This is a writ petition under article 226 of the Constitution directed against the notice of demand dated March 17, 1955, and the recovery certificates dated December 24, 1956, and August 25, 1958.
The facts leading up to this petition were these : The petitioner was a partner in the partnership firm carrying on business in the name and style of 'Moona Lall and Sons', the Mall, Kanpur. The petitioner had a 0-4-0 share. There were three other partners. The relevant year is the assessment year 1950-51. For the relevant assessment year the share of profit of the petitioner in the aforesaid firm including interest was computed at Rs. 88,809, vide assessment order dated March 17, 1955, and on the basis of that order the Income-tax Officer computed the tax payable at Rs. 39,364-9-0. He further issued a notice of demand on March 17, 1955, requiring payment on or before the 28th of March, 1955. On the 18th of March, 1955, the petitioners individual return of income was filed before the Income-tax Officer on the basis of which the Income-tax Officer issued a notice under section 23(2) of the Act and fixed the hearing for the same date. On that very day the Income-tax Officer passed an assessment order in the case of the petitioner for the assessment year 1950-51 determining the total income at Rs. 88,809.
According to the petitioner he had no knowledge of the notice of demand having been served on any one on his behalf till the 20th September, 1961, when the file was inspected and it was discovered that the notice of demand was served on one Mr. B Dayal on the 30th of March, 1955. The inspection of the records further showed that a sum of Rs. 1,000 was paid towards the aforesaid amount on the 11th August, 1955. It further appeared that on 8th August, 1956, the Income-tax Officer had imposed a penalty of Rs. 1,900 under section 46(1) of the Act for alleged default in the payment of tax. The firm filed an appeal against the order under section 46(1) of the Act but this was dismissed as incompetent on the ground that the tax due had not been paid. The petitioner, however, had no filed any appeal under section 30 against the assessment order passed on him for the assessment year 1950-51. On the 24th December, 1956, the Income-tax Officer issued a recovery certificate to the Collector, Kanpur, under section 46(2) of the Act for the recovery of a sum of Rs. 40,264-9-0. The Income-tax Officer, Kanpur, in the year 1958, transferred the assessment file to the Income-tax Officer, Dehra Dun - the petitioner having, in the meanwhile, become a lessee of the Central Hotel, Mussorie. Thereupon, on 25th August, 1958, the Income-tax Officer, Dehra Dun, issued a recovery certificate for Rs. 38,927.12 to the Collector, Dehra Dun, in respect of the alleged arrears of demand for the year 1950-51. When this fact came to the knowledge of the petitioner, he moved the Collector, Dehra Dun, by his application dated 8th September, 1958, for a stay of the proceedings and the latter granted him one months time to pay up the dues or to obtain an order of stay. On the 8th November, 1958, the petitioner sent an application to the Commissioner of Income-tax, Lucknow, praying that recovery proceedings be stayed. Having received no reply a reminder was issued on the 8th January, 1959, to the Commissioner of Income-tax, Lucknow. On the 8th January, 1959, the Collector, Kanpur, was also moved to have the proceedings withdrawn from the Collector, Dehra Dun, and to have them consolidated and disposed of at one place. The petitioner again moved the Commissioner of Income-tax, Lucknow, by his letter dated 17th June, 1959 (annexure 'I'). He pointed out that the notice of demand was dated 17th March, 1955, and the recovery proceedings under section 46(7) could only have been taken on or before the 31st of March, 1956, and this not having been done the recovery proceedings initiated by the Income-tax Officer through the Commissioner of Income-tax, Lucknow, were ab initio illegal and without force. The last paragraph was in these words :
'Under the circumstances it is evident that the original demand created by the Income-tax Officer was illegal, there was no service of notice of demand on the applicant and the recovery certificate which was issued much after the prescribed time-limit by the Income-tax Officer is illegal.'
