Bidyut Prova Raha Vs. Income-tax Officer, A-ward and ors. - Court Judgment

Excerpt:
- - 5. the learned counsel for the petitioner submits that the order of assessment dated november 25, 1965, is null and void because the provisions of the new act could not be invoked for the assessment year 1961-62. secondly, he submits that the above order being absolutely invalid in the eye of law could not be rectified by the order dated december 26, 1967. thirdly, he contends that in any event the order of rectification is without jurisdiction and is also bad for violation of the principles of natural justice. it is not denied that the income-tax officer had powers both under the old act as well as under the new act. the order of assessment in the instant case, therefore, cannot be held to be invalid merely because of insertions of wrong sections in the order as well as in the..... p.k. goswami, c.j. 1. the petitioner describes herself as heiress and legal representative of late barin raha and an assessee under the income-tax act. by this application under article 226 of the constitution, she is challenging three orders of the income-tax officer, a-ward, digboi. the first is an assessment order dated november 25, 1965, under section 144 of the income-tax act, 1961 (hereinafter referred to as the 'new act'), for the assessment year 1961-62. the second is an order dated december 26, 1967, rectifying the above order under section 154 of the new act and the consequent notice of demand dated december 29, 1967, under section 29 of the indian income-tax act, 1922 (hereinafter referred to as the 'old act'). the third is a notice dated march 13, 1967, under, section 148 of.....

Judgment:

P.K. Goswami, C.J.

1. The petitioner describes herself as heiress and legal representative of late Barin Raha and an assessee under the Income-tax Act. By this application under Article 226 of the Constitution, she is challenging three orders of the Income-tax Officer, A-Ward, Digboi. The first is an assessment order dated November 25, 1965, under Section 144 of the Income-tax Act, 1961 (hereinafter referred to as the 'new Act'), for the assessment year 1961-62. The second is an order dated December 26, 1967, rectifying the above order under Section 154 of the new Act and the consequent notice of demand dated December 29, 1967, under Section 29 of the Indian Income-tax Act, 1922 (hereinafter referred to as the 'old Act'). The third is a notice dated March 13, 1967, under, Section 148 of the new Act.

2. The facts necessary for appreciation of the questions raised in this application may briefly be set out: A notice dated May 11, 1961, under Sections 22(2) and 38 of the old Act was served on the assessee, Barin Raha, by the Income-tax Officer, Digboi, in respect of the assessment year 1961-62 on May 16, 1961. The assessee did not submit his return and died on February 22, 1963, after the commencement of the new Act with effect from April 1, 1962. Notice under Section 142(1) of the new Act was served upon the legal successor of the assessee on May 14, 1963. Another notice, dated June 4, 1964, under Section 22(4) of the old Act was also issued to the legal successor of the assessee. No one complied with the above notices and the order of assessment was passed under Section 144 of the new Act on November 25, 1965. Notice of demand under Section 156 of the new Act was accordingly issued to the legal successor on December 8, 1965, demanding payment of a sum of Rs. 19,597 within 35 days from the date of service of the said notice. The petitioner applied to the Income-tax Officer for allowing her to pay the tax by instalments and she paid the entire tax in

instalments by June 30, 1966. On March 13, 1967, a notice was issued under Section 148 of the new Act in respect of the assessment year 1961-62. On November 23, 1967, the petitioner challenged the entire proceedings before the officer as ultra vires and illegal and claimed refund of the tax already paid. On December 26, 1967, the Income-tax Officer passed an order under Section 154 of the new Act rectifying the earlier assessment order dated November 25, 1965. This rectification has not altered the quantum of assessment but substituted certain old sections of the Act in place of the new sections appearing in the earlier assessment orders. Consequent upon this rectification, a revised notice of demand was issued under Section 29 of the old Act on December 29, 1967. The petitioner has preferred an appeal against this order to the Appellate Assistant Commissioner.

3. In this case we are not concerned with the notice dated November 25, 1965, under Section 274 read with Section 271 of the new Act and the resultant order dated November 23, 1967, imposing penalty, against which also there is said to be an appeal pending.

4. At the outset, the learned counsel for the department submitted that this application is liable to be dismissed on the ground that the alternative remedy by way of appeal has already been resorted to by the petitioner. He further submits that the petitioner could seek cancellation of the assessment under Section 27 of the old Act. The application under Article 226 of the Constitution is, therefore, not maintainable, says the learned counsel. We are, however, not impressed with the preliminary objection raised in this case as the petitioner is seeking to question the very jurisdiction of the Income-tax Officer to make the impugned orders. The preliminary objection, therefore, is overruled.

