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Segu Butchaiah Setty Vs. Income-tax Officer, Kolar Circle and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberWrit Petition Nos. 304, 515 to 519, 578 and 579 of 1967
Judge
Reported in[1970]76ITR607(KAR); [1970]76ITR607(Karn)
ActsIncome Tax Act, 1961 - Sections 156 and 297(2); Income Tax Act, 1922 - Sections 29 and 46(2)
AppellantSegu Butchaiah Setty
Respondentincome-tax Officer, Kolar Circle and anr.
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateS. Rajasekharamurthy, Adv.
Excerpt:
.....to section 46 (2) for recovery of amounts specified in certificates which named only unregistered firm or association of persons - they become so liable since certificates had been forwarded to collector before act of 1961 commenced to operate - collector becomes invested with power to recover those amounts from them and they become in turn liable to pay those amounts to collector - sums mentioned in certificates become payable by petitioners under act of 1922 within meaning of section 297 (2) (i) - recovery of those amounts became permissible under act of 1961 by same process and by same mode by which amount payable under act of 1922 could be recovered - impugned notices justified. - section 88: [s.r. bannurmath & a.n.venugopala gowda,jj] grant of inter-state permit - renewal of..........under the income-tax act, 1961, which would be referred to as the 'new act', by which the tax recovery officer functioning under that act took steps for the recovery of income-tax due in respect of the assessment years 1954-55 and 1955-56, determined in an assessment proceeding to which an unregistered firm was dissolved in the year 1955, after the assessment was made.2. a notice of demand under section 29 of the income-tax act, 1922, which will be referred to as the 'old act', was issued to the unregistered firm, following which, a certificate was forwarded under section 46(2) of the old act to the collector. the assessee named in that certificate was the unregistered firm.3. in writ petitions nos. 515 of 519 and 578 and 579 the petitioner was one of the members of an association.....
Judgment:

Somnath Iyer, J.

1. Writ Petition No. 304 of 1967 arises out of the recovery proceedings under the Income-tax Act, 1961, which would be referred to as the 'new Act', by which the Tax Recovery Officer functioning under that Act took steps for the recovery of income-tax due in respect of the assessment years 1954-55 and 1955-56, determined in an assessment proceeding to which an unregistered firm was dissolved in the year 1955, after the assessment was made.

2. A notice of demand under section 29 of the Income-tax Act, 1922, which will be referred to as the 'old Act', was issued to the unregistered firm, following which, a certificate was forwarded under section 46(2) of the old Act to the Collector. The assessee named in that certificate was the unregistered firm.

3. In Writ Petitions Nos. 515 of 519 and 578 and 579 the petitioner was one of the members of an association of persons in respect of which there were assessments and imposition of penalties in respect of various assessment years commencing with the assessment year 1951-52 and ending with 1956-57. Notices of demand were issued to the association of persons under section 29 of the old Act and when there was default in payment, the Income-tax Officer forwarded certificates to the Collector under section 46(2) of the old Act in which the association of persons was named as the assessee.

4. This association of persons came to an end on November 14, 1956.

5. After the new Act came into force, the Tax Recovery Officer, functioning under the new Act, issued demand notices to the petitioners in W. P. No. 304/67 and the other seven petitions calling upon them to pay the arrears of tax named in the certificates forwarded to the Collector to which we have referred, and intimated them that, in the event of non-payment, their properties would be brought to sale.

6. We are asked by the petitioners to quash these notices and forbid the Tax Recovery Officer from proceeding with the recovery referred to above.

