# ESTHURI ASW ATHIAH v. THE INCOME-TAX OI!'FICER, MYSORE STATE

- **Citation:** [1961] 2 S.C.R. 911
- **Court:** Supreme Court of India
- **Decided:** 1959-03-19
- **Bench:** J. L. Kapur, M. Hidaya.Tullah, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/esthuri-asw-athiah-v-the-income-tax-oi-ficer-mysore-state-2108
- **Pages:** 7

## Headnote

Income Tax-Reassessment-Notice issued by Income-tax Officer-if without jurisdiction-Indian Income-tax Act, rg22 (II of
rg22), ss. 34(r)(a), 23(r), 22(3)-Finance Act, rg50 (XXV of rg50),
s. rJ(I)-Part B States (Taxation Concessions) Order, r950, cl. 5(r).
The appellants, a Hindu undivided family, carrying on
business in the former State of Mysore, were assessed under the
Mysore Income-tax Act for the year of assessment 1949-50
corresponding to the year of account July l, 1948, to June 30,
1949. The Indian Income-tax Act came into force in that area
in April 1, 1950, and on December 26, 1950, notice under s. 22(2)
of that Act was served upon the appellants to submit their
return for the assessment year 1950-51. On September 8, 1952,
the appellants submitted their return stating that they had no
assessable income for that year. The Income Tax Officer passed
on that return an order, "no proceeding", and closed the assessment. When the appellants submitted their return for the next
assessment year, their books of account disclosed an.opening
cash credit balance of Rs. 1,87,000 and odd on July 1, 1949. They
failed to produce the books of account of the previous years,
and the Income-tax Officer held that Rs. 1,37,000 out of the said
opening balance represented income from an undisclosed source.
The appellants submitted a fresh return for the assessment year
1950-5 I purporting to do so under s. 22(3) of the Indian Incometax Act. Pursuant to the direction of the Appellate Assistant
Commissioner, the Income Tax Officer on October 15, 1957,
served on the appellants a notice under s. 34 of the Act and
thereupon the appellants moved the High Court under Art. 226
for an order quashing the said notice and the proceeding as without jurisdiction. The High Court dismissed the petition.
Held, that it was not correct to say that the issue of the
notice for reassessment w_as without jurisdiction as the assessment was yet pending.
Under s. 23(1) of the Indian Income-tax Act, it is open to
the Income-tax Officer, if he is satisfied as to correctness of the
return filed by the assessee, to assess the income and determine
the sum payable on the basis of the return without requiring
the assessee either to be present or to produce evidence. The
order 'no proceeding' recorded on the return must, therefore,
mean that the Income Tax Officer had accepted the previous
return and assessed the income as nil.
A revised return under s. 22(3) filed by the assessee may be
Decomber 5.
912
SUPREME COURT REPORTS .
[1961]
r960
entertained only before the order of assessment and not there1 -,.
-
after. Lodging of such a return after the assessment is no bar
Esthu•i Aswathiah to reassessment under s. 34(1) of the Act.
v.
It could not be said, .having regard to the provisions of
The Income-tax s. 13(1) of the Finance Act (XXV of 1950) and cl. 5(1) of Part B
Officer. Mysore States (Taxation Concessions) Order 1950, issued by the Central
Stal•
Government under s. 6oA of the Indian Income-tax Act, that
for the assessment year 1950-51 the appellants were assessable
under the Mysore Income-tax Act and not under the Indian
Income-tax Act.
Sha!>].
UIVIL APPELLATE JURISDICTION: Civil Appeal No.
200of1960.
Appeal from the Judgment and Order dated the
19th March, 1959, of the Mysore High Court, Bangalore, in Writ Petition No. 263 of 1957.
K. Srinivasan and R. Gopalakrishnan, for the appellant.
A. N. Kirpal and D. Gupta, for the respondent.
1960. December 5. The Judgment of the Court
w11s delivered by
SHAH, J.-This appeal with certificate of fitness
granted by the High Court of Judicature of Mysore is
from an order rejecting the petition of the appellant
for a writ to quash a notice of reassessment under
s. 34 of the Indian Income Tax Act.
The appellants are a Hindu Undivided Family
carrying on business in groundnuts and other commodities at Goribidnur, Kolar District, in the territory
which formed part of the former State of Mysore. The
Mysore Income Tax Act was repealed and th

## Text

2 S.C.R. SUPREME COURT REPORTS
911
ESTHURI ASW ATHIAH
v.
THE INCOME-TAX OI!'FICER, MYSORE STATE
(J. L. KAPUR, M. HIDAYA.TULLAH and J.C. SHAH, JJ.)
