VAIDYA J. - Writ Appeals Nos. 34, 35, 217 and 218 of 1966 arise out of the judgment of our learned brother Jaganmohan Reddy J. (as he then was) in Writ Petitions Nos. 539, 540, 541 and 1540 of 1964 filed by the petitioners for the issuance of a writ of prohibition or any other appropriate writ or order or direction prohibiting the respondent, i.e., Income-tax Officer, 'A' Ward, Nellore, in Writ Petitions Nos. 539, 540 and 1540/64 and the Income-tax Officer, Mica Circle, Nerllore, in Writ Petition No. 541/64 from proceeding with his proposals to reopen the petitioners assessments.
The petitioner in Writ Petition No. 541/64, Raja of Venkatagiri, challenged the notice issued to him in or about March, 1964, for the proposed reopening of assessment from 1950-51 onwards under section 148 of the Indian Income-tax Act, on the ground that the interim payments made by the Government under the Madras Estates Abolition Act, XXVI of 1948, were income and as such they had escaped assessment. Writ Petitions Nos. 539 and 540 of 1964 were filed by Kumara Raja of Venkatagiri, the son of the petition No. 541/64. The former was filed as karta of the Hindu undivided family consisting of himself and his two minor so and the latter as individual. Writ Petition No. 1540 of 1964 is by minor son of the petitioner in Writ Petitions Nos. 539 and 540 of 1964.
In all the aforesaid writ petitions, the petitioners had challenged notice and the proposed reopening of the assessment of the interim payments made by the Government under the Madras Estates Abolition A (hereinafter referred to as the Abolition Act). It was contended on behalf of the petitioners that after the estate was notified and taken over by to the State, the Government deposited in the office of the Estates Abolition Tribunal advance compensation in respect of the shares of each of them. The Government had also deposited interim payments in respect of the above estate for the years commencing from 1950 onwards. The petitions averred that the advance compensation, interim payment, final compensation, etc., are all parts of the claim of compensation provided for under the Abolition Act in respect of the estate which was taken over and they, being in the nature of capital receipts, are not assessable to income-tax respect of the interim payments made to the different landholders, to income-tax department never attempted to levy the tax though such payments have been made for more than a decade. Ultimately in March, 1960 the Income-tax Officer issued a notice under section 148 of the India Income-tax Act, 1961, for the year 1955-56.
In respect of the respective notices the petitioner pointed out that the interim payments were not liable to income-tax as they were part of the compensation payable and as such were not assessable. They relied upon decision of the Madras High Court in Shanmuga Rajeswara Sethupathi Income-tax Officer, Karaikudi, in which the Madras High Court had lay down that the interim payments were not in the nature of income and that the said payments were clearly in addition to the compensation provide for under section 39 of the Abolition Act. The petitioners therefore allege that the Income-tax Officer had no jurisdiction to reopen the assessment already made by misconstruing the provisions of the Abolition Act.
The Income-tax Officer concerned filed counters and it was contended by the learned advocate for the department that Shunmuga Rajeswara Sethupathi v. Income-tax Officer, Karaikudi, had not taken into consideration the provision of the Abolition Act, which, if taken into consideration, would show that the interim payments were income liable to assessment under the Income-tax Act. It was also contended that the decision of the Supreme Court in Raja Rameshwara Rao v. Commissioner of Income-tax should be applied in determining the nature of payments under the provision of the Abolition Act, in which case there would be no difficulty in reaching the conclusion that these interim payments were income liable to assessment under the Income-tax Act.
All these writ petitions were disposed of by a single judgment and it was held that the interim payments were in the nature of revenue amounts payable for the non-payment of compensation on the abolition of the estate on which date ordinarily the landholders would be entitled to it. Originally these writ appeals were posted along with R. C. 35/63 in which the same question had arisen. The learned advocate the appellants herein adopted the argument advanced by the learned counsel for the assessee in R. C. 35/63 and also made certain additional submissions. Later on these writ appeals were separated from R. C. 35/63 as a further question was raised by the learned counsel for the appellants in these writ appeals, to which we will advert in due course. After consideration of the arguments advanced by the learned counsel for the assessee in R. C. 36/63 and the learned counsel for the appellants herein, we pronounced judgment in R. C. 35/63 on 2nd August, 1967. The question referred to us therein was whether, on the facts and circumstances of the case, interim compensation received by the assessee under section 50 of the Abolition Act was of a capital nature and liable to tax. We expressed our opinion that the interim payments received by the assessee under section 50 of the Abolition Act were income receipts. In that opinion we have considered Shanmuga Rajeswara Sethupathi v. Income-tax Officer and dissented from it. We have expressed our full agreement with the judgment under appeal in these writ appeals and have also adopted the reasoning of the learned judge for arriving at the aforesaid conclusion and also the reasons given by him for distinguishing Shanmuga Rajeswara Sethupathi v. Income-tax Officer. In view of our earlier pronouncement, we hold that the interim payments made under section 50 of the Abolition Act are in the nature of income receipts.
