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Commissioner of Income-tax, Gujarat Ii Vs. Nanalal Tribhovandas and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference Nos. 8 and 15 of 1971
Judge
Reported in[1975]100ITR734(Guj)
ActsIncome Tax Act, 1922 - Sections 22(2), 31, 34 and 34(1)
AppellantCommissioner of Income-tax, Gujarat Ii
RespondentNanalal Tribhovandas and anr.
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate A.B. Patwa, Adv.
Cases ReferredP. Subba Rao & Co. v. Appellate Assistant Commissioner of Income
Excerpt:
direct taxation - assessment - section 34 of income tax act, 1922 - whether appellate assistant commissioner competent to entertain assessee's objection regarding invalidity of notices under section 34 - in view of precedent appellate assistant commissioner cannot confer jurisdiction on income-tax officer to decide question on merits when income-tax officer passed order - jurisdiction of income-tax officer to initiate reassessment proceedings under section 34 is jurisdiction which he derives under section 34 and not by virtue of any directions given to him by appellate assistant commissioner. - - after this remand from the tribunal, the appellate assistant commissioner heard the matter again and his order after this remand was passed on september 12, 1959. by his order of september..........by the income-tax officer in reassessment proceedings. by his order dated march 30, 1957, the appellate assistant commissioner annulled the reassessment orders. against this order in appeal, the revenue took the matter in appeal before the income-tax appellate tribunal and by its order dated january 16, 1958, the tribunal set aside the order of the appellate assistant commissioner and restored the appeal to the file of the appellate assistant commissioner. after this remand from the tribunal, the appellate assistant commissioner heard the matter again and his order after this remand was passed on september 12, 1959. by his order of september 12, 1959, the appellate assistant commissioner set aside the orders passed by the income-tax officer in reassessment proceedings on the ground.....
Judgment:

Divan, C.J.

1. Though these two references are separate, identical questions have been referred in these two references by the Tribunal to us and they are interconnected in the sense that the decision in Reference No. 15 of 1971 will depend upon the decision in Reference No. 8 of 1971. We will, therefore, dispose of both these references by this common judgment.

2. The assessee in Income-tax Reference No. 8 of 1971 at the relevant time was a Hindu undivided family of which Tribhovandas Harkishandas was the karta. The relevant assessment years were 1945-46, 1946-47 and 1947-48. The business of the assessee consisted of running oil mills at Kharsalia and Dohad. On February 4, 1948, the Income-tax Officer concerned completed the assessment for the year 1945-46 and he found that the total income of the assessee for that particular assessment year was Rs. 20,100. Assessments for the two years 1946-47 and 1947-48 were made on January 28, 1951. The Income-tax Officer found that for the year 1946-47 there was a loss of Rs. 44,844 and for the assessment year 1947-48 there was an income of Rs. 26,495. In the assessment for one on the subsequent years, that is, for the year 1949-50, on behalf of the assessee-family it was contended that there was a disruption of the assessee-family and there was a partition by metes and bounds on April 11, 1948. It was further contended that after the disruption of the Hindu undivided family, the karta and his three sons who were the only coparceners of the Hindu undivided family prior to the disruption had joined together with effect from April 12, 1948, to form a partnership to conduct the business of the oil mills in partnership and that the business was being carried on in the same name as before, namely, Messrs. Nanalal Tribhovandas. In the course of the assessment proceedings for 1949-50 the Income-tax Officer came into possession of certain information and on the basis of that information he entertained the belief that there was escapement of income for the three years 1945-46, 1946-47 and 1947-48. He, therefore, issued notices under section 34 of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the act')' for all these three years. These notices were sent and issued by the Income-tax Officer for all the three years. They were issued on March 10, 1954, but they were actually served on the assessee on April 1, 1954. According to the terms of the notices the assessee was called upon to file his returns of income for these three years within 35 days but not later than April 15, 1954. Apparently, the date April 15, 1954, was mentioned because the period of 35 days appears to have been counted from March 10, 1954, and not from the date on which the notices were actually served on the assessee. In pursuance of these notices returns of income were filed by the assessee and thereafter reassessments for the years 1945-46 and 1946-47 were made on February 28, 1956, and on March 15, 1956, reassessment for the year 1947-48 was made. At the time of these reassessment proceedings before the Income-tax Officer there was no contention urged regarding the validity of notices under section 34 in the form of which the contention came to be urged subsequently. It may also be pointed out that the returns in pursuance of the notices under section 34 were not filed under protest but were filed in the normal manner. Thereafter, the assessee went in appeal against the orders passed by the Income-tax Officer in reassessment proceedings. By his order dated March 30, 1957, the Appellate Assistant Commissioner annulled the reassessment orders. Against this order in appeal, the revenue took the matter in appeal before the Income-tax Appellate Tribunal and by its order dated January 16, 1958, the Tribunal set aside the order of the Appellate Assistant Commissioner and restored the appeal to the file of the Appellate Assistant Commissioner. After this remand from the Tribunal, the Appellate Assistant Commissioner heard the matter again and his order after this remand was passed on September 12, 1959. By his order of September 12, 1959, the Appellate Assistant Commissioner set aside the orders passed by the Income-tax Officer in reassessment proceedings on the ground that they were bad in law and the Income-tax Officer was directed to make fresh reassessments according to law after giving the assessee reasonable opportunity of meeting the points that the Income-tax Officer may make out in a specific notice under section 23 (3) and after proper examination of the material and data that had been produced and may be produced thereafter. It may be pointed out that one of the contentions urged before the Appellate Assistant Commissioner before he passed the order dated September 12, 1959, was that the notice under section 34 was illegal and invalid inasmuch as the Income-tax Officer had not relevant material before him and had not considered the explanations given by the assessee before he came to issue notices under section 34. It was contended before the Appellate Assistant Commissioner in this connection that the Income-tax Officer had issued a letter on January 11, 1954, in the course of the assessment for the year 1949-50 and in response to that letter the assessee had furnished explanation for each and every item of the acquisition of the different assets by the Hindu undivided family but the Income-tax Officer without considering the said explanations and without giving the appellant any opportunity to substantiate those explanations by proofs, issued notices under section 34 for the three years 1945-46, 1946-47 and 1947-48. It was on this ground that the validity of the notices under section 34 issued by the Income-tax Officer on March 10, 1954, was challanged. In paragraph 24 of his order dated September 12, 1959, the Appellate Assistant Commissioner observed :

