The petitioner challenges the validity of proceedings for recovery of income-tax.
The petitioner is an individual. He constituted a Hindu undivided family with his sons. The Hindu undivided family was assessed to income-tax for the year 1944-45 on February 29, 1945. Subsequently, proceedings under section 34 of the Income-tax Act, 1922, were taken against the Hindu undivided family and it was reassessed on March 23, 1949, by an order determining the total income at Rs. 71,731. This assessment was set aside by the Income-tax Appellate Tribunal. Fresh proceedings under section 34 were taken resulting in an assessment order dated March 18, 1954. Against the two reassessments under section 34, the Hindu undivided family proceeded in appeal to the Appellate Assistant Commissioner and then to the Income-tax Appellate Tribunal, but its appeals were dismissed. A reference under section 66(1) of the Act was answered by this court against the Hindu undivided family, and now an appeal by special leave under article 136 of the Constitution is pending before the Supreme Court. Certain other questions of law have not been referred by the Appellate Tribunal to this court and the reference is pending. Four notices of demand were serves upon the Hindu undivided family by the Income-tax Officer pursuant to the assessments made upon it, one dated February 21, 1945, in respect of the reassessment under section 34, which was subsequently set aside by the Appellate Tribunal, the third dated October 16, 1952, in respect of the first subsisting reassessment under section 34 dated October 16, 1952, and the fourth dated March 18, 1954, in respect of the further reassessment under section 34. Now although the assessment order dated March 23, 1949, had been set aside in appeal by the Appellate Tribunal, the Income-tax Officer issued a certificate under section 46(2) subsequently, for recovery of the tax demanded consequent to the order. He also issued a recovery certificate to further reassessment under section 34 made on March 18, 1954. So far as this demand is concerned, it has not been disturbed in appeal.
Now followed a series of assessments where the income originally determined was reduced in appeal.
For the assessment year 1948-49, the Hindu undivided family was assessed to income at Rs. 2,11,586 and a notice of demand was issued on March 30, 1953, requiring payment of Rs. 1,41,684-2 0 as tax. A recovery certificate was issued on March 28, 1954. An appeal to the Appellate Assistant Commissioner and then to the Appellate Tribunal subsequently resulted in the reduction of the tax liability by a substantial figure. The Income-tax Officer did not issue any fresh notice of demand.
For the assessment year 1949-50, the Hindu undivided family was assessed to a total income of Rs. 1,06,720 giving rise to a tax liability of Rs. 42,362-14-0. On March 24, 1955, a certificate was issued for recovery of that sum. But on March 31, 1959, the Appellate Assistant Commissioner reduced the income assessed for that year. No fresh notice of demand was, however, issued by the Income-tax Officer.
For the assessment year 1950-51, an assessment order was made determining the total income at Rs. 1,13,618 and the tax liability was computed at Rs. 47,460-14-0. A recovery certificate in respect of the same was issued on March 28, 1956. Against this assessment, the petitioner appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner deleted a sum of Rs. 14,655 under the head 'interest' but added a sum of Rs. 14,500 as income represented by cash credits. As the deletion almost balanced the addition, the Appellate Assistant Commissioner did not enhance the assessed income and the original figure remained. The Hindu undivided family preferred a second appeal to the Appellate Tribunal, which resulted in the reduction of the assessed income by Rs. 5,880 by an order dated October 24, 1960. No fresh notice of demand was issued by the Income-tax Officer.
Then, for the assessment year 1951-52, the total income of the Hindu undivided family was determined at Rs. 1,04,407 and a notice of demand for Rs. 45,121-13-0 was issued. On January 21, 1957, the Income-tax Officer issued a certificate for the recovery of that sum. Meanwhile, the Hindu undivided family proceeded in appeal, and the Appellate Assistant Commissioner reduced the assessed income by Rs. 38,402 on March 31, 1959; again no fresh notice of demand was issued by the Income-tax Officer.
For the assessment year 1952-53 the Hindu undivided family was assessed upon a total income of Rs. 42,798 and to income-tax in the sum of Rs. 11,665-6-0, and on March 25, 1958, the Income-tax Officer issued a certificate for recovery of that sum, An appeal to the Appellate Assistant Commissioner resulted in the reduction of the assessed income by Rs. 8,141. No fresh notice of demand was issued by the Income-tax Officer.