5. The learned counsel for the petitioner submits that the order of assessment dated November 25, 1965, is null and void because the provisions of the new Act could not be invoked for the assessment year 1961-62. Secondly, he submits that the above order being absolutely invalid in the eye of law could not be rectified by the order dated December 26, 1967. Thirdly, he contends that in any event the order of rectification is without jurisdiction and is also bad for violation of the principles of natural justice. Lastly, he submits that the order under Section 148 is also without jurisdiction on account of the fact that the conditions precedent for such an order were lacking in this case. The learned counsel also took in his petition the question of the vires of Section 297(2)(d)(ii) of the new Act, but did not press this point on account of a recent decision of the Supreme Court in Civil Appeal No. 1593 of 1969 (Jain Bros. v. Union of India, [1970] 77 I.T.R. 107 (S.C.)) disposed of on November 18, 1969.

6. With regard to the first submission, we have to see whether the order in this case could be quashed for not correctly describing the section under which the order was passed. Both the learned counsel admit that the provisions of the old Act are applicable in respect of the assessment year in question. But, says Mr. Ray, that the fact that the orders and notices were given to the petitioner under the provisions of the new Act, these were mere scraps of paper and could be ignored by the assessee who cannot be held liable under these orders and notices. When a question was put to Mr. Ray that if the particular orders and notices are held by the court as those passed under the provisions of the old Act in spite of the fact that the sections of the new Act were quoted therein, he fairly submitted that his position would then be difficult. We have, therefore, to consider whether the assessment orders could be said to be passed under the provisions of the old Act in the entire facts and circumstances of the case. It is not denied that the Income-tax Officer had powers both under the old Act as well as under the new Act. The exercise of the power of assessment in this case, therefore, can be referred to his jurisdiction which he undoubtedly has under the provisions of the old Act, although wrong sections were initially inserted in the proceedings and later rectified. In this context we may refer to a decision of the Supreme Court in Hazari Mal Kuthiala v. Income-tax Officer, [1961] 41 I.T.R. 12, [1961] 1 S.C.R. 892 (S.C.). This was a case in which the Income-tax Officer, Special Circle, Ambala, issued a notice under Section 34 of the Patiala Income-tax Act to reopen the firm's assessment deriving his jurisdiction from an earlier order made by the Commissioner of Income-tax under Sections 5(5) and 7A of the Indian Income-tax Act, ordering disposal of the case by him and not by the Income-tax Officer, Patiala, who was the competent authority to assess the firm. The firm contended that the officer at Ambala had no jurisdiction as the order of the Commissioner was ultra vires, since it was not issued under the Patiala Income-tax Act, which applied to the assessment year in question and as the Commissioner had not consulted the Central Board of Revenue as provided under Section 5(5) of the Patiala Income-tax Act before passing the order. This was even a stronger case than the present one as there was the requirement of consultation with the Central Board of Revenue, which, however, the Supreme Court held to be directory. The Supreme Court held:

' That the exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it would be nugatory; and the order of the Commissioner was not invalid merely because it was not made under the Patiala Act. '

7. The Supreme Court held that the Commissioner's order was valid and the Income-tax Officer at Ambala had jurisdiction to assess the firm. The order of assessment in the instant case, therefore, cannot be held to be invalid merely because of insertions of wrong sections in the order as well as in the notices. Reference may also be made to a decision of the Supreme Court in Hukumchand Mills v. State of Madhya Pradesh, [1964] 52 I.T.R. 583, [1964] 6 S.C.R. 857 (S.C.), where the following passage is apposite:

'It is true that in the opening part of the notification it is said that the amendments were made under Rule 17 of the Tax Rules; but that in our opinion would not conclude the matter, for if the Government had the power to make amendments under Act, 1 of 1948, the amendments in the Rules could be justified under that power in spite of the wrong words used in the opening part of the notification of December 28, 1949. It is well-settled that merely a wrong reference to the power under which certain actions are taken by Government would not per se vitiate the actions done if they can be justified under some other power under which the Government could lawfully do these acts. '

8. Hence, the first contention of the petitioner fails.

9. Regarding the second submission, it is enough to state that even without an order of rectification the orders could have been treated as those passed under the provisions of the old Act, as have been already held. An order of rectification in this case is only with reference to the sections and does not affect the orders materially. If, however, the new provisions were wrongly made applicable, the matter might have required a different consideration, but in the entire facts and circumstances of the case and on the admission of the learned counsel on both sides that the old provisions apply and indeed they have been made applicable by the Income-tax Officer, we need not pursue this matter any further. The second submission of the learned counsel is, therefore, of no avail.

10. Regarding the third submission, since no prejudice has been caused to the petitioner by making the order of rectification, there was no question of violation of the principles of natural justice in this case.

