Case: Commissioner of Income Tax, Bangalore Vs. C. M. Jaffar Khan (Deceased) Represented By Hiswidow Raham

The High Court of Mysore in a reference under Sec. 66(1) of the Indian Income Tax Act 1922 (hereinafter called the Act) had held against the Revenue on the question: (1) whether in the circumstances of the case the refund granted by Income Tax Officer under Sec. 48 of the Mysore Income Tax Act 1923 (hereinafter called the Mysore Act) amounted to an assessment and, (2) whether the interpretation placed by the Income Tax Tribunal on the words such income profits and gains in paragraph 5 (1) of the Part B States (Taxation Concession) Order 1950 (hereinafter called the Order) is correct ? On the first question its answer was in the affirmative and on the second in the negative. Against this Judgment two appeals have been filed by special leave by the Commissioner of Income Tax, Mysore. The facts which gave rise to the reference before the High Court are that a registered firm of partnership known as C. M. Jaffar Khan &Co., Bangalore of which the assessee was a partner filed a return in respect of its income for the period ending 30-6-49 under the Mysore Act and an assessment was made thereon in a sum of Rs. 3376-7-0 which was duly paid. On 15-3-50 the assessee filed his return in respect of his individual income including his share of income from the partnership firm for the accounting year ending 30-6- 49. This return was also made under the Mysore Act and it appears that in respect of this return, by an order dated 20-3-1950 the Income Tax Officer directed a refund of Rs. 641-3-0 to the assessee due to the difference in the rate of tax applicable to him and the maximum rate. It further appears that in the course of the proceedings for the assessment years 1951-52 and 1952-53 the Income Tax Officer was of the opinion that the assessees income had escaped assessment in the accounting year ending 30-6-49 and he therefore issued a notice to him under Sec. 34 of the Act. The assessee objected to the reopening of the assessment on the ground that he had already been assessed in respect of the income for the year ending 30-6-49 under the Mysore Act; that a refund of tax had been given to him, as such the Income Tax Officer has made an assessment under the Mysore Act; and that according to paragraph 5 of the Order an assessment under the Act would be possible only if, before the appointed date namely on 1-4-1950 the assessee had not been assessed under the Mysore Act. The Income Tax Officer rejected these contentions on the ground that the assessment made on the firm could not be regarded as an assessment made on the assessee individually and completed the assessment for the years 1950-51 on 6-3-55 on a total income of Rs. 3, 21, 821.The assessee appealed to the Income tax Appellate Assistant Commissioner and raised similar contentions to those raised before the Income Tax Officer. The Income Tax Officer on the other hand contended that as the respondent assessee had disclosed only a share income from the firm C. M. Jaffar Khan &Co. and as the income from the property and other sources was not disclosed such profits and gains had not been assessed under the Mysore Act and, therefore, action under Sec. 34 of the Act was fully justified. The Appellate Assistant Commissioner however, rejected the contention of the Income Tax Officer and held that the re-assessment under Sec. 34 of the Act was not valid. In this view he set aside the assessment made by the Income Tax Officer. The Department filed an appeal to the Income Tax Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal however was of the view that the refund granted by the Income Tax Officer under Sec. 18 of the Mysore Act was not an assessment as contemplated under Sec. 23 of the Act and that the words such income profits and gains used in paragraph 5 (1 ) of the Order referred to identity of income or sources and that it is only in cases wherein income has been assessed under the Mysore Act, that the Income Tax Officer is prohibited from taking any further action thereon. The appeal was therefore-allowed and the assessment made by the Income tax OfficerHigh Court following the decision of this Court in Esthuri Asmathiah v. Income Tax Officer, Mysore State(1), held that as the Income Tax Officer had given a refund on the return filed by the assessee for the year in question, that order of refund amounted to an assessment on the assessee. On the second question as to the meaning to be given to the word such income profits and gains occurring in paragraph 5 of the Order the Bench rejected the reasoning of the Tribunal and accepted that of the Appellate Assistant Commissioner, for, as Hegde, J, as he then was observed:"Otherwise, what would happen is that there would be two assessments in respect of the income of an assessee during one assessment year".

