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Case Number
Advocates
  • Mr. K. Srinivasan for Applicant.
  • Mr. C.S Rama Rao Sahib for Respt.
Judges
  • Rajamannar, C.J
  • Yahya Ali, J.
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Mr. K. Srinivasan for Applicant.
  • Mr. C.S Rama Rao Sahib for Respt.
Judges
  • Rajamannar, C.J
  • Yahya Ali, J.
See more information ...
Smart Summary

Structured Summary of the Opinion (Delivered by the Chief Justice)

Factual and Procedural Background

The Tribunal framed the central question as whether, when an assessee failed without reasonable cause to furnish a return of total income as required by a notice under S. 24(1), the Income-tax Officer was legally right in levying a penalty under S. 28(1)(a) in the course of proceedings under S. 34 read with S. 22(2) to assess income that had not previously been assessed.

The undisputed facts in the opinion are as follows:

  • The assessee did not submit returns within the prescribed time in response to a general notice under S. 22(1) for two successive years ending 12 April 1942 and 12 April 1943.
  • The department did not issue individual notices under S. 22(2) within the respective years of assessment.
  • On 25 January 1945 the Income-tax Officer issued notices under S. 34 calling for returns within 35 days for the respective years; the assessee submitted returns in response and assessments were made.
  • During these proceedings, notices under S. 28 were issued seeking to levy penalties for failure to file returns pursuant to the earlier general notices under S. 22(1).
  • Penalties were imposed (specified amounts are recorded for both years) and these penalties were confirmed by the Appellate Assistant Commissioner and the Tribunal. A reference to this Court was confined to the penalty for the year ending 12 April 1943, which is the subject of the present opinion.

Legal Issues Presented

  1. Whether an Income-tax Officer may lawfully impose a penalty under S. 28(1)(a) in the course of proceedings under S. 34 (relating to escaped assessment) for the assessee's failure to furnish a return pursuant to a general notice under S. 22(1), where there had been no prior assessment for that period.

Arguments of the Parties

Applicant's (Assessee's) Arguments

  • It was not competent for the Income-tax Officer to levy a penalty in the course of proceedings under S. 34 for a default that was not committed in the course of that proceeding; proceedings under S. 34 (for escaped income) are separate and distinct from the prior proceedings that culminate in an assessment or declaration of no assessment.
  • If there had been a previous assessment under S. 23 and later proceedings under S. 34 were commenced for escaped income, penalty could be levied only for defaults committed in the course of the S. 34 proceeding itself, not for defaults in the prior proceeding.
  • The applicant relied on the Allahabad High Court decision in Mayaram Durga Prasad v. Commissioner of Income-tax, United Provinces, which held that penalty under S. 28 could not be imposed in the later proceedings for concealment in the earlier proceeding where the later return had been accepted and formed the basis of assessment.
  • An additional contention (raised later) was that because no notice under S. 22(2) was issued during the year of assessment, the general notice under S. 22(1) and the default lapsed at the end of that year so that the officer could not validly levy penalty thereafter.
  • The applicant also asked the Court to treat the S. 34 notice requiring return within 35 days as an extension of time within the proviso of S. 32(1). This point was not raised before the Tribunal.

The opinion does not set out detailed arguments by the Revenue or other parties beyond the factual chronology and the legal points the applicant advanced; therefore no separate respondent argument summary is available in the provided text.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Mayaram Durga Prasad v. Commissioner of Income-tax, United Provinces Held that penalty under S. 28 could not be imposed in later S. 34 proceedings for concealment in an earlier proceeding once the later return was accepted and formed basis of assessment; proceeded on view that the earlier and later proceedings are distinct and separate and identified three ingredients for penalty (satisfaction of deliberate inaccuracy, determination by officer, and refusal to accept the return). The Court considered this ruling but distinguished the facts (noting that in the present case there had been no prior final assessment). The Court respectfully disagreed with the conclusion that S. 34 proceedings are separate and distinct for the purposes of S. 28 where they relate to the same period; it declined to import the artificial separation into S. 28's construction.
In re Burn and Co.; Commissioner of Income-tax Bombay and Aden v. Khemchand Ramdas Principle that once an assessment is made or an order is passed that no assessment can be levied, the proceedings are closed and cannot be re-opened except as provided by Ss. 34 and 35 of the Act. The Court cited these authorities to acknowledge that when an assessment is final the proceedings are closed; but it used that principle to delimit the effect of finality, not to support an artificial separation in the facts of the present case where no final assessment had been made.
Harakchand Makanji and Co. v. The Commissioner of Income-tax, Bombay City Held that if the assessee submits a return after the end of the year of assessment, the Income-tax Officer can proceed to make a valid order of assessment without an individual notice under S. 22 and without taking action under S. 34. The Court relied on this decision to reject the applicant's contention that the general notice under S. 22(1) or the default "lapsed" at the end of the year. The Harakchand decision was used to show that a valid general notice can continue to initiate assessment proceedings after the year-end.

