MUHAMMAD AZIM VS COMMISSIONER OF INCOME TAX, ZONE EAST, KARACHI
1991 P T D 658
[Karachi]
Before Saleem Akhtar and Muhammad Aslam Arain, JJ
MUHAMMAD AZIM
versus
COMMISSIONER OF INCOME TAX, ZONE EAST, KARACHI
I.T.R. No.20 of 1981, decided on 18/03/1991.
(a) Income-tax Act (XI of 1922)---
----S. 34(1) & (2)---Income-tax (Correction of Returns and False Declarations) Regulation, 1969 [M.L.R. 32], para. 2---Income escaping assessment---Reopening of assessment---Bar of period of limitation prescribed under S. 34(2) for initiating proceedings under S. 34(1) would not apply if the assessee had made concealment and not made correct declaration---Where the Tribunal had come to the conclusion that the assessee had concealed the real facts and had not correctly disclosed his interest in the property, proceedings under S.34 were rightly initiated.
(b) Income-tax Act (XI of 1922)---
----S. 34(1) & (2)---Income Tax (Correction of Returns and False Declarations) Regulation, 1969 [M.L.R. 32], para. 2---Filing of revised return under M.L.R. 32 showing excess income could not be a basis for re-opening any assessment under S. 34(2) of the Act---Where action under S. 34(2) was not on the basis of revised return filed by assessee under M.L.R. 32 or any other information supplied by assessee but was on the basis of information received independently relating to the ownership of property, there was, held, no illegality in the action of Income tax Officer in circumstances.
(c) Income-tax Act (XI of 1922)---
----Ss. 34 & 22---Income Tax Officer first issued a notice under S. 34 on 24-6-1973 which was issued without approval of the I.A.C. and therefore, it was withdrawn and the case was closed---Second notice, however, was issued the next day-- Whether proceedings had terminated on the filing of the first notice.
The Income Tax Officer first issued a notice under section 34 on 24-6-1973. This notice was issued without approval of Inspecting Assistant Commissioner and therefore, it was withdrawn and the case was closed. However, the second notice was issued the next day and, the assessment was completed.
In the present case the assessee had filed return under section 22 and was assessed. The first notice under section 34 was an invalid notice and no prior approval of Inspecting Assistant Commissioner was obtained. Therefore, any proceeding on the basis of this notice which could not otherwise be treated legal was illegal and without jurisdiction. The admitted position being that the proceedings initiated by first notice under section 34 were not competent. If the very foundation of an action was illegal and without jurisdiction the whole superstructure built upon it could not validly and legally stand. Therefore, proceeding terminated on 21-3-1974 was in accordance with law and the proceedings could again be started by issuing notice dated 22-3-1974.
Sir Rajindranath Mukerji v. C.I.T. 1934 ITR 71 and AIR 1931 Cal. 545 ref.
C.I.T. v. Raman Chettiar (1965) 55 1TR 630 distinguished.
(d) Income-tax Act (XI of 1922)---
----S. 34---Income Tax (Correction of Returns and False Declarations) Regulation, 1969 [M.L.R. No.32], para. 2---Assessee had not correctly disclosed the facts relating to the ownership of the property---Documents produced by assessee were not believed--.Judgment of the High Court had declared assessee to be the owner and allottee of the property in question---Tribunal had given finding of fact that assessee was not a Benami purchaser but a real allottee and owner of the property---Such finding of fact by the Tribunal was based on proper assessment of oral and documentary evidence and judgment of High Court-- Held, in face of such misdeclaration by the assessee the proceedings initiated under S. 34 against him were not based on change of opinion but on information gathered and received after the assessment.
Iqbal Naeem Pasha for Appellant.
Nasrullah Awan for Respondent.
Dates of hearing: 6th and 7th February, 1991.
