P.S. Rama Iyer vs Commissioner of Income Tax

This reference u/s 66(1) of the Indian Income Tax Act has clearly to be answered against the assessee and in favour of the department.

The assessee was a tanning expert. For the previous year ended 31st March, 1947 (the assessment year 1947-48) he filed a return on 21st

February, 1951 estimating his profits from business at Rs. 550. This return was filed admittedly without a notice u/s 22(2) having been issued to the

assessee. The income as set out in the return was scrutinsed after enquiry and the Income Tax Officer rejected the return and estimated the

assessee''s income at Rs. 30,000. We are not now concerned with the correctness of the quantum of the assessment but only with its legality.

From the order of assessment the assessee filed an appeal to the Appellate Assistant Commissioner and there urged that the assessment was illegal

and invalid. The ground for this contention was that as the return that he had filed declared an income below the taxable limit it was not a ""return

within the meaning of the Income Tax Act, and that proceedings could have been taken against him only by invoking the provisions of Section

22(2) read with Section 34 and that as this was not done the assessment was illegal. This contention was rejected by the Appellate Assistant

Commissioner who held that when an assessee had filed voluntarily a return there was no necessity for the Income Tax Officer to call in aid Section

34 and that the assessment was therefore valid. This view was upheld and the appeal of the assessee was dismissed by the Appellate Tribunal on

further appeal by the assessee. They however referred to this Court the following question of law for its decision:

Whether the aforesaid assessment (i.e., of Rs. 30,000) for the assessment year 1947-48 is valid ?

Before we deal with the legal contentions urged on behalf of the assessee, it is necessary to mention one fact about which there is no dispute,

that there was no notice issued to the assessee u/s 22(2) and that the return was filed in pursuance of the public notice u/s 22(1). In that sense the

action of the assessee in filing the return was voluntary and not in compliance with any requisition by the Income Tax Officer. The only question

therefore for our consideration is whether the statement, which he filed before the Income Tax Officer setting out the details of the income which he

said he had received during the account year ended 31st March, 1947, does or does not amount to a ""return "" within the meaning of the Income

Tax Act. It was urged by learned Counsel for the assessee that in order that the statement of his income filed by the assessee might be a ""return"" it

ought to disclose the receipt of taxable income. We are wholly unable to accept this interpretation of Section 22. To a question by us during

arguments as to whether a return filed by a person on whom a notice had been issued u/s 22(2) was a return where such a return did not disclose

taxable income, learned Counsel answered in the affirmative but sought to distinguish returns u/s 22(1) from those filed u/s 22(2). We are unable to

follow this argument which seeks to attribute different meanings to the same word ""return"" used in the several Sub-sections of Section 22. This

differentiation was however sought to be sustained by the difference in the language employed in Section 22(1) and (2) giving rise to the obligation

to file a return. It was pointed out that whereas under Sub-section (1) the public notification called for a return only when the income ""exceeded the

maximum amount which is not chargeable to income tax"" the decision whether this is so or not being at that stage left to the person filing the return,

whereas under Sub-section (2) it is the opinion of the Income Tax Officer regarding the person being in receipt of income above the taxable

minimum that determined the calling for the return. It was, therefore, urged that unless the assessee thought that his income was above the taxable

limit he would not send a ""return"" and that consequently what he sent in would not be a ""return"" where the income disclosed was less. In our

opinion this argument is unsound and has to be rejected. It is one thing to say that where there is a doubt or dispute as to whether a return filed,

was a voluntary one u/s 22(1) or not, the fact that the income disclosed is less than the minimum might be an important or even a crucial factor for

proving that it was really one u/s 22(2). We might add that this was precisely the scope of the decisions of the Calcutta High Court on which

learned Counsel for the assessee relied and to which we shall advert a little later. But this is far from saying that a return which admittedly was not

preceded by any action on the part of the Income Tax Officer u/s 22(2) and which was a voluntary return ceased to be ""a return"" because of the

quantum of the income it disclosed. If this argument were right it would follow that where an assessee filed such a return u/s 22(1) even within the

assessment year the Income Tax Officer would be obliged to proceed as if no return has been filed and be enabled to levy penalties u/s 28 for

failure to furnish ""a return"" on the ground that what was filed was not ""a return "". There would be other anomalous consequences like the

inapplicability of Section 82(3) and (4) in the case of such persons but as the point is clear we consider it unnecessary to detail the necessary

consequences of such a construction. It is sufficient to say that the acceptance of such a construction would make the entire Act unworkable, lay

upon asses-sees the burden of penal provisions and enable the Income Tax Officers to complete assessments on basis of estimates, all because the

statement filed by the assessee is not a ''''return"" within the meaning of the Act.

For the position that on the submission of such a return the Income Tax Officer was entitled to proceed with the assessment applying the other

provisions of the enactment including that for ignoring the return and estimating the income it is sufficient to refer to Harakchand Makanji and Co.

Vs. The Commissioner of Income Tax, where Chagala, C.J., held that once a public notice was given u/s 22(1) assessment proceedings

commenced and there was no obligation upon the Income Tax Officer to serve notice on an assessee individually u/s 22(2) and that if a return

were voluntarily made in response to this public notice, there was no question of any income escaping assessment, to attract the provisions of

Section 34. The learned Chief Justice said:

Notice u/s 34 is only necessary if at the end of the assessment year no return has been made by the assessee and the Income Tax authorities wish

to proceed u/s 22(2) by serving a notice individually. It may then be stated that as the assessment year had come to an end and as no return had

been furnished and as the authorities wished to proceed u/s 22(2) they should not do so without a notice u/s 34. But as in this case the assessees

themselves chose voluntarily to make a return no question of notice either u/s 22(2) or Section 34 arises .

