AZIZ QAZI & BROTHERS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THIS petition for issue of a writ of Certiorari or any other appropriate writ quashing the notices issued to the petitioner by the respondent under Section 34 read with Section 22(2) of the Indian Income Tax Act, 1922, and Section 23(2) of the Jammu and Kashmir Income Tax Act, 2007 (Samvat) as also for quashing proceedings subsequent thereto and for restraining the respondent from taking further proceedings in the matter and making assessment/reassessment with regard to the Accounting Year 2003 (Assessment Year 2004) (Samvat) has been referred to this Bench by Mufti J, as in his opinion, it raises important questions of law as regards the interpretation of the various provisions of the Income Tax Act as applicable to the State of Jammu and Kashmir.

(2.) THE material facts leading to this petition are: - The petitioner which is a trading firm doing business in the State of Jammu and Kashmir and was an assessee of the Income Tax Department under the Jammu and Kashmir Income Tax Act and subsequently under the Indian Income Tax Act as extended and made applicable to the State was served with a notice dated 24th March, 1956, by the Income Tax Officer Ward B, Srinagar, under Section 34 of the Indian Income Tax Act, No. XI of 1922, stating that the latter had reason to believe that the income of the petitioner assessable to income tax for the year ending March 31, 1947, (Assessment Year 2004) had escaped assessment or had been under assessed and that he proposed to re -assess the said income and that the former should deliver to him not later than April 29, 1956, or within 35 days of receipt of the notice, a return in the attached form of its total income and total world income assessable for the Assessment year ending March 31, 1947. It was mentioned in the notice that the same was being issued after obtaining the necessary "satisfaction" of the Commissioner of Income Tax, Simla. In response to this notice, the petitioner submitted a return for the Accounting year 2003 to the Income Tax Officer on July 7, 1956. On June 19, 1956, the respondent issued another notice under section 22(4) of the Indian Income tax Act, 1922, calling upon the petitioner to produce or cause to be produced at his office at Srinagar on July 9, 1956, all accounts for the year 2008 (Samvat). On March 16, 1957, the petitioner objected to the issue of the notices on the ground that they were time barred and a couple of days later it filed written arguments dated March 19, 1957, contending that apart from the objections regarding the notices being time barred, the notices should have been issued under the Jammu and Kashmir Income Tax Act. On February 18, 1958, the Income Tax Officer issued to the petitioner another notice under Section 23(2) of the Indian Income Tax Act, 1922, asking it to attend his office at Srinagar on February 24, 1958, to furnish further information in regard to certain points in connection with the return submitted by it for the Assessment year 2004 (Samvat). On May 9, 1961, the Income Tax Officer again issued a notice under Section 23(2) of the Indian Income Tax Act, 1922, asking the petitioner to appear at his office on May 12, 1961, for furnishing information regarding certain points in connection with the return submitted by it under Section 22 of the Indian Income Tax Act, 1922, for the year ending 2004 (Samvat). On July 26, 1962, the Income Tax Officer for the first time issued notice to the petitioner under Section 23(2) of the Jammu and Kashmir Income Tax Act, 2007 (Samvat) calling upon the latter to appear before him on August 6, 1962, and to furnish information regarding certain points in connection with the Return submitted by it under section 22 of the Jammu and Kashmir Income Tax Act, 2007. On receipt of the notice the petitioner appeared before the respondent and submitted before him that he could not issue the notice under Section 23(2) of the Jammu and Kashmir Income Tax Act, 2007, inasmuch as the former was not served with any notice under Section 22(2) of the Jammu and Kashmir Income Tax Act nor had it filed any return of the income under the Jammu and Kashmir Income Tax Act on the form prescribed under the Jammu and Kashmir Income Tax Rules, which was a condition precedent for the issue of a notice under Section 23(2) of the Jammu and Kashmir Income Tax Act, 2007. It was further submitted by the petitioner before the Income Tax Officer that as no notice under section 34 of the Jammu and Kashmir Income Tax Act, was served upon it previously, it could not be proceeded against under the provisions of Section 23(2) of the Jammu and Kashmir Income Tax Act, 2007, more so when the period of limitation had expired and the return had not been filed by it under the provisions of Section 22(2) of the Jammu and Kashmir Income Tax Act as alleged by the Income Tax Officer in the notice. These submissions were followed by letter dated July 31, 1962, written by the petitioner to the Income Tax Officer, incorporating the aforesaid contentions. On August 2, 1962, the Income Tax Officer wrote to the petitioner saying that notice under Section 34 had been validly served on it and called upon it to produce the accounts for the Assessment year 2004 (Samvat) for his examination on August 13, 1962. Thereupon the petitioner made a representation to the Commissioner of Income Tax, Panjab, Jammu and Kashmir, Himachal Pradesh, Patiala on September 4, 1962, contending that re -assessment pursuant to Section 34 of the Indian Income Tax Act, as proposed by the respondent was without jurisdiction in view of the provisions of Section 6 of the Taxation Laws (Extension to Jammu and Kashmir) Act 1954 Act No. XLI of 1954. It was also contended that the respondent having issued notice under Section 34 of the Indian Income Tax Act, 1922, could not take further action under the provisions of the Jammu and Kashmir Income Tax Act as it would be illegal and without jurisdiction. Vide his letter No. AST/62 -63(80)/l/016 dated December 4, 1962, the Commissioner of Income Tax wrote back to the petitioner stating that the matter had been carefully examined and the proceedings under Section 34 had been