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Advocates
  • For the Appellant: S. Narayanaswami, Advocate.
  • For the Respondent: C.S. Rama Rao Sahib, Advocate.
Judges
  • Rajagopalan
  • Rajagopala Ayyangar, JJ.
Acts
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • For the Appellant: S. Narayanaswami, Advocate.
  • For the Respondent: C.S. Rama Rao Sahib, Advocate.
Judges
  • Rajagopalan
  • Rajagopala Ayyangar, JJ.
Acts
See more information ...
Smart Summary

Structured Summary of the Court's Opinion

Factual and Procedural Background

The reference arises under Section 66(1) of the Indian Income-tax Act concerning an assessee who was a tanning expert. For the previous year ended 31 March 1947 (assessment year 1947–1948) the assessee filed a return on 21 February 1951 declaring profits of Rs. 550. That return was filed without any individual notice issued under Section 22(2); it was filed in response to the public notice under Section 22(1). After enquiry the Income-tax Officer rejected the return and estimated the assessee's income at Rs. 30,000.

The assessee appealed to the Appellate Assistant Commissioner, contending that the assessment was illegal because the statement filed declared an income below the taxable limit and therefore was not a "return" within the Income-tax Act; accordingly, assessment proceedings should have been initiated only by serving a notice under Section 22(2) read with Section 34. The Appellate Assistant Commissioner rejected this contention and dismissed the appeal; the Appellate Tribunal also dismissed the appeal but referred the following question of law to this court: whether the assessment of Rs. 30,000 for assessment year 1947–1948 is valid.

Legal Issues Presented

  1. Whether the assessment of Rs. 30,000 for the assessment year 1947–1948 is valid.
  2. Whether a statement voluntarily filed in response to the public notice under Section 22(1), which discloses income below the taxable limit, constitutes a "return" within the meaning of the Income-tax Act (and therefore permits assessment proceedings without a prior individual notice under Section 22(2) and without invoking Section 34).

Arguments of the Parties

Appellant's (Assessee's) Arguments

  • The statement filed by the assessee, because it declared income below the taxable limit, was not a "return" within the meaning of the Income-tax Act.
  • Proceedings against the assessee could be taken only by invoking Section 22(2) read with Section 34 (i.e., following individual requisition/notice and the safeguards of Section 34); as no such notice was issued, the assessment was illegal.
  • Counsel for the assessee also sought to distinguish returns filed under Section 22(1) (public notice) from those filed pursuant to Section 22(2) (individual notice), arguing that the word "return" should be given different meanings in those contexts and that a voluntary return disclosing non-taxable income should not be treated as a "return" permitting assessment.

