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Bhikajee Dadabhai and Company Vs. Commissioner of Income Tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberIncome-tax Reference No. 116/5 of 1954-55 and Writ Petition No. 19/5 of 1955
Judge
Reported in[1958]33ITR760(AP)
ActsFinance Act, 1950 - Sections 13(1); Indian Income-Tax Act, 1922 - Sections 66(1), 45 and 46; Hyderabad Income-tax Act - Sections 35(3), 40, 40(1), 40(4), 57 and 58; ;Hyderabad General Clauses Act; General Clauses Act, 1897; Sea Customs Act, 1878; Land Customs Act, 1924; Central Excises Act, 1944; Indian Post Office Act, 1898; ;Administration of Evacuee Property Act, 1950 - Sections 7, 16, 19 and 38; Constitution of India - Article 227
AppellantBhikajee Dadabhai and Company
RespondentCommissioner of Income Tax
Excerpt:
.....income-tax officer had no jurisdiction to levy any penalty and since he has no jurisdiction to levy penalty there could have been no appeal against order. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in sub-section (2) of section 149 of the act, and no other grounds are available to it. the insurer is not allowed to contest the claim of the injured or heirs of the deceased on other..........the income-tax officer had no jurisdiction to levy any penalty and since he has no jurisdiction to levy penalty there could have been no appeal to the appellate assistant commissioner. the appellate assistant commissioner wrongly exercised jurisdiction in hearing the appeal and as such his order is null and void and since it is null and void there could be no appeal to the appellate tribunal and the remedy, if any, is not to be sought before the tribunal but elsewhere.8. with great respect, in our view, there is fallacy in this reasoning. where appeals have been provided, as in the case of the income-tax act, against all matters arising out of the administration of the income-tax act including the levy of penalty, the question as to whether any provision has been repealed or not could.....
Judgment:

J.P. Jaganmohan Reddy, J.

1. This is a reference of the Income-tax Appellate Tribunal at Bombay under section 66(1) of the Indian Income-tax Act referring the following three questions for our opinion, viz., :

'1. Whether on October 31, 1951, the Income-tax Officer, Warangal Circle, had the power to impose a penalty under section 40(1) of the Hyderabad Income-tax Act in respect of the assessment for the year 1357F. ?

2. Whether the assessee had a right of appeal against the order of the Income-tax Officer imposing the penalty ?

3. If the Appellate Assistant Commissioner did not have jurisdiction to hear the appeal, whether the order of the Appellate Assistant Commissioner is a nullity, and therefore, the order of the Income-tax Officer, erroneous though it may be, stands until it is set aside by a competent authority ?'

2. Having regard to the nature of the last question and the order of the Income-tax Appellate Tribunal dated December 17, 1953, under which it was held that section 40 of the Hyderabad Income-tax Act ceased to have effect by virtue of section 13(1) of the Indian Finance Act, the remedy of assessee being elsewhere, the assessee has also filed an application for the issue of a writ of certiorari quashing the order of the Income-tax Officer imposing penalty as being without jurisdiction or for any other appropriate writ.

3. From the statement of the case it appears that the assessee, a registered firm carrying on business in oil at Khammamet, was assessed to income-tax for the Fasli year 1356 (1st October, 1946, to 30th September, 1947) on February 10, 1950, on an income of Rs. 7, 63, 725 which included, according to the Income-tax Officer, the concealed income amounting to Rs. 1, 26, 590. It further appears that on December 22, 1949, the said officer issued a notice to the assessee under section 40(4) of the Hyderabad Income-tax Act, calling upon it to show cause why a penalty should not be imposed. After hearing the assessee, a penalty of Rs. 42, 000 was levied on October 31, 1951, under section 40(1) of the Hyderabad Income-tax Act. The assessee then appealed to the Appellate Assistant Commissioner on October 31, 1951, against the penalty and took the objection that the Income-tax Officer had no jurisdiction to levy the penalty. But this appeal was dismissed, the Appellate Assistant Commissioner merely saying that this contention was not correct. Thereafter, the assessee appealed to the Appellate Tribunal, which held that even if the Hyderabad General Clauses Act would ordinarily apply to a repealed Act, inasmuch as the section, corresponding to section 6 of the Indian General Clauses Act, starts with 'unless a contrary intention appears', the contrary intention was not to keep alive the power of imposing a penalty after April 4, 1950. Having reached this conclusion, it upheld the contention of the Department that the appellate Assistant Commissioner himself did not have jurisdiction to entertain the appeal, because those provisions of law relating to the imposition of penalty were not subsisting. In this view, it observed that the remedy of the assessee lies elsewhere and not by appeal to the Appellate Assistant Commissioner. The Tribunal, therefore, dismissed the appeal also. There is nothing particular in the writ application apart from what has been stated above to which we need make any special reference.

