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Sukhdayal Pahwa Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberM.C.C. No. 35 of 1980
Judge
Reported in[1983]140ITR206(MP)
ActsIncome Tax Act, 1961 - Sections 148, 149, 149(1), 149(2), 150, 150(1) and 151
AppellantSukhdayal Pahwa
RespondentCommissioner of Income-tax
Appellant AdvocateA.K. Chitale, Adv.
Respondent AdvocateR.C. Mukati, Adv.
Excerpt:
.....whether the notice under section 148 of the act was validly issued ? '2. the assessee for the assessment year 1959-60 had filed two returns one in the status of an 'individual' and another in the status of an huf. 5. the assessee appealed against the order of the ito, it was contended before the aac that :1. there was no omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment. ' 12. the case for the assessee is based on the provisions of section 151 which are as follows :151. (1) no notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the board is satisfied on the reasons recorded by the income-tax officer that it is a fit case for the issue of such..........no. 1 is consequential to question no. 2. the central issue for our decision is whether the notice issued under section 148 of the i.t. act for reopening the assessment was invalid due to a non-compliance with the provisions of section 151 thereof.10. section 148 of the act prescribes a condition under which the ito is empowered to assess or reassess income escaping assessment. section 148 enjoins the ito to serve on the assessee notice for assessment, reassessment, etc. then comes section 149 which prescribes the time limit for such a notice. relevant provisions are as under :' 149. (1) no notice under section 148 shall be issued (a) in cases falling under clause (a) of section 147- (i) for the relevant assessment year, if eight years have elapsed from the end of that year,.....
Judgment:

Shukla, J.

1. The Income-tax Appellate Tribunal, Indore Bench, has under Section 256(1) of the I.T. Act, referred the following questions of law for our opinion:

'1. On the facts and circumstances of the case, whether the Tribunal was justified in law in holding that the Income-tax Officer was not under a legal obligation to obtain the sanction of the Central Board of Direct Taxes prior to the issue of notice Under Section 148 of the Income-tax Act ?

2. Whether the provisions of Section 150 of the I.T. Act override the provisions of Section 149 as well as Section 151 of the Act, and in the circumstances, whether the notice Under Section 148 of the Act was validly issued '

2. The assessee for the assessment year 1959-60 had filed two returns one in the status of an ' individual' and another in the status of an HUF. The ITO framed two assessments. The substantive assessment was made in the status of an individual and a protective assessment was made taking the status of the assessee as an HUF. The assessee appealed against the assessment order to the AAC. The AAC by order dated August 31, 1970, held that the income could be assessed in the status of the assessee as an HUF and not as an individual.

3. Consequent to the order passed by the AAC, the ITO reopened the assessment and a notice under Section 148 of the I.T, Act was served on the assessee on October 8, 1971. The ITO obtained the approval of the Commissioner, Bhopal, before issuing the notice. The ITO by his order dated March 31, 1975, observed that :

'In view of the finding of the AAC it became imperative to reopen the assessment of the HUF for the A.Y. 1959-60 under Section 147(a) read with Section 150 of the I.T. Act, 1961.'

4. After reopening the assessment, the ITO computed the income of the assessee at Rs. 36,400 in the status as HUF.

5. The assessee appealed against the order of the ITO, It was contended before the AAC that :

1. There was no omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment.

2. The amount of escapement being less than Rs. 50,000, proceedings under Section 147(a), read with Section 148, could be initiated within a period of eight years, which had expired when the notice was issued.

3. Since notice was issued after eight years, sanction from the Central Board of Direct Taxes ought to have been obtained.

6. The contention on behalf of the Department before the AAC was that since the assessment was reopened to give effect to the directions of the AAC contained in his order dated August 31, 1970, the case was governed by Section 150 of the I.T. Act and the conditions laid down under Section 149 were not attracted.

7. The AAC recorded the following finding :

' The aforesaid facts show that in this case the proceedings Under Section 147(a) were initiated by the ITO to give effect to the directions of the AAC contained in his order No. D-171/69-70, dated 31st August, 1970. Hence, in view of the provisions of Section 150, the provisions of Section 149 for issue of notice Under Section 148 will not apply. However, it is seen that the notice was issued in this case after a lapse of eight years from the end of the assessment year 1959-60. Hence, as laid down in Section 151, the ITO should have obtained the sanction of the Central Board of Direct Taxes before issuing a notice to the assessee. Instead of doing that, he has obtained the sanction of the CIT. Section 150 of the I.T. Act overrides Section 149 but not Section 151. The assessment made by the ITO is, therefore, vitiated and is annulled.'

8. The Department appealed against this order before the Income-tax Appellate Tribunal. The Tribunal addressed itself only to the question whether sanction of the Board in view of Section 151 of the Act was essential before issuance of a notice under Section 148 of the Act or not. Relying on the decision of the Andhra Pradesh High Court in B.A.R. Abdul Rahman Saheb v. ITO : [1975]100ITR541(AP) , the Tribunal held that the ITO was not required to obtain the permission of the Board as laid down under Section 151 of the I.T. Act. According to the Tribunal the reassessment being consequential to the directions of the AAC, the provision applicable will be Section 150 of the Act.