Respondent's (Department's) Arguments

  • The Income-tax Officer was entitled to assess on the basis of the voluntary return filed in response to the public notice under Section 22(1); there was no necessity to issue an individual notice under Section 22(2) where a voluntary return had been filed.
  • Even if the return disclosed income below the taxable limit, that fact did not strip the statement of its character as a "return" under the Act and did not bar the Officer from applying other provisions of the enactment (including disregarding the return and estimating income).
  • The department relied upon existing judicial authorities (cited in the opinion) that support the view that assessments may validly proceed where voluntary returns have been filed after public notice under the relevant section.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Harakchand Makanji & Co. v. Commissioner of Income-tax, Bombay City, (1948) 16 ITR 119; AIR 1948 Bom 401 Held that once a public notice under Section 22(1) is given and an assessee voluntarily makes a return in response, assessment proceedings have commenced and there is no necessity to serve individual notice under Section 22(2); thus S.34 is not attracted where a voluntary return has been made. The court relied on this decision to support the proposition that the Income-tax Officer could proceed with assessment on the basis of a voluntary return made pursuant to the public notice and could, if appropriate, ignore the return and estimate the income.
C. V. Govindsrajulu Iyer v. Commissioner of Income-tax, Madras, (1948) 16 ITR 391; AIR 1949 Mad 399 Quoted with approval the observations affirming that voluntary returns made after public notice permit assessment proceedings without individual notice under the corresponding section. The court noted that this decision quoted Harakchand with approval and used it as reinforcement for the view that voluntary returns filed under the public notice provision constitute returns for purposes of assessment.
Commissioner of Agricultural Income-Tax v. Sultan Ali Gharami, (1951) 20 ITR 432 (Cal) Considered whether a particular return was voluntary or in compliance with an individual requisition; discussion included the view that a return under the public-notice provision is a return filed by a person who decides for himself that he had assessable income and that a return showing no assessable income cannot be treated as the public-notice return if in fact it was filed in response to an individual notice. The court cited passages from this decision and noted that, despite some differences in reasoning between benches, the decision contains observations supportive of the proposition that a voluntary return under the public-notice provision is not less a "return" simply because it shows income below the taxable limit; the present court relied on that aspect to reinforce its conclusion.
R.K. Das & Co. v. Commissioner of Income-tax, West Bengal, (1956) 30 ITR 439; AIR 1956 Cal 161 Provided clarification/explanation by Chakravartti C.J. about earlier observations in the Sultan Ali Gharami case, including that a return filed in compliance with a notice may, if belated, be a return showing income below the taxable limit. The opinion relied on this later explanation to support the view that the quantum of income disclosed does not alter the character of a voluntary return under the public-notice provision.
Ranchhoddas Karsondas v. Commissioner of Income-tax, Bombay City, (1954) 26 ITR 105; AIR 1954 Bom 543 Rejected the contention that a voluntary return showing income below the assessable limit is not a return under the public-notice section; held that to take that view would be contrary to the scheme of the Income-tax Act. The court cited this Bombay High Court decision as further authority against the assessee's interpretation and to support the conclusion that a voluntary return remains a "return" even if it discloses income below the taxable threshold.

Court's Reasoning and Analysis

The court confined the controversy to the legality (not the quantum) of the assessment and framed the decisive question as whether the statement filed by the assessee amounted to a "return" within the meaning of the Income-tax Act. The court proceeded through the following analytical steps:

  1. Clarification of facts: the court emphasised that there was no individual notice under Section 22(2) and that the statement was filed pursuant to the public notice under Section 22(1), thus the filing was voluntary.
  2. Consideration of the assessee's interpretive contention: the assessee argued that a "return" must disclose taxable income and that, absent such a disclosure, the statement cannot be a return and assessment could proceed only after notice under Section 22(2) and compliance with Section 34.
  3. Rejection of the contention that the word "return" has different meanings in the various sub-sections of S.22: the court found it unsound to attribute different meanings to the same statutory word across sub-sections merely because the obligations to file arise in different ways (public notice v. individual requisition).
  4. Practical and textual objections: the court explained that accepting the assessee's construction would produce anomalous and unworkable results — for example, enabling a tax officer to treat a voluntarily-filed statement as non-existent for many purposes, allowing penalties to be levied for failure to furnish "a return" and undermining other sections (S.22(3), (4), etc.) — outcomes inconsistent with the statute's scheme.
  5. Reliance on authority: the court referred to and analysed prior judicial decisions (including Harakchand, C.V. Govindsrajulu Iyer, Sultan Ali Gharami, R.K. Das & Co., Ranchhoddas Karsondas) to show that both Bombay and Calcutta High Court decisions support the proposition that a voluntary return filed pursuant to the public-notice provision remains a "return" even if it discloses income below the taxable limit, and that assessment proceedings may validly follow.
  6. Conclusion from synthesis: applying the statutory language, practical consequences, and authoritative precedents, the court concluded that the statement filed by the assessee was a return within S.22(1) and that assessment proceedings based on it were valid.

Holding and Implications

Holding: Question answered against the assessee. The court held that the return submitted by the assessee for the assessment year 1947–1948 was a valid "return" within Section 22(1) and that assessment proceedings resulting in the estimate of Rs. 30,000 were legally valid.

