COMMISSIONER OF INCOME-TAX, WEST BENGAL CALCUTTA & ANR. vs. HEMCHANDRA KAR & ORS.

CIVIL APPEAL No. 2273/1966Supreme Court[1971] 1 S.C.R. 28316 April 1970Bench: 3 JudgesAuthor: J.C. SHAH, K.S. HEGDE, A.N. GROVER B5 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the second notice issued under Section 34 on February 2, 1955, to the HUF was not competent. The Court reasoned that under Section 34, the ITO must have reason to believe that income escaped assessment due to the assessee's omission or failure to disclose material facts. In this case, the primary facts regarding the Rs. 1,10,000 were within the ITO's knowledge at the time of the first reassessment on January 31, 1955. The ITO had already included the Rs. 19,000 in the HUF's income and the Rs. 1,10,000 in the individual members' incomes. The escapement of income from the HUF's assessment, if any, occurred due to the ITO's failure to include the Rs. 1,10,000 in the HUF's assessment at that stage. He could not, a few days later, merely change his opinion and issue a second notice. The Court followed the majority opinion in Calcutta Discount Co. Ltd. v. Income-tax Officer. The first question was answered in favour of the assessee, rendering the second question academic. The appeal was dismissed.

What were the facts?

The assessee, a Hindu Undivided Family (HUF), had its assessment for the year 1946-47 completed with a total income of Rs. 35,741. Following demonetization in January 1946, the HUF encashed notes worth Rs. 19,000. Five members of the family also encashed notes totaling Rs. 1,10,000. The Income Tax Officer (ITO) reopened the assessments under Section 34 of the Indian Income-tax Act, 1922. Initially, he included Rs. 19,000 in the HUF's income and the Rs. 1,10,000 in the individual incomes of the five members, completing this reassessment on January 31, 1955. Subsequently, on February 2, 1955, the ITO issued a second notice under Section 34 to the HUF, seeking to include the Rs. 1,10,000 in its total income. The HUF contended the amounts belonged to the individual members. The ITO disagreed and included the Rs. 1,10,000 in the HUF's income.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the assessment made upon the assessee Hindu Undivided Family pursuant to a notice under section 34 of the Indian Income-tax Act issued on the 2nd February, 1955 was in accordance with law. 2. Whether on the facts and in the circumstances of the case, the sum of Rs. 1,10,000 was rightly included in the assessment of the Hindu Undivided Family. Assessee's Contention: The assessee argued that the amounts encashed by the five members belonged to them individually, supported by explanations of pocket allowances and gifts. The primary contention, however, revolved around the validity of the second notice under Section 34. Revenue's Contention: The revenue, through the ITO, sought to include the Rs. 1,10,000 in the HUF's income, arguing that the amounts belonged to the family. The department appealed to the Tribunal, which held the notice valid and called for a report on merits. The Tribunal ultimately found the amounts belonged to the HUF.

Which sections of the Income-tax Act were involved?

Section 34,Section 22

AI-generated summary — verify with the full judgment below

A B c D E F G H 283 COMMISSIONER OF INCOME-TAX, WEsr CALCUTTA & ANR. BENGAL v. HEMCHANDRA KAR & ORS.

April 16, 1970 [J.C. SHAH, K. S. HEGDE AND A. N, GROVER, JJ.] Indian lncomt•tax Acr (11 of 1922), s. 34 and Indian Income-tax Amendment Act, 1953, s. '31-Scope of.

The anessee was a Hindu undivided family.

The Income-tax Ofllcer determined the total Income. of the assessee at a certain figure.

Foliowlna demonetization of blah denomination notes the anmee encashed notes of the value of Rs. f9,000 and each of five members of the family en· cashed certain notes, the total encaslied by all the five members belna Rs. 1,10,000. The Income-tax Officer reopened the assessments under s. 34 of the Income-tax Act, 1922 (as amended in 1948 and made appli- cable by reason of s. 31 of the Income-tax Amendment Act, 1953) and completed the reassessment on January 31, 1955. He included Rs. 19,000 in the total income of the family and the amounts which had been sepa· ratelv encashed by the five members were included in the reassessments of their respectiYe individual incomes.

On February 2, 1955, he issued another notice under s. 34 and after hearing the assessee

The order continues below.

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