S. SANKAPPA AMD OTHERS vs. THE INCOME-TAX OFFICER, CENTRAL CIRCLE II, BANGALORE

CIVIL APPEAL No. 1664/1967Supreme Court[1968] 2 S.C.R. 67414 December 1967Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, VISHISHTHA BHARGAVA S. SANKAPPA AND OTHERS I11 pages
AI SummaryDismissed

What were the facts?

For assessment years 1958-59, 1959-60, and 1960-61, six appellant partners filed returns for their firms, seeking registration under Section 26A of the Income Tax Act, 1922. The Income Tax Officer (ITO) refused registration and assessed the firms as unregistered. The partners' individual assessments included their shares of income from these unregistered firms. Appeals against the refusal of registration were allowed by the Appellate Assistant Commissioner. Consequently, on December 20, 1966, the ITO revised the firms' assessments as registered and apportioned income among partners. Subsequently, the ITO issued notices under Section 155 of the Income Tax Act, 1961, proposing to rectify the individual assessments of the six appellants for each of the three years. The appellants challenged these notices via writ petitions.

What did the Supreme Court hold?

The Supreme Court dismissed the appeals. It held that the word 'assessment' in the Income Tax Act is used comprehensively, encompassing all proceedings from return filing to tax determination. Rectification proceedings under Section 35(1) or 35(5) of the 1922 Act are part of assessment proceedings. The orders passed on December 20, 1966, altering the firms' assessments were indeed orders in assessment proceedings. The impugned notices proposing rectification of individual assessments were to give effect to these revised firm assessments. Therefore, Section 297(2)(a) of the 1961 Act permitted the ITO to proceed under the 1922 Act, specifically Section 35(5). The court distinguished the case from V. S. Arulanandam v. Income-tax Officer, Tuticorin, noting that here, after registration was allowed, the ITO made fresh assessments for the firms and apportioned income, creating a liability for partners to be taxed on their shares. The condition that a partner's share was not included or was incorrect for assessment to tax was satisfied, as the initial inclusion was for limited purposes of exemption and rate determination, and after the unregistered firm assessments were set aside, the partners' shares needed to be added to their individual assessments and taxed accordingly under Section 23(5)(a)(ii) of the 1922 Act. Failure to do so would result in income escaping tax.

What were the issues?

1. Whether proceedings for rectification under Section 35(5) of the Income Tax Act, 1922, constitute 'proceedings for assessment' within the meaning of Section 297(2)(a) of the Income Tax Act, 1961, thereby allowing the ITO to resort to the 1922 Act for rectification. Assessee's contentions: - Proceedings for rectification under Section 35(5) of the 1922 Act are not 'proceedings for assessment' under Section 297(2)(a) of the 1961 Act. Therefore, the ITO cannot use the 1922 Act for rectification. - Section 35(5) of the 1922 Act is not attracted because it requires a finding that a partner's share was not included in their assessment or was incorrect. In this case, there was no assessment or reassessment of the firms when the ITO proceeded to rectify the firms' assessments under Section 35(1) of the 1922 Act. No fresh computation of income occurred, so the proceedings were not for assessment. Revenue's contentions: - The High Court conceded that since the rectification related to assessment years under the 1922 Act, proceedings could only be taken under Section 35(5) of the 1922 Act, not Section 155 of the 1961 Act, due to Section 297(2)(a) of the 1961 Act.

Which sections of the Income-tax Act were involved?

Section 26A,Section 35(1),Section 35(5),Section 155,Section 297(2)(a),Section 23(5)(a)(ii),Section 14(2)(a),Section 16(1)(a)

AI-generated summary — verify with the full judgment below

674 S. SANKAPPA AND OTHERS I v. THE INCOME-TAX OFFICER, CENTRAL CIRCLE II. "BANGALORE December 14, 1967 [J.C. SHAH, V. R.AMASWAMI AND V. BHARGAVA, JJ.] lncbnte 1'ax Act, 1922, ss. 23, 35-lnco;ne Tax Act . . 1961. s.t. 155 297€-2) ('a)-Whetlzer proceedings on issue of notice under s. 35(5) o.' the Act of 1922 for rectification are proceedings for asse;.·sn1en1 · v.•itlti:; the meaning .of s. 297(2) (a) of the· Act of 1961. . '

During the assessment years 1958-59, 1959-60 :md 1~60-ol. t\1'•' fums ir( which the six appellants were partners, filed returns declaring themse1vcs to be registe1~<l firn1s and also presented applic~ilions for rcgis· tration of the firms under s. 26A of the Income-tax Act, 1922. The lncome- !ax. Officer refused re.i::istration of the firms an<l assessed the income of the firms, trearJng them as unregistered. 'fhe assessments of the six ap- pellant') were-·nlso made, so that their incomes from the t\\-'o firn1s \Vere ir,cludcd in. their individual assessments as if they had received the income J11 the caPacitfQf partners in url.rcgistcred firms.

Appeals n1ade by the !irn1s against the order refusing registration \Vere allowed by the

The order continues below.

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