Implications and direct consequences:

  • The assessment of Rs. 30,000 for assessment year 1947–1948 stands as valid against the assessee.
  • The assessee was ordered to pay the costs of the reference amounting to Rs. 250.
  • The decision applies established interpretive lines in earlier authorities rather than announcing an unprecedented rule; the court relied on and followed prior case law to resolve the statutory interpretation issue.

Note: This summary is strictly confined to facts, arguments, precedents, reasoning and outcomes explicitly stated in the provided opinion text.

Show full summary ...

    P.S. Rama Iyer, In Re

    1. This reference under Section 66(1) of the Indian Income-tax Act has clearly to be-answered against the assessee and in favour of the department. The assessee was a tanning expert. For the previous year ended 31st March, 1947 (the assessment year 1947–1948) he filed a return on 21-2-1951 estimating his profits from business at Rs. 550. This return was filed admittedly without a notice under S. 22(2) having been issued to the assessee. The income as set out in the return was scrutinised after enquiry and the Income-tax Officer rejected the return and estimated the assessee's income at Rs. 30,000.

    2. We are not now concerned with the correctness of the quantum of the assessment but only with its legality. From the order of assessment the assessee filed an appeal to the Appellate Assistant Commissioner and there urged that the assessment was illegal and invalid. The ground for this contention was that as the return that he had filed declared an income below the taxable limit it was not a “return” within the meaning of the Income-tax Act, and that proceedings could have been taken against him only by invoking the provisions of S. 22(2) read with S. 34 and that as this was not done the assessment was illegal.

    3. This contention was rejected by the Appellate Assistant Commissioner who held that when an assessee had filed voluntarily a return there was no necessity for the Income-tax Officer to call in aid S. 34 and that the assessment was therefore valid. This view was upheld and the appeal of the assessee was dismissed by the Appellate Tribunal on further appeal by the assessee. They however referred to this court the following question of law for its decision: “Whether the aforesaid assessment (i.e, of Rs. 30,000) for the assessment year 1947–1948 is valid?

    4. Before we deal with the legal contentions urged on behalf of the assessee, it is necessary to mention one fact about which there is no dispute, that there was no notice issued to the assessee under S. 22(2) and that the return was filed in pursuance of the public notice under S. 22(1). In that sense the action of the assessee in filing the return was voluntary and not in compliance with any requisition by the Income-tax Officer.

    5. The only question therefore for our consideration is whether the statement, which he filed before the Income-tax Officer setting out the details of the income which he said he had received during the account year ended 31-3-1947, does or does not amount to a “return” within the meaning of the Income-tax Act. It was urged by learned counsel for the assessee that in order that the statement of his income filed by the assessee might be a “return” it ought to disclose the receipt of taxable income.

    6. We are wholly unable to accept this interpretation of S. 22. To a question by us during arguments as to whether a return filed by a person on whom a notice had been issued under S. 22(2) was a return where such a return did not disclose taxable income, learned counsel answered in the affirmative but sought to distinguish returns under S. 22(1) from those filed under S. 22(2). We are unable to follow this argument which seeks to attribute different meanings to the same word “return” used in the several sub-sections of S. 22.

    7. This differentiation was however sought to be sustained by the difference in the language employed in S. 22(1) and (2) giving rise to the obligation to file a return. It was pointed out that whereas under sub-s. (1) the public notification called for a return only when the income-tax “exceeded the maximum amount which is not chargeable to income-tax” the decision whether this is so or not being at that stage left to the person filing the return, whereas under sub-s. (2) It is the opinion of the Income-tax Officer regarding the person being in receipt of income above the taxable minimum that determined the calling for the return.

    8. It was, therefore, urged that unless the assessee thought that his income was above the taxable limit he would not send a “return” and that consequently what he sent in would not be “a return” where the income disclosed was less. In our opinion this argument is unsound and has to be rejected. It is one thing to say that where there is a doubt or dispute as to whether a return filed was a voluntary one under S. 22(1) or not, the fact that the income disclosed is less than the minimum might be an important or even a crucial factor for proving that it was really one under S. 22(2).

