Ansari, C.J.
1. The Income-tax Appellate Tribunal, Chandigarh Bench (hereinafter referred to as 'the Tribunal'), has referred the following questions to this court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'):
'(1) Whether the provisions of Sections 144 and 156 are procedural or substantive ?
(2) Even if it be conceded that the provisions are procedural, whether they are directory or mandatory ?
(3) Whether it is obligatory in law on the part of the Income-tax Officer himself to determine the tax payable on the basis of the total income assessed under Section 144 and show the amount so determined in the assessment order itself ?
(4) If the tax determined on the basis of total income assessed under Section 144 is not shown in the assessment order itself and is shown in a notice of demand issued under Section 156, along with the assessment order, does the assessment become invalid in law ?
(5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the service of the assessment order under Section 144 showing the computation of total income and the notice of demand under Section 156 showing the tax payable was sufficient compliance for purposes of assessment for the assessment year 1963-64?'
2. The facts which are relevant to the questions referred to above may be briefly stated. Shri Syed Mubarik Shah Naqshbandi (hereinafter referred to as ' the assessee ') did not file any return of income for the assessment year 1963-64 under Section 139(1) of the Act. A notice under Section 139(2) of the Act was issued to him but the assessee did not file any return of income in response to that notice. Thereafter, a notice under Section 148 was also issued to him directing him to file a return of his income. The assessee did not comply with this notice. Thereafter, the Income-tax Officer issued notice to the assessee under Section 142(1) of the Act informing him that his assessment would be made on February 16, 1968. The assessee did not appear before the Income-tax Officer on the said date in response to the said notice. The Income-tax Officer thereupon proceeded to complete the assessment to the best of his judgment under Section 144 of the Act. The total income of the assessee was determined at Rs. 22,000, but the Income-tax Officer did not in the assessment order determine the tax payable by the assessee on the said income. The assessment was completed on March 19, 1968. On the same date the Income-tax Officer issued a demand notice in which the tax payable by the assessee was mentioned and the assessee was required to inform the Income-tax Officer whether any portion of the tax had been deducted at source. The assessee did not send any reply to this notice but preferred an appeal before the Appellate Assistant Commissioner against the assessment order.
3. One of the contentions raised by the assessee before the Appellate Assistant Commissioner which alone is relevant for the purpose of this reference was that the assessment order was invalid inasmuch as the Income-tax Officer had not in the said order determined the tax payable by the assessee, as required under Section 144 of the Act. The Appellate Assistant Commissioner did not accept this contention and held that under the scheme of distribution of work the income would be determined by one officer and the tax payable determined by another officer, and that an assessment order which determined the income of the assessee but did not determine the tax payable by him was still a valid order. The assessee thereupon preferred an appeal before the Tribunal and raised the same contention. In reply to this contention it was argued on behalf of the revenue that the notice of demand for which the tax payable by the assessee was mentioned must be read along with the assessment order and if they were so read together, then there was no illegality in the assessment order. The Tribunal posed for itself the following two questions :
'(1) Whether the provisions of Sections 144 and 156 are procedural or substantive ?
(2) Even if it be conceded that the provisions are procedural, whether they are directory or mandatory '
4. Answering these questions, the Tribunal held that Section 144 was a procedural section and also that it was directory in nature and that, as the assessee had failed to prove that any prejudice was caused to him by the omission of the Income-tax Officer to determine the tax payable by the assessee in the assessment order, the said order could not be held to be invalid. The Tribunal, therefore, dismissed the appeal filed by the assessee. But, at the instance of the assessee, the Tribunal has referred the questions already stated above to this court under Section 256(1) of the Act.
5. Before proceeding to consider the validity of the assessment order it may be stated that the assessee at no stage disputed the correctness of the income as determined by the Income-tax Officer in the assessment order. Although the assessee had before the Appellate Assistant Commissioner questioned the quantum of the tax which he was called upon to pay under the demand notice on the ground that it had not taken into account the tax which had been deducted at the source, such a contention was not raised before the Tribunal and in any case the correctness of the quantum of the tax payable by the assessee does not arise for consideration before us. The only question that we are called upon to consider is whether the assessment order is invalid by reason of the fact that it does not mention the tax payable by the assessee.