7. It is no longer possible for the petitioners, after the pronouncement of the Supreme Court in Sahu Rajeshwar Nath v. Income-tax Officer, Meerut : [1969]72ITR617(SC) , to contend that in respect of the Income-tax and the penalty to which we have referred, individual notices of demand should have been issued to them under section 29 of the old Act, in view of the enunciation made by the Supreme Court that the notice of demand issued to the unregistered firm after the assessment was made in the name of the firm, dispensed with the necessity to issue notices of demand to the individual partners of that firm. The further enunciation that the partners of the unregistered firm or are not the 'other person liable to pay income-tax' to whom section 29 of the old Act refers, is equally applicable to the members of an association of persons who are also not the other person liable to pay the tax of whom section 29 of the old Act speaks. So, the elucidation made with respect to the necessity of a notice of demand under section 29 of the old Act to the partners of an unregistered firm has equal application to the necessity of such notice of demand to a member of the association of persons.

8. The other part of the pronouncement of the Supreme Court has reference to the enforceability of the certificate under section 46(2) of the old Act with respect to recovery of the amount payable by an unregistered firm from its individual partners. The clear pronouncement made by the Supreme Court was that, although a certificate was issued under section 46 naming the unregistered firm as the assessee, the recovery of the amount payable by the unregistered firm from its individual partners was clearly authorised by the proviso to section 46(2) of the old Act.

9. So, the pronouncement of the Supreme Court concludes the petitioners' case in respect of the two matters. The first is that the notices of demand which were issued to the unregistered firm and the association of persons, respectively, under section 29 of the old Act, were good notices making it unnecessary for the Income-tax Officer to issue individual notices to the partners of the unregistered firm or the members of the association of persons, as the case may be, demanding payment of the amounts due under the order of assessment made against the unregistered firm in the one case and in respect of the association of persons in the other. What again emerges equally clearly from the pronouncement of the Supreme Court is that the certificates forwarded to the Collector under section 46(2) of the old Act naming the unregistered firm as the assessee in the one case and the association of persons in the other, dispensed with the necessity of forwarding certificates naming the partners of the unregistered firm as the assessee in the one case and the association of persons in the other, dispensed with the necessity of forwarding certificates naming the partners of the unregistered firm or the members of the association of persons as the persons as the persons from whom recovery should be made.

10. So, in the case before us, when the Income-tax Officer forwarded certificates under section 46(2) in the manner in which he prepared them, it became unnecessary, if nothing else could be said about it, for the Income-tax Officer to forward another set of certificates naming the partners of the unregistered firm or the members of the association of persons as persons from whom the amounts specified in the certificates should be recovered.

11. But Mr. Srinivasan who did not dispute that the enunciation so made by the Supreme Court is equally applicable to the cases before us, however, maintained that, although that would be the position under the provisions of the old Act, a different situation arose in regard to recovery under the new Act, in consequence of the language of section 222 of the new Act which is at variance with that of section 46 of the old Act. It was said that the view which the Supreme Court expressed with respect to the permissibility of the recovery of the amount specified in the certificates prepared under section 46(2) which named the unregistered firm as the person from whom the recovery should be made from the partners of that firm individually, although their names were not specified in the certificates, was founded entirely con the proviso to section 46(2) of the old Act which states that, without prejudice to any other powers of the Collector, the Collector shall have the powers which under the Code Civil Procedure, a civil court could exercise in regard to the recovery of an amount due under a decree. That proviso reads :

'Provided that without prejudice to any other powers of the Collector in this behalf, he shall for the purpose of recovering the said amount have the powers which under the Code of Civil Procedure, 1908, a civil court has for the purpose of the recovery of an amount due under a decree. That proviso reads :

Not unnaturally, Mr. Srinivasan laid considerable emphasis upon that part of the discussion by the Supreme Court in Sahu Rajeshwara Nath's case : [1969]72ITR617(SC) which makes it clear that the conclusion which the Supreme Court reached in that case was made to rest on the proviso to section 46 (2) of the old Act. The relevant part of the discussion reads :

