R. P. Kandaswami and Others vs Commissioner of Income Tax, Madras

Jagadisan, J.—In this reference under the Indian Income Tax Act the validity of the assessments on the assessee in respect of the two

assessment years 1954-55 and 1955-56 is called in question. The assessee is an association of persons conducting an educational institution at

Rishivandayam in South Arcot Dt. For the two assessment years 1954-55 and 1955-56, the Income Tax Officer did not issue notice u/s 22(2) of

the Act. The assessee however submitted voluntary returns of income from the institution, witch is said to be a tutorial institute, presumably in

response to the general notice u/s 22(1) of the Act. The income returned for these two years was Rs. 6,000 and Rs. 7,481 respectively. On 6th

February, 1958, the Income Tax Officer served notice u/s 22(2) read with section 34 and required the assessee to submit returns of income for the

said two years. The assessee wrote to the officer on 14th February, 1958, submitting that the voluntary returns already submitted on 30th March,

1957, should be treated as the return of the assessee in response to the notice u/s 34. The officer issued notice u/s 23(2) on 18th February, 1958,

and called for evidence in support of the return. As a result of the enquiry the officer estimated the income of the assessee as Rs. 11,000 and Rs.

10,150 for the two years respectively and completed the assessment on 29th February, 1958. This he propertied to do u/s 23(2) read with section

34 of the Act.

The assessee went up on an appeal to the Appellate Assistant Commissioner and having failed before him took the matter to the Appellate

Tribunal and was again unsuccessful. The order of assessment of the Income Tax Officer in respect of the two years was challenged mainly on the

ground that the proceedings u/s 34 were misconceived and incompetent. At the instance of the assessee the following question has been referred to

us by the Tribunal u/s 66(1) of the Act :

Whether the aforesaid assessments made u/s 34 of the Act are valid in law ?

The real question that arises is whether the assessments made are valid. The form of the question referred to us is not precise or free from

ambiguity. We would therefore recast the question as follows :

Whether the aforesaid assessments purporting to be u/s 34 are valid in law.

It is abundantly clear that the initiation of proceeding u/s 34 in the instant case is incompetent. The assessee had made a voluntary return on the

30th March, 1957, in respect of both the years, and it was the duty of the Income Tax Officer to have dealt with that return and he had no

jurisdiction to issued notice u/s 34 of the Act. Section 34 can be invoked only if at the end of the assessment year no return has been made by the

assessee and the authorities wish to proceed u/s 22(2). But where the assessee himself makes a voluntary return the aid of section 34 is

unnecessary and is indeed unwarranted.

In Commissioner of Income Tax v. Ranchoddas Karsondas the Supreme Court held that a voluntary return by an assessee in response to the

general notice u/s 22(1) of the Act is a good return and can be filed at any time before assessment, and that the Act has not prescribed any limit of

time for making such a return. The Supreme Court also held that where in respect of any limit of time for making such a return. The Supreme Court

also held that where in respect of any year a return has been voluntarily submitted before assessment, the Income Tax Officer choose to ignore the

return and that any notice of reassessment and consequent assessment u/s 34 would be invalid. In that case for the assessment year 1945-56, the

assessee submitted a voluntary return on the 5th January, 1960, of his income for the accounting year 1944-45. He returned a net income of Rs.

1,935. The Income Tax Officer did not act on this return but issued a notice purporting to be u/s 34 of the Act on 27th February, 1950, calling

upon the assessee to submit his return. In answer thereto the assessee submitted on 14th March, 1950, a similar return as the return which he had

already made voluntarily. The officer then served upon him the notice u/s 22(4) and section 23(2) of the Act, asking him to produce his books of

account and to tender any evidence as he may choose to let in. On 26th July, 1951, the Income Tax Officer completed the assessment by adding a

sum of Rs. 9,026 to the income returned by the assessee. The point to be noticed in this case is that on the date when the Income Tax Officer

completed the assessment the four year period of limitation prescribed u/s 34(3) of the act had expired. At page 576, Hidayatullah J. observed

thus :

There was however the general notice u/s 22(1) A return in answer to that notice could be filed u/s 22(3) before assessment and for this there is no

limit of time. It was file on the 5th January, 1950. There was nothing to prevent the Income Tax Officer from taking up the return and proceeding

to assess the income of the assessee. It was open to him if there was sufficient justification for it to held that the amount noted in the foot note was

really the assessees income in which case an assessable income would have been found and the tax could be charged thereon. 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 u/s 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, nor was there any question of assessment escaping.

In S. M. Muthiah Thevar v. Commissioner of Income Tax, it was held following the decision of the Supreme Court that where the assessee had

in fact submitted a return and the officer had not made an assessment, the assessment remained indisposed of an the Income Tax officer was not

entitled to initiate proceedings u/s 34 for that year.

That the Income Tax Officer acted erroneously in resorting to section 34 in the present case is quite obvious, and indeed learned counsel for the

department does not seem to support the assessment as a valid one, by reason of the operation of section 34 of the Act. But, however gross the

mistake of the officer might have been in causing a notice to be issued on the 14th February, 1958, purporting to be u/s 34, the assessment passed

on 28th February, 1958, cannot be invalidated on this ground. It must be noted that the real basis for the assessment was the voluntary return

made by the assessee on the 30th March, 1957, and that the assessment itself was completed within the four year period prescribed u/s 34(3) of

the Act. We do not think that the assessment should be held to be invalid by reason of the fact that the Income Tax Officer purported to act u/s 34

as well. It is now well settled that the jurisdiction of any Tribunal does not depend upon the wrong provisions of law upon which the Tribunal might

have purposed to act, but upon the question whether the Tribunal had jurisdiction on a proper view of the functions and powers with which it is

clothed under the law or the statute creating it. In other words, the Tribunal will be not lose its jurisdiction which it undoubtedly has in a particular

case because of its having misquoted the provision of law under which it exercised the jurisdiction.

We would only refer to the observations of the Supreme Court in Hazari Mal Kuthiala v. Income Tax Officer :

The Commissioner, when he transferred this case, referred not to the Patiala Income Tax Act, but to the Indian Income Tax Act, and it is

contended that if the Patiala Income Tax Act was in force for purposes of reassessment, action should have been taken under that Act and not the

Indian Income Tax Act. This argument, however, loses point, because the exercise of a power will be referable to a jurisdiction which confers

validity upon it and not to a jurisdiction under which it will be nugatory. This principle is well settled : see Pithamber Vajirshet v. Dhondu Navlapa.

In our opinion the impugned assessments are quite valid in law.

The reference is answered against the assessee, who will pay the costs of the department. Counsels fee Rs. 250. Reference answered

accordingly.