HUSSAIN BHAI AND OTHERS vs. COMMISSIONER OF INCOME TAX, MADRAS.

CIVIL APPEAL No. 1097/1967Supreme Court1971 INSC 11416 April 1971Bench: 5 JudgesAuthor: S.M. SIKRI, G.K. MITTER, K.S. HEGDE, A.N. GROVER, P. JAGANMOHAN REDDY HUSSAIN BHAI AND OTHERS7 pages
AI SummaryAllowed

What were the facts?

The assessee, Hussain Bhai and others, are legal heirs of the deceased Abdullabhai Fazalali. For the assessment year 1948-49, an assessment was made on September 30, 1948, on a total income of Rs. 9,102. Subsequently, it was discovered that the deceased had deposited Rs. 40,000 in cash on July 28, 1947. A notice under Section 34(1)(a) of the Income-tax Act, 1922, was served on February 9, 1957. The Appellate Assistant Commissioner held the proceedings illegal. On July 9, 1958, the Income-tax Officer issued a fresh notice, assessing the Rs. 40,000 as escaped income. The High Court held this fresh notice was saved from the bar of limitation by Section 4 of the Income-tax (Amendment) Act, 1959.

What did the Supreme Court hold?

The Supreme Court held that Section 4 of the Income-tax (Amendment) Act, 1959, saves notices issued under Section 34(1)(a) of the 1922 Act before the commencement of the 1959 Act from being challenged solely on the ground that the period prescribed by Section 34(1)(a) as it stood before its amendment by the Finance Act, 1956, had expired. However, the Court found that the assessee's argument was not that the period prescribed by the pre-1956 Act had expired, but rather that the period prescribed by the Act as amended by the Finance Act of 1956 had expired. For the assessment year 1948-49, with escaped income less than a lakh, the amended Act of 1956 allowed for notices to be issued until April 1, 1957. Since the notice was issued on July 9, 1958, it was beyond this period. The Court agreed with the observations of Sarkar, J. in S.C. Prashar v. Vasantani Dwarkadas, stating that Section 4 of the 1959 Act does not save notices from all grounds of attack, and the period prescribed by the 1956 amendment would still apply. Therefore, the notice dated July 9, 1958, was barred by limitation. The High Court's judgment was set aside, and the question was answered in favour of the assessee.

What were the issues?

1. Whether the notice issued under Section 34(1)(a) of the Income-tax Act, 1922, on July 9, 1958, is valid in law, considering the provisions of Section 4 of the Income-tax (Amendment) Act, 1959, and the amended Section 34(1)(a) of the Income-tax Act, 1922, as amended by the Finance Act, 1956? Assessee's contentions: The assessee argued that the notice dated July 9, 1958, was barred by limitation. They contended that under Section 34(1)(a) as amended by the Finance Act of 1956, proceedings for the assessment year 1948-49 could be initiated until April 1, 1957. Since the escaped income was less than a lakh, the eight-year period prescribed by the Act as amended by the 1956 Act had expired before July 9, 1958. Therefore, the notice was invalid. Revenue's contentions: The Revenue contended that Section 4 of the Income-tax (Amendment) Act, 1959, saved the fresh notice from the bar of limitation. They argued that this section validated notices issued before the commencement of the 1959 Act, even if the period prescribed by Section 34(1)(a) as in force before its amendment by the Finance Act, 1956, had expired.

Which sections of the Income-tax Act were involved?

Section 34(1)(a),Section 4

AI-generated summary — verify with the full judgment below

1190 HUSSAIN BHAI AND OTHERS v. COMMISSIONER OF INCOME TAX, MADRAS.

April 16, 1971 s rs. M. s1i;:R1, c. 1 .• G. K .. MrITER, K. s. HEGDE, A. N. GRovEil: c D E F G H AND P. 1AGANMOHAN REDDY, 11.J Income tax Act, (II of 1922), s. 34(1)(a) and lncome-ta'1: (Amendment)

Act, 1959, s. 4--Effer:t on bar of limitation.

Notioe under s. 34(1) (a) of the Income-tax Act, 1922 was served in February 1957 on the appellant with respect to escaped income of Rs. 40,000 for the assessment year 1948-49. On appeal the Appellate Assistant Commissioner held that the proceedings were illegal. On July 9. 1958,. the Income-tax Officer issued another notice and assessed the assess.:e's in- come including therein the Rs. 40,000, to tax. . When the matter came up before the High Court on reference, the High Court held that the notice dated July 9, 1958 was a fresh notice· but that it was saved from the bar· of limitation by s. 4 of the Income tax (Amendment) Act, 1959. In appeal to this Court, HELD: Section 4 of the 1959-Act refers to all notices issued under s. 34(1) la) of the 1922 Act at any time before the commencement of the· 1959-Act. The notice dated July 9, 1958, in the pre

The order continues below.

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