# The Co1nmissioner of Jncm1u-tax Jlnmbay v. R11,11r-hhoddas l\a,·somlas, Bombay - **Citation:** [1960] 1 S.C.R. 114 - **Court:** Supreme Court of India - **Decided:** 1960 - **Bench:** S. R. Das, N. H. Bhagwatt, M. Hidayatullah - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-co1nmissioner-of-jncm1u-tax-jlnmbay-v-r11-11r-hhoddas-l-a-somlas-bombay-1723 - **Pages:** 12 ## Headnote I11comc-tax-I?eturn shozrii-ng inco1ne belou1 minimum taxableTl'hcther a good return-Inco111e-tax Oj}ictr ignoring such return and issu.ing ,notice to assessee to fi.lt return-Assessment 1nade within one ~year of notice bnt be:yond four years of the end of th.e asscss1nent ycar--Validity of-Indian Income-tax Act, 1922 (XI of r922), ss. 22 and 34. A public notice under s. 22(1) of the· Income-tax Act, 1922 was published on May r, 1945, requiring every person whose total income exce'eded the niaximum amount \vhich \\'as not chargeable to inco1ne-tax to file returns for the assr!ismcnt year 1945-46. On January 5, 1950, the assessee submitted a voluntary return ,shOY\ting an inco1ne of Rs .. 1,935 for the :issessmcnt year 1945-46 and adde service of the notice for t.he completion of the assessment. It reads, omitting matters not relevant here :- " ... where a notice under sub-section (1) has been issued within the time therein limited, the assessment or reassessment to he made in pursuance of such • '' S.C.R. SUPREME COURT REPORTS 119 notice niay be made before the expiry of one year r959 from the date' of the service of the notice even if - h · d d th · d f £ " The Commissioner sue per10 exC'ee s e per10 o . . . our years . . . of !llcome-tax, It is, therefore, quite clear that the extra period is Bombay available only if a notice under sub-s. (1) of s. 34 has v. been issued within the time therein limited. This takes Ranchlwddas US to s. 34( 1 ). Karsondas, Bombay Sectic;:m 34(1), omitting parts not relevant, reads:- Hidayatullali J. "(l) If ... (a) the Income-tax Officer has reason to believe that.by reason of the omission or failure· on the part of an assessee to make a return of his income under section 22, for any year ...... , or (b) notwithstimrling 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 clause (a) at any time within eight years and in cases falling under clause (h) at any time 'vithin four years of the end of that year, serve on the assessee ... a notice ... and may proceed to assess such income ... " It would appear from this that if the return filed on January 5, 1950, was a return of income, there was no failure or omission on the part of the asscssee, so as to bring the matter within s. 34(l)(a) of the Act, and subs. (3) of s. 34 would then apply to the case limiting the period to four years. In that event, the a:;sessmcnt should have been completed on or before March 31, 19b0. But if the return made by the assessee was no return at all, then the conditions under the first subsection of s. 34 obtained, and the assessment could he completed within one year of the date of service of the notice (l\Iarch 3, 1950), i.e. on or before March 2, 1951. In that event, the asses:mient would be valid. The validity of the return in this context is tied to the validity of the notice and also i:ice versa. 120 SUPREME COURT REPORTS [1960(1)] '959 Section 22 of tho Aet (omiUing the parts not relev- - -. . a.nt) may now be quoted : li" c1°" 111"" 1'° 11'' "(1) The Inuomo-tax Officer shall, on or before the o; nwme- ax, 1 t l f M ' ] ' t' b b]' Bombav s (a)' o l'v.iay, 111eac1 .~rear, g1\7C no ice, y }lU · IC· v. • ation iu the press ... , requiring every person whose Ranchhodda; total income during the previous year exceeded the /(arwnda;, Bombay maximum amount which is not chargeable to Hidayatullah ]. income-tax to furnish, within such period not being less than sixty days ... a return .. ., setting forth ... his total income and tot.ti world income during that year: • * * (2) In the case of any person whose total income is, in the Income-tax Officer's opinion, of such an amount as to render such person liable to incometax, the Income-tax Officer may serve a notice upon him requiring him to furnish, within such period, not being less than thirty days ... a return ... setting forth . . . his total income and total world income during the prov ions year: • • • (3) If any person has not furnished a return within the time allowed l1y or under sub-section (I) or sub-section (2), or having furnished a return under either of those sub-sections, discovers any omission or wrong statement thprein, he may furnish a return or a revised return, as the case may be at any time before the assessment is made." It will be seen from this, that, as the Bombay High Court correctly pointed out, there is a time limit provided in sub-ss. (l) ti.ml (2) and the failure or omission occurs when that period passes, but sub-s (3) :;i,llows a locus poen:itentiae before the assessment is actually made. There is no disput_e that a return could be filed in this case, late though it was. The controversy centres round the fact that the return, when it was filed, disclosed an income