Income Tax-Reassessment-Notice issued by Income-tax Officer-if without jurisdiction-Indian Income-tax Act, rg22 (II of
rg22), ss. 34(r)(a), 23(r), 22(3)-Finance Act, rg50 (XXV of rg50),
s. rJ(I)-Part B States (Taxation Concessions) Order, r950, cl. 5(r).
The appellants, a Hindu undivided family, carrying on
business in the former State of Mysore, were assessed under the
Mysore Income-tax Act for the year of assessment 1949-50
corresponding to the year of account July l, 1948, to June 30,
1949. The Indian Income-tax Act came into force in that area
in April 1, 1950, and on December 26, 1950, notice under s. 22(2)
of that Act was served upon the appellants to submit their
return for the assessment year 1950-51. On September 8, 1952,
the appellants submitted their return stating that they had no
assessable income for that year. The Income Tax Officer passed
on that return an order, "no proceeding", and closed the assessment. When the appellants submitted their return for the next
assessment year, their books of account disclosed an.opening
cash credit balance of Rs. 1,87,000 and odd on July 1, 1949. They
failed to produce the books of account of the previous years,
and the Income-tax Officer held that Rs. 1,37,000 out of the said
opening balance represented income from an undisclosed source.
The appellants submitted a fresh return for the assessment year
1950-5 I purporting to do so under s. 22(3) of the Indian Incometax Act. Pursuant to the direction of the Appellate Assistant
Commissioner, the Income Tax Officer on October 15, 1957,
served on the appellants a notice under s. 34 of the Act and
thereupon the appellants moved the High Court under Art. 226
for an order quashing the said notice and the proceeding as without jurisdiction. The High Court dismissed the petition.
Held, that it was not correct to say that the issue of the
notice for reassessment w_as without jurisdiction as the assessment was yet pending.
Under s. 23(1) of the Indian Income-tax Act, it is open to
the Income-tax Officer, if he is satisfied as to correctness of the
return filed by the assessee, to assess the income and determine
the sum payable on the basis of the return without requiring
the assessee either to be present or to produce evidence. The
order 'no proceeding' recorded on the return must, therefore,
mean that the Income Tax Officer had accepted the previous
return and assessed the income as nil.
A revised return under s. 22(3) filed by the assessee may be
Decomber 5.
912
SUPREME COURT REPORTS .
[1961]
r960
entertained only before the order of assessment and not there1 -,.
-
after. Lodging of such a return after the assessment is no bar
Esthu•i Aswathiah to reassessment under s. 34(1) of the Act.
v.
It could not be said, .having regard to the provisions of
The Income-tax s. 13(1) of the Finance Act (XXV of 1950) and cl. 5(1) of Part B
Officer. Mysore States (Taxation Concessions) Order 1950, issued by the Central
Stal•
Government under s. 6oA of the Indian Income-tax Act, that
for the assessment year 1950-51 the appellants were assessable
under the Mysore Income-tax Act and not under the Indian
Income-tax Act.
Sha!>].
UIVIL APPELLATE JURISDICTION: Civil Appeal No.
200of1960.
Appeal from the Judgment and Order dated the
19th March, 1959, of the Mysore High Court, Bangalore, in Writ Petition No. 263 of 1957.
K. Srinivasan and R. Gopalakrishnan, for the appellant.
A. N. Kirpal and D. Gupta, for the respondent.
1960. December 5. The Judgment of the Court
w11s delivered by
SHAH, J.-This appeal with certificate of fitness
granted by the High Court of Judicature of Mysore is
from an order rejecting the petition of the appellant
for a writ to quash a notice of reassessment under
s. 34 of the Indian Income Tax Act.
The appellants are a Hindu Undivided Family
carrying on business in groundnuts and other commodities at Goribidnur, Kolar District, in the territory
which formed part of the former State of Mysore. The
Mysore Income Tax Act was repealed and the Indian
Income Tax Act was brought into force in the Part-B
State of Mysore as from April 1, 1950. The appellants had adopted as their year of account July I to
June 30 of the succeeding year and they were assessed under the Mysore Income Tax Act on that footing
for the year of assessment 1949-50 corresponding to
the year of account July 1, 1948, to June 30, 1949.
After the Indian Income Tax Act was applied to the
State of Mysore on December 26, 1950, notice under
s. 22(2) of the Indian Income Tax Act was served upon the appellants requiring them to submit their
2 S.C.R~ SUPREME COURT REPORTS
913
return of income for the assessment year 1950-51.
r96o
On September 8, 1952, the appellants submitted theirE h
:-·;;-
h. h
.
.