9. At the instance of the assessee, therefore, question mentioned above, have been referred to us for our decision. Question No. 1 is consequential to question No. 2. The central issue for our decision is whether the notice issued under Section 148 of the I.T. Act for reopening the assessment was invalid due to a non-compliance with the provisions of Section 151 thereof.

10. Section 148 of the Act prescribes a condition under which the ITO is empowered to assess or reassess income escaping assessment. Section 148 enjoins the ITO to serve on the assessee notice for assessment, reassessment, etc. Then comes Section 149 which prescribes the time limit for such a notice. Relevant provisions are as under :

' 149. (1) No notice under Section 148 shall be issued

(a) in cases falling under Clause (a) of Section 147-

(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under Sub-clause (ii) ;

(ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year ;

(b) in cases falling under Clause (b) of Section 147, at anytime after the expiry of four years from the end of the relevant assessment year.

(2) The provisions of Sub-section (1) as the issue of notice shall be subject to the provisions of Section 151...'

11. Section 150 provides for cases where the reassessment is in pursuance of an appellate order. Since the decision of the Appellate Tribunal is based on this provision, it will be useful to reproduce it :

'150. (1.) Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision.'

12. The case for the assessee is based on the provisions of Section 151 which are as follows :

'151. (1) No notice shall be issued under Section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.

(2) No notice shall be issued under Section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.'

13. Shri A.K. Chitale, learned counsel for the assessee, argued that since the notice under Section 148 of the Act had been issued after a lapse of eight years without obtaining the sanction of the Board, the same was invalidand the reassessment on such a notice was liable to be quashed. According to him, Section 151 was totally an independent provision, absolute in its terms and not subject to Section 150. He urged that Section 151 had to be read and applied independently without reference to Section 149 or Section 150 of the Act. According to him Section 151 did not refer to Section 149. Similarly, Section 150 makes no reference to Section 151 though it makes a reference to Sections 149 and 148. Thus, according to Shri Chitale, for deciding whether a notice issued under Section 148 of the Act is valid or not, reference should be confined to the provisions of Section 151 only.

14. Relevant provisions of the Act have been reproduced. The arguments have to be examined in the light of the provisions mentioned about and in the light of the finding of the Tribunal that the assessment was reopened and the order for reassessment was passed by the ITO in pursuance of the directions of the AAC, vide his order dated August 31, 1970, in an appeal against the original assessment. Section 149(2) refers to Section 151. Section 151, therefore, cannot be read in isolation or de hors Section 149. Section 149(1) prescribes the time limit for a notice under Section 148. Subsection (2) imposes a further restriction on the ITO so that before issuing a notice, compliance with the conditions laid down under Section 151 is also necessary. If a notice under Section 148 has to be issued within the time limit prescribed under Section 149(1) sanction has to be obtained from the Board or the Commissioner in accordance with Sub-section (1) or (2) of Section 151 of the Act, as the case may be.

15. Section 150(1) of the Act is an exception to the provisions of Section 149 because it starts with a non obstante clause ' notwithstanding anything contained in Section 149 '. Thus, when a notice under Section 148 is issued at any time for the purposes for making an assessment or reassessment in consequence of or to give effect to any finding or direction contained in an appellate order, the provisions of Section 149 as a whole will not be applicable. Sub-section (2) of Section 149, which makes provisions of Sub-section (1) subject to the provisions of Section 151, will also not be applicable in view of the clear language of Section 150(1). In fact, in the instant case, it was not necessary for the ITO to obtain the sanction either of the Commissioner or of the Board under Section 151 of the Act because the case was fully covered by Section 150(1).

16. In Abdul Rahman's case : [1975]100ITR541(AP) , similar objection against the validity of a notice under Section 148 of the Act had been raised by the assessee. Repelling the arguments the court held (headnote) :

'That the effect of Section 150 and Sub-section (3) of Section 153 read with Explanation (2) is that, if any income is deleted from assessment by the order of a higher authority, on the ground that it is not income of that year, steps may be taken under Section 147 to assess it asincome of another year, without any limitation prescribed by Section 149 as regards the issue of the notice under Section 148 or as to the completion of the assessment or reassessment prescribed by Section 153. The Provision in Section 151 of the Act regarding sanction of the Commissioner of Income-tax is also not applicable to such cases. Therefore, the reassessment proceedings in respect of the years 1957-58 and 1958-59 were legal and valid.' (Underlined by us).

17. Shri A.K. Chitale, learned counsel for the assessee, invited our attention to the comments in Kanga and Palkhivala's Law and Practice of Income Tax, Vol. I, p. 916, wherein the learned authors have observed that the view in Abdul Rahmans case : [1975]100ITR541(AP) is incorrect. With respect, we are unable to subscribe to the view expressed by the learned authors in the commentary on Section 151. The authors have not taken into consideration Sub-section (2) of Section 149, which interlinks Section 149 with Section 151 of the Act and, therefore, both the sections are subject to Section 150 of the Act.

18. In the light of the discussion above, we hold that the Tribunal wasjustified in holding that the ITO was riot under a legal obligation to obtainthe sanction of the Board, prior to the issue of notice under Section 148 of theAct. We also hold that the provisions of Section 150 of the I.T. Act overridethe provisions of Sections 149 and 151 of the Act and in the circumstances thenotice under Section 148 of the Act was validly issued. Both the questions areanswered in the affirmative and against the assessee. There will be noorder as to costs.


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