S.M. Muthiah Thevar v. Commissioner Of Income Tax

Rajagopalan, J.:— The assessee took a toddy lease operative for what was known as the Abkari (Toddy) year 1-10-1943 to 30-9-1944. His own claim all along was that he sustained a loss over that contract as a whole. Whether that claim is well founded of not, it may not be necessary to decide at the stage. In response to a notice issued under Section 34 of the Act for the assessment year 1944–1945, the assessee filed a return on 29-3-1946. In that re turn, he showed the whole period 1-10-1943 to 30-9-1944 as the “previous year,” that is, in relation to the assessment year 1944–1945, and in the return he claimed he had sustained a loss. Of the same date, 29-3-1946 the assessee also filed; return for 1945–1946 in which he treated the period 1-10-1944 to 30-9-1945 as the previous year in relation to the assessment year 1945–1946. For that period, 1-10-1944 to 30-9-1945 the assessee showed no income. It should be remembered that the toddy lease expired on 30-9-1944. Subsequently the assessee filed an affidavit when he appeared before the Income-tax Officer on 19-7-1948. That affidavit, has been referred to as Annexure A. 1. In that affidavit, the assessee explained that he had in curred a loss of Rs. 1241-12-0 over the contract as a whole. Then there was this passage in that affidavit.

“From the abovesaid particulars it will be seen that I have incurred a loss of Rs. 620-14-0 for the assessment year 1944–1945 and the balance of loss not less than Rs. 620-14-0 for the assessment year 1945–1946.”

2. Again, whether that contention was correct or not, does not arise for consideration at this stage. On the basis of the returns and this affidavit, what the Income-tax Officer did on 5-2-1949 was evidenced by a note made in the proceedings of 1944–1945,

“In this case, assessment will be made for 1945–1946. The assessee will be declared not assessable for 1944–1945.”

3. The Income-tax Officer however took no further action on the return for the assessment year 1945–1946 filed on 29-3-1946 as further explained by the affidavit, Annexure A. 1.

4. On 27-2-1950, the Income-tax Officer issued a notice under S. 34 in relation to the assessment year 1945–1946. Despite the objection taken by the assessee, assessment proceedings for 1945–1946 were completed, and that assessment was ultimately upheld by the Tribunal.

5. It is against this background we have to answer the two questions referred to this court under Section 66(2) of the Income-tax Act:

1. Whether on the facts and in the circumstances of the case the assessment made on the assessee is valid in law.

2. Whether on the facts and in the circumstances of the case the Income-tax Officer was correct in adopting the period 1st October, 1943 to 30th September, 1944 as the previous year for the assessment year 1945–1946 in view of the provisions of Section 2(xi)(a) of the Act.

6. The second question can arise for consideration only if the first question is answered against the assessee and in favour of the department, that is, only if it is held that the initiation of proceedings for the assessment year 1945–1946 with notice under Section 34 of the Act was valid.

7. Factually the position was that in relation to 1945–1946, the assessee submitted a return on 29-3-1946. Particulars furnished in that return may or may not be correct; nonetheless, it was a return. The claim made by the assessee, that he had no income at all assessable for the year might have been incorrect.

8. Equally the claim made that for purposes of assessment year. 1945–1946, the relevant previous year was from 1-10-1944 to 30-9-1945, may be incorrect. As we said, the correctness or incorrectness of the statements made in the return filed on 29-3-1946 for the assessment year 1945–1946 still left the assessee in the position that he had filed a return for 1945–1946.

9. It should be remembered that with reference to the return for this assessment year 1944–1945, also filed on 29-3-1946, what the Income-tax Officer did was that to reserve consideration of the assessment for 1945–1946. That assessment was not undertaken, and was certainly not completed on the face of the return for 1945–1946 filed by the assessee on 29-3-1946. What, however, the Income-tax Officer did was to retain the return for 1945–1946 filed on 29-3-1946 remain undisposed of; but he initiated proceedings under Section 34 of the Act with a notice issued in 1950.

10. The contention of the learned counsel for the assessee, that under these circumstances, the Income-tax Officer was not entitled to initiate proceedings under Section 34 of the Act is well founded, and is supported by authority: The Commissioner of Income-tax, Bombay v. Ranchhoddas Karsondas, 1959-36 ITR 569 : (AIR 1959 SC 1154). the relevant passage is at pages 575 and 576 (of ITR): (at p. 1159 of AIR). Since the first question has to be answered against the department and in favour of the assessee, that the initiation of proceedings under Section 34 of the Act was not valid, the assessment itself, which was based on that invalid notice under Section 34 of the Act, has to be set aside. We answer the first question in the negative and in favour of the assessee. As we have pointed out earlier, in view of the answer to the first question on the basis of which the entire assessment goes, there is no need to answer the second question. As the assessee has succeeded in the reference, he will be entitled to the costs, counsel's fee Rs. 250/-.

FD/K.S.B

11. Answered accordingly.