JUDGMENT
SALEEM AKHTAR, J.---For the assessment year 1964-65 the applicant filed return showing the income of Rs.12,400 comprised of remuneration of Rs.10,000 and rental income of Rs.2,400. In the course of assessment he filed affidavit stating that he had four annas share in the profits to be earned from the sale of Plot No.1/2/D P.E.C.H.S., Karachi, under agreement dated 24-6-1963 and 4-9-1963 executed between him and two persons viz. Haji Khan and Haji Jannat Gul of Landi Kotal. Due to dispute between the owners of the plot and United Bank Ltd., the assessee gave up his share and received cash amount of Rs.9,000 which he was entitled to receive as commission. This amount was included in the assessment year 1965-66 and assessment orders for both the years were passed on 12-6-1965.
On promulgation of M.L.R. 32 a declaration of excess income for the assessment years 1960 to 1968-69 was filed. On 12-10-69 this declaration was processed at Rs.1,05,000. It appears that subsequently on information that the applicant has invested Rs.900,000 in property, the Income Tax Officer issued a notice under section 34 on the ground that the income was under assessed. The applicant filed return under protest and declared original income of Rs.12,400 plus proportionate declared income processed under MLR 32. The Income Tax Officer closed the proceeding on 21-3-1974. However, on 22-3-1974 again issued another notice under section 34 on the same ground. The applicant filed the same return under protest. During proceeding the applicant referred to earlier affidavit and further stated that the dispute between him and the financers from Landi Kotal was settled by arbitration and copy of award was filed. The I.T.O. examined them and held that payment of Rs.900,319 made to P.E.C.H.S. was the unexplained taxable income of the applicant. The Income Tax Officer referred to the judgment of the High Court dated 25-1-1973 in which the applicant was held to be rightful allottee and owner of the plot. The main plea of the applicant was that he was not the real owner of the property. He was merely a benami owner of Haji Khan and Haji Jannat Gul Khan. The Income Tax Officer rejected the evidence produced by the applicant and refrained the assessment. An appeal was filed before the Appellate Assistant Commissioner and was dismissed. He then filed an appeal before the Tribunal which was dismissed. Both these authorities did not believe that the applicant was a benami owner and had no proprietary interest in the plot. In these circumstances at the instance of the applicant the following questions have been referred:--
(1) Whether proceedings under section 34 of the Income Tax Act, had been rightly initiated in June, 1973, when on 7-6-1965, before the date of the original assessment, the applicant had filed an affidavit disclosing his interest in the plot bearing No.l/2(D), Nursery Area, Karachi?
(2) Whether proceedings under section 34 of the Income Tax Act, could be started after the applicant had filed a declaration under Martial Law Regulation 32, which declaration had been duly processed by the concerned authorities?
(3) Whether proceedings so started, were terminated in accordance with the law, when they were filed on 21-3-1974, if not, whether proceedings under the same section could again be re-started, by the notice issued on 22-3-1974?
(4) Whether on the facts of the case, proceedings under section 34 were initiated, on both the occasions, merely on the basis of a change' of opinion?
(5) Whether on the facts and in the circumstances of the case, the Tribunal had rightly upheld the finding of the Assessing Officer that, the applicant was not a benami purchaser, and that he was the real allottee and owner of the plot in question?
QUESTION NO. 1:
In this question reference has been made to the affidavit filed on 7-6-1968 but the same has not been produced. It finds reference in the assessment order, appellate orders and in the statement of case in which the applicant had disclosed his interest only as a benami or as commission agent. The contention of the learned counsel for the applicant is that as the material had been placed before the Income Tax Officer he should have made proper investigation and then passed necessary assessment order. Section 34(2) prescribes a period of limitation for initiating proceedings under section 34(1). However, this bar will not apply if he made concealment and not made correct declaration. In the present case the Tribunal has come to the conclusion that the applicant had concealed the real facts and had not correctly disclosed his interest in the property therefore, our answer to question No.1 is in affirmative.