9 9
sl uri nswat 1a
return stating that for the year ending June 30, 1 4 ,
v.
corresponding to the assessment year 1949-50, they The
rucome-ta:r
were assessed under the Mysore Income Tax Act, that Officer, Mysore
their income for the year ending June 30, 1950, was
State
assessable under the Indian Income Tax Act in the
assessment year 1951-52 and that they had no assessable income for the assessment year 1950-51. The
Income Tax Officer passed on that return an order
"no proceeding" and closed the assessment. For the
assessment year 1951-52, the appellants submitted
their return of income. In the books of account produced by the appellants an opening cash credit
balance of Rs. 1,87,000 odd on July 1, 1949, was disclosed. The Income Tax Officer called upon the appellants to produce their books of account of previous
years, but the books were not produced on the plea
that the same were lost. In assessing the income of
the appellants for the year of account 1949-50, the
Income Tax Officer held that Rs. 1,37,000 out of the
opening balance in the books of account dated July 1,
1949, represented. income from an undisclosed source.
In appeal, the Appellate Assistant Commissioner observed that the appellants not having exercised their
option under s. 2(ii) of the Indian Income Tax Act,
and in the absence "of any system of accounting
adopted" by theni, the only course open to the Income Tax Officer was to take the financial year ending March 31, 1950, as the previous year for the income from an undisclosed source, and directed the
Income Tax Officer to consider this credit in the assessment for the year 1950-51 after giving opportunity to the appellants to explain the nature and source
thereof. Before the appeal was disposed of by the
Appellate Assistant Commissioner, the appellants had
submitted a fresh return for the assessment year 1950-
. 51 purporting to do so under s. 22(3) of the Indian
Income Tax Act. Pursuant to the direction of the
Appellate Assistant Commissioner, the Income Tax
Officer issued a notice of reassessment under s. 34 of
the Income Tax Act and served it on October 15, 1957,
Shah].
914
SUPREME COURT REPORTS
[1961]
z96o
calling upon the appellants to submit a fresh return.
fslhuri--:i-;walhiah The appellants thereu:pon .submitted a petition under
v.
Art. 226 of the Const1tut10n to the High Court of
The Income-tax Mysore praying for an order declaring that the notice
Officer, Mysore under s. 34 was without jurisdiction and for quashing
Stale
the notice and proceeding consequent thereon. This
Shah].
petition was dismissed by the High Court, but the High
Court, on the application of the appellants, certified
that the appeal was a fit one for appeal to this court.
Section 34(1) of the Indian Income Tax Act at the
relevant time in so far as it is material provided :
"(l) If-
(a) the Income Tax Officer has reason to believe
that by reason of the omission or failure on the part
of the assessee to make a return of his income under
s. 22 for any year or to disclose fully and truly all
material facts necessary for his assessment for that
year, income, profits or gains chargeable to income.
tax have escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part
of the assessee, the Income Tax Officer has in consequence of information in his possession reason to
believe that income, profits or gains chargeable to
income-tax have escaped assessment for any year,
he may in cases falling under cl. (a) at any time within eight years and in cases falling cl. (b) within four
years of the end of that year, serve on the assessee
a notice containing all or any of the requirements
which may be included in a notice under sub-s. (2) of
s. 22 and may proceed to assess or reassess such income, profits or gains; and the provisions of this Act
shall, so far as may be, apply accordingly as if the
notice were a notice issued under that sub-section."
In the course of the assessment proceedings for
1951-52, the appellants produced their books of
account containing an entry dated July 1, 1949, showing an opening cash balance of Rs. 1,87,000 odd which
was not satisfactorily explained. Though called upon,
they did not produce their books of account for the
earlier year. The appellants had failed to disclose in
their return for the assessment year 1950-51 any
•
-
2 S.C.R. SUPREME COURT REPORTS
915
income. In the circumstances, the Income Tax Officer
z96o
had'reason to believe that by reason of failure on theE th
:--A th·,.
•
s uri
swa ta
part of the appellants to disclose fully and truly all
v.
material facts necessary for assessment for that year, The Income-tax
income chargeable to tax had escaped assessment. Officer, Mysore
Th!' Income Tax Officer had therefore jurisdiction to
siate
issue the notice for reassessment.
The submission that the previous return submitted
on September 8, 1952, "had not been disposed of" and
until the assessment pursuant to that return was
made, no notice under s. 34(1) for reassessment could
be issued, has in our judgment no substance. The
Income Tax Officer had disposed of the assessment
proceeding accepting the submission made by the
appellants that they had no income for the assessment
year 1950-51. Under s. 23(1) of the Indian Income
Tax Act, it is open to the Income Tax Officer, if he is
satisfied that the return made by an assess~e under
s. 22 is correct, to assess the income and to determine
the sum payable by the assessee on the basis ·of the
return without requiring the presence of the assessee
or production by him of any evidence. The appellants had in their return dated September 8, 1952,
submitted that they had no assessable income for the
year in question and on this return, the Income Tax
Officer had passed the order "no proceeding". Such
an order in the circumstances of the case meant that
the Income Tax Officer accepted the return and assessed the income as "nil". If thereafter, the Income
Tax Officer had reason to believe that the appellants
had failed to disclose fully and truly all material facts
necessary for assessment for that year, it was open to
him to issue a notice for reassessment.