After the decision of the writ petitions referred to above, appellants herein filed C. M. P. 1299/67 in W. A. 34/66; C. M. P. 1300/67 in W. A. 35/66 ; C. M. P. 1301/67 in W. A. 217/66 and C. M. P. 1302/67 in W. A. 218/66, seeking permission to raise an additional plea in the following terms :
'the action of the income-tax department seeking to tax the interim payments paid or payable to the petitioner herein is arbitrary and discriminatory and is violative of the rights guaranteed under article 14 of the Constitution.'
In the affidavit filed in support of these petitions, the appellants averred that the decision of the Madras High Court in Shanmuga Rajeswara Sethupathi v. Income-tax Officer, Karaikudi, was sought to be challenged by way of appeal to the Supreme Court of India by the income-tax department and the special leave petitions were filed for the purpose; but the Central Board of Direct Taxes considered the whole matter and directed that the interim payments payable under the Abolition Act have to be treated as capital receipts and further directed by its letter No. 11/32/61/ITJ dated December 3, 1965, that the special leave petitions should be withdrawn. In pursuance of that direction the income-tax department withdrew all proceedings for assessing interim payments. The interim payments paid or payable in respect of the estates of Ramnad, Shivaganga and Bobbili have been treated as capital receipts by the income-tax department and further proceedings to levy income-tax on the said interim payments have been dropped or withdrawn. The appellants contention is that the estates of Ramnad, Shivaganga and Bobbili is situated in Andhra Pradesh and was abolished under the same statuary enactment, i.e., the Abolition Act. Even the estates of Ramnad and Shivaganga though situate in Madras State are similarly situate as Venkatagiri. According to the appellants, there was no distinction with regard to the interim payments payable under the Abolition Act in respect of these estates. He therefore contended that the action of the income-tax department in seeking to levy income-tax on the interim payments payable in respect of Venkatagiri Estate treating the same as revenue receipts amount of invidious and unfair discrimination against the principal landholder and the shares of Venkatagiri Estate. It was not open to the income-tax department to treat the said interim payments as revenue receipts while similar payments in respect of similar estates were held to be capital receipts and not eligible to tax, under the Income-tax Act. The department cannot adopt and apply contradictory principles in respect of payments which are similar and which were paid or payable under the same or similar enactment. It was therefore contended that the action of the income-tax department was arbitrary and discriminatory and was violative of the rights guaranteed under article 14 of the Constitution. It was also contended that the distinction sought to be made by the department between the estates of Ramnad, Shivaganga and Bobbili on the one hand and estate of Venkatagiri on the other, was not based on any reasonable classification nor had any reasonable relation to the object sought to be achieved. The reason why this objection was not raised in the writ petition was that the appellants came to know of the decision of the Central Board of Direct Taxes only after the disposal of the writ petitions referred to herein.
During the pendency of these writ appeals, Raja of Venkatagiri filed W. P. No. 1479/67 regarding the notices to him with respect to the assessment years 1956-57 to 1960-61. Kumara Raja of Venkatagiri for himself and as guardian of his minor son filed Writ Petitions Nos. 1536 and 1537 of 1967 respectively for the period stated above. These writ petitions also raise the same questions as have been raised in the writ appeals referred to above and were also posted along with the writ appeals. In these writ petitions, the Central Board of Direct Taxes had been made respondents-2, whereas in the writ appeals, the appellants filed C. M. P. 6313/67 in W. A. 34/66; C. M. P. 6314/67 in W. A. 35/66; C. M. P. 6315/67 in W. A. 217/66 and C. M. P. 6316/67 in W. A. 218/66 to inplead the Central Board of Direct Taxes as the second respondent. On these C. M. Ps. notice was ordered on 24th July, 1967, and the Central Board of Direct Taxes had filed a common counter affidavit sworn by its secretary.
