Holding

A notice issued within the period prescribed by section 149 vests jurisdiction, and service of the notice is only a condition precedent to the assessment order, not to the limitation.

Summary

The respondent challenged a notice of reassessment issued under section 147(b) of the Income‑Tax Act, 1961 for the assessment year 1965‑66, arguing that the notice was barred by the statutory limitation. The Gujarat High Court quashed the notice, relying on the earlier Banarsi Debi decision which treated the date of service as the decisive factor. On appeal, the Supreme Court examined the scheme of the 1961 Act, noting a clear distinction between the ‘issue of notice’ (governed by section 149) and the ‘service of notice’ (a condition precedent to making the assessment order under section 148). It held that once a notice is issued within the prescribed period, jurisdiction vests in the tax officer, and service of the notice does not affect the limitation. Since the notice was issued on the last permissible day, the Supreme Court allowed the revenue’s appeal and vacated the High Court’s order. The tax officer may now proceed with the reassessment after complying with procedural requirements.

Issues considered

What is the applicable limitation period for issuing a notice of reassessment under section 147(b) of the Income‑Tax Act, 1961 – the date of issue or the date of service?
Does the distinction between ‘issue of notice’ and ‘service of notice’ under the 1961 Act render the Banarsi Debi decision inapplicable?
Is a notice issued on the last day of the statutory period valid despite later service?

Legislation cited

Income Tax Act, 1922s. 34
Income Tax Act, 1961s. 147, s. 148, s. 149, s. 151

Subjects

Income TaxReassessmentLimitation periodIssue of noticeService of noticeSection 147Section 148Section 149Supreme CourtJurisdiction

Judgment

A R.K.UPADHYAYA
v.
SHANABHAI P. PATEL

APRIL 28, 1987

B [RANGANATH MISRA AND G.L. OZA, jJ.]

Income Tax Act, 1961/Income Tax Act, 1922-Sections 147, 148
and 149/Section. 34--Notice for reassessment-Issuance of-'!Ssue of
notice' and 'service of notice'-Distinction between-Reassessment not
to be made until there has been service-Requirement of issue of notice
C satisfied when a notice is actually issued.

The respondent challenged the notice for reassessment issued
under s. 147(b) of the Income Tax Act, 1961 for the assessment year
1965-66. The High Court quashed the notice holding that the action of
the Income Tax Otlicer was barred by limitation prescribed by the Act.
D
Allowing the appeal of the Revenue,

HELD: I. The scheme of the 1961 Act so far as notice for reas-
sessment is concerned is quite different. What used to be contained in s.
34 of the 1922 Act has been spread out into three sections, being ss. 147.
E 148 and 149 of the 1961 Act.

2. A clear distinction has been made out between "issue of
notice" and "service of notice" under the 1961 Act. Section 149
prescribes the period of limitation. It categorically prescribes that no
notice under s. 148 shall be issued after the prescribed limitation has
F lapsed. Section 148(1) provides for service of notice as a condition
precedent to making the order of assessment. Once a notice is issued
within the period of limitations, jurisdiction becomes vested in the
Income Tax Otlicer to proceed to reassess. The mandate of s. 148(1) is
that reassessment shall not be made until there has been service. The
requirement of issue of notice is satisfied when a notice is actually
G issued.

Banarsi Debi & Anr. v. I. T. 0. District W, Calcutta & Ors., 53
ITR 100; Ianni v. Indu Prasad Bhat, 72 ITR 595 and C.I. T. v. Robert,
48 ITR 177, distinguished.

H In the instant case, notice was issued within the prescribed period
42
..
R.K. UPADHYAYA v. SHANABHAJ [MISRA, J.] 43

or limitation as March 31, 1970 was the last day or that period. Service A
under the new Act is not a condition precedent to conferment of juris-
diction in the Income Tax Ollicer to deal with the matter but it is a
condition precedent to making or the order or assessment. The High
Court lost sight or the distinction and under a wrong basis felt bound by
the judgment in Banarsi Debi & Anr. v. I. T.O., District IV, Calcutta &
Ors., ( 53 ITR 100). As the Income Ta" Otlicer had issued notice within B
limitation the order or the High Court is vacated.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 544
of 1975.

-- From the Judgment and Order dated 20.8.1973 of the Gujarat
High Court in Special Civil Application No. 631 of 1970.
c
{__ C.M. Lodha and Miss Subhashini for the Appellant.

