Holding

A fresh reassessment under section 147/notice under section 148 of the 1961 Act is barred when proceedings under section 34 of the 1922 Act were factually pending on 1 April 1962, rendering the notice incompetent.

Summary

ICE & GENERAL MILLS, a potato manufacturing and cold‑storage firm, was assessed for the year 1961‑62. The Income‑Tax Officer, under section 34(1) of the Income Tax Act, 1922, initiated reassessment proceedings and in 1965 ordered tax on Rs 1,00,000 of alleged benami income, but the order was annulled in 1967. The department then issued a notice under section 148 of the Income Tax Act, 1961 to reopen the same assessment year. The firm challenged the notice, arguing that section 297(2)(d)(ii) of the 1961 Act bars a fresh reassessment when proceedings under section 34 of the 1922 Act were pending on 1 April 1962. The Supreme Court held that the pendency required is factual, not a question of jurisdiction, and since the 1922 proceedings were factually pending, the 1961 notice was incompetent. Consequently, the High Court order was set aside and the notice quashed. The appeal was allowed.

Issues considered

Whether section 297(2)(d)(ii) of the Income Tax Act, 1961 bars a reassessment under section 147/notice under section 148 when proceedings under section 34(1) of the Income Tax Act, 1922 concerning the same escaped income were pending on 1 April 1962.
Whether the pendency of the 1922 proceedings must be factual or must involve legal jurisdiction.
Whether the earlier reassessment order, later annulled, renders the later notice under the 1961 Act valid.

Legislation cited

Income Tax Act, 1922s. 34(1)
Income Tax Act, 1961s. 147, s. 148, s. 297(2)(d)(ii)

Subjects

income taxreassessmentescaped incomesection 147section 148section 34section 297factual pendencybenami transactionsjurisdictionnon est

Judgment

236

A ICE & GENERAL MI.LLs
v.
!"<COME TAX OFFICER, CENTRAL CIRCLE II, MEERUT
·November 20, 1979
B
[V. D. '{'uLZAPURKAR AND E. S. VENKATARAMIAII, JJ.]

Escaped income-Reopening of Gssessment under section 147 of lite 1961
A.ct not permissible when in respect of the self-same escaped income, proceti-
il:;I under section 34tl) of the 1922 Act had been .u'ndertak~n o.nd were pend- ---'.
ing 011 April 1, 1962 i.e. the date of coming into force of the 1961 A.ct- / ,.,
lncon1e Tux Act, 1961, Section 297(2) (d) (ii) refers to factual per.ding of a
proceeding u11dcr section 34(1) of 1922 Act.

.The appclloot·assessee is a firm carrying on business of manufacturing ico
and preservation of potatoes in its cold storage. By an assessment order dated
July 5, 1961 it was assessed to income tax for the .assessment year 1961-62 oo a
total income of Rs. 53,548/-. The Income Tax Officer, in his proceedin~
D started on Dcceraber 21, 1961 under section 34(1) of the 1922 Act, found
certain property income and income to the -extent of one la·kh from potato
tramaction put through in the name of benami persons by the assesseo bad
escaped assessment and therefore, by his order dated December 22, 1965 be
brought them to tax:. The said order of the Income Tax Officer was annulled
in arp¢al, on May 10, 1967 on the ground that the initiation of reassessment wa_,
not justified. This order became final as the department did not take furt.h.:r
E steps. On July 14, 1967 the Income Tax Officer issued a notice under sectio11.
148 of the IncoI;ne Tax Act, 1961 in respect of the self same assessment year
after obtaining the sanction of the Com.missioner of Income Tax.. Pursuant to
the notice the appellant filed a return under protest on August 14, 1967. The
appellant challenged the said notice by filing a writ petition in the Allahabad
High Court, inter alia on the ground that under section 297(2)(d)(ii) of tho ~~
1961 Act no reassessment pr.oceedings could be undertaken under section 147 of.
F
the 1961 Act inasmuch as in respect of the self-same escaped income, proceed-
ings under s. 34{ 1) of the 1922 Act had been undertaken and were Pending on
April 1; 1962 when the 1961 Act came into force. The High Court rejected
the contention oii the ground that in order that S. 297(2)(d)(ii) should apply,
proceedings under section 34 of the 1922 Act must be legal proceedings with
jurisdiction.
G . Allowing the appeal by certificate, the Court

HELD : The factual pendency of the proceedings under Section 34 of the
1922 Act on the relevant date, and not their legality is material for purposes of __.._.... _
S. 297(2)(d)(ii) of the 1961 Act. [238 D-E] ·