which was below the maximum not chargeable to tax, and the question is whether in such an event the Income-tax Officer was precluded from issuing a notice under s. 34 of the Act. There has been in the past a well-marked difference of opinion between the Bombay and the Calcutta High S.C.R. SUPREME COURT REPORTS 121 Courts, the leading cases in Bombay being Harakchand i95~ Makanji & Do. v. Oommiss-ioner of Income-tax (1), All The Commission" India Groundnut Syndicate Ltd. v. Commissioner of of Income-tu, Income-tax (2) and the decision under appeal here, while Bombay the Calcutta view is to be found in Commissioner of v. Agricnltural Income-tax v. Sultan Ali Gharami (3) R. K. Ranchhoddas • . ' Karsondas, Bombay Das & Go. v. Commissioner of Income-tax(•) and Commissioner o.f Income-tax v. Govindlal Dutta e). To these Hiday~ah J. may be added P. S. Rlima Iyer v. C01nmi.ssioner of Income-tax (6), in which the Madras High Court has accepted the Bombay view. No useful purpose will be served in discussing these cases in detail. In some of them, the point need not have been taken up for decision, though it was. We shall refer very briefly to the two rival views and the grounds on which they are rested, and in doing so, we begin with the Calcutta decisions. In Sultan Ali Gharami's case (3), a notice under s. 24(1) of the Bengal Agricultural Income-tax Act (corresponding to s. 22(1) of the Act) was issued. No return was filed. Three years later, a notice under s. 24(2) of that Act (corresponding to s. 22(2) of the Act) was served, and a return showing an income below the taxable minimum was filed. The contention was that without a notice under s. 24(2) within the assessment year or a notice under s. 38(1) (corresponding to s. 34 (1) of the Act) the 'best judgment' assessment was bad. The contention further \Vas that the return could be taken to be under s. 24(1) or s. 24(3). Chakravarti, J. (as he then was) and Das Gupta, J., held that a person who had no assessable income was not placP-d under a duty to file a return, that the return whether filed under s. 24(1) or s. 24(3) which had failed to show an assessable income could not possibly be 'treated' as a return under s. 24(1) or even s. 24(3) when filed in answer to a notice under s. 24(2). They further observed at p. 442: "A return under section on 24(1) is a return filed by a person who decides for himself that he had an assessable income in the previous year and by filing (I) ( 1948) 16 I. T. R. II9. (2) (1954) 25 I. T. R. 90 (3) (1951) 20 I. T. R. 432 16 (4) (1956) 30 I. T. R. 439 (51 (1957) 33 I. T. R. 630 (6) (1957) 32 I. T. R. 458 '959 The Commissioner of Income-tax Bombay v. R anchhoddas Karsondas, Bombay Hidayatullah ]. 122 SUPREME COURT REPORTS [1960(1)] the return he offers that income for assessment. A person who had no assessable income in the previous year is placed under no duty by a notice under section 24(1) to furnish a return and a person who thinks, rightly or wrongly, that he had no assessable income will furnish none. A return under section 24(1), whether filed within the time allowed under the section or filed subsequently under the provisions of section 24(3), will therefore show an assessable income ... A return which showed no assessable income, could not possibly be 'treated' as a return filed under section 24(1) or a return called for under that section but filed under section 24(3), when in fact it was filed in response to a notice under section 24(2)." The opinion here expressed was criticised in the judgment under appeal, and in the next case, R. K. Das & Go v. Commissioner of Income-tax(•), the Calcutta High Court (Chakravarti, C.J., and Sarkar, J.) explained what was really meant. It is not necessary to refer to the facts of that case. This is what Chakrawrti, C.J., observed at p. 449 : " 'It should be remembered', I observed 'that the return in the present case is being sought to be treated as a return under section 24(1), belatedly filed.' And then I went on to say that a return under section 24(1) would only be filed by a person who thought that he had a taxable income and therefore a return showing an income below the taxable limit could not be held, on a construction thereof, to be a return under section 24(1) and consequently the return in the case we were then considering could not be treated as such a return filed under section 24(3). To say that, was not to say that even a return filed in compliance with a notice under section 22(2), if filed belatedly under section 22(3) could not be a return showing an income below the taxable limit.'' This left the matter somewhat ambiguous as to what was really meant, and in Commissioner of Income-f,ax v. GovindlaJ, Dutta('), Chakravarti, C. J., and Guha, J., (1) (1956) 30 I.T.R. 439· (2) (1957) 33 I.T.R. 630. S.C.R. SUPREME COURT REPORTS 123 again explained the true import of the law laid down. x959 They referred to s. 22(1) of the Act as it stood prior to Th c -. . e ommsssioner the amendment of 1953, and observed that under that 0 , Incom6-tas section a person was required to file a return only if ' Bombay his total