The Judgment of the Court was delivered by

Srinivasan, J.:— The petitioner is a citizen of Ceylon. It came to the notice of the department that during the account year relevant to the assessment year 1957-58, he had constructed a cinema theatre at Orathanad. He had submitted no returns at any time. In October, 1957, the Income-tax Officer issued a notice under section 22(2) of the Act calling for the submission of the return for the assessment year 1957-58. The petitioner took advantage of this notice and purported to file returns for all the assessment years from 1950-51 to 1957-58 on 12th March, 1959.

2. In respect of the assessment years 1950-51 and 1951-52, proceedings under section 34 were taken and a notice issued on 13th March, 1959, was served on the petitioner on 15th March, 1959. Pursuant to the direction calling upon him to submit returns, the assessee wrote to the Income-tax Officer stating that the returns filed by him on 12th March, 1959, might be treated as returns which he was called upon to file under section 34 of the Act. An assessment in respect of these two years was in due course made on 18th September, 1959.

3. For the next three succeeding years 1952-53,1953-54 and 1954-55, notices under section 34 of the Act were served upon the assessee on 21st March, 1960. In respect of these years, the petitioner submitted returns which were identical with those which he had submitted earlier on 12th March, 1959. On the basis of these returns, he was assessed on 3rd March, 1961, for these three years.

4. No proceeding relating to 1955-56 is concerned in any of these writ petitions.

5. For the years 1956-57 and 1957-58, no action under section 34 was taken and on the basis of the returns which the petitioner had filed on 12th March, 1959, assessments were made upon him under section 23(3).

6. Notices of demand appear to have been issued to the petitioner in due course and, on his failure to comply therewith, penalties were imposed under section 46(1) of the Act. As a result of action under section 28 of the Act as well, certain other penalties were imposed upon him.

7. In respect of the assessment years 1950-51 and 1951-52, the petitioner prays for writs of certiorari seeking to have the orders of demand issued by the department quashed. Three other petitions also seek for similar relief in respect of the orders of penalty under section 46(1) of the Act for the assessment years 1952-53, 1953-54 and 1954-55. In respect of the assessment year 1954-55 again, the validity of the order of assessment itself is questioned in another writ petition. Writs of certiorari have also been asked for as against the orders under section 46(1) of the Act in respect of the assessment years 1956-57 and 1957-58. Lastly, a writ of prohibition against the Tahsil-dar's notice relating to the recovery proceedings in respect of the tax demands for all of these years is also prayed for.

8. The affidavit of the petitioner in support of the several petitions is very bare of details. In the counter-affidavit filed by the department, however, all the relevant information in respect of the various assessments and the orders under sections 28 and 46 have been furnished. It is however unnecessary to enter into the averments in either the affidavit of the petitioner or the counter-affidavit of the department in view of the limited contentions that have been advanced before us which we shall presently deal with.

9. As has been indicated above, there is no prayer in any of these writ petitions questioning the validity of the assessments themselves except in relation to the assessment year 1954-55. We shall deal with 1954-55 separately.

10. The first two of the several years falls into a separate category for the pupose of the arguments advanced by the learned counsel for the petitioner. According to the petitioner, voluntary returns had been filed by him in respect of the assessment years 1950-51 and 1951-52. He claims on one hand that, so long as these voluntary returns are before the department, the department is not entitled to resort to proceedings under section 34 of the Act. Secondly, if the voluntary returns in respect of these years having been filed beyond the period of four years during which an assessment could without resort to section 34 have been made are deemed to be not valid, then, the contention is that the department could not act upon those returns for the purpose of section 34 of the Act, notwithstanding his letter to the department requesting that the returns filed by him on 12th March, 1959, might be treated as the returns called for under section 34. These contentions have to be examined.

