1976 (10) TMI 25 - HC - Income Tax

High Court rules on retroactive extension of limitation period for income tax reassessment under section 34(1)(a)

The High Court analyzed the validity of a reassessment under section 34(1)(a) of the Income-tax Act, 1922, and the applicability of the limitation period. ... Additional Super Tax, House Property, Investment Company, Undistributed Profits, Wholly Or Mainly In The Dealing In Or Holding Of Investments Issues:Validity of reassessment under section 34(1)(a) of the Income-tax Act, 1922 and the applicability of the limitation period.Analysis:The case involved a reassessment of an individual for the assessment year 1950-51, initiated under section 34(1)(a) of the Income-tax Act. The original assessment was completed in 1955, but later it was discovered that the assessee had not disclosed income from the sale of sal trees and timbers. The issue revolved around the limitation period for reassessment under section 34(1)(a). The Appellate Assistant Commissioner initially held that the reassessment was within the time limit of eight years from the end of the relevant assessment year. However, on appeal, the Tribunal found that the assessment made in 1961 was beyond the prescribed period of limitation. Subsequently, the Tribunal referred the question of law to the High Court regarding the validity of the assessment under section 34(1)(a) and whether it was barred by limitation.The High Court analyzed the provisions of section 34 of the Income-tax Act, both before and after the amendment by the Finance Act, 1956. The court noted that the amendment deleted the limitation period for issuing notices under section 34(1)(a) but did not specify a time limit for making the assessment or reassessment. The court emphasized that the law of limitation is procedural and can be extended by the legislature. In this case, since the amendment extended the limitation period while the assessment was still pending, the extended period of limitation applied. The court distinguished a previous Supreme Court decision and held that the extended limitation period could be applied retroactively in cases where the assessment was initiated before the amendment.The court rejected the argument that the original limitation period should apply, emphasizing that the amendment extended the limitation period when the assessment was still permissible. The court also distinguished a previous case related to a charging provision, emphasizing that the law of limitation is procedural. Ultimately, the court answered the question in the negative, in favor of the department, stating that the reassessment under section 34(1)(a) was not barred by limitation. The department was awarded costs, and the counsel's fee was assessed accordingly.