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Commissioner of Income-tax Vs. Hyderabad Deccan Liquor Syndicate - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 44 of 1969
Judge
Reported in[1974]95ITR130(AP)
ActsHyderabad Income Tax Act, 1357F - Sections 30, 30(2) and 46
AppellantCommissioner of Income-tax
RespondentHyderabad Deccan Liquor Syndicate
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateY.V. Anjaneyulu, Adv.
Excerpt:
direct taxation - assessment - sections 30, 30 (2) and 46 of hyderabad income tax act, 1357f - assessment of association of persons (aop) challenged on grounds of non service of notice - whether rejection of all contentions except challenge of invalidity of assessment on association (aop) justified - under section 3 of act of 1357f income-tax officer (ito) has option either to assess aop or its individual members in respect of income of aop - ito cannot assess both simultaneously - service of notice of assessment on appropriate member/principal officer important - notice for making assessment on aop must be served on its principal officer - no notice under section 30 (2) and section 46 (1) served on principal officer - held, assessment of aop invalid. - - since no return was filed on.....sriramulu, j. 1. the following three questions of law have been referred to this court by the income-tax appellate tribunal, under section 66(2) of the indian income-tax act, 1922 :' (1) whether, on the facts and in the circumstances of the case, the appellate tribunal was right in holding that the assessment on the association was invalid ? (2) whether the tribunal was within its powers to rehear the entire appeal and decide all issues which did not form the subject-matter of the reference before the high court without any direction from the high court? (3) whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the appellate assistant commissioner has the power under law to uphold the ex parte assessment on the basis of an alleged.....
Judgment:

Sriramulu, J.

1. The following three questions of law have been referred to this court by the Income-tax Appellate Tribunal, under Section 66(2) of the Indian Income-tax Act, 1922 :

' (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessment on the association was invalid ?

(2) Whether the Tribunal was within its powers to rehear the entire appeal and decide all issues which did not form the subject-matter of the reference before the High Court without any direction from the High Court?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner has the power under law to uphold the ex parte assessment on the basis of an alleged non-compliance by D. D. Italia when the Income-tax Officer making the ex parte assessment did-not refer to that default at all in the assessment order?'

2. The material facts, so far as they are relevant for answering the above questions, are :

D. D. Italia, a member of the Hyderabad Deccan Liquor Syndicate (hereinafter referred to as ' the Syndicate '), filed return of his individual income for the assessment year 1358 Fasli, which included his share income from the Syndicate of Rs. 77,972. According to him, the Syndicate had earned from its liquor business for the year 1358 F. an income of Rs. 2,07,926. The Income-tax Officer assessed D. D. Italia to income-tax for the assessment year 1358 F. in September 1952. Another member of the Syndicate, by name, Namchand, was also assessed to tax in respect of his share income from the Syndicate for the same year.

3. Since the Syndicate did not file its return of income for the year 1358 F. before the expiry of the assessment year 1358 F. its income chargeable to tax for that year escaped assessment. Bansilal managed the business of the Syndicate, had maintained its accounts and also kept the account books of the Syndicate with him. Notices issued by the Income-tax Officer to Bansilal as representing the Syndicate, under Section 30(2) read with Section 46 of the Hyderabad Act, were returned unserved, on the ground that he had gone on pilgrimage to Benaras. Notice dated August 13, 1951, issued to Bansilal, as representing the Syndicate was affixed on the outer door of Bansilal's house, as he was out of station. On the basis of the report of the inspector submitted to him, the Income-tax Officer, in writing, held that there was a valid service of notice on Bansilal under Section 30(2) read with Section 46(1) of the Hyderabad Act. Since no return was filed on behalf of the Syndicate, best judgment assessment was made on the Syndicate in the status of an 'A.O.P.' (association of persons) on a total income of Rs. 4,43,256.

4. On appeal against the assessment, the assessee, inter alia, contended before the Appellate Assistant Commissioner that since the Syndicate was defunct on the date of assessment, best judgment assessment made on it, without serving notices on all the members of the A.O.P. was bad. It was also contended that no notice was served on Bansilal and the one served on him by affixture was only a ' summons ' under Section 49 for the production of the account books and not a ' notice under Section 30, read with Section 46 of the Hyderabad Act ', requiring him to rile a return. After considering the remand report which was submitted by the Income-tax Officer in pursuance of the remand order, the Appellate Assistant Commissioner held that Bansilal was duly served with a notice under Section 30(2) read with Section 46(1). The Appellate Assistant Commissioner also justified the best judgment assessment made on the Syndicate, on the ground that one of the members of the Syndicate, namely, D. D. Italia, was served with such a notice.