11. The returns relevant to these two years were admittedly filed beyond the period of four years from the close of the relevant assessment years. Under section 34(3) of the Act, no assessment shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable. It is not open to the department to make an assessment without calling for the submission of a return under section 22 of the Act or under section 34 of the Act, as the case may be. If a return had been called for by the special notice under section 22(2) of the Act, the department could proceed to make an assessment, even a best of judgment assessment, if the return was not filed. Such assessment could be made within four years from the close of the assessment year. It is also a well accepted position that it is open to the assessee to submit a return at any time before the assessment is actually made. This is permitted under section 22(3) of the Act. Reading this provision along with section 34(3) of the Act, it follows that, if the assessee files a return on any date before the expiry of the four years before an assessment has been made by the department, that return would be a valid return. If such a return is accordingly before the department, it would not be open to the department to start proceedings under section 34 of the Act on the ground that no return had been filed. It would therefore be seen that a return, if it is to operate so as to exclude the application of section 34 of the Act, should be one that is filed before an assessment could be validly made, that is to say, such a return should be filed before the expiry of the four years period referred to. A return filed after the expiry of the four years period is not a return which can be properly within the scope of section 22(3) of the Act. The department would appear therefore to be entitled to ignore such returns and take proceedings under section 34 of the Act.

12. In Commissioner of Income-tax v. Ranchchoddas Karsondas [1959] 36 I.T.R 569, their Lordships of the Supreme Court held that a return in answer to the general notice under section 22(1) of the Act can under section 22(3) be filed at any time before the assessment and for this there is no limit of time. They also held that, where, in respect of any year, a return has been voluntarily submitted before assessment, the Income-tax Officer cannot choose to ignore the return and any notice of a reassessment and consequent assessment under section 34 ignoring the return is invalid. That was a case, where, in response to the general notice under section 22(1) of the Act, for the assessment year 1945-46, the assessee submitted a voluntary return on 5th January, 1950. This was, therefore, on a date well within the four years from the close of the relevant assessment year. The department purported to ignore this return and to start proceedings under section 34 of the Act. Their Lordships observed:

“It would appear from this that if the return filed on 5th January, 1950, was a return of income, there was no failure or omission on the part of the assessee, so as to bring the matter within section 34(i)(a) of the Act, and sub-section (3) of section 34 would then apply to the case limiting the period to four years. In that event, the assessment should have been completed on or before 31st March, 1950. But if the return made by the assessee was no return at all, then the conditions under the first sub-section of section 34 obtained, and the assessment could be completed within one year of the date of service of the notice…. In that event the assessment would be valid….”

13. Their Lordships observed finally that, since the return in the instant case was filed before the assessment was made and the return itself was filed within the period of four years, the return was a valid one and that the department could not proceed under section 34. Their Lordships were not called upon to consider specifically whether the character of the return as a valid return could still attach to it if the return had been filed beyond the period of four years after the close of the assessment year. But, from their observations, it is quite clear that the locus penitentiae afforded to the assessee to file the return under section 22(3) of the Act at any time before an assessment has been made is obviously linked up with the limitation of four years provided under section 34(3) of the Act. It should follow, therefore, that a return filed beyond the period of four years after the close of the assessment year is not a return which can fall within the scope of section 22(3) of the Act and, on the basis of the submission of such a return, an assessee cannot validly contend that resort to section 34 of the Act is illegal.

14. This conclusion derives support from the closing passages of the judgment cited above. But what Mr. Kareem, learned counsel for the petitioner, contends is that there is “no limit of time” within which a return could be filed by the assessee, so long as he files it before an assessment is made. He relies upon this passage, “A return in answer to that notice could be filed under section 22(3) before assessment and for this there is no limit of time.” Relying upon this observation, the learned counsel contends that even the return that was filed by him on 12th March, 1959, though it was beyond the period of four years from the close of the relevant assessment years 1950-51 and 1951-52 should still be regarded as valid. That in our opinion is not the correct view, nor does that argument find support in the further observations found in the judgment. They observe:

“If the Income-tax Officer had acted on that return and assessed the assessee before 31st March, 1950, the assessment would have been valid. He chose to ignore the return, and served on the assessee a notice under section 34(1). This notice was improper, because, with the return already filed, there was neither an omission nor a failure on the part of the assessee ….”