A similar letter was also addressed to the Collector, Kanpur. The petitioner continued to press his objection both before the Commissioner of Income-tax Officer, A Ward, Dehra Dun. In a letter, annexure 'M', dated the 20th September, 1961, to the Income-tax Officer, Dehra Dun, it was pointed out, 'According to the provisions of section 46(7) of the Act no proceedings for recovery could be issued after 31st March, 1956.' The Collector, Dehra Dun, in a letter of the same date, that is, 20th September, 1961, was also informed that no proceedings for recovery could be commenced after the 31st March, 1956. Subsequently, the Collector, Dehra Dun, seems to have transferred the papers back to the Collector, Kanpur, but later on the Naib Tahsildar, Mussorie, again began to press the petitioner to pay the demand by the 30th of October, 1961, unless a stay order was obtained. The petitioner informed the Collector, Dehra Dun, that he was the competent authority not only for granting interim stay but even for adjudicating upon the legality of the recovery certificate sent by the Income-tax Officer and the proceedings thereunder. It was again pointed out in paragraph 5 of annexure 'S' to the, Collector, Dehra Dun, that the proceedings were clearly barred by time provided by section 46(7) of the Act and as such the proceedings were clearly without the authority of law. In these circumstances the present writ petition came to be filed.
The written statement and the counter-affidavit of the opposite party makes no attempt to meet the point of limitation which has been raised in the correspondence set out hereinabove.
It was, however, asserted that the notice of demand and the assessment order were served not on B. Dayal as had been claimed by the petitioner but on one B. Das who had authority to receive notices on behalf of the petitioner and other partners of the firm and as such the demand notice had been validly served on March 30, 1955. The fact that the demand notice was served on the 30th March, 1955, therefore was no longer in controversy so far as the department was concerned. It is no doubt true that the petitioner was asserting that there was no valid service of the notice of demand on him but his case was in the alternative that even if there was valid service the demand notice having been served on the 30th March, 1955, the recovery proceedings instituted on December 24, 1956, were beyond the period of limitation prescribed in section 46(7) of the Act. The recovery proceedings under section 46(7) had to be initiated within one year from the end of the financial year in which the demand notice was served. The end of the financial year in the present case was March 31, 1955, and, therefore, the recovery proceedings in order to be effective and to be within the period of limitation had to be initiated by the 31st March, 1956. Admittedly, in this case the recovery proceedings were only taken on December 24, 1956, and as such prima facie would be barred by the limitation prescribed in section 46(7) of the Act. The subsequent transfer of the proceedings on August 25, 1958, to the Income-tax Officer, Dehra Dun, and the recovery certificate issued on August 25, 1958, to the Collector, Dehra Dun, would, in any case, have been hopelessly beyond the period of limitation.
Mr. Gopal Behari, learned standing counsel for the department, contended that the question of limitation ought to have been raised before the Income-tax Officer, Kanpur, who had issued the first recovery certificate and he having failed to do so, this court ought not to permit him to raise any such plea - a plea which was a mixed question of fact and law - in this court in the exercise of its writ jurisdiction. This contention is without force as the correspondence referred to hereinabove clearly shows that the petitioner time and again had brought the bar of limitation to the notice of the Commissioner of Income-tax, Lucknow, and also the Collectors of Kanpur and Dehra Dun. The plea was undoubtedly raised and as such there is no bar to the plea being taken in these proceedings.
It was next contended that as the petitioner was denying service of the notice of demand on the 30th March, 1955, it did not lie in his mouth to attack the recovery proceedings. According to Mr. Gopal Behari his attack should be limited and confined to the factum and validity of the service of the notice of demand. As already observed the case of the petitioner was in the alternative and accepting the position taken up by the department that there was valid service on on B. Das, a duly authorised agent of the petitioner the petitioner cannot be prevented from challenging the recovery proceedings on the stand taken by the department itself, viz., that the demand notice had been validly served. This contention too of the department, therefore, has not much merit.
For the reasons given above the petition must succeed on the ground of the bar of limitation under section 46(7). Accordingly, the notice of demand dated the 17th March, 1955, and the recovery certificates dated the 24th December, 1956, and the 25th August, 1958, are hereby directed to be quashed. The petitioner is entitled to his costs of this petition. Counsels fee is assessed at Rs. 200.