There were, therefore, recovery proceedings pending for the assessment years 1944-45 and 1948-49 to 1952-53. These related to assessments made upon the Hindu undivided family and consequent notices of demand against that family. Baladin Ram Kalwar was the karta of the family.
The petition has been filed by Baladin Ram, the karta, in his individual status. That is apparent from paragraphs 1 to 3 and 44 to 47 of the petition.
The recovery certificates were issued not against the Hindu undivided family but against the petitioner. That the notices of demand were issued against the Hindu undivided family and the recovery certificates were issued against the petitioner is apparent from several annexures to the petition. In the notices of demand the status of the assessee is clearly shown as 'H. U. F.', while the recovery certificates mention that the tax is due from Sri Baladin Ram c/o K. I. Foundry. Kashi Iron Foundry is a partnership firm of which the petitioner was a minor receiving a share of the profits on behalf of the Hindu undivided family. On partition, in October, 1952, the share in the firm fell to the petitioners lot and he became sole owner of it. That is not denied. The recovery certificates described Baladin Ram as of M/s. Kashi Iron Foundry, while the notices of demand nowhere refer to the Hindu undivided family by that description. Paragraph 44 of the counter-affidavit of the Income-tax Officer avers that the notices of demand were issued in the name of the petitioner as karta of the Hindu undivided family and that the recovery certificates were issued in the same name in which the assessments were made. That does not help the respondents at all. In assessments made against a Hindu undivided family, the name of the karta is employed for the purpose of description of the family in the assessment order and the related notices of demand.
A recovery certificate against the family would also carry the same description. But here it seems clear that the recovery was not pursued against the Hindu undivided family but was taken against the petitioner in his individual capacity. There was no occasion otherwise for altering the mode of reference to the Hindu undivided family. It has not been specifically averred in the counter-affidavit that the recovery certificates were directed against the Hindu undivided family. The officer shearing the counter-affidavit has merely stated that they were issued in the same name in which the assessments were made. As I have shown, the name would be the same whether the proceeding was taken against the Hindu undivided family through its karta or against the karta in respect of his individual assessment. Consequently, in my opinion, the recovery proceedings are without jurisdiction. That disposes of the first contention of the petitioner.
The second contention is that the Income-tax Officer was bound to issue a fresh notice of demand whenever the assessed income was reduced by a superior authority and no recovery proceedings could be continued pursuant to the original notice of demand. Now it is clear that the recovering authority acquires his jurisdiction from the recovery certificate issued by the Income-tax Officer. The recovery certificate proceeds upon the assumption that there is a subsisting demand against the assessee which has not been satisfied. The demand is that made by the notice of demand consequent upon the assessment. When an assessment order is quashed in appeal, the notice of demand falls with it and consequently there is no subsisting demand against the assessee. It, therefore, becomes necessary for the Income-tax Officer to issue a fresh notice of demand giving effect to the tax liability now computed pursuant to the appellate order. This is the law laid down by the Supreme Court in Income-tax Officer v. Seghu Buchiah Setty. Consequently, as the law stood then, the recovery proceedings against the assessee could not have been continued. But, apparently because of the decision of the Supreme Court, Parliament enacted the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act. The Act provides for the continuation and validation of proceedings in relation to Government dues, and declares by section 3 that where the Government dues are reduced upon appeal or other proceedings, it will not be necessary for the taxing authority to serve a fresh notice of demand upon the assessee, and section 5 declares that the provisions of the Act shall apply and shall always be deemed to apply in relation to every notice of demand served upon an assessee by a taxing authority under the Income-tax Act, 1922, whether such notice was served before or after the commencement of the Act. Therefore, in my judgment, it is not open to the petitioner to challenge the validity of the recovery proceedings on the ground that a fresh notice of demand should have been served after the reduction of the tax liability in respect of the several assessment years. Section 5 gives retrospective effect to the provisions of the Act and it must be deemed that when the notices of demand were issued on the making of the various assessment orders, section 3 was enforced thereby rendering unnecessary the service of a fresh notice of demand upon reduction of the tax liability. Learned counsel for the petitioner contends that the Act does not declare that the original notice of demand shall continue to subsist. The entire object of the Act was to keep the notice of demand alive, because it plainly says that proceedings initiated on the basis of such notice may be continued in relation to the amount so reduced. The language employed in the Act is reasonably capable of leading to the conclusion that the original notice of demand continues in force. Reference is then made to the provisions in section 3 requiring the taxing authority to give intimation to the assessee of the fact of the reduction in the tax liability, and it is urged that, as there was bound to be a hiatus between the appellate order and the intimation, the continuity in the recovery proceedings would be broken. There is no force in this contention either. The continuity of the recovery proceedings is maintained because the notice of demand has been kept alive by the statute. A letter intimating the fact of reduction of the tax liability to the assessee does not enjoy the status of a notice of demand, and it is not from that letter of intimation that authority and jurisdiction for taking recovery proceedings is derived. That power proceeds by virtue of the original notice of demand which continues to subsist throughout.