15. It is clear from that observation that in order to make a valid assessment in the particular case which was under consideration, such assessment should have been made before 31st March, 1950, and if by that date a return had been submitted by the assessee, it was not open to the department to ignore that return. Later, their Lordships met an argument advanced by the department of the inconvenience that would be caused if the assessee was to have the liberty of filing a return within the last few hours before the expiry of the period of four years referred to, and repelled that argument as not affecting the right of the assessee to file the return at any time before the expiry of the four years period and before an assessment had actually been made.

16. It follows, therefore, that the return that was filed on 12th March, 1959, was not a valid return in so far as the assessments 1950-51 and 1951-52 are concerned and that the department was justified in resorting to section 34 of the Act.

17. It has next been contended that if these returns were not valid returns, they could not be acted on by the department. It seems to me that this argument has to be rejected. It is true that the returns filed on 12th March, 1959, were not valid returns in the sense that they could not be brought within the scope of section 22(3) of the Act. But what is claimed is that when the notices under section 34 were issued and the petitioner was called upon to submit returns for these two years, he did not submit any fresh returns but requested that the earlier returns might be deemed to be returns relevant to the section 34 proceedings. It is contended that the invalid returns submitted on 12th March, 1959, by the assessee petitioner could not be validated by a letter of this description and reliance is placed upon a decision of the Nagpur High Court in Vaman Padmanabh Dande v. Commissioner of Income-tax. That was a case where an assessee had submitted a return. Later, before any action could be taken by the department against him for concealment of particulars of income, he wrote a letter to the department asking them to modify certain figures which he had given in his return and he sought to claim that he was entitled to do so under section 22(3) of the Act. What the learned judges held in the above decision was that section 22(3) of the Act permitted the assessee to furnish a revised return, if the return he had already furnished was incorrect or had omitted certain particulars. But a letter merely asking for the incorporation of other figures in the return already submitted could not be treated as a revised return. Learned counsel for the petitioner relies upon this and claims that, in a precisely similar manner, the assessee's letter asking that the returns submitted by him on 12th March, 1959, might be treated as returns under section 34 could not have that effect. We are unable to see any parallel between the position contemplated, in the decision referred to and the facts of the present case. What in effect the petitioner stated was, “I will have to submit a return containing the same details as in the return submitted by me on 12th March, 1959. Therefore, treat that return as the return you have called for now.” We feel that he was competent to do so and the department's further action on this return as the return submitted under section 34 is not vitiated in any manner.

18. It follows, therefore, that the attack upon the assessments in so far as 1950-51 and 1951-52 are concerned or the notices of demand pursuant to these assessments must fail. W.P Nos. 978 and 976 of 1961 are accordingly dismissed.

19. In the case of the next two assessment years 1952-53 and 1953-54 again, the contentions are very similar. The returns submitted by the assessee on 12th March, 1959, were beyond the period of four years from the close of the relevant assessment year. But, in response to the section 34 notices, the assessee submitted fresh returns which were merely copies of the earlier returns. In the view that we have taken that the returns filed beyond the period of four years from the close of the assessment year do not constitute valid returns and will not prevent the department from taking action under section 34, we can find no substance in the attack upon the assessments in respect of these years. Nor are the assessments in respect of 1956-57 and 1957-58 attacked in any manner. These assessments were based upon returns voluntarily submitted by the assessee, such returns being within the period of four years; and the assessments were not made under section 34 of the Act. It follows, therefore, that the validity of these assessments is not open to question. The attack in regard to these years is only against the subsequent orders imposing penalty made under section 46(1) of the Act which we shall deal with later.