6. Section 144 of the Act under which the assessment has been made is contained in Chapter XIV of the Act which is titled as ' Procedure for Assessment '. Therefore, Section 144 is a procedural section. But even the procedural law confers rights on the parties which they are entitled to enforce. To give a simple example the Civil Procedure Code and the Criminal Procedure Code are in the nature of procedural law but they also confer rights on an individual such as the right of appeal. An individual cannot be deprived of such a right on the simple ground that it forms part of the procedural law. But the provisions of the procedural law fall under two categories, namely, (1) mandatory and (2) directory. Generally speaking, violation of the mandatory provisions vitiates the proceedings, whereas the violation of the directory provision does not vitiate the proceedings. But in some cases even the violation of the mandatory provision does not ipso facto vitiate the proceedings, but the proceedings are vitiated only if prejudice has been caused to the person who is affected by the non-observance of the mandatory provision. Therefore, the question, whether Section 144 of the Act is a procedural section does not conclude the controversy. What has to be considered is whether Section 144 being a procedural section is mandatory in character or merely directory and further even if it is mandatory in character, a strict compliance with it is necessary in order to make an order passed under the said section a valid order.
7. Before proceeding to consider this section, we may refer to some of the provisions in Chapter XIV of the Act which deal with the procedure for assessment. Section 153 prescribes a time limit for completion of the assessment and reassessment. For assessment it prescribes a period of four years from the end of the assessment year in which the income was first assessable for the completion of the assessment, and it prescribes a period of eight years from the end of the assessment year in which the income was first assessable in cases falling under Section 271(1)(c) of the Act. No assessment or reassessment can be made after the period prescribed under Section 153 and any assessment or reassessment made after such period is invalid. Similarly, under Section 149 of the Act a time-limit is prescribed for the issue of a notice under Section 148 of the Act. It is not necessary to multiply the examples of procedural Sections which are, however, mandatory in character and the violation of which makes the assessment order invalid.
8. At this stage it is necessary to reproduce the relevant portion of Section 144 of the Act which is in the following terms :
'............the Income-tax Officer, after taking into account all relevant material which the Income-tax Officer has gathered, shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee or refundable to the assesses on the basis of such assessment.'
9. There is no dispute that this section is mandatory to the extent that it requires the Income-tax Officer to determine the income of the assessee. The question is whether it is also mandatory as regards the determination of the sum payable by the assessee by way of tax. A plain reading of the language of the section does not justify any distinction to be made between the two portions of the section and, in our view, the determination of the tax payable by the assessee is as much mandatory as the determination of his income. In our view, there would be no justification to say that only the determination of the income is mandatory and the determination of the tax is directory. Admittedly, the Income-tax Officer has not in the assessment order determined the tax payable by the assessee. The question, therefore, arises whether this omission on his part would invalidate the assessment order.
10. In this connection it has to be noted that the notice of demand was issued on the same date on which the assessment order was made and also that the notice' of demand was signed by the same officer who had made the assessment order. This notice of demand not only contains the income as determined in the assessment order but also the tax which was payable by the assessee on such income.
11. A notice of demand is issued under Sections 156 of the Act which reads as follows:
'When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable.'
12. As the notice of demand had to specify the tax payable by the assessee ' in consequence of any order passed under this Act', it would follow that the notice of demand has to be preceded by an assessment order. A notice of demand may be issued on the same date qn which the assessment order is made or it may be issued at a later date. As a matter of fact, no period of limitation is prescribed for the issue of a notice of demand. Such a notice of demand may be issued even after the expiry of four years from the end of the assessment year for which income was first assessable. It would be a valid notice of demand so long as the assessment order itself has been made within the period prescribed under Section 153 of the Act. There is, therefore, force in the contention of the assessee that the issue of notice of demand on the same date on which the assessment order was made cannot be treated as part of the assessment order and that it cannot be said that the Income-tax Officer had determined the tax payable by the assessee in the assessment order itself.
13. This contention finds support in a decision of the Bombay High Court in N.N. Kotak v. Commissioner of Income-tax : [1952]21ITR18(Bom) . In that case the assessment order was made and also a notice of demand for payment of the tax determined was served on the assessee. The assessee defaulted in payment of the tax. Thereupon, the Income-tax Officer passed an order in the following terms :
' Tax not paid. Issue penalty notice.'