The second respondent (Central Board of Direct Taxes) has stated that it was if the view that interim payments due and payable to the landholders residing in the State of Madras to whom the Abolition Act of 1948 applied, were of capital nature and not taxable and it was therefore decided to withdraw appeals filed against the judgment of the Madras High Court in the case of Raja of Ramnad and Raja of Shivaganga. This decision was arrived at by the second respondent on a consideration of the relevant provisions of the Abolition Act as in force in the State of Madras with particular reference to section 3(e) of said Act which was amended in the year 1956 with retrospective effect. The counter affidavit further avers that the second respondent is of the view that the interim payments due and payable to the landholders in the Andhra Pradesh area to whom the provisions of the Andhra Act are applicable are of income nature and that there is a difference between the provisions of the Madras Act and the Andhra Act. If the income-tax authorities on a mistaken impression of the view of the board have erroneously accorded the same treatment of the amounts received by the Raja of Bobbili, it is not correct. They further averred that, in any event, any wrong or erroneous view taken or opinion expressed either by the Central Board of Direct Taxes or by the Commissioner of Income-tax, Madras, relating to any other case, will not in any way disentitle the first respondent from assessing the interim payments in accordance with law. The view expressed by the Central Board of Direct Taxes to the Commissioner of Income-tax, Madras, is not binding on the Commissioner of Income-tax, Andhra Pradesh, and the 1st respondent. The counter affidavit also refers to the judgment delivered by our learned brother Jaganmohan Reddy J. 1 (as he then was) and also to our opinion rendered in R. C. 35/63. It was, therefore, submitted that there was no discrimination nor the provisions of article 14 of the Constitution were attracted. A further plea was also taken that the classification is reasonable. It was also submitted that the Income-tax Officer who is the statutory authority has the right to come to the conclusion whether a particular receipt is income or not. The notices issued by the Income-tax Officer in W. Ps. 539, 540, 541 and 1540 of 1961 were issued long before a decision was taken in the Madras cases and it therefore cannot be contended that the proceedings relating to assessment of interim payments covered by those notices were not maintainable merely because a decision was subsequently taken that those amounts were capital receipts. It was also subsequently taken that those amounts were capital receipts. It was also contended that the 2nd respondent was not a necessary or proper party to the writ appeals and no relief has been sought for against the second respondent.
In Writ Appeals 34, 35, 217 and 218/66 we have, on view of our earlier pronouncement in R. C. 35/63 held that the interim payments under section 50 of the Abolition Act are in the nature of income receipts. W. Ps. 1479, 1536 and 1537 of 1967, inter alia, raise the same question on the same grounds as urged in the earlier writ petitions. We therefore hold in those writ petitions also that the interim payments are in the nature of income receipts.
The point that now remains to be considered is whether article 14 is applicable and the appellants and the petitioners can get any relief under that article. We have already given the contention raised by the appellants and the petitioners and also by the Central Board of Direct Taxes. The argument of the learned counsel for the appellants and the petitioners is that by virtue of section 119 of the Income-tax Act, 1961, which corresponds to section 5(8) of the Income-tax Act of 1922, enjoins upon all officers and persons employed in the execution of this Act to observe and follow the orders, instructions and directions of the Board. The contention is that the letter of the Central Board of Direct Taxes dated December 3, 1965, addressed to the Commissioner of Income-tax, Madras, though styled as a letter, is in the nature of general instructions issued by the second respondent. In support of his argument he relied upon the opening sentence of paragraph 2 of that letter which we now read :
'On reconsideration of the matter, the board has decided that all the payments of this kind interim or final have to be treated as capital receipts and it is not necessary to deal with the appeals in these cases before the Supreme Court.'
He develops his argument thus : the decision of the board, that all payments of this kind, i.e., payments referred to in the case of Raja of Ramnad and Raja of Shivaganga, whether interim or final, have to be treated as capital receipts, is of general nature and cannot be confined only to the special leave petitions that were then pending before the Supreme Court and which the Commissioner of Income-tax, Madras, was directed to withdraw. On the contrary, the contention of the learned counsel for the respondents is that this letter will have to be read in the context in which it was issued. The context is clear from the subject set out in the letter, i.e., special leave petitions in the Supreme Court - Raja of Ramnad and Raja of Shivaganga. Further in paragraph 2, it is clearly stated that the special leave petitions in the Supreme Court in the case of Raja of Ramnad and Raja of Shivaganga are therefore to be withdrawn. The latter therefore means that the decision as to the payments of the kind mentioned in the special leave petitions in relation to the case of Raja of Ramnad and Raja of Shivaganga were capital receipts. There was no general decision by the second respondent as to the nature of interim payments made under section 50 of the Abolition Act. That being so, the direction issued by the second respondent should be confined to special leave petitions that were pending before the Supreme Court and cannot be given a general application. According to him, that was clearly the intention of the Central Board of Direct Taxes in issuing the letter as is clear from paragraph 4 of the counter affidavit in which they say that in case departmental authorities on a mistaken impression of the view of the Board have erroneously accorded the same treatment of the amount received by the Raja of Bobbili, it is not correct. We are inclined to agree with the learned counsel for the department that the letter in question was not in the nature of direction issued to the income-tax authorities in general who are dealing or who would deal with cases arising out of interim payments made under section 50 of the Abolition Act. The letter was not in the form of a circular addressed to all the income-tax authorities nor copies were marked to the various Commissioner of Income-tax. That also shows that it was intended by the second respondent that the letter should be confined only to the cases of Raja of Ramnad and Rajah of Shivaganga. Even assuming that the letter was intended not to cover the case of Raja of Ramnad and the Raja of Shivaganga only, at the most, it may be interpreted to cover the cases of persons receiving interim payments under section 50 of the Abolition Act as in force in the State of Madras. But we do not want to rest out judgment on this view of the letter.