Court's reasoning:
On the admitted facts which are not in dispute it is apparent that the refund order given by the Income Tax Officer on the return filed by the assessee is an assessment within the meaning of paragraph 5 of the Order. It was so held in Esthuri Aswathiah case(41 I.T.R. 539.) where on the facts of that case the assessee who had filed his return for the assessment year 1950-51 disclosing that there was no assessable income contended that as it had been assessed for the accounting year ending June 30, 1949 under the Mysore Act there was no assessable income for that year and that only the income for the next accounting year ending on June 30, 1950 was assessable for the year 1951-52. The Income Tax Officer passed an order "no proceeding" and closed the assessment. This decision is not helpful as it did not deal with the question that arises before us. In that case a notice under Sec. 22 of the Act was served on the assessee requiring it to submit its return of income for the assessment year 1950-51. It is in respect of that notice that a return was filed by the assessees to which we have made a reference showing that there was no assessable income. For the next assessment year 1951-52 the assessees filed a return and in the course of those assessment proceeding account books were produced by them which disclosed an opening, cash credit balance of Rs. 1, 87, 000/- as on 1st July 49. When the Income tax Officer called for the books of the earlier year the books were not produced by the assessees. In the circumstances a sum of Rs. 1, 37, 000/- out of the opening balance as on 1-7-49 was treated as income from undisclosed sources for the year 1951-52. But on appeal the Appellate Assistant Commissioner held that the financial year ending 31-3-50 ought to be taken as the previous year for the income from undisclosed sources. ID he meantime the appellant submitted a fresh return for the assessment year 1950-51 on which no action was taken but on October 15, 1957 the Income tax Officer served a notice of reassessment under See. 34 of the Act calling upon the Appellant to submit a fresh return. That order was challenged in a Writ Petition beforeon the ground that the Income Tax Officer had no jurisdiction to issue a notice of reassessment. That petition was dismissed byIn an appeal by certificate this Court held that since the Income-tax Officer had, passed an order thereon no proceeding, it mean, " that he had accepted the return submitted by the Appellant, and assessed the income as nil and if thereafter he, had reason to believe that the Appellants had failed to disclose fully and truly all material facts necessary for assessment for that year, it was open to him to issue a notice for reassessment under Sec. 34. It was further held that the Appellant was liable to be assessed under the Indian Income-tax Act 1922 and not under the Mysore Income-tax Act for the year 1950-51.The facts in these appeals before us are different in that the assessment of both the firm as well as of the individual had been made under the Mysore Act for the year ending 30th June, 49 in respect of income of that year. As such, it clearly falls within the provision of sub-paragraph (1) of paragraph 5 of the Order which makes the Act inapplicable to such assessments. It is also provided in sub-paragraph (2) of Paragraph 5 that where income, profits and gains have not been assessed under the State law they shall be assessed under the Act for the year ending 31-3-51 which is the assessment year 1950- 5 1, in respect of which the tax payable has been specified therein. There can be no doubt that for the assessment year 1950-51, for which the accounting year is the previous year 1st April 1949 to 31st March 1950, the Act applies and assessments would be made thereunder. This would be a hardship because under any of the concerned tax law of a Part B State an assessee in that State may have been taxed already. It is in order to remove this hardship that the order was issued under Sec. 60 A of the Act. This apart it may also be noticed that any omission to give information, or failure to file a return or failure to disclose truly and fully all material facts which are a condition of the reopening of assessments under Sec. 34 of the Act do not appertain to the Income Tax Officer under the Act but to the Income Tax Officer under the Mysore Act. Even on this reading it appears to us that Sec. 34 of the Act would have no application. The learned counsel for the Revenue was not able to meet this point. The Tribunal thought that there was some substance in the Departmental representatives contention on the second question, that the words such income profits and gains used in paragraph 5(1) of the order refer to identity of income or sources; that it is only in cases where the income had been assessed under the Mysore Act; that the Income-tax Officer is prohibited from taking further action thereon and as such it cannot be said that the assessee had been assessed on incomes such as property income and income under other sources, and it is these that have been brought to assessment under Sec. 34 of the Income-tax Act".As rightly pointed out byhat this reasoning would It--ad to startling conclusions and would imply that there would be two assessments in respect of the income of an assessee during one assessment year i.e. while assessment made under the Mysore Act in respect of income reported by the assessee cannot be reopened, the income not disclosed to him would be liable to be assessed under the Act. Apart from the incongruity in this reasoning pointed out byit appears to us that if that reasoning is correct it would not be a case of reassessment under Sec. 34 but assessment under Sec. 23 of the Act. This is certainly not the stand taken by the Revenue either beforeor before us.