REGHAVAN J. - The assessee in this reference is an individual doing business in Malabar produce, cloth, etc., in Kozhikode. For the assessment year 1945-46 he submitted a return showing a loss of Rs. 7,960; but the assessment was completed on a total income of Rs. 8,009 on 29th March, 1946. More than seven years after this the Income-tax Officer, getting information that large deposits were made in the name of the assessee in the Abdul Rehman Street branch of the Central Bank of India Ltd., in Bombay, requested the assessee to produce his bank accounts and explain the said deposits. The assessee did not comply with this request and, therefore, the Income-tax Officer on 18th March, 1954, issued a notice under section 34 of the Indian Income-tax Act, which was served on the assessees son on 22nd March, 1954. The Income-tax Officer, considering that said notice was not proper, issued another notice, which was affixed in the business premises of the assessee, as the assessee was said to be in Bombay or in Ceylon. Thereafter the assessee filed a return in pursuance of this notice, on 12th November, 1954, wherein he showed a loss of Rs. 7,960. Prior to the filing of the return the assessee seems to have taken several extensions of time for filing the return. Finally the reassessment was completed under sections 23(3) and 34 of the Income-tax Act on 9th March, 1955, thereby adding a sum of Rs. 61,036 to the income originally assessed.
The assessee appealed to the Appellate Assistant Commissioner, before whom one of the objections taken was that the entire proceedings of reassessment were illegal and void, inasmuch as the assessee did not receive a notice under section 34(1)(a) of the Income-tax Act. The other objections we are not concerned with in this reference. The Appellate Assistant Commissioner held that there was proper service of notice on the assessee under section 34 and, therefore, he dismissed the appeal. On further appeal to the Income-tax Appellate Tribunal, the Tribunal held that there was no proper service of notice under section 34 as, according to the Tribunal, the service by affixture did not constitute proper service. Therefore, the appeal was allowed by the Tribunal, without any finding being recorded on the other questions raised in the appeal. Thereafter the Commissioner of Income-tax applied to the Tribunal for a reference under section 66(1) of the Income-tax Act and the Appellate Tribunal has referred the following question of law to the High Court :
'Whether, on the facts and in the circumstances of the case, the reassessment for the year 1945-46 made on March 9, 1955, was valid ?'
The learned counsel for the department urges before us that the Tribunal has erred in allowing the appeal of the assessee, for, the service of notice in the present case is proper and according to law and, secondly, even if there is any irregularity in the service of the notice, in the circumstances of the case, the assessee has waived the necessity of a notice and submitted his return. The argument, on the other hand, advanced by the learned advocate of the assessee is that the notice under section 34 is a condition precedent to the assumption of jurisdiction by the Income-tax Officer and if the notice is invalid by reason of its service being improper, then the whole assessment is illegal and void.
Our attention has been drawn to several decisions of some of the High Courts in India and one decision of the Federal Court, but we consider it necessary to refer to only two or three of them. The decisions of the Federal Court in Chatturam v. Commissioner of Income-tax. In that case Kania J., delivering the judgment of the court, discussed the effect of the notices under section 22(1) and (2) of the Income-tax Act and observed at page 307 :
'The income-tax assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make the assessment or of the liability of the assessee to pay the tax. It may be urged that the issue and service of a notice under section 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under section 22(1), or before he receives a notice under section 22(2) of the Income-tax Act, gets a form of return from the Income-tax Officer and submits his return, it will be futile to contend that the Income-tax Officer is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded on sections 3 and 4 of the Income-tax Act, which are the charging sections. Section 22 etc., are the machinery sections to determine the amount of tax.'
The passage extracted above clearly lays down that the jurisdiction of the Income-tax Officer to assess and the liability of the assessee to pay the tax are independent of the notices contemplated under section 22(1) and (2). The passage would also appear to indicate, by its wide terms, that the effect of the notice contemplated under section 34 of the Income-tax Act is also the same. But, on closer scrutiny, it appears to be clear that the decision did not contemplate such a far-reaching consequence to flow from the observation above referred to.