These observations have been quoted with approval by the learned Chief Justice of this Court delivering the judgment of the Bench in C.V.

Govindarajulu Iyer v. Commissioner of Income Tax, Madras (1946) 16 ITR 391 . No doubt in the case before the Bombay High Court it does

not appear wheher the voluntary return furnished by the assessee disclosed less than the taxable income. But subject to the argument regarding the

meaning of the expression ""return"" learned Counsel for the assessee does not contend that if the statement submitted by the assessee in this case

was a return, the assessment was otherwise invalid. Learned Counsel, however, relied on the decision of the Calcutta High Court in

COMMISSIONER OF AGRICULTURAL Income Tax Vs. SULTAN ALI GHARAMI., . The question before the Court related to an

assessment under the Bengal Agricultural Income Tax Act the provisions of which were exactly similar to those contained in the Indian Income Tax

Act. After the public notice under the section corresponding to Section 22(1), there had been an individual notice served on the assessee under the

provision corresponding to Section 22(2) and subsequently the assessee had submitted a return disclosing an income below the taxable limit. The

main question for the Court''s consideration was whether this was a voluntary return or not. If it was in pursuance of the requisition of the Income

Tax Officer, it would not be voluntary. It was however contended by the department that as the requisition was issued after the period, when a

valid requisition could be made, had expired, it must be treated as non est and that the return filed though actually in compliance thereof should be

treated as legally attributable to the public notice requiring returns. This latter contention was rejected. Chakravarthi, J., (as he then was) who

delivered the judgment of the Court dissented from the view expressed in HARAKCHAND MAKANJI and CO. Vs. COMMISSIONER OF

Income Tax, BOMBAY CITY., in so far as the Bombay High Court had held that the assessment proceedings started with the issue of a public

notice and expressed it as his opinion that it started only with the filing of a return. That is one of the points of difference between the two decisions

but it is not necessary for us to canvas this question as that is outside the controversy raised by the present refernce. What is to the point in the

present context is a passage which occurs at page 442 of the report:

In order that the return may be treated as the return called for u/s 24(1) (corresponding to Section 22(1) of the Income Tax Act) it must be

capable of being so treated which clearly it is not. A return u/s 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 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 u/s 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 u/s 24(1), whether filed within the time allowed under the section or filed subsequently...will therefore show an

assessable income. A return which showed no assessable income, could not possibly be '' treated '' as a return filed u/s 24(1) or a return called for

under that section but filed u/s 24(3), when in fact it was filed in response to a notice u/s 24(2).

The learned Judge further proceeded:

It is true that there is nothing to prevent a person from filing a return showing an income below the assessable limit, in response to a notice u/s

24(1) but the question we are considering is whether a particular return not filed in fact u/s 24(1) or...is yet having regard to its contents capable of

being treated as a return under the one or the other section.

Though this passage is somewhat ambiguous, one thing is clear and that is sufficient for the present purpose that the learned Judge did hold that a

voluntary return filed u/s 22(1) was not any the less ""a return"" within the Act because it disclosed an income below the taxable limit. We are

reinforced in this conclusion by the explanation of these observations by Chakravarthi, C.J., himself in R.K. Das and Co. Vs. Commissioner of

Income Tax, West Bengal, to which we shall refer presently. That the correct view is as above stated has been held by the Bombay High Court in

Ranchhoddas Karsondas Vs. Commissioner of Income Tax, Bombay City, where Chagla, C.J., delivering the judgment of the Court and after

referring to the observations of Chakravarthi, J., of the Calcutta High Court said:

It is difficult to understand if it is open to a person to file a return which shows an income below the assessable limit under what other section would

such a return be made except u/s 22(3); and it must also be said that this opinion of the learned Judge is obiter because in that particular case after

a notice u/s 24(1) was issued there was also a notice u/s 24(2)(corresponding to our Section 22(2).... But to take the view that a voluntary return

made is not a return u/s 22(3) merely because the return is of an income which is not assessable is in our opinion, with great respect, unaccepable

and contrary to the scheme of the Income Tax Act.

Chakravarthi, C.J., had occasion to consider in R.K. Das and Co. Vs. Commissioner of Income Tax, West Bengal, the decision of the Bombay

High Court in Ranchhoddas Karsondas Vs. Commissioner of Income Tax, Bombay City, and the comment made upon his older decision in

COMMISSIONER OF AGRICULTURAL Income Tax Vs. SULTAN ALI GHARAMI., and explained himself thus : After stating the facts of

COMMISSIONER OF AGRICULTURAL Income Tax Vs. SULTAN ALI GHARAMI., he said:

....I went on to say that a return u/s 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 u/s 24(1) and consequently the return in the

case we were then considering could not be treated as such a return filed u/s 24(3). To say that, was not to say that even a return filed in

compliance with a notice u/s 22(2), if filed belatedly u/s 22(3), -could not be a return showing an income below the taxable limit.

We are therefore clearly of the opinion that the return for the assessment year 1947-48 submitted by the assessee was a return within Section

22(1) on which assessment proceedings could validly be taken. It is for this reason that we answer the question referred to us in the affirmative and

against the assessee. As the assessee has failed he will pay the costs of the reference Rs. 250.