Court's Reasoning and Analysis

The Court began by restating the Tribunal's framed question and noting that the facts were not in dispute. It then summarized the applicant's main contention: that S. 34 proceedings (for escaped assessment) are separate and distinct from prior assessment proceedings, and therefore a penalty under S. 28 could not be levied in S. 34 proceedings for defaults occurring in the prior proceeding.

The Court examined the Allahabad High Court decision relied upon by the applicant (Mayaram Durga Prasad). It recorded the reasoning in that case — including the three ingredients identified as prerequisites for imposition of a penalty — and noted the Allahabad Court's conclusion that the proceedings terminating in the original assessment were no longer before the officer and that the later S. 34 proceedings were fresh and distinct.

However, the Court identified a factual difference: in the present case there had been no prior final assessment or order that no assessment could be levied. On that basis the Court found it difficult to accept the applicant's contention that the S. 34 proceeding was separate and distinct from the proceeding deemed to have been initiated by the general notice under S. 22(1).

Substantively, the Court took the following analytical steps:

  • It held that so long as the proceedings under S. 34 relate to the assessment for the same period as the original assessment, the Income-tax Officer is competent to levy a penalty on any ground open to him under S. 28(1), even though the penalty relates to a prior stage of the proceeding.
  • The Court allowed one possible qualification: if the default forming the basis of penalty was within the knowledge of the officer who passed the final order in the prior proceeding and that officer had failed to exercise his power under S. 28 during the course of that proceeding, then possibly the later officer might have no power to impose penalty. This qualification was suggested but not applied to the present facts.
  • The Court emphasized the language of S. 28, which speaks of the Income-tax Officer being satisfied "in the course of any proceedings under the Act," and interpreted "any proceeding" to mean proceedings relating to a particular period of assessment for a particular assessee. The Court considered the language wide enough to permit imposition of penalty in S. 34 proceedings relating to the same period.
  • The Court rejected the applicant's contention that the general notice under S. 22(1) and the default had "lapsed" at the end of the year because no notice under S. 22(2) was issued during the year. It found no legal basis for such lapse and relied on Harakchand Makanji and Co. to show that valid assessment proceedings can be initiated or continued after the year-end.
  • The Court declined to entertain the new argument that the S. 34 notice should be treated as an extension under the proviso to S. 32(1), noting that this point was not raised before the Tribunal and that there was no substance in it.

On the basis of the above analysis the Court concluded that an Income-tax Officer may lawfully impose a penalty under S. 28(1)(a) in the course of S. 34 proceedings relating to the same assessment period, and it answered the Tribunal's question in the affirmative.

Holding and Implications

Holding: The Court answered the framed question in the affirmative — the Income-tax Officer was legally right to levy a penalty under S. 28(1)(a) in the course of the proceedings under S. 34 relating to the relevant assessment period.

Implications:

  • Direct effect: The Court sustained the legal basis for levying the penalty for the year ending 12 April 1943; the applicant was ordered to pay the costs of the reference in the amount of Rs. 250.
  • Scope: The Court clarified that where S. 34 proceedings relate to the same period as the original assessment proceedings (including cases where no prior final assessment was made), the Income-tax Officer may, if satisfied in the course of those proceedings, impose a penalty under S. 28(1). The Court did note a possible limitation in the special circumstance where a prior officer knew of the default and failed to act under S. 28 — a limited qualification suggested but not applied in this case.
  • Broader precedent: The opinion does not explicitly state that it establishes a novel principle beyond resolving the matter presented; it explains the interpretation of S. 28 and its application in the facts before the Court. No express statement that a new, general rule of law was being created appears in the provided text.
V.N.J
Show full summary ...

    C.V Govindarajulu Iyer, Shevapet v. The Commissioner Of Income-Tax, Madras.

    (Delivered by the Chief Justice.)