income during the preceding year exceeded v. the maximum amount which was not chargeable to Ranchhoddas tax. The return contemplated was thus only a return Karsondas, Bombt1y · of income and not a return of loss and not even a Hidayatullt1h J. return of income, but a return of taxable income. Not only had a person no duty but he" had even .no right, to file a return voluntarily, if he had suffered a loss, to 'report' that loss. The learned Judges concluded that it was a complete mistake to think that s. 22(3) provided for the filing of a voluntary return showing loss, at any time, before assessment. That section, they opined, contemplated the filing of a return of taxable income, and a return not showing such income was not a return at all in law. The Calcutta view, as shown above, really proceeds upon the wording of s. 22(1). It lays down that the public notice requires only persons having an income above the taxable limit to make a return. A person who has no such. income need not make a return, and if he does make a return, it is not a return which need be considered, being not a return in law. It is a little difficult to understand how the existence of a return can be ignored, once it has been filed. A return showing income below the. taxable limit can be made even in answer to a notice under s. 22(2). The notice under s. 22(1) requires in a general way what a notice under s. 22(2) requires of an individual. If a return of income below the taxable limit is a good return in answer to a notice under s. 22(2), there is no reason to think that a return of a similar kind in answer to a public notice is no return at all. The conclusion does not follow from the words of s. 22(1). No dout>t, under that sub-section only those persons a.re required to make a return, whose income is above taxable limits, but a person may legitimately consider himself entitled to certain deductions and allowances, and yet file a return to be on the safe side. He may show his income and the 124 SUPREME COUii'l' REPORTS [1960(1}] ' 959 deductions and allowances he claims. But it may be T '" c . . that on a correct processing his income may be found ~ om1niss1oner . . of Incom•-tax, to be above the exempted hm1t, No doubt, it is futile Bombay. for a person not liable to tax· to rush in with a return, v. but the return in law is not a mere scrap of paper. Ranchhoddas It is a return, such as the assessee considers, repreKarsondas, Bombay sen ts his true income. Hidayat1.tlah J. We are unable (and we say this with due respect} to accept the view ad,.umbrated in the Calcutta cases. The contrary \7iew is expressed by the Bombay High Court in the earlier ca.se of Harakchand Makanji & Co. v. Cornm·is.sioner of Incorne-tax (1) and in the judgment under appeal. That view was accepted by the Madras High Court in P. S. Raina Iyer v. Cornrnissioner of lncorne-tnx (') and also, in our opinion, is the sounder view of the two. In the earlier of the two Bombay cases, Chagla, C. J., and Tendolkar, J., held (as stated in the head note) : "Notice under section 34 is only necessary if at t.he end of the assessment year no return has been made by the assessee, and the authorities wished to proceed under section 22(2), but where the assessee himself chooses voluntarily to make a return, no question can arise under section 34 of assessment escaping, and therefore there is no necessity to 8erve any notice under section 34." This represents the law applicable to the facts as they are to be found in this case. In the assessment year no return of income was filed, nor was any notice served under s. 22(2). There was, however, the general notice under s. 22(1). A return in answer to that notice could be filed under s. 22(3) before assessment, and for this there is no limit of time. It was filed on January 5, 1950. Th'ere was nothing to prevent the Income-tax Officer from taking up the return and proceeding to assess the income of the assessee. It was open to him, if there wa.s sufficient justification for it, to hold that the amount noted in the footnote was really the assessee's income, in which case an assessable income would have been found and the tax could be charged thereon. If the Income-tax Officer had acted on that return and assessed the assessee (I) (1948) 161.T.R. ug. (2) (1957) 32 I. T. R. 458, S·C.R SUPREME COURT REPORTS 125 before March 31, 1950, the assessment would have z959 been valid. He chose to ignore the return, and served - l . d 34(l) Th. . The Commissioner on tie assessee a notwe ~n er s. . is notice of Income-ta~. was improper, because with the return already filed Bombay there was neither an omission nor a failure on the v. part of the assessee, nor was there any question of Ranchkoddas assessment 'escaping'. The notice under s. 34(1) was, Karsondas,Bombay therefore, invalid and the consequent assessment H idayatullah ] • equally so. vVe accordingly agree with the judgment under appeal. Before leaving this case, we may refer to two other arguments, whieh were raised. Mr. Rajagopala Sastri pointed out that an assessee might file the 'voluntary' retw.rn on the last