Case: Income Tax Officer, Special Investigation Circle, Indore Vs. Rustomji

A.N. Grover, J.1. These appeals by certificate are from a common judgment of the Madhya Pradesh High Court allowing certain petitions which had been filed under Article 226 of the Constitution by the respondent challenging the validity of notices issued under Section 34 of the Indian Income Tax Act, 1922, hereinafter called the "Act", in respect of escaped income for the years ending March 31, 1941 to March 31, 1945 as also for the year ending March 31, 1946.2. The petitioner is a resident of Mhow which was formerly a part of the erstwhile Holkar State. He started some business in British India in or about the year 1934 and acquired a textile mill known as the New Premier Mills, Bombay. In 1939 he purchased a cotton ginning and pressing factory at Khamgaon. For the assessment years 1940-41, 1941-42, 1943-44 and 1945-46 he was assessed to income-tax as a non-resident by the Income-tax Officer, Nagpur. For the two assessment years 1944-45, and 1945-46 he was also assessed at Mhow as a resident and ordinarily resident in respect of the properties in Mhow. The assessment orders for each year of assessment in properties in Mhow. The assessment orders for each year of assessment in question were made on various dates. On March 23, 1962 the Income-tax Officer concerned served six notices under Section 34 of the Act, in respect of certain income alleged to have escaped assessment. The assessee objected to the jurisdiction of the Income-tax Officer to issue these notices after March 31, 1956 in view of the limit of time provided by Section 34(1-A) of the Act. The Income-tax Officer issued fresh notices under Section 22(4) of the Act and called upon the assessee to comply with the notices issued under Section 34.3. The contentions which were raised before the High Court, inter alia, were that the assessee had submitted the return of his income in the taxable territories and fully and truly disclosed all material facts necessary for the assessment years in question. Therefore no notice under Section 34(1)(a) could be issued to him. It was further contended that the notices which had been issued purported to be in exercise of the power under Section 34(1)(b) of the Act and were barred by time. Even on the assumption that the notices were issued under Section 34(1)(a) of the Act they were still barred by time inasmuch as Section 34 (1-A) was an overriding provision under which no notice under Section 34 could be issued after March 31, 1956. The High Court took the view that for the assessment years 1940-41 to 1945-46 the provisions of Section 34(1-A) were applicable and that the provisions of Section 34(1)(a) did not apply. The notices were consequently quashed for the assessment years 1940-41 to 1945-46. For the assessment year 1946-47 the High Court rejected the assessees application on November 25, 1963 but on a miscellaneous application filed by the assessee it was held by the High Court that the decision given with regard to the other assessment years was equally applicable. The High Court, therefore, quashed the notice under Section 34 for the assessment year 1946-47 by its order, dated March 16, 1964.4. The point whether a notice could be issued under Section 34(1)(a) of the Act as amended by the Finance Act of 1956 after March 31, 1956 in respect of any assessment year the relevant previous year of which fell wholly or partly within the period September 1, 1939 to March 31, 1946 stands concluded by the decision of this Court in Commissioner of Income Tax, Patiala v. Shahzada Nand and Sons and Others. It was held that a notice could be validly issued under Section 34(1)(a) after March 31, 1956 in respect of the aforesaid assessment years.

Decision reasoning: 1[ds]4. The point whether a notice could be issued under Section 34(1)(a) of the Act as amended by the Finance Act of 1956 after March 31, 1956 in respect of any assessment year the relevant previous year of which fell wholly or partly within the period September 1, 1939 to March 31, 1946 stands concluded by the decision of this Court in Commissioner of Income Tax, Patiala v. Shahzada Nand and Sons and Others. It was held that a notice could be validly issued under Section 34(1)(a) after March 31, 1956 in respect of the aforesaid assessment years.