In the instant case: (ai) admittedly proceedings under s. 34(1) of the 1922
II Act ·in respect of the item of Rupees one lakh (which was said to have escaped
.. assessment) v:ere factually pending on April 1, 1962-and therefore, the notice
under s. 148 of the 1961 Act would be incompete1't, and [239 C-DJ

'
ICE & GENERAL MILLS v. H.O. (Tulzapurkar, !.) 237

(b) The initiation of the proceedings under section 34 by the Income Tax; A
Officer cannot be regarded as being without jurisdiction and hence non est. Tho
reassessment order rllade by the Income Tax Officer on December 22, 1965 clearly
• shows that he had initiated the proceedings (in respect of property income)
• under section· 34(1) (b) i.e., in consequence of information gathered by him
from Assistant Appellate Commissioner's order for earlier year and not undet"
•ection ~4(1)(a). [239 F-HJ
B
S. B. Jain v. Mahcm/ra, 83 I.T.R. 104 (SC) and Gujar Mal Modi v. Commis-
si•1'er of Income Tax, 84 I.T.R. 261; applied~

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2015 of 1972.

From the Judgment and Order dated 18-1-1971 of the Allahabul
High Court in Civil Misc. Writ Petition No. 4632/70. c
S. T. Desai, B. R. Agrawala and P. C. Gokhale for the Appellant.

V. S. Desai, Miss. A. Subhashini, J. Ramamurthy and Miss R.
Vaigai for the Respondent.
D
The Judgment of the Court was delivered by

TULZAPURKAR, J. The point raised in this appeal by certificat~
seems to be covered by two decisions of this Court in favour of the
assessee and hence we propose to dispose of the appeal by a short
Judgment.
E
The appellant, a firm, carries on business of manufacturing iee an<l
preservation of potatoes in its cold storage. It was assessed to income·
tu for the assessment year 1961-62 by an assessment order dated
July 5, 1961 on a total income of Rs. 53,548. In proceedings started on
December 21, 1961 under s. 34(1) of the Indian Income Tax Act,
F
1922, the Income Tax Officer found certain property income and
income to tlie extent of one Jakh from potato transactions put through
in the name of benami persons by the assessee had escaped assessment
and, therefore, by his order dated December 22, "1965 he brought
them to tax. The said order of the Income Tax Officer was annulled by
the Appellate Assistant Commissioner in appeal on May 10, 1967 ou G
the ground that the initiation of reassessment proceedings was not
justified. The Department allowed the' matter to rest there and the
Assistant Appellate Commissioner's order became final. On July 14,
1967 the Income Tax Officer issued a notice under s. 148 of the
Income-Tax Act, 1961 in respect of the self-same assessment year
' after obtaining the sanction from the Commissioner of Income-Tax. H
A;:lmittedly, while seeking sanction for reopening the assessment under
s. 147, the lncome-Tax Officer in his report categorically stated that

______.,,..,_ _..,,.. -
238 SUPREME COURT REPORTS [1980) 2 S.C.R. \

A the assessee had concealed the income of Rs. 1,00,000 from undis-
closed source on account of benami storage of potatoes in various
names and the same had escaped assessment owing to the failure on
the part of the assessee to disclose his income fully and truly. Pursuant
to the notice the appellant filed a return under protest on August 14, •'
1967. The appellant challenged the notice by filing a writ petition in
B the Allahabad High Court, inter alia, on the ground that no reassess-
ment proceedings could be undertaken under s. 147 of the 1961 Act
inasmuch as in respect of the self-same escaped income proceedings
under s. 34(1) of the 1922 Act had been undertaken and were pending
on April 1, 1962, when the 1961 Act came into force and in this behalf
reliance was placed on s. 297(2) (d) (ii) 'of the 1961 Act. The High
c Court rejected the contention on the ground that in order that s. 297
(2) (d) (ii) should apply, the proceedings under s. 34 of the 1922
Act must be legal proceedings with jurisdiction which was not tl1c
case here.

It is difficult to sustain this decision of the High Court in view o!
D
two decisions of this Court iD' S. B. Jain v. Mahendra(') and Gujar Mal
Modi v. C.I.T.( 2 ) where it has been held that s. 297 (2) (d) (ii) is
concerned with the factual pendency of proceedings under s. 34 of the
1922 Act and not with their legality. It must in fairness be stated that
none of these decisions on the proper construction of s. 297(2) (d) (ii)
E had been rendered by this Court when the Allahabad High Court
decided the matter.

