1963-VIL-42-P&H-DT

Equivalent Citation: [1964] 51 ITR 1

PUNJAB HIGH COURT

Income-Tax Reference No. 2-D of 1957

Dated: 02.08.1963

BIBI GURDARSHAN KAUR (DECEASED) (THROUGH LEGAL HEIRS)

Vs

COMMISSIONER OF INCOME-TAX, NEW DELHI

For the Assessee: Kirpa Ram Bajaj, Prem Nath Monga and J. L. Bhatia

For the Commissioner: H. Hardy and D. K. Kapur

Bench

D. K. Mahajan And Shamsher Bahadur, JJ.

JUDGMENT

D. K. Mahajan, J.

The Income-tax Appellate Tribunal, Delhi Bench, has referred the following two questions of law for our opinion under section 66(1) of the Income-tax Act, hereinafter referred to as the Act:

"1. Whether, on the facts and in the circumstances of the case, the proceedings initiated under section 34 on November 11, 1954, were in order?

2. In case the answer to the first question is in the negative, whether the assessment for the year 1948-49, as made on March 24, 1955, was in order regard being had to all the terms of sub-section (3) of section 34?"

In order to arrive at a correct decision with regard to the questions referred for our opinion, it will be proper to set out the facts with regard to the assessment in question which had led to the present reference.

The assessee is a lady. She was a partner in a firm styled as National Stores, New Delhi, during the relevant year of account. She had a seven annas share in a rupee in this firm. The assessment year in question is 1948-49, the previous year being the financial year 1947-48. No notice under sub-section (2) of section 22 of the Act was issued to her to furnish a 'return of income during the previous year. However, on September 3, 1951, she voluntarily filed a return for that year. In the printed Form A prescribed for the filing of the return the first column at No. 4 is headed 'business, profession or vocation" and part (b) of that head is as follows: "Share of profits in a registered firm", whereas part (c) of the same head is with regard to the share of profits in an unregistered firm or an association of persons. In column 2 of the aforesaid Form the amount of income, profit and gain is to be specified. The assessee in the return filed by her in column 2 of the Form merely indicated her share in the partnership, that is, seven annas in a rupee, but did not specify the amount of profits which accrued to her in lieu of that share. She did indicate that this seven annas share was in the National Stores, New Delhi. It may be mentioned that at the time when this return was filed, the assessment for the year in question had not been completed. A notice under section 23(2) of the Act was issued to her by the Income-tax Officer on the basis of the return filed by her. It was served on her on December 20, 1951. It appears from the record that this notice was complied with, because on January 11, 1952, the following entry appears in the order-sheet in the file of the Income-tax Officer:

"A credit of Rs 50,000 has appeared in the personal account of the lady for the first time in the books of the firm in which she is a partner. Notice under section 34 to be issued for 1948-49 estimating the income at Rs 50,548."

However, no compliance was made with this direction and no notice under section 34 was issued. Nearly three years after the service of notice under section 23(2), the Income-tax Officer issued a notice under section 34(1)(a) with the prior approval of the Commissioner of Income-tax to the assessee. The assessee in response to this notice filed another return in which she declared a net loss of Rs 952 for the year. In Part D of the return it was stated that the sum of Rs 50,000 had been borrowed by her from one Manohar Singh of Jaipur for investment in the National Stores as her capital contribution, and that the said sum did not belong to her. She also pleaded that the notice issued and served on her by the Income-tax Officer under section 34 was not in accordance with law. The Income-tax Officer found that the sum of Rs 50,000 was not borrowed by her and that it was her income from undisclosed sources. He also held that the suo motu return filed by the assessee on September 3, 1951, was an invalid return and, therefore, a nullity and thus he could proceed under section 34(1)(a) of the Act. The assessee went up in appeal to the Appellate Assistant Commissioner of Income-tax, but without success. She came up in second appeal to the Appellate Tribunal of Income-tax. The Appellate Tribunal affirmed the decision of the Appellate Assistant Commissioner of Income-tax and rejected her appeal. She then moved the Tribunal under section 66(1) of the Act for referring the questions of law already stated above for the opinion of this court. This application was allowed and that is how the matter has come up before us.

The sole contention raised by the learned counsel for the assessee is that the decision of the Income-tax Appellate Tribunal as well as that of the Appellate Assistant Commissioner of Income-tax and the Income-tax Officer to the effect that the return filed by her on 3rd September, 1951, was not a valid return is erroneous in law. It is conceded by the learned counsel for the department that if we come to the conclusion that the return filed by the assessee on 3rd September, 1951, was not an invalid return, then in view of the Supreme Court decision in Commissioner of Income-tax v. Ranchhoddas Karsondas [1959] 36 I.T.R. 569; [1960] 1 S.C.R. 114, the first question must be answered in favour of the assessee. Therefore, all that we are required to examine is: Whether the return filed by the assessee on the 3rd September, 1951, was a valid return.

