Unconstitutional reassessment proviso under income tax law cannot sustain notice against a non-party assessee.

The second proviso to section 34(3) of the Indian Income-tax Act, 1922, as amended in 1953, was examined for validity where reassessment notice was issued against a person who had not been a party to the earlier appellate proceedings. The Court held that the proviso could not authorise reassessment in those circumstances because the notice rested on a finding recorded in proceedings involving another person, and the provision was inconsistent with article 14 of the Constitution. The reassessment notice was therefore not sustainable against the assessee.

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Issues: Whether the second proviso to section 34(3) of the Indian Income-tax Act, 1922, as amended in 1953, validly authorised the issue of notice under section 34 against a person who was not a party to the earlier appellate proceedings, or whether it offended article 14 of the Constitution of India.

Analysis: The notice was issued pursuant to a direction made in appellate proceedings to which the assessee was not a party. The impugned proviso was relied upon to support reassessment action against the assessee on the basis of a finding recorded in proceedings involving another person. The Court held, following its contemporaneous decision on the same legal question, that the proviso could not protect such proceedings and that it was invalid as inconsistent with article 14.

Conclusion: The second proviso to section 34(3) of the Indian Income-tax Act, 1922, as amended in 1953, was held unconstitutional and the reassessment notice could not be sustained against the assessee.

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