In Commissioner of Agricultural Income-tax v. Sultan Ali Gharami the Calcutta High Court had occasion to consider some of the provisions of the Bengal Agricultural Income-tax Act, the provisions being mutatis mutandis the provisions of the Indian Income-tax Act. Their Lordships of the Calcutta High Court, considering section 38(1) of the Bengal Act, which corresponded to section 34(1) of the Indian Income-tax Act, discussed the aforesaid Federal Court decision in Chatturams case and held that the Federal Court decision did not cover an omission of a step which the statute regarded as a condition precedent to the commencement of proceedings in exercise of jurisdiction. The same view was expressed by the Bombay High Court in Commissioner of Income-tax v. Ramsukh Motilal. Their Lordships observed in that case that the decision of the Federal Court was given in respect of section 22(2) and the said decision must be confined to the incidents of notices under that section. We are also of the same opinion as expressed by the aforesaid bench decisions of the Calcutta and Bombay High Courts. The observations of the Federal Court, according to us, do not apply to notices under section 34 in that wide form as would apply to notices under section 22.
Now we would consider the position of a notice under section 34. The Calcutta High Court in Sultan Ali Gharamis case observed that the notice under section 34 was a condition precedent to the commencement of the proceedings under that section and, therefore, the absence of such a notice could not be brushed aside as inconsequential. Their Lordships then considered whether there was waiver of the illegality in the notice in the case before them and on the facts of the case they came to the conclusion that there was no waiver.
In the other case, we mean, Ramsukh Motilals case, the Bombay High Court held that in the case of section 34 the failure to give notice or a defect in the notice was not a procedural defect, but was a failure to comply with a condition precedent to the assumption of jurisdiction. The learned judges of the Bombay High Court held that, since the notice under section 34 was a condition precedent to the assumption of jurisdiction and the Income-tax Officer could have jurisdiction only provided he complied with the conditions laid down in section 34 and since no consent by the assessee or no waiver on his part could confer jurisdiction upon the Income-tax Officer, the absence of a notice or the defect in a notice was fatal to the assessment.
With all respect to the learned judges of the Bombay High Court, we find it difficult to agree with the view expressed in Ramsukh Motilals case. The position, according to us, is that the jurisdiction of the Income-tax Officer under section 34 does not depend upon the issue of a notice. The notice is not a condition precedent in that sense to the jurisdiction of the officer. But the notice contemplated by section 34 is, we agree, a condition precedent to the exercise of the jurisdiction vested in the Income-tax Officer. The result is that, if the assessee chooses to waive the notice, the assessment by the Income-tax Officer cannot be considered to be invalid, because of lack of jurisdiction. The principle that by consent of parties jurisdiction cannot be conferred on a court having no jurisdiction is not applicable to such a case, since the notice is only a condition precedent to the exercise of the jurisdiction already vested in the Income-tax Officer and, therefore, the assessment will be valid if there is waiver by the assessee of the infirmity in the notice.
This leads us on to the consequential question as to what will amount to waiver. We would make it clear that the mere filing of a return in pursuance of the invalid or improper notice is not sufficient to constitute waiver. There must be a conscious and intentional relinquishment of an existing right known, by the party relinquishing, to exist in his favour, as observed by the Supreme Court in Basheshar Nath v. Commissioner of Income-tax :
'The generally accepted connotation is that to constitute waiver, there must be an intentional relinquishment of a known right or the voluntary relinquishment or abandonment of a known existing legal right, or conduct such as warrants an inference of the relinquishment of a known right or privilege. Waiver differs from estoppel in the sense that it is contractual and is an agreement to release or not to assert a right; estoppel is a rule of evidence.'
Therefore waiver must be a waiver in the aforesaid sense.
The question of waiver is a mixed question of law and fact and there must be a finding regarding that before we could answer the question referred to us. The question as it stands cannot be answered on the facts that have been placed before us. Therefore, we would refer the case back to the Tribunal under section 66(4) of the Income-tax Act and direct the Tribunal to submit an additional statement of facts regarding the question as to whether there was a waiver of the notice by the assessee in the circumstances of the case. The Tribunal will submit the additional statement within three months of the receipt of the records by them.