MESSRS CHATTURAM HORILRAM LTD. vs. COMMISSIONER OF INCOME TAX, BIHAR AND ORISSA.

CIVIL APPEAL No. 38/1954Supreme Court[1955] 2 S.C.R. 29018 April 1955Bench: 3 JudgesAuthor: VIVIAN BOSE, B. JAGANNADHADAS, BHUVNESHWAR PRASAD SINHA13 pages
AI SummaryDismissed

What were the facts?

The appellant, Messrs Chatturam Horilram Ltd., was assessed to income tax for the assessment year 1939-40. An initial assessment was set aside by the Income Tax Appellate Tribunal because the Indian Finance Act of 1939 was not in force in Chota Nagpur, a partially-excluded area, during that assessment year. The High Court upheld this decision. Subsequently, Bihar Regulation IV of 1942 brought the Indian Finance Act of 1939 into force retrospectively from March 30, 1939. On February 8, 1944, the Income Tax Officer issued a fresh notice under Section 34 of the Indian Income Tax Act, 1922, leading to a new assessment. The appellant's income was determined at Rs. 4,86,351, reduced on appeal to Rs. 4,75,164. A significant portion of this amount related to cash credits treated as secreted profits.

What did the Supreme Court hold?

The Supreme Court held that the notice issued on February 12, 1944, under Section 34 was validly issued. The Court reasoned that for the purposes of Section 34, income chargeable to tax that failed to result in a valid assessment due to a legal lacuna, not attributable to the assessing authorities, constitutes 'escaped assessment'. The initial assessment had failed due to the absence of the Indian Finance Act of 1939, and the subsequent retrospective legislation validated the re-initiation of assessment proceedings. The Court distinguished the case from Sir Rajendranath Mukherjee v. C.I.T., Bengal, where assessment proceedings were still pending. The Court found that the income of the assessee, chargeable to income tax, had escaped assessment in the relevant year 1939-40. The High Court's answer to the referred question was upheld. The Court did not decide the second issue regarding cash credits, as it was not referred.

What were the issues?

1. Whether, in the circumstances of the case, the notice issued on February 12, 1944, under Section 34 of the Indian Income-tax Act, 1922, was validly issued for the assessment year 1939-40. The assessee contended that the notice was invalid because the initial assessment proceedings had been taken and failed due to a lacuna, not an escapement. The revenue argued that the retrospective application of the Indian Finance Act of 1939, via Bihar Regulation IV of 1942, validated the issuance of a fresh notice under Section 34, as chargeable income had escaped assessment. 2. Whether the Income-tax authorities were right in holding that the cash-credit items were secret profits. (This issue was decided against the assessee by the Tribunal and the High Court declined to refer it for decision).

Which sections of the Income-tax Act were involved?

Section 34,Section 23(3),Section 22(2)

AI-generated summary — verify with the full judgment below

1955 Aµrif 18 29G SUPREME COURT REPORTS [1955] MESSRS CHATTURAM HORILRAM LTD. v. COMMISSIONI;:R OF INCOME TAX. BIHAR AND ORISSA. [VIVIAN BOSE, JAGANNADHADAS and SINHA JJ.] Indian IHcorne Tax Act, 1922 (Act XI of 1922), s. 34--Assess- n-tcn/ set a...1:ide o·zving to Indian I·•inance Act of 1939 not being in force during the assessment year-Indian Finance Act of 1939 b,·ought into force retrospectively by Bihar Regulation IV of 1942- Fresh notice under s. 34 issued-Whether such fresh no-lice valid.

The appellant in this appeal had been assessed to Income Tax which was reduced on appeal but that assessn1ent was set aside by the Income Tax Appellate Tribunal on the ground that the Indian Finance Act of 1939 was not in force during the asscssr11ent y~ar in Chota Nagpur.

On a reference by the Tribunal the High Court confirmed the setting aside of this assessment.

By the promulgation of Bihar Regulation IV of 1942 by the Governor of Bihar (which wa. a5'ented to by the Governor-General) the Indian Finance Act of 1939 was brought into force in Chota,·Nagpur retrospectively as from the 30th March 1939. On the 8th "February 1944 the Income l~ax Officer passed an or

The order continues below.

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