11. Mr. Ray, however, contends that the legal successors are entitled to all the notices prior to the assessment which the assessee, if he were not dead, would have got under the law. In this submission he draws our attention to a decision of the Madras High Court in Estate of late Rangalal Jajodia v. Commissioner of Income-tax, [1966] 61 I.T.R. 726 (Mad.), where it has been held, interpreting the provisions of Section 24B(3), that the procedure contemplated by Sub-section (3) of Section 248 will have to be followed or reiterated, as the case may be, as a condition to validate all the assessments in situations within its purview. Mr. Ray contends, relying upon this decision, that the Income-tax Officer in this case has not taken any steps for service of notices on the legal successors under Section 22(4) of the old Act. This argument, however, fails to take note of the notice issued to the petitioner under Section 22(4) of the old Act on June 4, 1964: The petitioner, therefore, cannot complain that the provision under Section 24B(3) has not been complied with in this case. In a case where an assessee dies without having furnished a return in compliance with a notice under Section 22 of the old Act, as in this case, the Income-tax Officer under Section 24B(3) will have to serve upon the legal successors a notice under Section 22(4) of the old Act. This is clear from a reading of section. 24B(3) along with Section 22(4) of the old Act. Section 22(4) provides for two situations; firstly, the case of a person who has made a return under Sub-section (1) of Section 22, and, secondly, a person upon whom a notice has been served under Sub-section (2) of Section 22. In either case, the Income-tax Officer has to serve a notice under Section 22(4) of the old Act. The fact that a person has not complied with a notice under Section 22(2) does not automatically authorise the Income-tax Officer to make a best judgment assessment under Section 23(4) without complying with the provisions of Section 22(4). Even the best judgment assessment under Section 23(4) must partake of the character and quality of a best judgment according to the circumstances of each case. Section 23(4) would not give jurisdiction to the Income-tax Officer to make an absolutely arbitrary assessment disregarding the provisions of Section 22(4). The minimum requisite is a conformity with the procedural requirement laid down under the law apart from the officer's other honest efforts to arrive at a best judgment. If after service of notice under Section 22(4), the assessee does not co-operate with the officer, the latter will have no other alternative than to depend upon his best judgment in such a situation in accordance with the requirements of the case. In this case, after the death of the assessee, notice has been given to the legal successors under Section 22(4) of the old Act as also under Section 142(1) of the new Act and the procedural requirement of the law prior to the assessment has been duly complied with. There is, therefore, no substance in the above contention.

12. Regarding the last contention of the petitioner with regard to the notice under Section 148 of the new Act, the learned counsel contends that the conditions precedent were lacking in this case to give the officer the necessary jurisdiction to issue a notice under Section 148 of the new Act. Our attention is drawn to an order of the Income-tax Officer dated January 17, 1967, which appears in the records of the case and which is relied upon by the learned counsel on both sides. This order is the foundation for the impugned notice dated March 13, 1967. The relevant order of the Income-tax Officer may be set out:

' As per information received from the Income-tax Officer, D-Ward, Dist. V(1), Calcutta, it appears that the assessee was a partner in the firm,

M/s. Heavy Lift Handlers, during the relevant accounting year and that the assessee's share of profit in that firm amounted to Rs. 1,01,826, for the assessment year 1961-62. The assessee did not disclose income from this source in the return of income filed for the relevant assessment year. The assessee's total income was computed without including the aforesaid share income and the share income therefore escaped assessment. Hence, the necessity of starting proceeding under Section 147. '

13. Mr. Ray points out that in the counter-affidavit of this particular Income-tax Officer at paragraph 16 he stated that ' the Income-tax Officer, Digboi, received information from the Income-tax Officer, D-Ward, District V(1), Calcutta . . . . ' and so it cannot be said that the particular Income-tax Officer, namely, the deponent, who was the Income-tax Officer, A-Ward, Digboi, had received information from Calcutta. We are, however, not prepared to look upon this part of the affidavit with that strictness as urged by Mr. Ray. We are satisfied that the deponent meant himself as the Income-tax Officer in paragraph 60 as receiving information from Calcutta, which is clear from the order set out above. It is true that the Income-tax Officer referred to a return of income filed by the assessee which, of course, had not been done in this case in point of fact. That, however, would not affect the jurisdiction of the Income-tax Officer to proceed under Section 147 of the new Act, which only requires, inter alia, that the Income-tax Officer has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for the assessment year. The assessment in this case was completed on November 25, 1965, and the officer got the information on January 17, 1967, on which he acted under Section 148 of the new Act. There is, therefore, no error of jurisdiction of the officer in proceeding under Section 148 of the new Act.

14. All the contentions of the learned counsel fail and the application is dismissed. The rule is discharged. The stay order stands vacated. There will be, however, no order as to costs,

M.C. Pathak, J.

15. I agree.