    The question for decision in this case has been framed by the Tribunal in the following manner:

    “Whether on the assessee's failure without reasonable cause to furnish a return of his total income as required by a notice under S. 24(1), the Income-tax Officer was legally right in levying a penalty under S. 28(1)(a) in the course of the proceedings taken by him under S. 34 read with S. 22(2) to assess such income, which had not previously been assessed at all.”

    The facts are not in dispute. The applicant in spite of general notice under S. 22(1) of the Act did not within the prescribed time submit his returns for two successive years ending 12th April 1942 and 12th April 1943. The department, however, did not proceed to issue notices under S. 22(2) of the Act within the respective years of assessment. Subsequently on the 25th January 1945, the Income-tax Officer issued notices under S. 34 of the Act calling upon the assessee to deliver to him within 35 days of the receipt of the notices the returns in forms attached to the notices of the respective years. In pursuance of these notices, the assesses submitted his returns for the two years within the specified time on the basis of which assessments were made in respect of the two years. Pending these proceedings notices under S. 28 of the Act were also issued by the officer for levying penalty for failure of the applicant to file his returns pursuant to the general notices under S. 22(1) of the Act and eventually imposed a penalty of Rs. 1,226-7-0 for the year ending 12th April 1942 and Rs. 7981-3-0 for the year ending 12th April 1943. The penalty levied was confirmed by the Appellate Assistant Commissioner and the Tribunal. An application was made for a reference to this Court, but it was confined to the penalty in respect of the assessment year ending 12th April 1943, with which alone we are concerned in this reference.

    Before us it was contended by the learned Counsel for the applicant that it was not competent for the Income-tax Officer to levy a penalty in the course of a proceeding under S. 34 of the Act for a default not committed in the course of that proceeding. He developed his contentions thus: the proceeding under S. 34 relates to escaped assessment, i.e, assessment which escaped totally or partially and is separate and distinct from a prior proceeding which generally culminates in an assessment order or in a declaration that no assessment can be levied on the persons concerned. If there has been an assessment under S. 23 of the Act and thereafter there is a proceeding under S. 34 because of the escape of any item of income from assessment, then penalty can be levied only in respect of defaults and other acts committed in the course of that proceeding only and not in the course of the proceeding which ended with the assessment. He relied upon the ruling of the Allahabad High Court in Mayaram Durga Prasad v. Commissioner of Income-tax, United Provinces (1) in support of this contention. In that case (which was decided under the old Act of 1922) the assessee submitted a return for the year in question showing an amount of Rs. 2,650 as his income. This return was accepted and a tax levied on that basis. Subsequently it was discovered that the assessee had made a much larger income and proceedings under S. 34 of the Act were commenced and the assessee was called upon to make a fresh return. This time he made a return showing an income of Rs. 38,327 and the Income-tax Officer accepted the figure. In addition to an assessment made on the income as thus disclosed, the officer also imposed a penalty on the assessee for concealing particulars of his income and for furnishing inaccurate particulars of his income. The question of law referred to the High Court on these facts was as follows:

    “Where an assessee in answer to an original notice under S. 22(2) has returned his incoml below its real amount and has been assessed accordingly and later in reply to a notice under S. 22(2)/34 returns his income at the correct figure, is the imposition of a penalty in respect of the concealment of income in the former return authorise by Sub-S. (1) of S. 28.”

    The learned Judges answered the question in the negative. They point out that there are three ingredients which go to make up a condition precedent to the infliction of a penalty, namely. (1) that the Income-tax Officer should be satisfied that the assessee has deliberately furnished inaccurate particulars and returned an income below the real amount, (2) that there was a determination by the income-tax Officer that the assessee has furnished inaccurate particulars of the income, and (3) a refusal on the part of the Income-tax Officer to accept the return as correct. They then point out that in that case the return of the income in pursuance of S. 34 has been accepted as correct and has formed the basis of the assessment. The main ground on which they held that the levy of penalty was wrong appears to us to be this: that the proceedings which terminated in the original assessment were no longer before the Income-tax Officer and the proceedings under S. 34 of the Act were fresh proceedings in respect of escaped income and as these two proceedings are distinct from one another no penalty can be imposed in the later proceedings for anything committed in the course of the former proceeding. Reliance was placed on the use of the present perfect tense, namely, “has concealed and has furnished.” One apparent difference between the facts in that case and the facts in the present case is that in this case there was originally an assessment which was final but for the provisions of S. 34 of the Act. In the case before us, admittedly there has been no such assessment; nor has there been any order that the applicant was not liable to be assessed to income-tax. In these circumstances it becomes difficult to accept the contention of the learned Counsel for the assessee that there is a separate proceeding for the assessment of the income for the concerned period distinct and separate from the proceeding which must be deemed to be initiated with the publication of the general notice under S. 22(1) of the Act.

