A) ABSTRACT / HEADNOTE

The case revolves around the validity of an income-tax assessment where the assessee filed a voluntary return under Section 22(3) of the Indian Income-tax Act, 1922 showing income below the taxable limit. The Income-tax Officer ignored the voluntary return and issued a notice under Section 34(1), contending that the initial return was invalid as it disclosed no taxable income. The central legal issue concerned whether such a voluntary return constituted a “good return” capable of precluding proceedings under Section 34 and whether the assessment made beyond four years from the end of the assessment year was time-barred. The Supreme Court, affirming the Bombay High Court’s decision, held that even a voluntary return showing income below the taxable threshold is a valid return. Once such a return is filed, there is no “omission” or “failure” on the assessee’s part, and thus the jurisdictional condition for invoking Section 34 does not arise. The proviso to Section 34(3) applies only when a valid notice under Section 34(1) is issued within limitation. Since the assessment was completed beyond the statutory four-year limit, it was barred by limitation. The Court approved earlier Bombay and Madras precedents and expressly disapproved contrary Calcutta High Court decisions.

Keywords: Income-tax, Voluntary return, Section 22(3), Section 34(1), Limitation, Escaped assessment, Valid return, Time-barred assessment.

B) CASE DETAILS

i) Judgement Cause Title: Commissioner of Income-Tax, Bombay v. Ranchhoddas Karsondas

ii) Case Number: Civil Appeal No. 281 of 1955

iii) Judgement Date: 8 May 1959

iv) Court: Supreme Court of India

v) Quorum: S.R. Das, C.J., N.H. Bhagwati, and M. Hidayatullah, JJ.

vi) Author: Justice M. Hidayatullah

vii) Citation: 1960 (1) SCR 114; (1960) 39 ITR 356 (SC)

viii) Legal Provisions Involved:

• Section 22(1), 22(2), 22(3) – Indian Income-tax Act, 1922

• Section 34(1), 34(3) – Indian Income-tax Act, 1922

• Section 28(1)(c) – Indian Income-tax Act, 1922

ix) Judgments overruled by the Case (if any): Disapproved Commissioner of Agricultural Income-tax v. Sultan Ali Gharami (1951) 20 ITR 432; B.K. Das & Co. v. CIT (1956) 30 ITR 439; CIT v. Govindlal Dutta (1957) 33 ITR 630.

x) Case is Related to: Taxation Law – Direct Tax – Income-tax Law – Limitation in escaped assessment.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The controversy in this case arises from the interplay between voluntary returns under Section 22(3) of the Indian Income-tax Act, 1922 and the reassessment powers under Section 34. The core legal tension lies in whether a return disclosing income below the taxable limit, when filed voluntarily before any assessment is made, prevents the Income-tax Officer from resorting to Section 34’s reassessment jurisdiction. This was complicated by differing High Court interpretations: the Bombay High Court holding such returns valid for all purposes, and the Calcutta High Court opining that returns must disclose taxable income to be valid. The Supreme Court was called upon to resolve this divergence.

D) FACTS OF THE CASE

For assessment year 1945-46, a public notice under Section 22(1) was issued on 1 May 1945 requiring returns from persons with taxable income above the exemption limit. The assessee did not initially respond.

During scrutiny of Assar Syndicate’s accounts (where the assessee was a partner), the Income-tax Officer found six cash credits totalling ₹59,026 in the name of the assessee’s wife. Before action could be taken, the assessee, on 5 January 1950, voluntarily filed a return showing income of only ₹1,935 and footnoted that his wife had sold ornaments and deposited ₹59,026 in the firm.

The Officer ignored this return and, on 27 February 1950, issued a notice under Section 34(1). The assessee submitted an identical return on 14 March 1950. After further proceedings, the Officer included the ₹59,026 as the assessee’s income and completed assessment on 26 February 1951.

The assessee challenged the assessment as time-barred under Section 34(3) since it was completed beyond four years from the end of the assessment year.