It is now well settled that the assessment proceedings before the Income-tax Officer are quasi judicial in nature and while making assessments the Income-tax Officer has solely to be guided by the provisions of law. He cannot avail of any instruction or direction given by his higher authorities including the Central Board of Direct Taxes for making a particular assessment. While passing assessment order he is only bound by what has been decided by the appellate authorities mentioned in the Income-tax Act and the opinion expressed by the High Court or the Supreme Court. It is also now well settled that, as far as the income-tax is concerned, the principle of res judicata is not applicable and the Income-tax Officer is not bound by the decision rendered by him in an earlier order in regard to the same assessee. When these principles are kept in view, it becomes clear that the order, instructions or directions that can be issued under section 119(1) are administrative directions which cannot in any manner fetter the discretion of the Income-tax Officer in making the assessment. This becomes more clear from the proviso to sub-section (1) of section 119 which says that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate function. The Appellate Assistant Commissioners functions are not executive. They are only judicial and this proviso has been enacted to make it clear that the orders, instructions or directions of the Board will not interfere with the judicial or quasi-judicial functions.
The question as to the nature of orders, instructions or directions issued by the Central Board of Direct Taxes came fore consideration in S. B. Adityan v. First Income-tax Officer, Madras 1. This was a case where the trustees of a trust created by the proprietor of a Tamil newspaper claimed that the entire income derived from that trust and which according to them was applied only for the purposes of the trust, was exempt from being assessed to income-tax under section 4(3) (i) of the Indian Income-tax Act. The Income-tax Officer issued notice to the petitioners under section 34 of 1922 Act for assessment of the income of the trust. The petitioners filed returns but pressed the Income-tax Officer to decide whether the trust was trust of such a description as would be entitled to exemption of its income under section 4(3) (i) of 1922 Act. Ultimately, the Central Board of Revenue communicated to the Commissioner its opinion that the trust was not entitled to claim exemption. The Income-tax Officer thereafter refused the claim for exemption basing his decision on the opinion of the Central Board of Revenue. The petitioners thereupon applied to the High Court for a writ of certiorari to quash the Income-tax Officers orders and writ of prohibition to restrain the Income-tax Officer from proceeding with the assessment. Jagadisan and Srinivasan JJ. of the Madras High Court observed at page 460 :
'Gentral Board of Revenue which is constituted by the Central Board of Revenue Act, 1924 (IV of 1924), is at the apex of the hierarchy of the executive authority constituted under the Indian Income-tax Act. It had got powers of superintendence and control over the whole of the department. It has got powers to make rules and to issue orders, instructions and direction to all officers and persons employed in the execution of this Act..... Whether may be the true position of the Board as the topmost administrative authority, it cannot, in our opinion, tell the assessing authority, the Income-tax Officer, what to do and what not to do in regard to a particular assessment. It would not follow from section 5, sub-section (8), that except the Appellate Assistant Commissioner the other authorities would be subject to the control of the Board in the matter of any assessment. The Board with all the plenitude of its powers cannot direct any Income-tax Officer to tax A or not to tax B. Such a power if assumed to exist in the Board would be calculated to deprive the assessing officer of his statutory function and would be against the grain of judicial powers which the officer bound by the Boards orders, but the Income-tax Officer is so bound, does it mean that the appellate authority can sit in judgment over the Boards decisions which the Income-tax Officer gave effect to Surely that cannot be the correct position.'
We are in respectful agreement with the aforesaid observations and in our opinion that decision is a complete answer to the contentions advanced by the learned counsel for the appellants and the petitioners. When it is conceded that the Income-tax Officer has to act judicially in the assessment proceedings, any order by his superior authority which is not the appellate authority or revisional authority, will not be binding on him.
