir Virmani Versus Commissioner Of Income-Tax,

The court upheld the validity and legality of the notice issued under Section 34 of the Indian Income-tax Act. The assessee's challenge to the notice ... - Issues Involved:1. Validity and legality of the notice issued by the Income-tax Officer under Section 34 of the Indian Income-tax Act.Detailed Analysis:1. Validity and Legality of the Notice Issued Under Section 34 of the Indian Income-tax Act:The primary issue in this judgment revolves around whether the notice issued under Section 34 of the Indian Income-tax Act was valid and legal. The case pertains to the assessment of an individual for the assessment year 1949-50, with the account year ending on August 31, 1948. Initially, the Income-tax Officer concluded the assessment on September 27, 1949, based on a total income of Rs. 29,942. The assessee disclosed his partnership in three firms and mentioned the figures of his income from these firms, which showed a small loss. The Income-tax Officer noted the shares but chose to ignore them temporarily, stating that necessary rectification would be made upon receiving intimation about the assessed shares of profit or loss.After the final assessments of these partnerships were made, the Income-tax Officer issued a notice under Section 34, received by the assessee on March 30, 1954, calling for a return of the income that had escaped assessment. The assessee challenged the legality of this notice under Section 34(1)(b), but his objections were overruled, and his total income was reassessed at Rs. 71,798. The validity of the notice was also challenged unsuccessfully before the Appellate Assistant Commissioner and the Appellate Tribunal, which referred the matter to the High Court.The Appellate Tribunal upheld the legality of the notice under Section 34(1)(b) based on a decision by the Andhra Pradesh High Court in Koppuravari Venkateshwarlu v. Additional Income-tax Officer, Guntur. However, the facts of that case differed significantly from the present one. In the Andhra Pradesh case, the assessee was provisionally assessed on a certain figure as his income from a partnership firm, whereas, in the present case, the Income-tax Officer made no attempt to arrive at any figure based on the material before him.The assessee's counsel relied on two cases more directly in point: Chuni Lal Nayyar v. Commissioner of Income-tax and Debi Prasad v. Commissioner of Income-tax. In Chuni Lal Nayyar, the Income-tax Officer omitted to consider the income from a partnership firm while completing the assessment and later issued a notice under Section 34 after receiving the necessary information. The court held that the Income-tax Officer could not use the same data for revising an assessment under Section 34. In Debi Prasad, the Income-tax Officer knew about the assessee's share in a partnership firm but chose to complete the assessment without including it, intending to revise it later. The court held that the notice under Section 34 was illegal as the officer had no authority to reopen the assessment already made.The relevant portion of Section 34(1)(b) states that the Income-tax Officer can reassess if he has 'reason to believe' that income has escaped assessment. The wording of Section 34(1) changed significantly in 1948, shifting from 'definite information' to 'reason to believe.' This change implies that reassessment can be initiated based on the information in possession, even if the officer was aware of the potential income during the original assessment.The court concluded that the Income-tax Officer's refusal to accept the assessee's figures and his decision to adjust the matter later when reliable information became available did not preclude him from reopening the assessment under Section 34(1)(b). The argument that the officer should have postponed the assessment until receiving the partnership assessments was deemed impractical and inconvenient for both the assessees and the revenue department.The court also noted that Section 35(5), introduced in 1952, specifically provides for reopening the assessment of a partner in a firm, but it was not applicable in this case, as the assessment was made in 1949.Conclusion:The court answered the question in the affirmative, upholding the validity and legality of the notice issued under Section 34 of the Indian Income-tax Act. The assessee was ordered to bear the costs of the Commissioner, with a counsel fee of Rs. 250.Separate Judgment:TEK CHAND J. concurred with the judgment. The question was answered in the affirmative.