5. The Appellate Assistant Commissioner rejected all the contentions raised by the assessee and confirmed the assessment.

6. In further appeal to the Income-tax Appellate Tribunal the assessee raised four objections. The first objection, was that the assessment made on the A.O.P. was bad in law, as it was made on the A.O.P. which was, admittedly, defunct on the date of the assessment. The Tribunal considered that the first objection raised by the assessee went to the very root of the matter and, therefore, considered only that objection, and did not go into other objections. On the strength of the decision of this court in Raja Reddy Mallaram v. Commissioner of Income-tax, [1960] 39 I.T.R. 636 (A.P.). the Tribunal upheld thecontention of the assessee and set aside the assessment, as no notices were served on all the members of the erstwhile association of persons before making the assessment.

7. At the instance of the Commissioner of Income-tax, the following question of law was referred to this court:

' Whether an assessment can be made on a dissolved association of persons without service of notice on all the erstwhile members of the association ?'

8. That question was answered by this court in favour of the department and against the assessee. The appeal was once again heard by the Tribunal. The Tribunal then considered the other objections raised before it by the assessee and found that what was served on Bansilal by affixture was only a ' summons' and not a 'notice' to file the return of income of the Syndicate. Notices issued in the name of D. D. Italia were served on his employee, Manchusha, and it was not a valid service. D. D. Italia was not the principal officer of the association. Having elected and assessed the individual members of the A.O.P. in respect of their share incomes, the Income-tax Officer could not once again assess the same income in -the hands of the A.O.P. The Tribunal, once again, set aside the assessment.

9. The aforesaid questions have, therefore, been referred to this court under Section 66(2) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax.

10. The first contention raised by the department was that the Income-tax Officer had not the necessary information with him on the basis of which he could be considered to have elected to assess the individual members of the A.O.P. instead of the A.O.P. By assessing the members of the A.O.P. it could not be said that the Income-tax Officer had elected to assess the individual members of the A.O.P. instead of the A.O.P. In support of this submission, the learned standing counsel for the income-tax department, Sri P. Rama Rao, strongly relied upon the decision of the Supreme Court in Income-tax Officer v. Bachu Lal Kapoor, : [1966]60ITR74(SC) ..

11. In order to appreciate the above contention it is necessary to notice the relevant provisions of the Hyderabad Income-tax Act. Section 3 of the Hyderabad Act (section 4 of the Indian Income-tax Act of 1922), which is the charging section, provides that income-tax shall be charged for any year, at the prescribed rates, in respect of the total income of the previous year of: (i) every individual, (ii) Hindu undivided family, (iii) company, (iv) firm or its partners, and (v) association of persons or the individual members of the association.Section 17(3) of the Hyderabad Act (Section 14 of the Indian Income-tax Act of 1922) provides that tax shall not be paid by an assessee if he is a member of an association of persons in respect of any portion of the amount which he is entitled to receive from the association on which tax has already been paid by the association. Section 56 of the Hyderabad Act (section 44 of the Indian Income-tax Act of 1922) provides that if the A.O.P. is dissolved, every person who was, at the time of its dissolution, a member of such association, shall in respect of the income of the association, be jointly and severally liable to assessment and for the amount of tax payable. Provisions of Chapter IV relating to deductions and assessment, apply to the assessment.

12. The decision of the Supreme Court in Income-tax Officer v. Bachu Lal Kapoor will not lend any assistance to the department. That was a case in which the Hindu undivided family was first assessed to tax and then after accepting the claim of partition of the Hindu undivided family the Income-tax Officer made assessments against the members of the Hindu undivided family. Subba Rao J. (as he then was), observed that after the proceedings initiated against the Hindu undivided family under Section 34 culminated in the assessment of the Hindu undivided family, appropriate adjustments had to be made by the Income-tax Officer in respect of the tax realised by the revenue on that part of the income of the family assessed in the hands of the individuals. To do so, was not to reopen the final orders of assessment but, in reality, to arrive at the correct figure of tax payable by the Hindu undivided family.

13. In that very judgment, his Lordship Subba Rao J. (as he then was),pointed out that Section 3 conferred an option on the Income-tax Officer toassess either an A.O.P., or the members of the association, but no suchoption is conferred on the Income-tax Officer to either assess the Hinduundivided family or its members in respect of the income of the family.Therefore, that decision will not lend any assistance to the department'scontention that, after making an assessment on the A.O.P., adjustmentscould be made in respect of taxes paid by the individual members of theA.O.P.