20. W.P No. 366 of 1962 is directed against the order of assessment in respect of the year 1954-55. It seems to us that on the principles we have endeavoured to extract from the decision we have cited earlier, the department was incompetent to resort to proceedings under I section 34 of the Act. To restate the facts in this connection, in respect of this year, the assessee had filed his return on 12th March, 1959, that is, on a date before the expiry of the four-year period from the end of the assessment year which would be on 31st March, 1959. By the date on which this return was filed, no assessment had been made, so that the case clearly falls within the scope of section 22(3) of the Act. If, therefore, the return that was filed by the assessee on 12th March, 1959, was a valid return in so far as the assessment year 1954-55 is concerned, the decision we have cited above clearly denies to the department any right to resort to section 34 of the Act. On behalf of the Government, Mr. Ranganathan contends that while it is true that the voluntary return was there, it had exhausted its utility in so far as any assessment could be made upon it, by 31st March, 1959. Therefore, he claims that the department could start proceedings under section 34 after the expiry of the period of four years. It seems to us that this argument runs counter to what was decided by their Lordships of the Supreme Court in that very decision. The following passage from that judgment is illuminating:

“Before leaving this case, we may refer to two other arguments, which were raised. Mr. Rajagopala Sastri pointed out that an assessee might file the ‘voluntary’ return on the last day showing income less than the taxable limit, and the department would, in that case, be driven to complete the assessment proceedings within a few hours or lose the right to send a notice under section 34(1). An argument ab inconvenienti is not a decisive argument. The Income-tax Officer could have avoided the result by issuing a notice under section 23(2) and not remaining inactive until the period was about to expire. Further, all laws of limitation lead to some inconvenience and hard cases”

21. It was practically the same argument that is now advanced by the learned counsel for the department that was met by their Lordships there. There is a clear expression of opinion that, if with a valid return filed by the assessee before it, the department failed to complete the assessment within the period of four years, the department would lose the right to send a notice under section 34(1) of the Act. It follows that the assessment made as a result of proceedings initiated under section 34 of the Act in respect of the year 1954-55 is invalid and that assessment order has to be and is hereby quashed. It follows also that the consequential order under section 46(1) relevant to this assessment is invalid. It is also quashed.

22. In the remaining writ petitions, writs of certiorari are asked against the orders under section 46(1) of the Act and a writ of prohibition as well against the notice issued by the Tahsildar for recovery of the tax due. We are unable to see on what basis the contention that the imposition of the penalties is improper can be accepted. The assessments have been validly made and the notices of demand have been properly issued under section 29 of the Act; section 45 of the Act provides that on failure to comply with the notice of demand, it is open to the Income-tax Officer to deem the assessee to be in default. He has no doubt the discretion to treat the assessee as not being in default where an appeal has been filed under section 30 of the Act. There is the further proviso that if any part of the tax due is in respect of income arising outside the taxable territories in a country, where prohibitions or restrictions against the remittance of money to the taxable territories is in force, the Income-tax Officer shall not treat the assessee as in default. What is contended by Mr. Kareem is that the income that is brought under assessment arose outside the taxable territories and that the Income-tax Officer has not applied the relevant proviso of section 45 before treating the assessee petitioner as in default and before imposing the penalties upon him under section 46(1) of the Act. In the counter-affidavit of the department, it is pointed out that the assessee had built a cinema theatre costing over a lakh of rupees and his contention in other proceedings was that this amount represented his remittances into the taxable territories. The petitioner's present case, however, appears to be that, for the purpose of constructing the cinema theatre, he had made heavy borrowings and that the amounts which he spent did not come out of his remittances. The proviso to section 45 was held inapplicable by the Income-tax Officer. It seems to us that this is really a matter for evidence and it is for the assessee to establish that the source of the capital which he invested in the construction of the cinema was from borrowings locally made and did not come out of the remittances. These orders are under appeal before the appropriate authority and we are not convinced that there was any failure to exercise a jurisdiction on the part of the Income-tax Officer or that the order which he made under section 46(1) of the Act is otherwise vitiated. We are accordingly unable to accept the contention that these orders are liable to be quashed.

23. The result accordingly is that W.P No. 366 of 1962 and W.P No. 977 of 1961 will stand allowed and orders will issue quashing the assessment for the year 1954-55 and the order under section 46(1) relevant thereto. All the other writ petitions are dismissed. Since the petitioner has succeeded only to a very limited extent, he will pay the costs of the department in W.P No. 977 of 1961. Counsel's fee Rs. 250.

24. Order accordingly.