    9. We might add that this was precisely the scope of the decisions of the Calcutta High Court on which learned counsel for the assessee relied and to which we shall advert a little later. But this is far from saying that a return which admittedly was not preceded by any auction on the part of the Income-tax Officer under S. 22(2) and which was a voluntary return ceased to be a “return” because of the quantum of the income it disclosed.

    10. If this argument were right it would follow that where an assessee filed such a return under S. 22(1) even within the assessment year the Income-tax Officer would be obliged to proceed as if no return had been filed and be enabled to-levy penalties under S. 28 for failure to furnish “a return” on the ground that what was filed was not “a return.” There would be other anomalous consequences like the inapplicability of S. 22(3) and (4) in the case of such persons but as the point is clear we consider it unnecessary to detail the necessary consequences of such a construction.

    11. It is sufficient to say that the acceptance of such a construction would make the entire Act unworkable, lay upon assessees the burden of penal provisions and enable the Income-tax Officers to complete assessments on basis of estimates, all because the statement filed by the assessee is not “a return” within the meaning of the Act.

    12. For the position that on the submission of such a return the Income-tax Officer was entitled to proceed with the assessment applying the other provisions of the enactment including that for ignoring the return and estimating the income it is sufficient to refer to Harakchand Makanji and Co. v. Commissioner of Income-tax, Bombay City, (1948) 16 ITR 119 : (AIR 1948 Bom 401) (A), where Chagla C.J, held that once a public notice was given under S. 22(1) assessment proceedings commenced and there was no obligation upon the Income-tax Officer to serve notice on an assessee individually under S. 22(2) and that if a return were voluntarily made in response to this public notice, there was no question of any income escaping assessment, to attract the provisions of S. 34. The learned Chief Justice said,

    “Notice under S. 34 is only necessary if at the end of the assessment year no return has been, made by the assessee and the Income-tax authorities wish to proceed under S. 22(2) by serving a notice, individually. It may then be stated that as the assessment year had come to an end and as no return had been furnished and as the authorities wished to proceed under S. 22(2) they should not do so without a notice under S. 34. But in this case the assessees themselves chose-voluntarily to make a return no question of notice either under S. 22(2) or S. 34 arises”.

    13. These observations have been quoted with approval by the learned Chief Justice of this court delivering the judgment of the Bench in C.V Govindsrajulu Iver v. Commissioner of Income-tax Madras, (1948) 16 ITR 391 at p. 397 : (AIR 1949 Mad 399 at p. 401) (B). No doubt in the case before the Bombay High Court it does not appear whether the voluntary return furnished by the assessee disclosed less than the taxable income. But subject to the argument regarding the meaning of the expression “return” learned counsel for the assessee does not contend that if the statement submitted by the assessee in this case was a return, the assessment was otherwise invalid.

    14. Learned counsel however relied on the decision of the Calcutta High Court in Commissioner Of Agricultural Income-Tax v. Sultan Ali Gharami, (1951) 20 ITR 432 (Cal) (C). The question before the court related to an assessment under the Bengal Agricultural Income-tax Act the provisions of which were exactly similar to those contained in the Indian Income-tax Act. After the public notice under the section corresponding to S. 22(1), there had been an individual notice served on the assessee under the provision corresponding to S. 22(2) and subsequently the assessee had submitted a return disclosing an income below the taxable limit.

    15. The main question for the court's consideration was whether this was a voluntary return or not. If it was in pursuance of the requisition of the Income-tax Officer, it would not be voluntary. It was however contended by the department that as the requisition was issued after the period, when a valid requisition could he made, had expired, it must be treated as non est and’ that the return filed though actually in compliance there of should be treated as legally attributable to the public notice requiring returns. This latter contention was rejected.