14. In Joti Prasad Agarwal v. Income-tax Officer, [1959] 37 I.T.R. 107 (All.). 23 members of an association of persons), out of 30, were assessed to tax in respect of their share incomes from the A.O.P. The Income-tax Officer then assessed the A.O.P. to tax. The legality of the assessment was challenged. The Allahabad High Court held that once the income of an association was charged to tax in the hands of the individual members and those assessments remained valid assessments, there could be no fresh assessment of the income in the hands of the association. Once an income has been charged to tax in the hands of one of the entities mentioned in Section 3 of the Act, it cannot be charged again in the hands of another of those entities subsequently. Section 3 of the Act, which is the charging section,only talks of charging the income of certain persons, and does not talk of income-tax being charged on persons. This implies that the charge is to be levied on income only once.

15. In Commissioner of Income-tax. v. Murlidhar Jhawar & Puma Ginning and Pressing Facctory, : [1966]60ITR95(SC) , the Supreme Court held that the partners of an unregistered firm might be assessed individually, or they might be assessed collectively in the status of an unregistered firm, but the Income-tax Officer could not seek to assess the one income twice--once in the hands of the partners and again in the hands of the unregistered firm. In giving that decision, the Supreme Court followed the principle laid down by it in Commissioner of Income-tax v. Kanpnr Coal Syndicate, : [1964]53ITR225(SC) . That principle is :

' The Section (Section 3) expressly treats an association of persons and the individual members of an association as two distinct and different assessable entities. On the terms of the section the tax can be levied on either of the said two entities according to the provisions of the Act.'

16. The exercise of the option to assess one or the other of the two entities under Section 3 of the Income-tax Act assumes knowledge on the part of the Income-tax Officer of the existence of two alternatives.

17. In Rajareddy Mallaram v. Commissioner of Income-tax the facts were almost identical with the facts of this case. After serving notice under Section 34 of the Indian Income-tax Act, 1922, on one member of the A.O.P., the Income-tax Officer' made an ex parte assessment on the A.O.P. for the year 1358 Fasli, and tried to recover the tax from another member of the A.O.P., Raja Reddy Mallaram. Raja Reddy Mallaram then challenged the legality of the assessment before this court. This court held that the assessment was bad in law, as the assessment was made on the A.O.P. and not on the members of the A.O.P., at the time of its dissolution, jointly and severally and, therefore, the demand of tax could not be enforced particularly against any member of the A.O.P. on whom notice under Sections 34 and 22(4) was not served. Aggrieved by the decision of this court, the Commissioner of Income-tax filed an appeal to the Supreme Court. The decision of the Supreme Court is now reported in Commissioner of Income-tax v. Raja Reddy Mallaram, [1964) 51 I.T.R. 285 (S.C.).. The Supreme Court reversed the decision of this court. The Supreme Court upheld the validity of the assessment on the A.O.P. and justified the demand of tax from Raja Reddy Mallaram. In corning to such conclusion, Shah J., speaking for the court, observed that :

' Under Chapter IV of the Indian Income-tax Act, 1922, an association of persons may be assessed as a unit of assessment or the individualmembers may be assessed separately in respect of their respective shares of the income. The Act contains no machinery for assessing the income received by an association of persons in the hands of its members collectively. Nor can there be a partial assessment of the income of an association limited to the share of the member who is served with the notice of assessment. Section 44 ensures, by a fiction, the continuity of the personality of the association of persons even after its dissolution for the purpose of assessment, and the procedure for assessment after its dissolution of the pre-dissolution income of an association of persons is the same as that for assessment while it continues to exist. 'A notice under Section 22 or Section 34 to the appropriate person under Section 63(2) is, therefore, sufficient to enable the authority to assess an association of persons after its dissolution ; it is not necessary that all the members should be individually served with the notice of assessment. If notice is properly served on one of them the other members will be bound by the assessment and will be liable for the tax payable thereunder.'

