Commissioner of Income-Tax, Bangalore v. C. M. Jaffar Khan (Deceased) Represented by His Widow Rahamathunnisa Begum

Judgment

The Judgment of the Court was delivered by- P. Jaganmohan Reddy, J. The High Court of Mysore in a u reference under Sec. 66 ( 1) of the Indian Income Tax Act 1922 (hereinafter called lthe Act') had held against the Revenue on the question : ( 1) whether in the circumstances of the case the refund granted by Income Tax Officer under Sec. 48 of the [l 972p S.C.R. Mysore Income Tax. Act 1923 (hereinafter called 'the Mysore Act') amounted to an assessment and, (2) whether the interpretation placed by the Income Tax Tribunal on the words 'such income profits and gains' in paragraph 5 ( 1) of the Part B States (Taxation Concession) Order 1950 (hereinafter called 'the Order') is correct ? On the first question its answer was in the afiirmative and on the second in the negative. Against this Judgmen~ two appeals have been filed by special leave by the Comm1ss1oner of Income Tax, Mysore.

The facts which gave rise to the reference before the High Court are that a regj.stered Jinn of partnership known as C. M. Jaffar Khan & Co., Bangalore of which the assessee was a partner filed a return in respect o.f its income for the period ending 30-6-49 under the Mysore Act and an assessment was made thereon in a sum of Rs. 3376-7-0 which was duly paid. On 15-3-50 the assessee filed his return in respect of his individual income in- .eluding his share of income from the partnership firm for the accounting year ending 30-6-49. This return was also made under the Mysore Act and it appears that in respect of this return, by an order dated 20-3-1950 the Income Tax Officer directed a refund of Rs. 641-3-0 to the assessee due to the difference in the rate of tax_ applicable to him and the maximum rate.

It further ·appears that in the course of the proceedings for the assessment years 1951-52 and 1952-53 the Income Tax Officer was of. the opinion that the assessee's income had escaped assessment in the accounting year ending 30-6-49 and he therefore issued a notice to him under Sec. 34 of the Act The assessee objected to the reopening of the assessment on the ground that he had already been assessed in respect of the income for the year ending 30-6-49 under the Mysore Act; that a refund of tax had been given to him, as such the Income Tax Officer has made an assessment under the Mysore Act; and that according to paragraph 5 of the Order an assessment under the Act would be possible only if, before the appointed date namely on 1-4-1950 the assessee had not been assessed under the Mysore Act.

The Income Tax Officer rejecled these contentions on the ground that the assessment made on the firm could not be regarded as an assessment made on the assessee individually and completed the assessment for the years 1950-51 on 6-3-55 on a total income of Rs. 3,21,821. The assessee appealed to the Income tax Appellate Assistant Commissioner and raised similar contentions to those raised before the Income Tax Officer. The Income Tax Officer on the o"ther hand contended that as the respondent assessee had disclosed only a share income from the firm 'C. M. Jaffar Khan & Co.' and as the income from the property and other sources was not disclosed such profits and j!ains had not been assessed under the Mysore C.I.T. v. JAFFAR KHAN (Jaganmohan Reddy, J.) Act and, therefore, action under Sec. 34 of the Act was fully justified. The Appellate Assistant Commissioner however, rejected the contention of the Income Tax Officer and held that the re-assessment under Sec. 34 of the Act was not valid.

In this view he set aside the assessment made by the Income Tax Officer. The Department filed an appeal to the Income Tax Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal however was of the view that the refund granted by the Income Tax Officer under Sec. 18 of the Mysore Act was not an assessment as contemplated under Sec. 23 of the Act and that the words 'such income profits and gains' used in paragraph 5 (I ) of the Order referred to identity of income or sources and that it is only in cases wherein income has been assessed under the Mysore Act, that the Income Tax Officer is prohibited from taking any further action thereon. The appeal was therefore allowed and the assessment made by the Income tax Officer restored. The High Court following the decision of this Court in Esthuri Asmathiah v. Income Tax Officer, Mysore State('), held that as th~ Income Tax Officer had given a refund on the return filed by the assessee for the year in question, that order of refund amounted to an· assessment on the assessee.