'The point taken by Mr. Kharkhanis is that it was not open to the Collector in a proceeding under section 46(2) of the Act recover from the appellant the income-tax dues from the partnership. We are unable to accede to this argument. The proviso to section 46(2) of the Act states that the Collector shall, without prejudice to any other powers in that behalf 'for the purpose of recovering the said amount, have the powers which under the Code of Civil Procedure, 1908 (V of 1908), a civil court has for the purpose of the recovery of an amount due under a decree'... In the present case we see no reason why the Collector should not execute the certificate for demand of income-tax against the appellant who admits that he was a partner of the unregistered firm for the relevant accounting year. In the return filed by the unregistered firm on January 19, 1945, at page 33 of the paper book also, the appellant is shown as one of the partners. It is manifest that the provisions of Order XXI, rule 50 (2), apply to the present case mutatis mutandis and since the appellant does not dispute that he was a partner of the unregistered firm for the relevant accounting year, the Collector could lawfully proceed to execute the certificate under section 46(2) of the Act against the appellant and recover the income-tax arrears from him.'

12. Section 222 of the new Act, between the provisions of which and those of section 46(2) of the old Act a contrast was instituted by Mr. Srinivasan, reads :

'222. (1) When an assessee is in default or is deemed to be in default in making a payment of tax, the Income-tax Officer may forward to the Tax Recovery Officer a certificate under his signature specifying the amount of arrears due from the assessee, and the Tax Recovery Officer on receipt of such certificate, shall proceed to recover from such assessee the amount specified therein by one or more of the modes mentioned below, in accordance with the rules laid down in the Second Schedule -

(a) attachment and sale of the assessee's movable property;

(b) attachment and sale of the assessee's immovable property;

(c) arrest of the assessee and his detention in prison;

(d) appointing a receiver for the management of the assessee's movable and immovable properties.

(2) The Income-tax Officer may issue a certificate under sub-section (1), notwithstanding that proceedings for recovery of the arrears by any other mode have been taken.'

13. Considerable emphasis was placed by Mr. Srinivasan on the conspicuous absence in this section of the new Act of provisions corresponding to those of the proviso to section 46(2) of the old Act, and the argument constructed on that feature was that, since, according to the clear enunciation made by the Supreme Court the power to recover arrears due by an unregistered firm named in a certificate prepared under section 46(2) from the individual partners not so named, is what flows from the bestowal of the powers of a civil court exercisable under the Code of Civil Procedure on the Collector who is confided with such recovery, and no such power resides in the Tax Recovery Officer functioning under section 222 of the new Act, he stands denuded of the powers which resided in the Collector under the old Act. So it was maintained that, although it may be possible under the provisions of section 6 of the General Clauses Act for the Collector exercising authority under the old Act, to recover the amounts specified in the certificates prepared under the old Act from the partners or the members of the association of persons, as the case may be, such recovery could not be made by the Tax Recovery Officer functioning under the new Act.

14. But it appears to us that resistance to recovery on that ground is not possible by reason of the clear provisions of section 297(2)(i) of the new Act, which reads :

'297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (hereinafter referred to as the repealed Act), - ....

(i) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act.'

15. Now, it is undisputed that the petitioner in W.P.No. 304 of 1967 was a partner of the unregistered firm in respect of of which an assessment was made under the old Act. Similarly, it is an uncontroverted fact that the petitioner in the other seven writ petitions was a member of the association of persons in respect of which an assessment was also made under the old Act. That being so, and since the enunciation made by the Supreme Court with respect to an unregistered firm has equal application to an association of persons, as we have already observed, all the petitioner were liable to be proceeded against under the proviso to section 46(2) of the old Act for the recovery of the amounts specified in the certificates which named only the unregistered firm or the association of persons. They became so liable since the certificates had been forwarded to the Collector before the new Act commenced to operate. The Collector became invested with the power to recover those amounts from them and they became in turn liable to pay those amounts to the Collector. The power to make a recovery from the petitioners would not reside in the Collector unless the petitioners had become liable to pay, and that that is so, is, in our opinion, the implication of the proviso to section 46(2) of the old Act.