    16. Chakravartti J., (as he then was) who delivered the judgment of the court dissented from the view expressed in (1948) 16 ITR 119 : (AIR 1948 Bom 401) (A), in so far as the Bombay High Court had held that the assessment proceedings started with the issue of a public notice and expressed it as his opinion that it started only with the filing of a return. That is one of the points of difference between the two decisions but it is not necessary for us to canvass this question as that is outside the controversy raised by the present reference. What is to the point in the present context is a passage which occurs at page 442 of the report:

    “In order that the return may be treated as the return called for under S. 24(1) (corresponding to Section 22(1) of the Income-tax Act) it must be capable of being so treated which clearly it is not. A return under S. 24(1) is a return filed by a person who decides for himself that he had an assessable income in the previous year and by filing the return he offers that income for assessment.

    A person who had no assessable income in the previous year is placed under no duty by a notice under S. 24(1) to furnish a return and a person who thinks, rightly or wrongly, that he had no assessable income will furnish none. A return under S. 24(1), whether filed within the time allowed under the section or filed subsequently……………… will therefore show an assessable income…….. A return which showed no assessable income, could not possibly be ‘treated’ as a return filed under S. 24(1) or a return called for under that section but filed under S. 24(3), when in fact it was filed in response to a notice under S. 24(2).”

    17. The learned Judge further proceeded:

    “It is true that there is nothing to prevent a person from filing a return showing an income below the assessable limit, in response to a notice under S. 24(1) but the question we are considering is whether a particular return not filed in fact under S. 24(1) or ……………….. is yet having regard to its contents capable of toeing treated as a return under the one or the other section.”

    18. Though this passage is somewhat ambiguous, one thing is clear and that is sufficient for the present purpose that the learned Judge did hold that a voluntary return filed under S. 22(1) was not any the less “a return” within the Act because it disclosed an income below the taxable limit. We are reinforced in this conclusion by the explanation of these observations by Chakravartti. C.J, himself in R.K Das and Co. v. Commissioner of Income-tax West Bengal, (1956) 30 ITR 439 : (AIR 1956 Cal 161) (D) to which he shall refer presently. That the correct view is as above stated has been held by the Bombay High Court in Ranchhoddas Karsondas…Applicant; v. The Commissioner Of Income-Tax, Bombay City, Bombay….*, Bombay City, (1954) 26 ITR 105 : (AIR 1954 Bom 543) (E), where Chagla C.J, delivering the judgment of the Court and after referring to the observations of Chakravartti J., of the Calcutta High Court, said:

    “It is difficult to understand if it is open to a person to file a return which shows an income below the assessable limit under what other section would such a return be made except under S. 22(3); and it must also be said that this opinion of the learned Judge is obiter because in that particular case after a notice under S. 24(1), was issued there was also a notice under S. 24(2) (corresponding to our S. 22(2)……………. But to take the view that a voluntary return, made is not a return under’ S. 22(3) merely because the return is of an income which is not assessable is, in our opinion, with great respect, unacceptable, and contrary to the scheme of the Income-tax Act.”

    19. Chnkravantti C.J had occasion to consider in (1956) 30 ITR 439 : (AIR 1956 Cal 161) (D) the decision of the Bombay High Court in (1954) 25 ITR 105 : (AIR 1954 Bom 543) (E), and the comment it made upon his own decision in (1951) 20 ITR 432 (Cal) (C), and explained himself thus: After stating the facts of (1951) 20 ITR 432 (Cal) (C), he said:

    “………………… I went on to say that a return under S. 24(1) would only be filed by a person who thought that he had a taxable income and therefore a return showing an income below the taxable limit could not be held, on a construction thereof, to be a return under S. 24(1) and consequenty the return in the case we were then considering could not be treated as such a return filed under S. 24(3).

    To say that was not to say that even a return filed in compliance with a notice under S. 22(2), if filed belatedly under S. 22(3), could not be a return showing an income below the taxable limit.”

    20. We are therefore clearly of the opinion that the return for the assessment year 1947–1948 submitted by the assessee was a return within S. 22(1) on which assessment proceedings could validly be taken. It is for this reason that we answer the question referred to us in the affirmative and against the assessee. As the assessee has failed he will pay the costs of the reference Rs. 250.

    R.G.D

    21. Question answered against assessee.

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    Comments

    P.S. Rama Iyer, In Re
    (Feb 5, 1957)