RAM GOPAL RAJGARHIA vs COMMISSIONER OF Income Tax, BIHAR AND ORISSA.

This reference u/s 66(1) of the Income Tax Act is in regard to the assessment year 1952-53. The assessee is a shareholder of the Indian Mica Supply Company (Private) Limited, hereinafter to be referred to as the Company. In the assessment for the year 1953-54 the assessee share of dividend of the company, which was deemed to have been distributed to the 20th May, 1952, was included in his total income. On an appeal by the Company itself, the distribution of dividend was deemed to have been declared on the 29th of December, 1951, instead of 20th of May, 1952. This finding was recorded in the appeal preferred by the Indian Mica Supply Company (Private) Limited and the necessary modification of the order u/s 23A(1) followed therefrom.

In the assessees appeal against the assessment order in connection with 1953-54 u/s 34 of the Act, the Appellate Assistant Commissioner held that the deemed dividend income of the assessee should have come up for the consideration in the assessment year 1952-53 and not in the year 1953-54. In that view, he annulled the assessment made u/s 34 and restored the original assessment made u/s 23(3) which was without the inclusion of the deemed dividend in question. In that appellate order, he however, gave a further direction that the Income Tax Officer should take necessary steps to asses the deemed dividend income in the assessment year 1952-53. Following that direction, the Income Tax Officer issued the notice u/s 34(1) for the assessment year 1952-53 on 2nd September, 1960, and reassessed later the assessees income including the amount of Rs. 20,146 being the deemed dividend from the company, in the assessee total income for that year. Against this, the assessee preferred an appeal before the Appellate Assistant Commissioner contending that the proceeding u/s 34(1) were barred by limitation and was not saved by the second proviso to sub-section (3) of section 34. The Appellate Tribunal as, before whom an appeal was taken by the assessee, did not accept the assessees point. The question u/s 66(1) of the Act which has been framed by the Appellate Tribunal is as follows :

"Whether in the facts and circumstances of the case, the notice u/s 34 of the Indian Income Tax Act for the assessment year 1952-53 and the consequent inclusion of the deemed dividend income of Rs. 20,146 from the Indian Mica Supply Co. (Pvt.) Ltd. in the assessees assessment for 1952-53 were valid ?"

From what we have already stated, it would appear that in the original assessment for the year 1953-54, the assessee share of the divided from the company was not included. When later on it came within the information of the Income Tax Officer that such dividend was to the credit of the assessee, proceedings u/s 34 of the Income Tax Act were initiated and that amount of deemed dividend was included in the assessees total income. Against that, the assessee had gone in appeal to the Appellate Assistant Commissioner. By that time, in an appeal by the Company the date of declaration of the dividends was held by appellate authority to be the 19th December, 1951, and not 20th of May, 1952. In that view of the matter, the Appellate Assistant Commissioner, in the assessees appeal set aside the inclusion of the deemed dividends for the Income Tax assessment year 1953-54. Thereafter the Income Tax Officer issued a notice u/s 34(1)(a) on the 2nd September, 1960. By that date, the period of four years as provided u/s 34 had already expired from the last date of the year in which the assessment of the assessees total income for the year 1952-53 should have been made. The department supported the action taken u/s 34(1) of the Act, on the ground that the proceedings under that provision were taken in pursuance of the direction and the finding given in respect of the accrual of the dividend income from the company in the appeal preferred by the assessee.

Learned counsel appearing for the assessee-petitioner before us urged that that contention was not correct and is no longer available to the department in view of the decision in the case of Income Tax Officer A. Ward, Sitapur v. Murlidhar Bhagwan Das. In that case an interest income of Rs. 88,737 was brought to tax for the assessment year 1949-50. On appeal by the assessee, the Appellate Assistant Commissioner held that the said interest was received in the previous accounting year related to the assessment year 1948-49 and directed that the amount should be omitted from the assessment order for the year 1949-50 and included in that of the previous year. In pursuance thereof, the Income Tax Officer gave notice u/s 34(1) of the Act to the assessee in respect of the assessment year 1948-49 on the 5th December, 1957. The question that arose before their Lordships of the Supreme Court was whether that was saved under the provisions made in the second proviso to sub-section (3) of the section 34 of the Act. It was held that the "finding" that could be given by the appellate authorities under the Income Tax Act must be related to the assessment year involved in the case. Any other observation by such authority in regard to and in connection with the other years will not be taken as a "finding" within the meaning of sub-section (3) of the section 34. In that case, the Appellate Assistant Commissioner had held that the interest income which had been included in the total income of the assessee for the assessment year 1949-50 was an income for the assessment year 1948-49 and not for the year 1949-50. The action taken by the Income Tax officer after that appellate order was to be confined for the purposes of saving limitation as provided u/s 34 of the Act, only to that part of finding that interest income did not belong to the previous year connected with the assessment year 1949-50. If the proceeding u/s 34 of the Act would have been in connection with that assessment year viz., 1949-50, the bar of limitation as provided u/s 34 would not have been applicable. Since the proceeding initiated by the Income Tax Officer in that case, after the appellate order, u/s 34(1) of the Act, was in relation to another year of assessment viz., 1948-49 their Lordships of the Supreme Court held that the department could not have relied upon the second proviso of sub-section (3) of section 34 to override the prescribed period of limitation of four years for such proceedings. The facts of the present case are in no way different from that case and will, therefore, be covered by that decision. Learned counsel appearing for the department also concedes this position.

The question framed in the reference therefore, has to be answered in the negative. In the circumstances of the case, however, though the assessee-petitioner succeeds in his contention there will be no order for costs.

Question answered in the negative.