4. We will now deal with the first question, viz., whether on October 31, 1951, the Income-tax Officer, Warangal, had the power to impose penalty under section 40(1) of the Hyderabad Income-tax Act in respect of the assessment for the year 1357F. In order to determine this question we must refer to section 13(1) of the Indian Finance act, 1950 (XXV of 1950), which is as follows :

'If immediately before the 1st day of April, 1950, there is in force in any Part B State other than Jammu and Kashmir or in Manipur, Tripura, or Vindhya Pradesh or in the merged territory of Cooch-Behar any law relating to income-tax or super-tax or tax on profits of business, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income-tax Act, 1922 (XI of 1922), for the year ending on the 31st day of March, 1951, of for any subsequent year, or, as the case may be, the levy, assessment and collection of the tax on profits of business for any chargeable accounting period ending on or before the 31st day of March, 1949.'

5. The question is whether the legislature, by saving the Hyderabad Income-tax Act for the purposes of levy, assessment and collection of income-tax and super-tax, saved the power of levying penalty also under section 40 of the Hyderabad Income-tax Act. The first thing to be noticed under sub-section (1) of section 13 is that the words 'levy, assessment and collection' are used in relation to income-tax and super-tax. Therefore, these words cannot be read except as governing the levy, assessment and collection of income-tax or super-tax and the words 'levy' and 'collection' cannot, as contended, refer also to imposition of penalty and collection thereof. No doubt their Lordships of the Privy Council, in the case of Commissioner of Income-tax v. Khemchand Ramdas have pointed out, that

'one of the peculiarities of most Income-tax Acts is that the word 'assessment' is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the Tax-payer. The Indian Income-tax Act is no exception in this respect....'

6. Again, their Lordships pointed out at page 423 that

'it is essential to bear in mind the method prescribed by the Act for making an assessment to tax, using the word 'assessment' in its comprehensive sense as including the whole procedure for imposing liability upon the taxpayer. The method consists of the following steps. In the first place, the taxable income of the tax-payer has to be computed. In the next place the sum payable by him on the basis of such computation has to be determined. Finally a notice of demand in the prescribed form specifying the sum so payable has to be served upon the taxpayer. The second of these steps involves determination of the two sums namely, the sum payable for income-tax and the sum payable for super-tax. The notice of demand in the prescribed form also provides for the sums payable for income-tax and super-tax being specified separately.'

7. When the Privy Council refers to the whole procedure for imposing liability upon the taxpayer, it must be considered as referring to the liability to pay tax and not to pay penalty. There is a clear distinction, both in the Hyderabad Income-tax Act and the Indian Income-tax Act, between tax and penalty and special provisions have been inserted in these Acts relating to the recovery by this procedure. While sections 57 and 58 of the Hyderabad Income-tax Act, corresponding to sections 45 and 46 of the Indian Income-tax Act, deal with the recovery of tax payable on a notice of demand, section 59, corresponding to section 47, deals specifically with the recovery of penalty imposed under the provisions of sub-section (3) of section 35 or section 40 or sub-section (1) of section 58 of the Hyderabad Income-tax Act. Further, it is not as if the Legislature was not unaware of the provisions relating to penalty, because in sub-section (20 of section 13 of the Finance act itself, while repealing any law corresponding to the laws specified in section 11, viz., (1) the Sea Customs Act, 1878, (2) the Land Customs Act, 1924, (3) the Indian Tariff Act, 1934, (4) the Central Excises and Salt Act, 1944, and (5) the Indian Post Office Act, 1898, which were extended to the whole of India, except for the first four which were not extended to Jammu and Kashmir, saved those repealed provisions so as not to affect (a) the previous operation of the corresponding law, or (b) any penalty, for forfeiture or punishment ordered in respect of an offence committed against any such law, or (c) any investigation, legal proceeding or remedy in respect of such penalty, forfeiture or punishment, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed, as if the Act had not been passed. The Parliament, therefore, was fully aware of the necessity to save provisions relating to penalty where any Act repealed authorised the imposition and collection of such penalty. It is for this reason that when the Hyderabad Income-tax Act, along with the other Part B States Taxation Laws, was repealed, the saving in sub-section (1) of Section 13 did not have the effect of saving the provisions of section 40 of the Hyderabad Income-tax Act or any similar provisions in any other Act repealed thereby. If the Legislature had intended to keep alive the Hyderabad Income-tax Act for all purposes including the levy of penalty with respect to any particular year or years of assessment, it could have said so in clear and unambiguous terms instead of limiting the operation only to 'levy, assessment and collection'. Imposition of penalty is not a necessary concomitant of process of assessment, levy and collection of tax, all of which can be completed without any resort to penal provisions. Penalty, in our view, is not incidental to assessment proceedings, It is independent of it. It, being a penal provision, is only imposed on an assessee for offending any particular provisions of the law which exposes him to punishment.With respect to the second and third question, viz., whether the assessee has a right of appeal against the order of the Income-tax Officer imposing the penalty and whether the Appellate Assistant Commissioner had jurisdiction to entertain an appeal against that order, the process of reasoning of the Income-tax Appellate Tribunal comes to this : namely, that having regard to the fact that section 40 of the Hyderabad Income-tax Act relating to the levy of penalty not having been saved by section 13 of the Finance Act, the Income-tax Officer had no jurisdiction to levy any penalty and since he has no jurisdiction to levy penalty there could have been no appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner wrongly exercised jurisdiction in hearing the appeal and as such his order is null and void and since it is null and void there could be no appeal to the Appellate Tribunal and the remedy, if any, is not to be sought before the Tribunal but elsewhere.