QUESTION No.2:
The main thrust of this question is that after a declaration was made under M.L.R. 32 which had been duly processed, proceedings under section 34 could not be initiated by the Income Tax Officer. In this regard it is necessary to refer to M.L.R. 32. Para. 2(1) reads as follows:--
"(2) (1) Any person, who has filed the return of his income under the Income Tax Act, 1932, for the assessment year 1960-61 or any assessment year there after up to and including the return so filed is not correct may file a revised return of his true income by June 16, 1969. No action of any kind whatsoever shall be taken for having submitted an incorrect return originally or in respect of nature of the transaction from which the income represented by the difference between the revised return and the original return hereinafter called the `excess income' was derived, nor will the effect of his having fled a revised return be taken as a ground for the reopening of any assessment under subsection (2) of section 34 of the Income-tax Act."
It clearly provides that filing of revised return under M.L.R. 32 showing excess income cannot be a basis for reopening any assessment under subsection (2) of section 34 of the Income Tax Act. No other protection has been granted, nor any immunity as claimed has been granted to any assessee. The action initiated by the Income Tax Officer was not on the basis of revised return riled by the applicant or any other information supplied by him but on the basis of information received independently relating to the ownership of the property. Our answer is in the affirmative.
QUESTION No.3:
As stated earlier the Income Tax Officer first issued a notice under section 34 on 24-6-1973. According to Mr. Iqbal Naeem Pasha this notice was issued without approval of Inspecting Assistant Commissioner and therefore, it was withdrawn and the case was closed. However, the second notice was issued the next day and the assessment was completed. The first question to be considered is whether the proceedings had terminated on filing of the first notice. According to Mr. I.N. Pasha it is not possible because once a return has been filed assessment should have been completed on the basis of that return and it could not be simply filed. The learned counsel has referred to Sir Rajindranath Mukerji v. C.I.T. 1934 I T R 71 where relying on A I R 1931 Cal. 545 it was observed that "income has not escaped assessment of the assessee's income assessment have not yet terminated in a final assessment thereof'. Therefore, where a return of income has been filed in pursuance of a valid notice otherwise under law till the final assessment is made the proceeding continues and so long assessment has not been framed question of under-assessment or income having escaped does not arise.
The learned counsel for the applicant referred to C.I.T. v. Raman Chettiar 1965 (55) I T R 630 but it is distinguishable on facts. In this case the assessee had not filed return under section 22. He filed return in pursuance of an invalid notice under section 34 which was withdrawn and closed. After some time second notice under section 34 was issued which was challenged and reassessment was held to be invalid. It was held that as no return under section 22 was filed, the return filed in pursuance of a notice under section 34 could not be ignored, it could be deemed to be return under section 22(3). In the present case the applicant had filed return under section 22 and was assessed. The first notice under section 34 was an invalid notice and no prior approval of Inspecting Assistant Commissioner was obtained. Therefore, any proceeding on the basis of this notice which could not otherwise be treated legal was illegal and without jurisdiction. The admitted position seems to be that the proceedings initiated by first notice under section 34 was not competent. It is well settled principle that if the very foundation of an action is illegal and without jurisdiction the whole superstructure built upon it cannot validly and legally stand. Our answer therefore, is that proceeding terminated on 21-3-1974 was in accordance with law and the proceedings could again be started by issuing notice dated 22-3-1974.
QUESTION No.4:
The facts have been stated by the Tribunal in which it has been clearly mentioned that the applicant had not correctly disclosed the facts relating to the ownership of the property. The documents produced by him were not believed. The judgment of the High Court had declared him to be the owner and allottee. In the face of this misdeclaration the proceedings initiated under section 34 were not based on change of opinion but on information gathered and received after the assessment. Our answer is in the negative.
QUESTION No.5:
The facts and circumstances as stated by the Tribunal have not been challenged but the conclusion drawn by the Tribunal that the applicant was not a benami purchaser but a real allottee and owner has been challenged. This finding is based on proper assessment of oral and documentary evidence and judgment of the High Court. It clearly establishes that the applicant was not a benami owner and therefore, our answer is in the affirmative.
M.B.A./M-1385/KOrder accordingly.