The next contention is that no proceedings can be taken to arrest the petitioner for recovery of the tax dues of the Hindu undivided family, even though he be the karta of the family. There is force in this contention. Since the Income-tax Act, 1961, came into force, the recovery proceedings must be referred to section 222 of that Act by virtue of section 297(2)(j) thereof. The Income-tax Act of 1961 as well as the Income-tax Act of 1922 contemplate recovery proceedings against a defaulter. Section 45 of the Act of 1921 declares that an assessee failing to pay the tax demanded within the time mentioned in the notice of demand will be deemed to be in default, and an 'assessee' is defined in section 2(2) as 'a person by whom tax is payable'. Corresponding definitions are to be found in the Act of 1961. The assessee in the instant case is the Hindu undivided family, and if default is committed in the payment of the tax due, it is a default committed by the Hindu undivided family. It cannot be said that the default has been committed by the karta. No doubt the karta is the manager of the family and its member, but when the Income-tax law speakers of the Hindu undivided family as an assessee, it refers to the family as an entity distinct from its members. I am in respectful agreement with the view taken in Kuldip Singh v. Tahsildar, Amritsar, that no coercive proceedings can be taken against a member of a Hindu undivided family for the recovery of tax due against the family. Learned counsel for the respondents has relied upon the decisions in Purshottam Govindji Halai v. Additional Collector, Bombay and Collector of Malabar v. Erimmal Ebrahim Hajee, but those decisions do not lead to the conclusion to which he seeks to persuade me. Even though the recovery proceeding is not punitive in nature, nevertheless it can be directed only against the assessee, and there can be no justification for proceeding against the karta merely because he occupies the position of a manager of the family.
The next contention of learned counsel for the assessee is that, some time after the recovery proceedings were initiated, the Hindu undivided family was allowed to pay the tax due in instalments and, consequently, it is urged, the default occasioned by the failure to pay the tax mentioned in the original notices of demand must be considered to have terminated. It is said that if the Hindu undivided family committed default in payment on the basis of these instalments, fresh recovery certificates should have been issued and then recovery proceedings should have been taken. There is difficulty in coming to a decision upon this point, because the order by which payment by instalments was allowed to the Hindu undivided family is not on the record. It is not possible to ascertain in the absence of that document whether the decision allowing instalments was intended to supersede or modify the original notice of demand or was an informal arrangement intended, while keeping the recovery proceedings in force, to encourage the Hindu undivided family to pay off the tax due. Consequently, I express no opinion upon this contention.
The last submission on behalf of the assessee is that the sale proclamation is invalid because it states that the tax liability in arrears is Rs. 1,19,892.55 while reference has been made only to certificates dated January 23, 1952, and March 20, 1958. It is pointed out that the aggregate of the tax liability covered by the two recovery certificates is merely Rs. 15,228.45. I am unable to accept this contention. The mere omission to refer to the remaining notices of demand cannot vitiate the sale proclamation. It is not stated that the total amount of the tax liability in arrears is not Rs. 1,19,892.55. In any event, the error is one which can easily be corrected by the appropriate authority. It is not a ground upon which the recovery proceedings can be held to be vitiated by an error of jurisdiction or manifest illegality.
It has been urged on behalf of the respondents that the grounds raised by the petitioner in the instant petition can be raised by him in proceedings under the Second Schedule of the Act of 1961, and, therefore, this court should leave him to his remedy under those provisions. It seems to me that the case is one where the infirmity of jurisdiction is plain upon the fact of the proceeding, and calls for interference by this court under article 226 of the Constitution.
Inasmuch as the impugned recovery proceedings relate to a number of assessment years, the petitioner has filed the instant petition (Civil Misc. Writ No. 972 of 1965) and the connected writ petitions. As I have held that the recovery proceedings in question cannot be taken against the petitioner, the petitioner is entitled to succeed in all these petitions.
The petition is allowed. The recovery proceedings against the petitioner are quashed. The petitioner is entitled to his costs.