18. It is a rule of interpretation well-settled that, in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate. (See Commissioner of Income-tux v. S. Teja Singh, : [1959]35ITR408(SC) ),

19. It emerges from the aforesaid discussion that, under the charging Section 3 of the Hyderabad Act, the Income-tax Officer has got an option either to assess the A.O.P., or its individual members in respect of the income of the A.O.P. If the Income-tax Officer was in possession of information that an A.O.P. existed, he is bound to make up his mind either to assess the A.O.P., or its individual members in respect of the income of the A.O.P. The Income-tax Officer cannot assess both the A.O.P. and its individual members in respect of the income of the A.O.P. Even after the dissolution of the A.O.P., the assessment has to be made on the A.O.P. as if it continued to exist and, in such a case, the same procedure for assessment which would be applicable to an existing A.O.P. would also be applicable to a dissolved A.O.P. In the case of an assessment on an A.O.P. after its dissolution, in respect of its pre-dissolution income, notices for assessment need not be served on all those persons, who were members of the A.O.P. at the time of its dissolution. It is sufficient to serve the notice of assessment on the appropriate member of the association. It is immaterial whether all the individual members of the A.O.P. are assessed to tax in respect of their share incomes of the A.O.P. or some of them. In either case, the Income-tax Officer will be considered to have elected to assess the individual members of the association, and that would be a bar tothe making of assessment on the A.O.P. once again on the income of the A.O.P.

20. In the case before us, two of the members of the A..O.P., namely, D.D. Italia and Namchand, have been assessed to tax in respect of their share incomes from the A.O.P. for the assessment year 1358 F. Those assessments have remained valid and, we are told, that even taxes have been paid by them. Those individual assessments would, therefore, operate as a bar against the Income-tax Officer making an assessment on an A.O.P. once again in respect of the same income for the year 1358 F. provided the Income-tax Officer knew or had information in his possession that there was in existence an A.O.P. If the Income-tax Officer did not, at the time of making the assessment on individual members, know about the existence of the A.O.P., then it cannot be said that the Income-tax Officer had consciously elected to assess the individual members, and not the A.O.P.

21. In his letter dated April 2, 1951, the Income-tax Officer, City Circle No. III, informed the Income-tax Officer, City Circle No. II, that the Syndicate was carrying on its business within his jurisdiction and had earned an income of Rs. 2,07,926. By that very letter the Income-tax Officer, City Circle No. Ill, requested the Income-tax Officer, City Circle No. II, to take steps to assess the Syndicate and to intimate him the share income earned by his assessee, D. D. Italia. The Incorne-tax Officer, City Circle No. III, also cautioned the Income-tax Officer, City Circle No. II, that if the Syndicate had applied for registration, the question of registration should be carefully considered in the light of the instructions communicated by the Commissioner of Income-tax recently in regard to illegal partnerships. With reference to notice under Section 34 of the Income-tax Act, dated July 27, 1951, D. D. Italia informed the Income-tax Officer, City Circle No. II, that nine persons carried on business in liquor, but that the Syndicate did not exist in 1357 Fasli. Through that letter, D. D. Italia also informed the Income-tax Officer that the account books of the Syndicate were with Bansilal Shivcharan. These letters, in our opinion, amply indicate that the Income-tax Officer, City Circle No. II, who assessed the A.O.P., knew about the existence of a group of persons who carried on liquor business. That the Income-tax Officer was aware of the existence of the Syndicate, i.e., a group of persons carrying on business, is also borne out by what he said in the assessment order itself. This is what he said :

'The assessment of the Syndicate, is still pending. The income admitted by the assessee is provisionally accepted and will be revised in respect of information from the Income-tax Officer, ' B ' Ward, who holds jurisdiction to assess the Syndicate.'

22. It was then incumbent on the Income-tax Officer to make a further probe into the matter in order to find out whether that group of persons was an A.O.P. or a firm, or whether it was granted registration, etc., whether he made such investigation or not, it is abundantly clear that he was aware that there was an association of persons which carried on business within his jurisdiction and earned an income which attracted tax. At that time, the Income-tax Officer should nave been careful enough to exercise the option and to elect to assess either the A.O.P. or the members of the association.1 We are, therefore, satisfied that the assessments on the individual members of the A.O.P. may, at best, be considered to have been made by the Income-tax Officer under an erroneous impression of law, rather than under ignorance of necessary facts. After having made assessments on the individual members of the association in such circumstances, it was not open to the Income-tax Officer, under Section 3 of the Act, to once again make an assessment on the A.O.P. in respect of the same income. We have, therefore, no hesitation in holding that the assessment made on the A.O.P. after making assessments on two of the members of the A.O.P. is bad in law.

23. Although the assessment made on the A.O.P. is liable to be set aside on the ground that the assessments made on the individual members would bar a further assessment. on the A.O.P., we would, however, like to consider the question of validity of the service of notices on the members of the association, as it was argued at great length, and also in view of its importance.

24. At this stage, it is necessary to note that the assessment on the A.O.P. in question is not a regular assessment made under Section 31 of the Hyderabad Act, but an assessment made under Section 46(1) of the Act in respect of the escaped income.