Under s. 22, sub-s. (3), an assessee may submit a
revised return if after he has furnished the return
under sub-s. (2) he discovers any omission or wrong
statement therein. But such a revised return can only
be filed "at any time before the assessment is made"
and not thereafter. The return dated :February 26,
1957, was submitted after the assessment was made
pursuant to the earlier return and it could not be
entertained. Nor could the lodging of such a return
Shah ].
916
SUPREME COURT REPORTS
[1961)
'960
debar the Income Tax Officer from commencing a.
E th
:--A
, . h proceeding for reassessment of the appellant under
s
uri
swatriia
h
.
v.
s. 34(1) oft e Indian Income Tax Act.
The Income-tax
There is also no substance in the contention that
Offim. Mysore for the assessment year 1950-51 the assessee could be
State
assessed under the Mysore Income Tax Act and not
Shah j.
under the Indian Income Tax Act. By the Finance
Act XXV of 1950 s. 13, cl. (1), it was provided in so
far as it is material that:
"If immediately before the 1st day of April, 1950,
there is in force in any Part-B State ...... any law relating to income-tax or super-tax or tax on profits of
business, that law shall cease to have effect except for
the purposes of the levy, assessment and collection of
income-tax and super-tax in respect of any period not
included in the previous year for the purposes of
assessment under the Indian Income Tax Act, 1922
(XI of 1922), for the year ending_on the 31st day of
March, 1951, or for any subsequent year."
By virtue of s. 13(1), the Mysore Income Tax Act
ceased to be in operation as from April 1, 1950, except
for the purposes of levy, assessment and collection of
income-tax and super tax in respect of any period
which was not included in the previous year for the
purposes of assessment under the Indian Income Tax
Act for the assessment year 1950-51. The appellants
had been assessed for the period July 1, 1948, to June
30, 1949, under the Mysore Income Tax Act. It is
manifest that for any account year which was the
previous year in relation to the assessment year 195051, the appellants were liable to be assessed under the
Indian Income Tax Act and not under the repealed
Act. The year of account July 1, 1949, to June 30,
1950, was not a period prior to such previous year and
therefore liability to pay tax in respect of that period
could be assessed not under the Mysore Income Tax
Act, but under the Indian Income Tax Act. It was
urged that this interpretation of s. 13 may, when the
account year of an assessee does not coincide with the
financial year lead to double taxation of the income
for the account year ending between April 1, 1949,
2 S.C.R. SUPREME COURT REPORTS
917
and March 31, 1950. But in order to avoid the continr96o
gency envisaged by the appellants, the Central Govern- E th
:--A ih' h
h
.
.
f .
d
60A f th
s uri
swa ia
ment as, in exercise o its power un er s.
o
e
v.
Indian Income Tax Act, issued the Part-B States The Incom•-tu
(Taxation Concessions) Order, 1950, which by cl. 5(1) Officer, Myme '-
provides amongst other things, that the income, proStat•
fits and gains of any previous year ending_ after the
31st day of March, 1949, which is a previous year for
the State assessment year 1949-50 shall be assessed
under the Act (Indian Income Tax Act, 1922) for the
year ending on the 31st March, 1951, if and only if
such income, profits and gains have not, before the
appointed day, been assessed under the State law. If,
in respect of the previous year for the purposes. of the
assessment year ending 31st March, 1951, the appellants had been assessed by any State Government
under a law relating to income-tax in force in the
State, the Indian Income Tax authorities would be incompetent to assess income for that year; but in
default of such asRessment income of the appellants
for that year was assessable under the Indian Income
Tax Act.
The notice under s. 34 was also not issued after the
expiry of the period prescribed in that behalf. The
notice was issued by the Income Tax Officer because
he had reason to believe that by reason of failure on
the part of the appellants to disclosA fuUy and truly
all material facts necessary for the assessment for the
the year 1950-51, income had escaped assessment.
Such a notice fell manifestly within s .. 34(1)(a) and
could be issued within eight years from the end of the
year of assessment. The impugned notice under s. 34
for reassessment of the income of th<:) appellants for
the year 1950-51 was, in our judgment, properly issued
and the High Court was right in dismissing the petition for a writ to quash the notice.
The appeal fails and is dismissed with costs.
116
Shah].