16. So, at the stage when the new Act commenced to operate, the Collector had become invested with the power to make the recovery from the petitioners who, as a necessary corollary, had become liable to pay those amounts to him. So the sums named in the relevant certificates had become payable by the petitioners under the repealed Act within the meaning of section 297(2)(i) of the repealing Act.

17. That being so, under the provisions of that clause, those sums could be recovered under the repealing Act, which means that the recovery of those amounts became permissible under the repealing Act by the same process and by the same mode by which an amount is payable under the repealing Act could be recovered.

18. Section 222 of the new Act and Schedule II to that Act make an enumeration of the various modes and processes by which any amount payable under the new Act could be recovered by the Tax Recovery Officer functioning under that Act, and we lean to the view that when the provisions of section 297(2)(j) are properly understood, the import of that clause is that the same modes also be employed by the Tax Recovery Officer for the recovery of an amount which had become payable under the repealed Act.

19. If, therefore, under section 222 of the repealing Act the Tax Recovery Officer could proceed to recover the amount payable under the new Act by attachment and sale of the assessee's movable and immovable property, or his arrest, or by the appointment of a receiver for the management of his movable and immovable properties, those precisely are the steps which he may also take for the recovery of the amount which had become payable under the repealed Act. That, in our opinion, is how we should understand the provisions of section 297(2)(j) of the new Act. That clause which authorities recovery under the repealing Act should be understood as speaking of the modes of recovery which are provided by the new Act.

20. The construction suggested to us that that clause means that there should be another certificate under section 222 of the new Act preceded by a notice of demand under section 156, and that recovery becomes possible only when those two steps are taken, suffers, in our opinion, from over-refinement. The acceptance of that construction would produce the consequence that in many cases the provisions of section 297(2)(j) of the new Act would become nugatory by reason of the fact that section 222 speaks of the steps which would be taken against an assessee, who, as defined by the new Act, means a person from whom income-tax or super-tax or any other sum of money is payable under the repealing Act. And so, the suggested interpretation that section 297(2)(j) insists upon a new certificate under section 222 which can be issued only in respect of an assessee who is in default under the new Act, would make the recovery from a person who had become liable to make a payment under the old Act, impossible. We do not think that an interpretation which is productive of such consequence can be sound.

21. We do not accept the contention that if we take the view that the petitioners in the cases before us are persons from whom amounts had already become payable under the repealed Act, that would necessitate the issue of fresh notices of demand to them under section 29 of the old Act, for the effect of the enunciation made by the Supreme Court in Sahu Rajeshwar Nath's case : [1969]72ITR617(SC) . is that the words 'other person liable to pay' occurring in the old Act have reference to a person who at the stage when the notice of demand has to issue has become liable to make the payment under a provision which the old Act incorporates, as explained by the Supreme Court.

22. If the liability to make the payment springs from the provisions of section 46(2) and the proviso to that section, after the stage when the notice of demand had to issue has passed and the certificate under section 46 has been forwarded as a sequel to that notice of demand, it would not be possible for the petitioners to contend that the liability to make the payment which would flow from the certificate would necessitate a notice of demand to individual partners under section 29. That view, it is clear, would make the whole process of recovery interminable and irrational.

23. In the view that we take and in the cases before us in which certificates under section 46 had already been forwarded to the Collector under the old Act, the omission on the part of the legislature to incorporate in section 222 of the new Act provisions corresponding to those of the proviso to section 46(2) of the old Act, ceases to have any materiality.

24. The impact of that feature of section 222 of the new Act on recovery of amounts which become payable only under that Act has to be judged in a proper case in which that question arises, and the cases before us do not present that perplexity.

25. It is a familiar rule of construction that in the interpretation of a machinery provision in a taxing statute, we should prefer a construction which promotes its purpose if such construction is on its language reasonable. So we should be slow to accept a construction which impedes the operation of the machinery provisions on merely technical grounds which do not receive support on a proper construction of the machinery provision which clause (j) of section 297(2) of the new Act incorporates.

26. We therefore dismiss these writ petitions.

27. No costs.

28. Petitions dismissed.


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