K.C.THOMAS, FIRST INCOME-TAX OFFICER, BOMBAY vs. VASANT HIRALAL SHAH & ORS.

CIVIL APPEAL No. 688/1962Supreme Court[1964] 6 S.C.R. 43729 January 1964Bench: 5 JudgesAuthor: BHUVNESHWAR PRASAD SINHA, K. SUBBA RAO, RAGHUBAR DAYAL, N. RAJAGOPALA AYYANGAR, J.R. MUDHOLKAR10 pages
AI SummaryRemanded

What were the facts?

The appellant, the First Income-Tax Officer, Bombay, issued a notice under Section 34(1)(a) of the Indian Income-tax Act, 1922, to the respondents for an escaped income of Rs. 47,595 for the assessment year 1944-45. The notice was issued on March 27, 1957. The respondents contended that the notice was invalid because sanction from the Central Board of Revenue (CBR) was not obtained as required by clause (iii) of the proviso to Section 34(1), given that the escaped income was less than Rs. 1 lakh and more than eight years had elapsed since the assessment year. The respondents filed a writ petition in the High Court, which ruled in their favour, quashing the notice. The appellant has appealed this decision.

What did the Supreme Court hold?

The Supreme Court held that the sanction under clause (iii) of the proviso to Section 34(1) is necessary only when the notice is issued under clause (ii) of the proviso, which pertains to escaped income of one lakh rupees or more. In cases falling under other provisions, such as the second proviso to Section 34(3), the sanction required is only that of the Commissioner, which was obtained in this case. Therefore, the notice cannot be considered bad for want of CBR sanction. The Court also found that the High Court erred in holding that the second proviso to Section 34(3) would not apply to cases with escaped income less than one lakh rupees and more than eight years elapsed. The amendments to Section 34(3) by Acts XXV of 1953 and XVIII of 1956 govern the entire Section 34(1), including cases with limitations provided in clause (ii) of the first proviso. The Court allowed the appeal, set aside the High Court's order, and remitted the matter back to the High Court for consideration of other points raised by the respondents but not heard.

What were the issues?

1. Whether sanction from the Central Board of Revenue (CBR) is required for issuing a notice under Section 34(1)(a) when the escaped income is less than one lakh of rupees and more than eight years have elapsed since the assessment year, as per clause (iii) of the proviso to Section 34(1) of the Indian Income-tax Act, 1922. 2. Whether the High Court erred in holding that the provisions of the second proviso to Section 34(3) do not apply to a case where the escaped assessment is of an amount less than one lakh of rupees and more than eight years have elapsed. Assessee's Arguments: The respondents argued that the notice was bad in law because the Income-Tax Officer proceeded without obtaining the necessary sanction of the CBR as required by clause (iii) of the proviso to Section 34(1), given the amount of escaped income and the time elapsed. Revenue's Arguments: The appellant contended that the notice was valid. The judgment does not explicitly record the revenue's arguments on the second issue, but their appeal implies a disagreement with the High Court's interpretation of the second proviso to Section 34(3).

Which sections of the Income-tax Act were involved?

Section 34(1),Section 34(1)(a),Section 34(1)(ii),Section 34(1)(iii),Section 34(3)

AI-generated summary — verify with the full judgment below

6 S.C.R. SUPREME COURT REPORTS 437 are, therefore, unable to accept the contention of learned counsel.

For the foregoing reasons we allow the appeal and quash the writ of certiorari issued by the High Court. It may be mentioned that in the absence of a stay of proceedings by the High Court the Income-tax Officer has actually made an assessment in pursuance of the impugned notice.

That assessment wii.1 stand unless it is modified or annulled in any proceeding permitted by law.

Costs of the appeal and the petition before the High Court will be borne by tbe respon- dent. ORDER BY COURT In view of the judgment of the majority, the appeal fails and is dismissed with costs. K. C. THOMAS, FIRST INCOME-TAX OFFICER, BOMBAY v. VASANT HIRALAL SHAH & ORS. (B. P. SINHA, C.J., K. SuBBA RAo, RAGHUBAR DAYAL, N. RAJAGOPALA AYYANGAR AND J. R. MUDHOLKAR JJ.)

Income Tax-Escaped income-Notice issued for assessment after expiry of 8 years-If sanction required-Indian lncom1-tax Act, 1922 (11 of 1922). ss. 34(i), 34(ii), 34(3) proviso. os amended b1 Act XXV of 1953 and Act XVIl of 1956. The appellant had issued notice to the respondents under s. 34( I) (a) of the Income

The order continues below.

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