On the second question as to the meaning to be given to the word 'such income profits and gains' occurring in paragraph 5 of the Order the· Bench rejected the reasoning of the Tribunal and accepted that of the Appellate Assistant Commissioner, for, as Hegde, J, as he then was observed :· "Otherwise, what would happen is that there would be two assessments in respect of the income ol an assessee during one assessment year". The contentions of the learned Advocate for the Revenue follow much on the same lines as were the contentions before the High Court of Mysore namely that as the assessee did not disclose his personal income except that of the income of the firm, that income would not have been assessed under the Mysore Act, as such, it is open to the Income Tax Officer to make an assessment under Sec. 34 of. the Act.

He further contends .that the object of the Order was to give relief from double taxation becauie of the financial integration of Part B States of which Mysore was one. the assessment of income, profits and gains of the previous year endnig after 31-3-49 which is a previous year for 'the ~aid assessment year 1949-50, had to be assessed under the Act for !he year ending on 31-3-51, but this could be done "if and only 1f, such income profits and gains have not before the appointed day been assessed under the State Law''. It is therefore sub! mitted that as 1this order was made in exercise of the pov1ers conferred under Sec. 60(A) of the Act, any income profits and (1) 41 !TR 539. gains which have not been assessed under the Staie law will become a;:>essable under the Act. Paragraph 5 of the Order and Sec. 34 of the Act are as follows :- Paragraph 5 (1)

"The income, profits and gains of any previous year ending after the 31st day of March 1949, which is a previous year for the State assessment year 1949-50, shall be assessed under 'the Act for the year ending on the 31st day c{ March 1951, if and only if, such income, profits and gains have not, before the appointed day been assessed under the State law". ( 2) Where the income, profits and gains referred to in sub-paragraph (I) have not Ileen assessed under the State law. they shall be assessed under lhe Act for the year ending o~ the 31st day of March, 1951, and the tax payable thereon shall be determined as hereunder- ( 3) In this paragraph the State asi;e!lsment year 1949-50 means the assessment year which commences on any date between the !st April, 1949 and the 31st December, 1949. Sec. 34 "(!)

If- (a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an as~essee to make a return of his income undet Section 22 for any year or to disC!ose fully and truly all material facts necessary for his assessment for that year. income, profits or gains chargeable to iscome-tax have escaped assC10sment for that year, or .... (b) nowi'thstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his Qossession reason to believe· that income, profits or gains chargeable to income-tax have escaped _assessment for any year. . . . he may in caSe5. falling urider clause (a) at any time within eight years and in cases falling under clause (b) at any time within c.r.T. v. JAFFAR KHAN (Jaganmohan Reddy, J.) four years of the end of• that year, serve on the assessee . . . . "

On the admitted facts which are not in dispute it is apparent that the refund order given by the Income Tax Officer on the return filed by the assess.ee is an assessment within the meaning of paragraph 5 of the Order. It was so held in Esthuri A.swathiah case (1) where on the facts of that case the assessee who had filed his return for the assessm~nt year 1950-51 disclosiqg that there was no assessable income contended that as it had been assessed for the accounting year ending June 30, 1949 under the Mysore Act there was no assessable income for that year and that only the income for the next accounting y·~ar ending on June 30, 1950 was assessable for the year 1951-52. The, Income Tax Officer passed an order "no proceeding" and closed the assessment. This decision is not helpful as it did not deal with the question that arises before us. In 'that case a notice under Sec. 22 of the Act was served on the assessee requiring it to submit its return of income for the assessment year 1950-51.

It is in respect of that notice th.at a return was filed by the assessees to which we have made a reference showing that there was no assessable income. For the next assessm~nt year 1951-52 the assessees filed a return· and in the course of those assessment proceeding account books were produced by them which disclosed an opening cash credit balance of Rs. 1,87,000/- as on 1st July 49. When the Income tax Officer called for the books of the earlier year the books were not produced by the assessees. In the circumstances a sum of Rs. 1,37,000/- out of the opening balance as on 1-7-49 was treated as income from undisclosed sources for the year 1951-52. But on appeal the Appellate Assistant Commissioner held that the fjnancial year ending 31-3-50 ought to be 1aken as the previous year for the income from undisclosed sources.

