COMMISSIONER OF INCOME TAX Vs. MAHARAJA PRATAP SINGH BAHADUR

JUDGEMENT

(1.) IN this case the assessee, namely, Maharaja Pratap Singh Bahadur, had agricultural income from his zamindari for all the four asst. yrs. 1944 -45 to 1947 -48. Assessment was made by the IT Authorities for all these assessment years but the income of the assessee with regard to interest on arrears of rent was not included in the computation of the assessable income. The IT Authorities followed this course in view of the decision of the Patna High Court in Srimati Lakshmi Daiji vs. CIT, Bihar and Orissa (1944) 12 ITR 309. But the view of the law taken by the Patna High Court was reversed by the Judicial Committee in CIT, Bihar and Orissa vs. Raja Bahadur Kamakhaya Narayan Singh and Others (1948) 16 ITR 325. It was held by the Judicial Committee that the interest on arrears of agricultural rent was not agricultural income within the meaning of S. 2(1) of the IT Act and was, therefore, not exempt from Income -tax. The decision of the Judicial Committee is dt. the 6th of July, 1948. In accordance with this decision the ITO issued notices under S. 34 of the IT Act against the assessee for all the four assessment years. These notices were issued on the 8th Aug., 1948. The assessee filed returns of income in response to these notices and included in the returns the receipt of interest on arrears of rent. The ITO completed all the assessments on the 26th Aug., 1948. The ITO followed the procedure laid down by S. 34 as it stood before it was amended by Act XLVIII of 1948. The amendment received the assent of the Governor -General on the 8th Sept., 1948. The assessee took appeals to the AAC against the order of the ITO, but the appeals were dismissed. The assessee took the matter in appeal again to the Tribunal. The appeals were heard before the Patna Bench constituted of Mr. Sastri, the Judicial Member, and Mr. Narayana Row, the Accountant Member. There was difference of opinion between these two members as to how the appeals were to be decided. Mr. Sastri, the Judicial Member, held that the procedure prescribed under the old S. 34 applied to the case and there was "definite information" obtained by the taxing authorities within the meaning of the old S. 34. The Judicial Member also held that the assessee was estopped from contesting the validity of S. 34 because he had responded to the notice and included the receipt of interest from rent in his return of income. The Accountant Member, Mr. Narayana Row, expressed a different view on both these points. He held, firstly, that there was no waiver on the part of the assessee merely because he filed the return of income in response to the notice under S. 34. In the second place, the Accountant Member took the view that the amended S. 34 applied to the case and since the peremptory requirements of the amended section were not complied with the proceedings under S. 34 taken by the IT Authorities were legally invalid and the assessments made under S. 34 were also invalid and should be cancelled. The appeals were then placed before the President of the Tribunal, who held, in the first place, that there was no waiver on the part of the assessee and, secondly, that the assessments under S. 34 were legally invalid because the requirements imposed by the amended S. 34 had not been complied with.

(2.) UNDER S. 66(1) of the IT Act the Tribunal has submitted for the opinion of the High Court the following questions of law :

(3.) IN the present case notices under S. 34 were issued by the ITO on the 8th Aug., 1948 ; and after the assessee filed his returns the ITO completed the assessments on the 26th Aug., 1948. It is true that the Amending Act, namely, Act XLVIII of 1948, was promulgated on the 8th Sept., 1948. But S. 1 of the Act makes the amendment expressly retrospective w.e.f. the 30th of March, 1948. It follows, therefore, that he amended S. 34 should be deemed to have been in existence w.e.f. the 30th of March, 1948. It is true that on the 8th Aug., 1948, when the ITO issued notices under S. 34, Act XLVIII of 1948 had not been promulgated. But, as I have pointed out, S. 1 of the Act makes S. 8 of that Act expressly retrospective, and by a process of fiction the amended S. 34 is deemed to have been in existence w.e.f. the 30th of March, 1948. It follows, therefore, that on the 8th Aug., 1948, the amended S. 34 was in operation and it was the duty of the ITO to comply with the peremptory requirements of S. 34 before he issued the notices upon the assessee for the escaped income. It was contended by Mr. Bahadur on behalf of the IT Department that it was physically impossible for the ITO to comply with the requirements of the amended S. 34 on the 8th Aug., 1948. The argument is correct, but the IT Department was not prejudiced because notices under S. 34 could be reissued after the 8th Sept. , 1948, the date of the Amending Act, and after complying with the requirements of the amended S. 34. In any case, the effect of S. 1 of Act XLVIII of 1948 is that by a process of fiction the amended S. 34 is held to be in existence and operative w.e.f. the 30th of March, 1948, and the old S. 34 was non -existent w.e.f. that date. The IT Authorities were, therefore, bound to proceed under the amended S. 34 in this case ; and since the peremptory requirements of S. 34 had not been complied with, it must be held that the proceedings taken under S. 34 were not legally valid.