The Judgment of the Court was delivered by
D
RANGANATH MISRA, J. This is an appeal by the Revenue by
special leave and is directed against the judgment of the Gujarat High
Court dated August 20, 1973 in a writ petition. The High Court
quashed the notice for reassessment issued under section 147(b) of the
Income-tax Act, 1961 (hereinafter referred to as 'the Act') for the
assessment year 196.5-66. Inspite of service of notice, the assessee- E
respondent has not appeared.

The High Court has quashed the notice by accepting the asses-
see's contention that the action of the Income-tax Officer was barred by
limitation prescribed by the Act. There is no dispute that the notice in
this case under section 147(b) of the Act was issued by registered post F
on March 31, 1970, and was received by the assessee on April 3, 1970.
To the facts of the case, section 147(b) of the Act applies. The two
relevant provisions are in sections 148 and 149 of the Act which
provide:

"148(1)-Before making the assessment, reassessment or G
.<,.,,.,.
·~
·
.. recomputation under section 147, the Income-tax Officer
',.:_ I shall serve on the assessee a notice containing all or any of
the requirements which may be included in a notice under
sub-section (2) of section 139; and the provisions of this
Act shall, so far as may be, apply accordingly as if the
notice were a notice issued under that sub-section. H

1
44 SUPREME COURT REPORTS (1987] 3 S.C.R.

A (2)

"149(1) -No notice under section 148 shall be issued,

(a)

B (b) In cases falling under clause (b) of section 147, at
any time after the expiry of four years from the end of
the relevant assessment year.

(2) The provisions of sub-section (1) as to the issue of
notice shall be subject to the provisions of section 151."
c The High Court relied upon the decision of this Court in the case of
Banarsi Debi & Anr. v. I. T. 0., District N, Calcutta & Ors., 53 ITR
100 wh~re the validity of a notice under section 34( 1) of the Income-
tax, Act, 1922 and the scope of section 4 of the Income-tax (Amend-
ment) Act of 1959 by which sub-section (4) was introduced into section
D 34 were considered. This Court indicated, keeping the provisions of
section 34 in view, that there was really no distinction between "issue"
and "service of notice". Section 34, sub-section ( 1) as far as relevant
provided thus:-

"34(1) If-
E
(a)

(b) ............ he may in cases falling under clause (a) at
any time within 8 years and in cases falling under clause (b)
at any time within four years at the end of that year, serve
F on the assessee, . . . . . . . . and may proceed to assess or
reassess such income ............. "

Section 34, conferred jurisdiction on the Income-tax Officer to reopen
an assessment subject to service of notice within the prescribed period.
Therefore, service of notice within limitation was the foundation of
G jurisdiction. The same view has been taken by this Court in Janni v.
Indu Prasad Bhat, 72 ITR 595 as also in C.I. T. v. Robert, 48 ITR 177.
The High Court in our opinion went wrong in relying upon the ratio of
53 ITR 100 in disposing of the case in hand. The scheme of the 1961
Act so far as notice for reassessment is concerned is quite different.
What used to be contained in section 34 of the 1922 Act has been
H spread out into three sections, being sections 147, 148 and 149 in the
R.K. UPADHYAYA v. SHANABHAI [MISRA. J.] 45

1961 Act. A clear distinction has been made out between 'issue of A
notice' and 'service of notice' under the 1961 Act. Section 149 prescribe
the period of limitation. It categorically prescribes that no hotice
under section 149 shall be issued after the prescribed limitation has
lapsed. Section 148(1) provides for service of notice as a condition
precedent to making the order of assessment. Once a notice is issued B
within the period of limitations, jurisdiction becomes vested in the
j. Income-tax Officer to proceed to reassess. The mandate of section
148(1) is that reassessment shall not be made until there has been
service. The requirement of issue of notice is satisfied when a notice is
actually issued. In this case, admittedly, the notice was issued within
the prescribed period of limitation as March 31, 1970, was the last day
of that period. Service under the new Act is not a condition precedent C
to conferment of jurisdiction in the Income-tax Officer to deal with the
matter but it is a condition precedent to making of the order of assess-
ment. The High Court in our opinion lost sight of the distinction and
under a wrong basis felt bound by the judgment in 53 ITR 100. As the
Income-tax Officer h'<l.d issued notice within limitations, the appeal is D
allowed and the order of the High Court is vacated. The Income-tax
Officer shall now proceed to complete the assessment after complying
with the requirements of law. Since there has been no appearance on
behalf of the respondents, we make no orders for costs.

A.P.J. Appeal allowed.
E

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