    But apart from this difference in the facts between the present case and the facts in the Allahabad case, we are inclined to the view that so long as the proceedings under S. 34 relate to the assessment for the same period as the original assessment, the Income-tax Officer will be competent to levy a penalty on any ground open to him under S. 28(1), even though it relates to the prior proceeding. There may be one possible qualification of his power, and that is when the default or the act which is the basis of the imposition of the penalty was within the knowledge of the officer who passed the final order in the prior proceeding and if that officer had failed to exercise his power under S. 28 during the course of the proceeding before him. Possibly in that case he would have no power. But it appears to us that there is nothing in the language of S. 28 which prevents an Income-tax Officer if he is satisfied in the course of a proceeding under S. 34 relating to a particular period of assessment that a default has occurred under S. 22(1) from levying a penalty. With due respect to the learned Judges of the Allahabad High Court, we do not agree that for the purpose of S. 28, the two proceedings are separate and distinct. It is true that it has been pointed out that once an assessment is made or an order is passed by the Income-tax Officer that no assessment can be levied, the proceedings are closed and these proceedings cannot be re-opened and the result of these proceedings cannot be altered in any manner except in the manner provided by Ss. 34 and 35 of the Act—Vide In re Burn and Co. , Commissioner of Income-tax Bombay and Aden v. Khemchand Ramdas (2). It is also clear that under S. 34 of the Act there is no de novo assessment in the sense that it is open to the assessee also to show that he has been wrongly assessed in respect of matters which are not covered by the notice under S. 34. Essentially the proceedings under S. 34 whether partially or totally, relate to the same proceeding which must be deemed to have commenced with the publication of the general notice under S. 22(1). In some respects and in some cases it may lead to supplemental assessment. In other cases it may result in assessment for the first time, as in this case where there has not been any assessment before. We do not find any justification for the artificial separation of a proceeding under S. 34 from a proceeding relating to the original assessment or to proceedings which started before a notice under S. 34, so long as they all relate to the same assessee and the same period. In any event, such an artificial distinction cannot be imported into a construction of S. 28 of the Act. The language is very wide, because it says that “if the income-tax Officer….. in the course of any proceedings under the Act is satisfied.” Of course, the exression “any proceeding” must mean proceeding relating to a particular period of assessment in respect of a particular assessee.

    It was further contended by learned Counsel for the assessee that in this case because there was no notice under S. 22(2) and no action was taken by the Income-tax Officer during the year of assessment, the general notice under S. 22(1) and the default committed by him in not submitting a return as required by that notice lapsed, as it were, at the end of the year. We are unable to accept this contention which does not appear to have any legal basis to support it. There is no lapse in the sense that after a year there could not be a valid assessment at all by the Income-tax Officer. It has been held by a Bench of the Bomnay High Court that if the assessee himself submits a return, though after the end of the year of assessment, the Income-tax Officer can proceed to make a valid order of assessment without an individual notice served upon him under S. 22 and taking action under S. 34—see Harakchand Makanji and Co. v. The Commissioner of Income-tax, Bombay City . This shows that there could be no lapse of what was a valid general notice under S. 22(1) which initiated the assessment proceedings. Once assessment proceedings have thus commenced, they can only come to an end by either an order of assessment or an order declaring that no asssessment can be made. In this case admittedly there is no such order and when eventually proceedings are taken under S. 34, such proceedings must be deemed to relate to the proceedings which commenced with the public notice under Sub-S. (1) of S. 22.

    Finally the learned Counsel for the applicant asked us to treat the notice under S. 34 calling upon the assessee to submit his return within 35 days of its receipt as an extension of time granted to him in his discretion for the delivery of the return within the meaning of the proviso under S. 32(1). This point was not raised before the Tribunal and the applicant cannot be permitted to raise it before us; nor do we think that there is any substance in this point.

    This answer to the question must be in the affirmative. The applicant will pay the costs of this reference, Rs. 250.

    V.N.J

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    Comments

    C.V Govindarajulu Iyer, Shevapet v. The Commissioner Of Income-Tax, Madras.
    (Aug 11, 1948)