14. Pursuant to this order a notice of demand was issued to the assessee under Section 29 of the Indian Income-tax Act, 1922. The assessee challenged the validity of this demand notice on the ground that no order levying the penalty had been passed as required under Section 46(1) of the said Act. The Bombay High Court upheld this contention and cancelled the penalty. In so doing, the High Court made the following observations :
' The contention urged before the Tribunal and also before us is that the penalty imposed was contrary to law inasmuch as no proper order was passed by the Income-tax Officer under Section 46(1). That sub-section provides that when an assessee is in default in making payment of income-tax the Income-tax Officer may in his discretion direct that in addition to the amount in arrears a sum not exceeding that amount shall be recovered from the assessee. It is clear that the direction that the Income-tax Officer has to give under Section 46(1) must be a direction which must take the form of an order and that order must state the specific sum which the assessee has got to pay by way of penalty.'
15. Explaining the scope of demand notice under Section 29 of the said Act,the High Court observed as follows :
' Now when we turn to Section 29 what it provides is that when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of the Income-tax Act, the Income-tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty or interest a notice of demand in the prescribed form specifying the sum so payable. Therefore, the notice of demand can only be served under this section provided tax, penalty or interest is due in consequence of an order passed under the Act. Therefore, the condition precedent to the validity of the notice of demand under Section 29 must be an order passed under the Act and the notice is merely consequential upon that order. Therefore, if there is no order under the Act then no notice can be served under Section 29.' In support of the contention that the assessment order must not only indicate the income of the assessee as determined by the Income-tax Officer, but should also indicate the tax payable by the assessee on such income, reference has been made to a decision of the Madras High Court in Viswanathan Chettiar v. Commissioner of Income-tax : [1954]25ITR79(Mad) , In that case the assessment for the year 1942-43 was completed on March 24, 1947. The assessment order as well as the demand notice under Section 29 of the Indian Income-tax Act, 1922, was despatched on March 25, 1947, but the same was received by the assessee on April 2, 1947. The question for consideration before the High Court was whether the assessment in that case was made within the period of limitation prescribed under Section 34(2) of the said Act. A contention was raised on behalf of the assessee that as the assessment order along with the notice of demand was received by the assessee on April 2, 1947, i.e., after the expiry of the period of four years from the end of the year in which the income, profits or gains were first assessable, the assessment order was barred by limitation under the provisions of Section 34(2) of the Act. This contention was repelled by the High Court and it was held that it is the date on which the assessment is made which is relevant for the purpose of Section 34(2) of the Act and not the date on which the assessment order or the demand notice is served upon the assessee. This decision of the Madras High Court was approved by the Supreme Court in Commissioner of Income-tax v. Balkrishna Malhotra : [1971]81ITR759(SC) . In neither of these cases did the question arise for consideration whether the assessment order should not only specify the income as determined by the Income-tax Officer but should also specify the tax payable on such income. But there are certain observations made by the Madras High Court in the case of Viswanathan Chettiar : [1954]25ITR79(Mad) , which suggest that the determination of the income and the determination of the tax payable thereon are inseparable parts of an assessment order. These observations are as follows: 'But that difference need not detain us further in determining the question when an order of assessment is 'made' within the' meaning of Section 34(2) of the Act. Sub-sections (1), (4) and (3) of Section 23 provide for one stage, assessment of the income and the determination of the sum payable by the assessee as tax on the basis of such assessment of the income. That, it seems to us, determines the scope of ' making ' an order of assessment within the meaning of Section 34(2) of Income-tax Act. It is that stage that has to be completed within the period of limitation prescribed by Section 34(2), in this case four years from the close of the year of assessment, 1942-43.'