25. Courts have held that the issue of a notice under Section 148 of the Indian Income-tax Act, 1922, is a condition: precedent to the validity of an assessment under Section 147, and if no notice has been issued, or if the notice issued is invalid, or is not served in accordance with law, the assessment would be bad. Any number of authorities we can find in support of this proposition. A long line of authorities in support of the above proposition is given in the foot-notes at page 786 in the VIth edition of Law and Practice of Income-tax by Kanga and Palkhivala, under items 16, 17 and 18. It is sufficient to notice some of the decided cases. In Y. Narayana Chetty v. Income-tax Officer, Nellore, : [1959]35ITR388(SC) ., the Supreme Court has observed that the notice prescribed by Section 34 of the Income-tax Act, for the purpose of initiating reassessment proceedings, is not a mere procedural requirement. The service of the prescribed notice on the assessee is a conditionprecedent to the validity of any reassessment made under Section 34 of the Indian Income-tax Act, 1922. If no notice is issued, or if the notice issued is shown to be invalid, then the proceedings taken by the Income-tax Officer without a notice, or in pursuance of an invalid notice, would be illegal and void.

26. Section 34 of the Indian Income-tax Act, 1922, corresponds to Section 46(1) of the Hyderabad Act.

27. The same view has been taken by the Calcutta High Court in Sewlal Daga v. Commissioner of Income-tax, [1965] 55 I.T.R. 406 (Cal), and by the Mysore High Court in C.N. Nataraj v. Fifth Income-tax Officer, City Circle No. II, Bangalore, [1965] 56 I.T.R. 250 (Mys.)..

28. It was then argued that the service of such a notice cannot be waived as held by the Allahabad High Court in Benarasi Silk Palace v. Commissioner of Income-tax, [1964] 52 I.T R. 220 (All.). Notices under the Income-tax Act have to be served in the same manner as summons under the provisions of the Civil Procedure Code. Section 78 of the Hyderabad Income-tax Act provides that the provisions of the Hyderabad Civil Procedure Code (No. III of 1323-Fasli will apply to the service of such notices, whereas under Section 63 of the Indian Income-tax Act, 1922, the provisions of the Indian Civil Procedure Code (No. V of 1908) will apply to service of notices. Sub-section (1) of Section 63 of the Indian Income-tax Act, 1922, provides that a notice may be served on the person therein named either by registered post or, as if it were a summons issued by a court under the code of Civil Procedure Sub-section (2) of Section 63 provides that, in the case of an A.O.P., notice may be served on the principal officer thereof. The words 'service by registered post ' and ' service on the principal officer' in respect of an A.O.P. which are present in Section 63 of the Indian Income-tax Act, 1922, are absent in Section 78 of the Hyderabad Act. Would that make the procedure prescribed under the Hyderabad Act, for service of notices and summons, different from the procedure prescribed for service of notices under the Indian Income-tax Act, 1922? This aspect of the matter has been considered by this court in the assessee's own case in Commissioner of Income-tax v. Hyderabad Deccan Liquor Syndicate.

29. Considering Section 63 of the Indian Income-tax Act, 1922, and Section 449 of the Hyderabad Civil Procedure Code, which governed the service of notices and summons, this court in Commissioner of Income-tax v. Hyderabad Deccan Liquor Syndicate, [1963] 50 I.T.R. 6, 15 (A.P.) [F.B.]., at page 15, observed thus :

'It is manifest that there is no material difference between thesecond part of Section 63 of the Indian Income-tax Act and the first part of Section 449 of the Hyderabad Civil Procedure Code (III of 1323-F.). Theonly difference between them is that, while section 63(2) includes a jointfamily or an association of persons, Section 449 relates only to firms. Butthat cannot drive us to the Conclusion that this section is inapplicable to service on association of persons. In this behalf, it cannot be overlooked that the Hyderabad Income-tax Act does not contain any other provision in regard to service of summons. We must, therefore, take it that the intention of the legislature was that this would apply equally to association of persons or joint families. So, we may proceed on the assumption that this section comes into operation even in regard to association of persons, '

30. Even otherwise, under Section 29 of the Hyderabad Income-tax Act, the principal officer of an A.O.P. is made liable to file a return of income on behalf of an A.O.P. Section 2(15) of the Hyderabad Income-tax Act defines ' principal officer ' as an agent of the A.O.P. or any person connected with the association who has been served with a notice by the Income-tax Officer of his intention to treat him as the principal officer thereof. Thus, even under the Hyderabad Income-tax Act, notice for making an assessment on an A.O.P. must be served on its principal officer.