8. With great respect, in our view, there is fallacy in this reasoning. Where appeals have been provided, as in the case of the Income-tax Act, against all matters arising out of the administration of the Income-tax Act including the levy of penalty, the question as to whether any provision has been repealed or not could also be adjudged by the appellate authorities in appeal. In other words, the appellate authority could determine in any case where their jurisdiction has been challenged as to the validity of the contention. In other words, where the question of jurisdiction is raised that question can be determined by each of the authorities and the appellate authority has always a right to determine whether the authority from which appeals lie to it has jurisdiction or or not. If it comes to the conclusion that there is no jurisdiction, then the appellate authority can say so and set aside the order and if it comes to a different conclusion it can confirm the action of the subordinate authority and dismiss the appeal. In other words, where any authority acts without jurisdiction, its decision can be challenged in the same way as it could have been challenged if it had acted within its jurisdiction, i.e., an appeal would lie from such a decision to the authority to which an appeal would have lain if the decision had been within jurisdiction. An appellate authority, therefore, would be an authority of competent jurisdiction is such a case. In Ebrahim Aboobaker and Another v. Custodian General of Evacuee Property, New Delhi, it was contended that no court of a limited jurisdiction can give itself jurisdiction by a wrong decision on a point collateral to the merits of the case upon which the limit of its jurisdiction depends and that the questions involved in the appeal before the respondent were collateral to the merits of the case. Mahajan, J., as he then was, after citing with approval the observations of Lord Esher, M.R., in Reg. v. Income-tax Commissioners, and after referring to section 24 of the Administration of Evacuee Property Act which gave a person aggrieved by an order under section 7, section 16, section 19 or section 38 a right of appeal to the Custodian and the Custodian General observed at page 704 as follows :

'Like all courts of appeal exercising general jurisdiction in civil cases, the respondent has been constituted an appellate court in words of the widest amplitude and the legislature has not limited his jurisdiction by providing that such exercise will depend on the existence of any particular state of facts. Ordinarily, a court of appeal has not only jurisdiction to determine the soundness of the decision of the inferior court as a court of error but by the very nature of things it has also jurisdiction to determine any points raised before it in the nature of preliminary issues by the parties. Such jurisdiction is inherent in its very constitution as a court of appeal. Whether an appeal is competent, whether a party has locus standi to prefer it, whether the appeal in substance is from one or another order............. within the time prescribed, are all matters for the decision of the appellate court, so constituted. Such a tribunal falls within class 2 of the classification of the Master of the Rolls.'

9. In Janardan Reddy v. State of Hyderabad, as well as in Province of Bombay v. Khushaldas S. Advani, there are observations of their Lordships of the Supreme Court in support of the proposition that where the Legislature has vested an authority with jurisdiction including the jurisdiction to determine whether the preliminary state of facts exists, an Appellate Tribunal can correct the authority where it makes a wrong decision whether of facts or of law. Mukherjea, J., as he then was, in Kushaldas S. Advani's case observed that where the Legislature entrusts the authority with a jurisdiction to determine whether the preliminary state of facts exist then 'in such cases even if the authority makes a wrong decision either of facts or of law, it can be corrected by an Appellate Tribunal if there is any but not by a writ certiorari, as every authority if it acts within jurisdiction is competent to decide both rightly or wrongly.' The Appellate Assistant Commissioner as well as the Appellate Tribunal have jurisdiction to decide whether the Income-tax Officer had the power to levy penalty or not.

10. In these circumstances, our answer to question No. 1 is in the negative, viz., that the Income-tax Officer did not have the power to impose a penalty under section 40(1) of the Hyderabad Income-tax Act by virtue of the said provision having been repealed by the Indian Finance Act, 1950. The answer to question No. 2 is in the affirmative and the answer to question No. 3 is in the negative, namely, that the Appellate Assistant Commissioner can entertain the appeal in which the question of the power of the Income-tax Officer to impose a penalty could be challenged and any decision given by him could not be said to be without jurisdiction, and that order of the Income-tax Officer can be set aside by the Appellate Tribunal. While answering the questions referred to us by the Tribunal as aforesaid, we direct the Income-tax Appellate Tribunal at Bombay under article 227 to pass necessary orders to the Income-tax Officer setting aside his order imposing a penalty as a logical consequence of the view it has taken regarding the absence of power in the Income-tax Officer to levy a penalty. We would have also issued a writ of certiorari to the Income-tax Officer quashing his orders if that was necessary; but in the view we have taken the proper course is to pass the above direction under article 227 of the Constitution. In the circumstances of the case, no order as to costs is made.

11. Reference answered accordingly.


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