MADHAVNAGAR COTTON MILLS LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) THE petitioner is a private limited company, which was registered in the erstwhile Miraj (Jr.) State on 25th March, 1944, with a capital of Rs. 11,00,000. It manufactures textile goods. It was converted into a public limited company in September, 1952. THE petitioner set up a textile mill in the erstwhile Miraj (Jr.) State at Madhavnagar and was granted some special concessions by the then ruler of the State. During the assessment years 1946-1947 and 1947-1948 it is alleged by the petitioner that no part of its income arose or was received in the erstwhile British India which was subjected to tax under the Indian Income-tax Act, 1922 (hereinafter to be referred to as the Act of 1922). In or about February, 1948, the erstwhile State of Miraj acceded to the then Dominion Government, as a result of which it became a part of the Province of Bombay. By the Taxation Laws (Extension to Merged States and Amendment) Act, 1949, the Act of 1922, along with other statutes was extended to the merged States including the State of Miraj. THE Income-tax Officer, Satara South, Sangli, started making certain enquiries from the petitioner and actually two notices were issued dated 1st February, 1952, under section 34 of the Act of 1922 with regard to the aforesaid years. THE petitioner filed the returns of income on 8th March, 1952, showing that no income had accrued or arisen or been received in the then British India. THE petitioner also addressed a letter dated 3rd March, 1952, giving a detailed explanation of the amounts deposited by the petitioner with various banks and another firm, a copy of which is annexure &"A". THE Income-tax Officer, Sangli, supplied to the petitioner a statement of the reasons for which the proceedings were started. THE relevant parts have been set out in paragraph 7 of the petition and need not be referred to. In a letter dated 15th November, 1952, the Income-tax Officer, Sangli, wrote to the petitioner as follows (annexure &"B") :

(2.) ALTHOUGH a number of grounds have been raised in paragraph 19 of the petition, Mr. Palkhivala, learned counsel for the petitioner, confined his arguments mainly to certain questions only which shall be presently examined. It is contended that after the Central Board of Revenue had transferred the case from the Income-tax Officer, Sangli, to the Income-tax Officer, Bombay, under section 5(7A) of the Act of 1922, the assessment were completed and final orders were made by him and if the latter was competent to make those orders, no fresh notices could be issued under section 34 of the Act of 1922 or section 148 of the Act of 1961, in respect of escapement of the same items of income. This broad proposition is not seriously contested by Mr. Hardy, who appears for the respondents, but according to him the Income-tax Officer, B-Ward, Sangli, had no jurisdiction nor was he competent to take any proceedings under the Act 1922 and issue notices under section 34 of that Act to the petitioner and that the order of transfer made by the Central Board of Revenue related not to the proceedings for the assessment years 1946-47 and 1947-48 but to the assessment for the subsequent years and, therefore, his submission is that the Income-tax Officer, Bombay, could not have validly and legally exercised any functions or powers so as to make valid assessment orders. Moreover, these orders were annulled by the Appellate Assistant Commissioner and for that reason also it was open to respondent No. 2 to take action and direct the issue of notices under section 34 of the Act of 1922 and section 148 of the Act of 1961, in respect of the assessment years in question with regard to which he alone had jurisdiction and competence by virtue of the notification issued by the Central Board of Revenue under section 5(6) of the Act of 1922. Mr. Palkhivala does not dispute that respondent No. 2 would have had jurisdiction under the aforesaid notification but his contention is that the order made under section 5(7A) dated 15th November, 1955, which related particularly to the case of the present petitioner apart from the cases of certain other assessees had the effect of transferring all the assessment proceedings to the Income-tax Officer, Bombay, in respect of the petitioner including the proceedings for the years 1946-47 and 1947-48. He further says that the entire scheme of the Income-tax Acts is such that there can be no question of lack of inherent jurisdiction and so long as the petitioner raised no objection to the jurisdiction of the Income-tax Officer, Bombay, to complete the assessment proceedings pursuant to the notices issued by the Income-tax Officer, Sangli, under section 34, the orders made by the Income-tax Officer, Bombay, would be perfectly valid and legal as also binding not only on the petitioner but also on the respondents. The position taken up on behalf of the petitioner is that in the appeal filed to the Appellate Assistant Commissioner against the orders of the Income-tax Officer, Bombay, the petitioner never raised any objection on the question of jurisdiction of that officer to make the assessments and it was the Appellate Assistant Commissioner who himself took the view that the Income-tax Officer, Sangli, had no jurisdiction to issue a notice under section 34, with the result that he held that the assessment made by the Income-tax Officer, Bombay, were without jurisdiction and he annulled them. It were the respondents who were aggrieved parties in respect of the orders of the Appellate Assistant Commissioner and they should have gone up in appeal or taken other appropriate proceedings for getting the order of Appellate Assistant Commissioner corrected or set aside. As they failed to do so, it must be accepted that the orders of the Income-tax Officer, Bombay, were never validly set aside and they would constitute an effective bar to the issue of fresh notices by the respondents based on the same material.

(3.) PROVIDED further that the place of assessment shall not be called in question by an assessee if he has made a return in response to the notice under sub-section (1) of section 22 and has stated therein the principal place wherein he carries on his business, profession or vocation, or if he has not made such a return shall not be called in question after the expiry of the time allowed by the notice under sub-section (2) Of section 22 or under section 34 for the making of a return :