31. The assessment order makes it clear that the Income-tax Officer hadconsidered Bansilal as the principal officer of the association of persons.The very fact that the Income-tax Officer had considered the service ofnotice on Bansilal for making the assessment on the A.O.P. shows that hehad recognized Bansilal as the principal officer of the association. Neither D.D. Italia was the agent of the A.O.P. nor was he treated by the Income-tax Officer as the principal officer of the association after service of notice.

32. Valid service of notice under Section 30(2) read with Section 46(1) of the Hyderabad Income-tax Act on Bansilal, who was the principal officer of the A.O.P., was, therefore, a condition precedent for making a valid assessment on the A.O.P.

33. We will consider the question of the necessity of service of a valid notice on Bansilal for making a valid assessment on the A.O.P. from a different angle.

34. Indian Finance Act (No. 25 of 1950) which came into force on April 1, 1950, extended the application of the Indian Income-tax Act of 1922 to the Part B State of Hyderabad and repealed the Hyderabad Act. Section 13 of that Act preserves the operation of the State income-tax law for the purposes of levy, assessment and collection of tax in respect of the income of the previous years, relevant to the assessment years prior to 1951. Obviously, the State income-tax law applied to the income of the previous year ending September 30, 1948, relevant to the assessment year 1358-F., which was earlier to the previous year relevant to the assessment year 1951. To 'levy' a tax means ' to impose or assess' or ' to impose, assess or collect under the authority of law '. It is a unilateral act of superior legislative power to declare the subjects and rates of taxation and toauthorise the collector to proceed to collect the tax. ' Assessment ' is the official determination of liability of a person to pay a particular tax. ' Collection ' is the power to gather in money for taxes, by enforced payment if necessary. The levy of taxes is generally a legislative function, assessment is a quasi-judicial function, and collection, an executive function.

35. In Hazari Mal Kurthiala (A Firm) v. Income-tax Officer, Special Circle, Ambala Cantonment, [1956] 30 I.T.R. 500, 510 (Punj.)., Bhandari C. J. of the Punjab High Court, speaking for the court, observed that:

'These three expressions 'levy', 'assessment' and 'collection' are of the widest significance and embrace in their broad sweep all the proceedings which can possibly be imagined for raising money by the exercise of the power of taxation from the inception to the conclusion of the proceedings.'

36. In A.N. Lakshman Shenoy v. Income-tax Officer, Ernakulam, : [1958]34ITR275(SC) , the Supreme Court approved the meaning given to the words 'levy', 'assessment' and 'collection of tax' by the Punjab High Court in Hazari Mal's case.

37. In S. Chattanatha Karayalar v. Income-tax Officer, Nagercoil, [1960] 38 I.T.R. 325 (Mad.)., the Madras High Court, in similar circumstances, held that the Indian law would apply and not the State law to Travancore.

38. However, we do not find any discussion as to why the learned judges held that the Indian law and not the State law was applicable.

39. Following the decisions of the Punjab High Court and of the Supreme Court, we hold that the service of notice in this case has to be examined with reference to the provisions of the Hyderabad Income-tax Act. Under the provisions of the Hyderabad Income-tax Act, as we have stated above, a valid notice has to be served on the, principal officer before making a valid assessment on an A.O.P.

40. The Tribunal, as a matter of fact, found at page 88 of the printed book, that no service of a notice under Section 46(1) has been made on Bansilal. This is a finding of fact arrived at by the Tribunal after discussing at great length the material which has been brought on record by the income-tax authorities.

41. In a reference under the Income-tax Act, the High Court is not a court of appeal and it is not open to it to embark upon a re-appraisal of the evidence and to arrive at a finding of fact contrary to the Tribunal. It is the duty of the High Court to confine itself to the facts as found by the Tribunal and answer the question of law referred to it in the setting and context of those facts.

42. In Commissioner of Income-tax v. Kamal Singh Rampuria, : [1970]75ITR157(SC) ., the Supreme Court observed that:

'...in a reference the High Court must accept the findings of fact reached by the Appellate Tribunal and it is for the party who applied for a reference to challenge those findings of fact, first, by an application, under Section 66(1). If the party concerned has failed to file an application under Section 66(1) expressly raising the question about the validity of the findings of fact he is not entitled to urge before the High 'Court that the finding was vitiated for any reason. '

43. Since the department has not asked in its application under Section 66(1) or 66(2) to refer to this court a question challenging the correctness of the above finding of fact that no notice under Section 46(1) of the Hyderabad Act was served on Bansilal, it is not open to the department to urge before us that the said finding of fact is either vitiated or defective.