The learned counsel for the appellants tried to distinguish this case stating that there the question was whether the orders, directions or instructions issued by the Board in an individual case, could bind the Income-tax Officer. In that case, there was no general instruction issued by the Board and if the Madras High Court were to consider such general instructions, they might have come to a different decision. He relies upon K. A. Meera Sahib Tharaganar, In re, where a Division Bench of the Madras High Court consisting of Rajamannar C.J. and Venkatarama Ayyar J. held that section 5(8) does not contemplate orders, instructions and directions from the Central Revenue Board to the assessing authority in any particular case. According to them, what was contemplated was the issue of general orders, instructions and directions to guide the subordinate officers in the execution of the duties laid to them by the several provisions of the Act. They also observed that the issue of directions by the Central Board of Revenue which was a chief income-tax authority under the Act was not in the nature of outside or executive pressure or interference. In that case, the learned judges were considering the question whether section 5(8) of 1922 Act violated the principle enunciated in article 14 of the Constitution inasmuch as it affected the independence and impartiality of the assessing officer. Their Lordships held that there was nothing in that section which was inconsistent with the right guaranteed under article 14 of the Constitution. In our opinion, this decision of the Madras High Court does not held the appellants. It does not in any manner lay down that such orders, instruction or directions issued by the Board in regard to the assessment, even though of general nature, would be binding on the Income-tax Officer and that it was necessary for the Income-tax Officer to pass an assessment order in terms of those orders, instructions or directions.
It is well settled as already indicated, that the doctrine of res judicata or estoppel by record does not apply to the decision of the assessing officer since it is not a court. The department may depart from its existing practice and change its opinion; for example, regarding the taxability of certain classes of income (Pethaperumal Chettiar v. Commissioner of Income-tax) and may raise inconsistent contentions in successive cases of different assessee (Commissioner of Income-tax v. Muthu Karuppan Chettiar).
In Mr. Justice Iqbal Ahmed, In re the Allahabad High Court has held that the Commissioner of Income-tax had no option but to obey departmental orders of the Central Board of Revenue; but it could not possibly be said that his discretion could be 'legally' controlled by the Central Board of Revenue inasmuch as the discretion is vested in him by statute and there is no statutory control of such discretion. The departmental rule can in no way affect a legal claim.
In the writ appeals, the appellants prayed that the High Court would be pleased to issued a writ of prohibition or any other appropriate writ or order or direction prohibiting the respondent therein from proceeding with his proposals to reopen the appellants assessments; whereas in Writ Petitions Nos. 1479, 1536 and 1537 of 1967, the petitioners have prayed for a writ of mandamus or any other appropriate writ, order or direction under article 226 of the Constitution of India directing the respondent therein to forbear from proceeding with the proposal to reopen or to calculate and assess the interim payments received by the petitioners. As far as the question of issuance of writ of prohibition is concerned, it has not been shown that the Income-tax Officer has no jurisdiction to issue the notices under section 34 of the 1922 Act. That being so, the appellants cannot ask for a writ of prohibition. For the purpose of issuing a writ of mandamus, it has to be shown that there is a legal duty cast on the Income-tax Officer to act in a particular manner. The argument was that the Income-tax Officer is legally bound to act in accordance with the directions issued by the Board by the letter dated December 3, 1965, addressed to the Commissioner of Income-tax, Madras. In our opinion, there is no legal duty cast upon the Income-tax Officer to act in accordance with the letter because the directions of the Board in regard to the assessment are not binding on the Income-tax Officer as the assessment proceedings are quasi-judicial. In fact, if the Income-tax Officer were to act according to the directions given by the Board and if that act were to be contrary to the interest of the assessee, the assessee could always challenge it in a writ petition on the ground that the Income-tax Officer was not competent to act in that manner. That was what was done in S. B. Adityan v. First Income-tax Officer, Madras. Merely because the Boards instructions are in favour of the assessee in this particular case, the order that may be given by the Income-tax Officer in pursuance of those directions would not cease to be valid as not being in accordance with the provisions of the statute. The statute lays down that the Income-tax Officer has to make his own order and any assessment order passed by the Income-tax Officer in pursuance of the orders, instructions or directions of the Board will not be his own and therefore liable to be quenched. The question therefore of issuing any writ of mandamus to the Income-tax Officer does not arise. As far as the Board is concerned, it is stated by the Secretary of the Board in his counter affidavit that the Board has taken a different view in regard to the estates situate in the State of Andhra Pradesh. That being so, no writ of mandamus can also be issued to the Board as it is competent to change its instructions especially when it thinks that the change in instructions is in accordance with the law in force.
The contention of the learned counsel for the appellants and the petitioners under article 14 of the Constitution, has in our opinion, no substances. The writ appeals and the writ petitions are dismissed with costs. Advocates fee Rs. 50 in each and each petition.