The objection of the department is that no amount of profit was specified and, therefore, there is no valid return. To this argument, the reply of the counsel for the assessee is three-fold:

(1) That the usual practice of the department while assessing the partners in a partnership firm is that a return of income showing merely the share of the partner in the firm is enough and it is not necessary to specify the actual profits accruing to the said partner;

(2) That the return filed by the assessee on 3rd September, 1951, was entertained by the department, and, therefore, it cannot be urged that that return was invalid; and

(3) That after hearing the assessee in response to the notice under section 23(2) on the basis of the return in question, it was incumbent on the Income-tax Officer in view of the provisions of section 23(3) to ask the assessee to supply further details as to the actual amount of profit, if there was any, and the Income-tax Officer had no jurisdiction to ignore the return and proceed under section 34(1)(a) of the Act.

After giving the matter our careful consideration we are of the view that the contentions raised by the learned counsel for the assessee are sound and must prevail. It is significant that with regard to the same assessee, similar returns filed for the assessment years 1949-50, 1950-51 and 1951-52 in pursuance to notices under section 22(2) were not only entertained but assessment on their basis had been completed under section 23(3). There seems to be no reason why a different standard should have been applied to the return in question, unless, of course, this device had been adopted to cover up the negligence on the part of the Income-tax Officer in not pursuing the matter further after he had passed the order dated January 11, 1952, on the return in question. Moreover, the Income-tax Officer not only entertained the return but also acted on the same. There is ample provision in the Act to ask for full details of the income of the assessee, in case the return filed is an incomplete return. At no stage up to the date of the order on the return which was passed on January 11, 1952, any objection on the score that the return was invalid was ever taken. As a matter of fact, the order dated the 11th January, 1952, clearly indicates that the sum of Rs 50,000 had come to the knowledge of the Income-tax Officer along with another sum of Rs 548 because by this order he was of the view that notice under section 34 of the Act should be issued with regard to the assessment year in question in respect of the total amount of undisclosed profits amounting to Rs 50,548. It will, therefore, be apparent that the Income-tax Officer did act on the return and did not reject it on the ground that it was an invalid return. Moreover, the lacuna in column No. 2, if it were a lacuna, could have been got removed by the Income-tax Officer by resort to section 23(3) of the Act. In this view of the matter, it must be held that the return filed by the assessee on the 3rd September, 1951, was a valid return.

The learned counsel for the department has relied on a number of authorities for his contention that the return being not a return in accordance with rule 19 of the Indian Income-tax Act, 1922, is not a valid return. These authorities are: Commissioner of Income-tax v. A.R.A.N. Chettiar Firm A.I.R. 1928 Rang. 108 (F.B.), Lal Mohammad Sardar Mohammad v. Commissioner of Income-tax [1934] 2 I.T.R. 358, Abhey Ram Chunni Lal, In re [1933] 1 I.T.R. 126 and Bir Bhan v. Commissioner of Income-tax A.I.R. 1933 Lah. 290. None of these cases is of any assistance to the learned counsel for the department because in these cases there was a fundamental omission in the returns, and in none of these cases, the returns had been acted upon by the income-tax authorities or otherwise accepted. These cases are distinguishable on their own facts. Not a single case has been cited where a return like the present one has ever been held to be an invalid return. I would, therefore, repel the contention of the learned counsel for the department that the return filed by the assessee on 3rd September is an invalid return. As already stated, it is conceded by the learned counsel for the department that if the return is held to be a valid return, the first question must be answered in the negative and in favour of the assessee in view of the Supreme Court decision in Ranchhoddas's case [1959] 36 I.T.R. 569; [1960] 1 S.C.R. 114. Therefore, in view of our decision that the return dated 3rd September, 1951, is a valid return, we answer the first question in the negative.

Coming to the second question, it appears to us that in the circumstances of this case, it does not arise. No proceedings were taken in furtherance of the return filed by the assessee after notice under section 23(2) had been issued with regard to it. That return still remains undisposed of. On the other hand proceedings have been started under section 34(1)(a). These proceedings have been held to be without jurisdiction and, therefore, assessment under section 34(3) could only be made in the proceedings taken or to be taken on the basis of the return filed by the assessee under section 23. It may still be open to the department to take such proceedings and on that matter we do not pronounce any opinion as we are not called upon to do so. But no proceedings under section 34(3) can be taken when the only proceedings on the basis of which action had been taken were under section 34(1)(a). If those proceedings are of no consequence, on their basis no action under section 34(3) can be taken. In this view of the matter the second question must also be decided against the department.

For the reasons given above, both the questions are answered in the negative. The assessee will have her costs, which are assessed at Rs 200.

SHAMSHER BAHADUR J.--I agree.