44. We have, therefore, necessarily to agree with the assessee's counsel that no notice under Section 30(2) read with Section 46(1) of the Hyderabad Act was served on the principal officer of the A.O.P. This is the second reason on the basis of which we agree with the Tribunal that the impugned assessment on the A.O. P. is bad in law.

45. Since D.D. Italia Was not the principal officer of the association, nothing turns upon the validity or otherwise of the service of notice on him under Section 46.

46. Although the impugned assessment is invalid for more than one reason, set out in the foregoing paragraphs, we will, however, consider the validity of the service of notices on Bansilal and D.D. Italia.

47. The notice dated August 13, 1951, even assuming for a moment it was a notice under Section 30(2) read with Section 46 of the Hyderabad Act, was affixed on the outer door of Bansilal's house. Earlier notices issued to Bansilal were returned unserved on the ground that he had gone to Benaras on a pilgrimage. Notices issued in the name of D.D. Italia were served on one Manchusha, who was an employee of D.D. Italia.

48. Order V, Rule 12, of the Civil Procedure Code of 1908 (corresponding to Section 90 of the Hyderabad Civil Procedure Code) provides that, whenever it is practicable, service must be made on the person concerned unless he has an agent empowered to accept the service in which case service on such agent shall be sufficient.

49. Order V, Rule 17, of the Civil Procedure Code of 1908 (corresponding to Section 94 of the Hyderabad Civil Procedure Code), provides that, where the person concerned refuses to sign the acknowledgment or where the serving officer, after using all due and reasonable diligence, cannot find him, and there is no agent empowered to accept service of the summons onhis behalf, the serving officer shall affix it on the outer door of the house of the person concerned.

50. The validity of the service of notice effected under both the above Sections came to be considered by the Calcutta High Court in Tripura Modern Bank Ltd. v. Bansen and Company, : AIR1952Cal781 . Sinha J. observed thus :

' What constitutes ' due and reasonable diligence' depends on the facts and circumstances of each case ; but the mere temporary absence of a defendant from his residence or place of business does not justify service by affixation.

The question as to what was 'a reasonable time' must be decided against the background of a particular case, and no hard and fast rule can be laid down. If the person is absent from his residence, then all possible enquiries are to be made to find out as to when he was likely to return or else when he was likely to be found at his residence. The result of such enquiry must be tested against all the known facts about the defendant, his habits, his station in life, his occupation and so forth. There no doubt exist inveterate process dodgers who are bent upon being obstructive. That, however, is no justification for relaxing the requirements of the law. If determined efforts are made, service can be satisfactorily effected in the majority of cases. , In a really difficult case, the Code has provided an adequate remedy.........

In the case of a service by affixation, it is not sufficient to state in the affidavit of service that the process-server was satisfied upon enquiry that the defendant could not be found at his residence within a reasonable time. Facts must be stated in the affidavit to show what enquiries were made and whether it was reasonable under the circumstances to assume that the defendant could not be found at his residence within a reasonable time. The court must be satisfied that the process-server was justified in coming to such a conclusion, and in the absence of particulars it cannot do so.

Reading Order 3, Rule 6, with Order 5, Rule 9, there can be no doubt that the empowering of an agent under Order 5, Rule 9, can only be in the manner indicated in Order 3, Rule 6, and verbal authority is not enough, Rules 16 and 17, coming as they do after Rule 9, do not refer to a different kind of agency than what is referred to in Rule 9. But even if a liberal interpretation is put upon the word 'agent' in these rules, it would not be sufficient to say that a particular person was the agent of the defendant and had authority to accept service, without adducing evidence to show how such a person came to be the agent of the defendant and how such authority was conferred upon him.'

51. We will judge the validity of the affixture of the notice on the outer door of Bansilal's house in the light of the above circumstances. Earliernotices issued in the name of Bansilal were returned unserved on the ground that he had gone to Benaras on a pilgrimage. The serving officer did not make any enquiry as to when he would be returning. There is no evidence on record, on the basis of which we can come to the conclusion that Bansilal was evading service. The serving officer, in our opinion, had not used due and reasonable diligence in serving the notice on Bansilal. We, therefore, unhesitatingly hold that there was no justification for the serving officer to serve the notice on Bansilal by affixture.

