THE COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH, HYDERABAD vs. K. ADINARAYANA MURTY

CIVIL APPEAL No. 632/1966Supreme Court[1967] 3 S.C.R. 38803 April 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI COMMISSIONER OF INCOME5 pages
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What did the Supreme Court hold?

The Supreme Court held that the first notice issued under Section 34 on March 22, 1957, was invalid and ultra vires. This was because the Income-tax Officer had obtained sanction from the Commissioner to issue the notice in the status of an 'individual', whereas the assessee's correct status was determined to be a Hindu Undivided Family (HUF) by the Appellate Assistant Commissioner in an earlier proceeding for assessment year 1954-55. Under the scheme of the Income-tax Act, 'Individual' and 'HUF' are treated as separate units of assessment. A notice issued to the wrong status is illegal and without jurisdiction. Therefore, the ITO was legally justified in ignoring the first notice and the return filed by the assessee in response to it. Consequently, the second notice issued on February 12, 1958, in the correct status of HUF, and the assessment made pursuant to it were held to be valid. The Court allowed the appeal, setting aside the High Court's judgment and holding the assessment valid.

What were the facts?

The assessee, K. Adinarayana Murty, was initially assessed as an individual for assessment year 1949-50. Subsequently, the Income-tax Officer (ITO) issued a notice under Section 34 of the Income-tax Act, 1922, on March 22, 1957, to the assessee in the status of an 'individual' to reassess escaped income for 1949-50. Before assessment, the Appellate Assistant Commissioner (AAC) held in an appeal for assessment year 1954-55 that the assessee's correct status was a Hindu Undivided Family (HUF). Following this, the ITO issued a second notice under Section 34 on February 12, 1958, to the assessee in the status of an HUF for the same assessment year 1949-50. An assessment was made based on this second notice, adding Rs. 60,000 as escaped income. The assessee appealed to the AAC, who held the second notice and subsequent assessment invalid. The Income-tax Appellate Tribunal (ITAT) reversed the AAC's decision, holding the second notice valid. The High Court, however, ruled that the first notice was valid and the second notice was illegal, making the assessment invalid. The Revenue appealed to the Supreme Court.

What were the issues?

1. Whether the assessment made in pursuance of the notice issued under Section 34 on February 12, 1958, is a valid assessment, considering a prior notice under Section 34 was issued on March 22, 1957, to the assessee in the status of an 'individual' while the correct status was later determined to be a Hindu Undivided Family (HUF). Assessee's contentions: - The first notice under Section 34 was not invalid in law. - The assessee filed a return in the status of HUF in response to the first notice, and the ITO ought not to have ignored it. - The second notice issued on February 12, 1958, was illegal because a return had already been filed in response to the first notice. Revenue's contentions: - The first notice under Section 34 was invalid because it was issued to the assessee in the status of an 'individual' when his correct status was HUF. - The ITO was justified in ignoring the first notice and the return filed in response to it. - The second notice issued in the correct status of HUF was valid, and the assessment made pursuant to it was legal.

Which sections of the Income-tax Act were involved?

Section 34

AI-generated summary — verify with the full judgment below

THE COMMISSIONER OF INCOME-TAX, PRADESH, HYDERABAD v. K. ADINARAYANA MURTY April 3, 1967 ANI>HRA (J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.J lndian Income•tax Act, 1922, s. 34-Notice of reasscssme11t issued to assessee in status of individual-Return filed in status of HUF- Appellate Authority ho/di11g that correct starus was HUF-Another notice under s. 34 issued-Assess111ent on return filed in response 10 second notice-Validity of asses.Hnent.

The respondent had two sons. ·Prior to the assessment year 1954-55 the Income-tax Authorities assemd him as had of a Hindu undivided family.

In 1954-55 the Income-tax Officer held that he was an 'individual' and assessed him accordingly.

Thereafter, having ob'lained sanction from the Commissioner he issued to the respondent a not:ce under s. 34 of the Income-tax Act 1922 in respect of the. year 1949-50 in the status of an individual. A return was filed by the respondent in response to the notice.

However in the appeal relating .to 1954-55 the Appellate Assistant Com- miS&ioner held that the correct sta<us of the assesseo was that of a Hindu undivi<)ed family.

The Income-tax Officer then issued another notice

The order continues below.

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