16. It is no doubt true that the assessee is given a right under Section 249 of the Act to file an appeal against the assessment order within thirty days from the date of service of the notice of demand relating to the assessment, but this appeal is not against the notice of demand but against the assessment order itself, and it will be open to the assessee to challenge the assessment order either on the ground that it was passed after the expiry of the period fixed under Section 153 or on the ground that it was not in compliance with the requirements of Section 144 of the Act. The assessee will get the right of appeal on the basis of the notice of demand whenever it is served upon him. But, the Income-tax Officer has to make the assessment in terms of Section 144 of the Act and within the period prescribed under Section 153 of the Act. As held by the Madras High Court in the case of Viswanathan Chettiar : [1954]25ITR79(Mad) , if the assessment order is made within the period of limitation prescribed, then it will be a valid assessment order and the date on which the notice of demand is served on the assessee becomes immaterial. But if, on the other hand, the assessment order is not made within the period prescribed or is otherwise invalid, then the notice of demand will not validate it.
17. In the present case the assessment order has not been made in terms of Section 144 of the Act inasmuch as the tax payable by the assessee has not been determined. Under Section 246(c) of the Act an assessee has a right of appeal against an order of assessment not only where he objects to the amount of income assessed but also to the amount of tax determined. In the present case, the amount of tax not having been determined in the assessment order, the assessee is deprived of the right of appeal. It is no doubt true that the tax payable by the assessee has been shown in the demand notice, but, as already stated, there is no right of appeal against a notice of demand.
18. The learned counsel for the revenue contends that the notice of demand must be read as part of the assessment order and when so read the assessment order complies with the requirements of Section 144 of the Act, inasmuch as the amount of tax payable by the assessee has been stated in the notice of demand. It is no doubt true that there is no prescribed form for the passing of an assessment order, but, on the other hand, there is a prescribed form for the notice of demand and in this case the amount of tax payable by the assessee has been stated only in the notice of demand. A notice of demand always contains the tax payable by the assessee but it does not follow that a notice of demand should be treated as part of the assessment order. As already observed, a notice of demand is issued in consequence of an assessment order and not as part of it.
19. The learned counsel for the revenue further contends that there is a clear distinction between the two parts of Section 144 of the Act, namely, (1) which requires the Income-tax Officer to determine the income of the assessee, and (2) which requires the Income-tax Officer to determine the tax payable by the assessee. According to the learned counsel it is the first part which requires the application of mind by the Income-tax Officer and the second part is only a mechanical application of the rates of income-tax prescribed by the Finance Act of the relevant year. We do recognize that there is a distinction between the two parts of Section 144 but this distinction, in our view, does not in any way affect the mandatory nature of Section 144 which requires not only that the Income-tax Officer should determine the income of the assessee, but that he should also determine the tax payable by the assessee.
20. Finally, it is contended by the learned counsel for the revenue that in this case the question whether any prejudice has been caused to the assessee by the omission to determine the tax payable by him in the assessment order should also be taken into consideration. It is no doubt true that in this case no prejudice was caused to the assessee by such omission because the notice of demand was issued to him on the same date on which the assessment order was made. But fiscal statutes have to be strictly construed and wherever there is a lacuna or non-observance of the statutory provisions, the benefit should go to the assessee. The question whether any prejudice was actually caused to the assessee is in our view not material.
21. We do recognize that this is a case where the assessee had neither filed a return of his income under Section 139(1) of the Act nor did he file a return of income in compliance with the notice issued under Section 139(2) of the Act. This is also a case where the assessee has not disputed the correctness of the income determined by the Income-tax Officer which would show that the assessee had derived assessable income during the relevant assessment year. He is, however, escaping from his liability to pay the tax, by reason of a defect in the assessment order. An assessee is a layman who is ordinarily not conversant with the complexities of the income-tax law but for that reason no indulgence is shown to the assessee. While this is so, there appears to be no reason why any indulgence should be shown to the assessing authorities who are expected to be fully conversant with all the provisions of the income-tax law. This is a case where the, assessee has been allowed to escape assessment on account of the irregularities committed by the Income-tax Officer.
22. In answer to question No. 1 we have to state that Section 144 of the Act is procedural.
23. In answer to the second question we state Section 144 is mandatory in nature.
24. The third question is answered in the affirmative, i.e., in favour of the assessee and against the revenue.
25. The fourth question is also answered in the affirmative, i.e., in favour of the assessee and against the revenue.
26. The fifth question is answered in the negative, i.e., in favour of the assessee and against the revenue.
27. There shall be no order as to costs.
Mian Jalal-Ud-Din, J.
I agree.