52. Manchusha was only an employee of D.D. Italia. A mere servant employed to carry out the orders cannot be considered to be an agent appointed for accenting service of summons. D.D. Italia did not, in writing, appoint Manchusha as his agent to accept service of summons issued to him. The fact that on earlier occasions he had received such notices issued in the name of D.D. Italia will not be sufficient to infer that Manchusha was his 'agent' within the meaning of Order III, Rule 6, of the Civil Procedure Code, duly constituted to accept service of summons issued in the name of D.D. Italia. We, therefore, hold that there was no valid service of notice on D.D. Italia under Section 30(2) read with Section 46(1) of the Hyderabad Act.

53. Even assuming that a procedural irregularity in the service of a notice of reassessment can be waived or ignored, if the assessee has admitted to have received the notice, or on facts it could be found so, still it must be established that D.D. Italia had admitted that he had received the notice. There is no evidence on record to show that D.D. Italia had anywhere admitted to have received the notice issued by the Income-tax Officer under Section 30(2) read with Section 46(1) requiring him to file a return on behalf of the A. O. P.

54. Thus, the assessment on the A. O. P. is bad for two reasons : one is that the Income-tax Officer had assessed to tax the individual members of the A. O. P. in respect of their share incomes from the A. O. P. and in doing so, he had elected to assess the individual members of the association. It was not, thereafter, open to him, in law, to make an assessment on the A. O. P. and the second is that no notice was served on Bansilal, who was the principal officer of the A. O. P., before making an assessment on the A. O. P. and that, in any case, service on him by affixture was bad in law.

55. Service of notice of assessment on D.D. Italia was also bad and, even assuming it was good and valid service, still it would not help the department in getting the assessment upheld by this court, because D.D. Italia was not the principal officer of the association.

56. Section 81 of the Hyderabad Income-tax Act does not also lend anyhelp to the department, Under that section, no assessment could be quashed as void if merely there was a defect in the form of the notice-issued. However, that section does not say that even if the notice is not duly served on the assessee, the assessment would be valid.

57. We, therefore, answer question No. 1 in the affirmative, i.e., the assessment on the A.O.P. was invalid.

58. The Tribunal had decided only one contention raised by the assessee, because it went to the very root of the matter. The Tribunal, however, did not consider the other grounds urged by the assessee. The Tribunal accepted the contention of the assessee that the assessment made on the A.O.P. without serving notices on all the members of the association, was bad. On a reference, the High Court answered that question in favour of the department, holding that the assessment was valid. The matter then came up before the Tribunal once again. The Tribunal was competent to decide the other objections raised by the assessee and which were left undecided on the earlier occasion. For that purpose, the Tribunal does not require any direction or authority of the High Court to dispose of the other grounds of appeal. We, therefore, hold that the Tribunal was justified in disposing of the other contentions raised by the assessee in its appeal. The question No. 2, is, therefore, answered in the affirmative.

59. We will then take up the third contention. In the assessment order, the Income-tax Officer did not consider the question of the validity of service of the notice on D.D. Italia. In the appeal filed before him the Appellate Assistant Commissioner suo motu went into the question and held that there was service of notice on D.D. Italia. The question is whether the Appellate Assistant Commissioner was competent to consider such a ground which was neither raised nor determined by the Income-tax Officer in the assessment order. Considering the powers of the Appellate Assistant Commissioner in disposing of an appeal before him, we are of the opinion that the objection raised by the assessee's counsel is untenable.

60. In Ramgopal Ganpatrai & Sons Ltd. v. Commissioner of Excess Profits Tax, [1953] 24 I.T.R. 362 (Bom.)., the Bombay High Court held that the appellate court may even reverse or modify the order on a point of law taken by itself suo motu without being asked to do so by the appellant. Consequently, under Section 17 of the Excess Profits Tax Act, 1940, the Appellate Assistant Commissioner has jurisdiction to deal with an order of the Excess Profits Tax Officer on any ground of law which applies to the facts on which that order was based.

61. In Commissioner of Income-tax v. Shapoorji Pallonji Mistry, [1962] 44 I.T.R. 391 (S.C.)., theSupreme Court has pointed out that in an appeal filed by an assessee, theAppellate Assistant Commissioner has no power to enhance the assessmentby discovering new sources of income not mentioned in the return of theassessee or considered by the Income-tax Officer in the order appealed against. That does not, however, mean that the Appellate Assistant Commissioner is not competent, or has no power to allow a ground of appeal to be raised by the assessee which was not raised by him before the Income-tax Officer. We, therefore see no substance in this contention. We, therefore, answer question No. (3) also in the affirmative.

62. The reference is answered accordingly. The department shall pay the costs of this reference to the assessee. Advocate's fee Rs. 250.


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