In the meantime the appellant submitted a fresh return for the assessment year 1950-51 on which no action was taken but on October 15, 1957 the Incom~ tax Officer served a· notice of reassessment under Sec. 34 of the Aot calling upon the Appellant to. submit a fresh reiurn. That order was challenged in a Writ Petition before the High Court on the ground that the Income Tax Officer had no jurisdiction to issue a notice of ~eassessment. That petition was dismissed by the High Court. In an appeal by certificate this Court held that since the Income-tax Officer had passed an order thereon 'no proceeding', it mean~ that he had accept~d the return submitted by the Appellant, and assessed the income as nil and if thereafter he had reason to belive that the Appellants had failed to disclose fully and truly all material facts necessary for assessment for that yeat, it was open to him (I) 41 I.T.R. 539. (1972] l S.C.R. to issue a notice for reassessment under Sec. 34.

It was further held that the Appellant was liable ito be assessed under the Indian Income-tax Act 1922 and not under the Mysore Income-tax Act for the year 1950-51. The facts in these appeals before us are dilferent in that th; assessme!Jlt of both the firm as well as of the individual had been made under the Mysore Act for the war ending 30th June, '49 in respect of income of that year. As such, it ~!early falls within the provision of sub-paragraph (J ) of paragraph 5 of the Order which makes the Act inapplicable to such assessments. It is also provided in sub-paragraph (2) of Paragraph 5 •that wb.ere income, profits and gains have not been assessed_ under the State law they shall be assessed under the Act for the year ending 31-3-51 which is the assessment year 1950-51, in respect of which the tax payable has been specified therein.

There can be no doubt that for th·~ assessment year 1950-51, for which the accoun•ting year is the previous year 1st April 1949 to 31st March 1950, th~ Act applies and assessments would be made thereunder. This would be a o hardship because under any of the concerned tax law of a Part B State an assessee in that State may have been taxed already. It is in order to remove this hardship that the order was issued under Sec. 60 A of the Act. This apart it may also be nQ)iced that any omission to give information, or failure to file a return or failure to disclose truly and fully all material facts which are E a condition of the reopening of ass·~ssments under Sec. 34 of the Act do not appertain to the Income Tax Officer under the Act but to the Income Tax Officer under the Mysore Act. Even on this reading it appears to us that Sec. 34 of the Act would have no applicatim1. The learned counsel for the Revenue was not abl·~ to meet this point.

The Tribunal thought that there was some substance in the Departmental representative's contention on the second question, that the words 'such income' profits and gains u'ed in paragraph 5 ( I ) of the order 'refer to identity of income or sources; that it is only in cases where the income had been assessed under the Mysore Act; that the Income-tax Officer is prohibited from taking further action thereon' and as such 'it cannot be said that the assessee had been assessed on incomes such as property income and income under other sources', and it is these that have been brought to assessment under Sec. 34 of the Income-tax Act".

As rightly pointed out by the High Court that this reasoning would lead to startling conclusions and would imply that there would be two assessments in respect of the income of an assessee during one assessment year i.e. while assessment made under the Mysore .Act in respect of income reported by the assessee cannot be reopened, the income not disclosed to him would be liable to be assessed under the Act. Apart C.I.T. v. JAFFAR KHAN (Jaganmohan Reddy,!.) from the incongruity in this reasoning poin~~d out by the .High Court it appears to us that if that reasoning is correct it would not be a case of reassessment under Sec. 34 but assessment under Sec. 23 of the Act. This is ce~tainly not the stand t~ken bv the Revenue eit!J.~r before the High Court or before us. In the circumstances the answers returned by the High Court do. not require any interference and the appeals are accordingly dismissed. There will be no order as to costs since the respondents are ex-parte. G.C. Appeals dismissed.