taken under the Jammu and Kashmir Income Tax Act and not under the Indian Income Tax Act and that the limitation provided under the Indian Income Tax Act did not apply to the proceedings. On a further representation to the Commissioner of Income Tax by the petitioner the latter was directed to approach the Inspecting Assistant Commissioner of Income Tax, Jammu, and to place the necessary documents before him, whereupon the petitioner approached the said authority who informed it that as the issue had been decided by the Commissioner of Income Tax, he was unable to do anything in the matter. Thereafter the petitioner submitted a representation to the Chairman Board of Direct Taxes, New Delhi, urging that the finding given by the Commissioner of Income Tax to the effect that the proceedings under Section 34 had been taken under the Jammu and Kashmir Income Tax Act, 2007, and not under the Indian Income Tax Act, 1922, Act No. XI of 1922, was erroneous in fact and law. The Board thereupon called a report from the Commissioner of Income Tax who complied with the directions by giving the material facts and the legal position. Meanwhile the respondent informed the petitioner that he would proceed with the case. As the verbal request made on behalf of the petitioner to the respondent to defer the proceeding did not prove effective, it sent a telegram to the Commissioner urging that as the respondent was eager to complete the assessment proceedings for the Samvat year 2004, the decision of the Board on its representation might be communicated. The Commissioner thereupon informed the petitioner that its representation was duly considered by the Central Board of Direct Taxes who had observed that the proceedings had been properly taken and should be continued. After this decision the respondent issued another notice to the petitioner under Section 23(2) of the Jammu and Kashmir Income Tax Act, 2007 fixing a date for the appearance of the petitioner. Aggrieved by these proceedings, the petitioner filed the present petition before this court on September 11, 1969, contending inter -alia that as the Indian Income Tax Act, Act. No. XI of 1922. was extended and made applicable to the State of Jammu and Kashmir by the Taxation Laws (Extension to Jammu and Kashmir), Act. 1954, Act No. XLI of 1954, which repealed the Jammu and Kashmir Income Tax Act, 2007, but saved the said .Act for the purpose of assessment etc. in respect of any period prior to the previous year and for the year ending on March 31, 1955 the petitioner who was a resident of the Jammu and Kashmir State could be proceeded against only under the saving Section 6(l)(b) of Act No. XLI of 1954 and not under the provisions of the Indian Income Tax Act, 1922, that not only were the proceedings in the instant case commenced by the respondent under Section 34 of the Indian Income Tax Act, Act No. XI of 1922, but the form made available to and used by the petitioner for filing the Return was also the one prescribed under the Income Tax Rules, 1922, and the respondent also continued the proceedings till July 1962 -for a period of more than six years, under the same Act, that as the respondent had no jurisdiction to initiate the proceedings under the Indian Income Tax Act, 1922, all the proceedings taken by him under this Act were invalid, bad in law and null and void, that the notice under Section 23(2) of Jammu and Kashmir Income Tax Act, 2007 (Samvat) issued to the petitioner by the respondent for the first time on July 26,1962, which wrongly recited that the petitioner had filed the return under Section 22 of the Act, i.e. the Jammu and Kashmir Income Tax Act, 2007 (Samvat) was also bad in law, without jurisdiction and liable to be quashed as (1) no notice under Section 34 of the Act was served on the petitioner and (2) as the Act could be invoked only for assessment to tax of the income which was chargeable under that Act but the subject matter of the present inquiry related to the assessment year 2004 when the Jammu and Kashmir Income Tax Act, 1991 (Samvat) and not the Jammu and Kashmir Income Tax Act, 2007 (Samvat) which was given effect from Baisakh 1, 2007 (Samvat) was in force, that as it was in view of the press Communiquà ((THELAW)) issued by the Central Board of Direct Taxes, Ministry of Finance, on December 28, 1956, that the petitioner brought the sums in its account books, no enquiry could be made into capital account of the petitioner, that the respondent could not issue the notice under section 23(2) of the Jammu and Kashmir Income Tax Act, 2007, in 1962, inasmuch as not only the basic notice under Section 34 of the Act had not been issued but the period fixed for the issue of such a notice had also expired, that the findings of the learned Commissioner of Income Tax and the Board of Direct Taxes, that the action was taken under the provisions of the Jammu and Kashmir Income Tax Act was factually and legally incorrect, and that there are number of instances where action was not taken under "disclosure scheme" referred to above and no enquiry was held under Section 34 of the Jammu and Kashmir Income Tax Act.

(3.) THE petition has been resisted by the respondent averring inter -alia that the proceedings were rightly instituted, that it was only on March 16, 1957, that the petitioner objected to the issue of the impugned notice on the ground that it wos barred and filed written arguments on March 19,1957, contending that the notice should have been issued under the Jammu and Kashmir Income Tax Act, that the notice under section 22(4) of the Indian Income Tax Act, 1922, was issued on June 19, 1956, much before the time the Return was filed by the petitioner, that the petition was mis -conceived and in fact the proceedings from the very beginning had been commenced under the Jammu and Kashmir Income Tax Act and if a form printed under the Indian Income Tax Act had been used, the same would not change the character of the proceedings and that the notice issued on July 26, showed that the proceedings were rightly carried on under the Jammu and Kashmir Income Tax Act. The learned counsel for the parties have reiterated the submissions made in the petition and reply affidavit respectively.