In S. B. Jain v. Mahendra (supra) the Income-Tax Officer had
issued notice to the respoudent-assessee on January 5, 1962 under A
s. 34(1) (a) of the 1922 Act to reopen his assessment for the
F assessment year 1946-47. The High Court quashed the notice by its
· - order dated March 6, 1963, on the ground that the notice was barred
by limitation. In the meantime the 1961 Act came into force on April
1, 1962, whereafter the Income Tax Officer again issued a notice on
March 26, 1963. under s. 148 of the 1961 Act. This Court held that
what s. 297(2) (d) (ii) of the 1961 Act, required was the factual
G pcndency of a proceeding under s. 34 of the repealed Act, on April
1, 1962. The question whether that pri>ceeding was barred by lim.ita·
tion or not was irrelevant. Though the earlier proceeding Wall quashed --..f.
for the reason that notice on which the proceeding was based was
i&sued beyond time, it could not be said that no proceeding under s. 34
of.the 1922 Act was either factually or legally pending at the time
H when the 1961 Act came into force and since the proceedings initiated
(I) 83 I.T.R. 104.
(2) 84 I.T.R. 251.
. ICE & GENERAL MILLS v. r.r.o. (Tulzapurkar, J.) 239

I under s. 34(1) (a) of the 1922 Act were pending at the time when
1961 Act came into force, the Income-Tax Officer was not compe-
A -
tent to issue any fresh notice under s. 148 of the 1961 Act. In Gujar
Mal Modi's case (supra) the notice under s. 34(1) (a) of the 1922
Act for reopening the assessment of the deceased assessee was served
only on one of the heirs of the deceased assessee. The Assistant Appel-
late Commissioner set aside the assessment made pursuant to that B
notice on the ground that it was necessary to issue notices to all the
legal representatives of the deceased assessee. In the meantime the 1961
"""-Act came into force and, t)lereafter the Income-Tax Officer issued notice ,
under s. 148 of that Act to all the heirs of the deceased assessee. This
Court held that since the proceedings under s. 34(1}(b) bf the 1922 c·
Act were pending on April 1, 1962, the second notice was incompe-
tent. In other words in bo):h the cases this Court laid emphasis on the
factual pendency of the proceedings under s. 34 on the relevant date,
and not their legality as being material for purposes of s. 297(2)(d)
(ii) of the 1961 Act. In the case before us admittedly proceetlings
under s. 34( l) of the 1922 Act in respect of the item of Rs. 1,00,000 D
(which was said to have escaped assessment) were factually pending
on April 1, 1962 and, therefore: the notice under s. 148 of the 1961
Act would he incompetent.

An attempt was made by counsel for the Revenue to distinguish
the aforesaid. decisions on the ground that in the instant case the earlier E
proceedings under s. 34 of the 1922 Act being without jurisdiction,
must be regarded as non est inasmuch as the· Assistant Appellate
, Commissioner had annulled the revised assessment made by the
Income-tax Officer on the ground that the initiation of the proceed-
ings (which was in respect of property income that had escaped assess-
F
meµt) was not justified inasmuch as it was not a case of omission or
failure on the part of the assessee to furnish full particulars of the
property income. The submission, in our view, is factua!y incorrect.
The reassessment order made by the Income Tax Officer on December
22, 1965 clearly shows that he had initiated the proceedings (in respect
of property income) under s. 34(1) (b) i.e. in consequence of informa· G
tion gathered by him from Assistant Appellate Commissioner'8 order
.._,.for an earlier year and not under s. 34(1)(a) on account of any
omission or failure on the part of the assessee to make a full discl~ure
and during the proceedings so initiated he came across the item of
Rs. 1,00,000 being the income from undisclosed source which he held
had been concealed and was liable to be included wider s. 34(1)(a). 8
Therefor9, the initiation of the proceedings under s. 34 by the Income
Tax Officer cannot be regarded as being without jurisdiction and hence
24 0 SUPREME COURT REPORTS [1980] 2 S.C.R. \

A non est. As stated earlier the Department allowed the Assistant Appel- \.?-'"·
late Commissioner's order whereby the reassessment order was quashed
to become final. Instead of challenging that order a fresh notice under
s. 148 of the 1961 Act was issued, which, in our view, the Income-tax
Officer was not entitled to do in view of the fact that proceedings under
11. 34 of the 1922 Act were factually pending on April 1, 1962 when
B the new Act came into force.
In the result the order passed by the High Court is set aside and
the impugned notice under s. 148 of the 1961 Act is quashed. It is .
obvious, that if any orders are passed pursuant to the impugned notice~·
tho11e will be of no avail to the Revenue. The appeal is allowed but in
c the circumstances there will be no order as to costs.

S.R. Appeal allowed.

f