E) LEGAL ISSUES RAISED

i) Whether a voluntary return under Section 22(3) showing income below the taxable limit is a valid return in law.

ii) Whether the filing of such a return precludes the Income-tax Officer from issuing a notice under Section 34(1).

iii) Whether the assessment completed beyond four years from the end of the assessment year was barred by limitation under Section 34(3).

F) PETITIONER / APPELLANT’S ARGUMENTS

i) The appellant contended that a return showing no taxable income is not a valid return under Section 22(1); hence, the voluntary return filed could be ignored.

ii) The Officer was justified in invoking Section 34(1) as there was “failure” or “omission” on the assessee’s part to file a valid return.

iii) The assessment was within the proviso to Section 34(3), allowing one year from the service of a valid Section 34(1) notice.

iv) Alternatively, since the assessee concealed particulars, Section 28(1)(c) applied, extending limitation to eight years.

G) RESPONDENT’S ARGUMENTS

i) The respondent argued that the return under Section 22(3) was valid irrespective of taxable income quantum.

ii) Once a return is on record, there is no “escaped assessment” situation warranting Section 34 invocation.

iii) The proviso to Section 34(3) did not apply since the notice under Section 34(1) was invalid ab initio.

iv) The assessment was beyond the four-year limit from the end of assessment year 1945-46 and hence barred.

H) RELATED LEGAL PROVISIONS

i) Section 22(3) allowed furnishing of a voluntary return before assessment, even if filed after the time in Section 22(1) or 22(2).

ii) Section 34(1) empowered reassessment only if there was omission or failure to file a return or income had escaped assessment.

iii) Section 34(3) barred assessments after four years unless covered by the proviso triggered by a valid Section 34(1) notice.

I) JUDGEMENT

a. Ratio Decidendi

The Court held that:

• A return filed under Section 22(3), even if showing income below taxable limits, is a valid return in law.

• Once such a return is filed before assessment, the jurisdictional fact to invoke Section 34(1) — namely, omission or failure to file a return — does not exist.

• The assessment in this case was completed beyond four years from the end of assessment year 1945-46, and since the Section 34(1) notice was invalid, the extended one-year period in the proviso to Section 34(3) was unavailable.

b. Obiter Dicta

The Court noted that legislative inconvenience (e.g., late voluntary returns close to limitation) is no ground to judicially extend limitation periods; any remedy lies in statutory amendment.

c. Guidelines

• A voluntary return under Section 22(3) can be filed any time before assessment, regardless of income amount.

• Such a return precludes the use of Section 34(1)(a) for reassessment based on alleged non-filing.

• Limitation provisions in tax statutes must be strictly construed.

J) CONCLUSION & COMMENTS

This decision resolves the conflict between Bombay and Calcutta High Courts, firmly establishing that a voluntary return under Section 22(3) is valid even if it discloses no taxable income. It underscores the principle that reassessment powers under Section 34 are exceptional and contingent on precise jurisdictional facts. The judgment reinforces taxpayer protection against belated assessments and stresses strict adherence to limitation statutes in tax administration.

K) REFERENCES

a. Important Cases Referred

• Harakchand Makanji & Co. v. CIT (1948) 16 ITR 119 (Bom)

• All India Groundnut Syndicate Ltd. v. CIT (1954) 25 ITR 90 (Bom)

• P.S. Rama Iyer v. CIT (1957) 32 ITR 458 (Mad)

• CIT v. Sultan Ali Gharami (1951) 20 ITR 432 (Cal) — Disapproved

• B.K. Das & Co. v. CIT (1956) 30 ITR 439 (Cal) — Disapproved

• CIT v. Govindlal Dutta (1957) 33 ITR 630 (Cal) — Disapproved

b. Important Statutes Referred

• Indian Income-tax Act, 1922, Sections 22(1), 22(2), 22(3), 28(1)(c), 34(1), 34(3)