'In the instant case, as pointed out above, the Income-tax Officer came into possession of certain material regarding increase of the assets some time in 1953 and the same information led him to a reasonable and honest belief that this was due to the assessee not disclosing fully and truly all material facts at the time of the original assessment. As pointed out by the Income-tax Appellate Tribunal in its order dated January 16, 1958, it was not necessary that the assessee should have been given an opportunity of being heard before initiating action under section 34. In my opinion, the action under section 34 was fully justified and was quite legal and proper on the basis of facts before the Income-tax Officer. The notices under section 34 issued by him were, therefore, perfectly legal and valid. The contention in respect of the legality and the validity of the notices is, therefore, rejected.'

3. When the matter was heard before the Income-tax Officer in pursuance of the order of the Appellate Assistant Commissioner dated September 12, 1959, it was urged on behalf of the assessee that the notices under section 34 of reassessment for the three years issued on March 10, 1954, were invalid because the time given for filing the returns in each one of the three cases fell short of the statutory period of thirty days. The income-tax Officer mentioned that this point along with the other several points which were urged before him at the hearing after the remand by the Appellate Assistant Commissioner were not raised at the time of the original reassessment proceedings. The assessment according to the Income-tax Officer had been set aside by the Appellate Assistant Commissioner on a specific point and hence the assessee could not raise the above contentions at that particular stage before the Income-tax Officer and he held that the assessments in the reassessment proceedings had already become final on those points and hence those points were not considered. He, thereafter proceeded to deal with the matter on merits. Against the decision of the Income-tax Officer the matter was taken in appeal and in that appeal again the contention was urged that the notices under section 34 were invalid inasmuch as the assessee was called upon to file the returns on April 15, 1954, whereas the notices were served upon it on April 1, 1954. The contention before the Appellate Assistant Commissioner in terms was that the notices were ab initio void because the necessary time of 30 days for filing the returns required to be given by the provisions of section 34 read with section 22 (2) was not given. In paragraph 11 of his order dated October 22, 1968, the Appellate Assistant Commissioner held that the notices required the assessee to file his returns within a period which was less than the statutory period of thirty days. He further held that notice of thirty days is a condition precedent to the exercise of jurisdiction by the Income-tax Officer whenever he desires to reopen completed assessments and if this notice is ab initio void, all the subsequent proceedings flowing therefrom will have to be declared void and illegal. He, therefore, held that all the three reassessments for the assessment years 1945-46, 1946-47 and 1947-48 were illegal and void. The revenue, thereafter, took the matter in appeal before the Appellate Tribunal and the Tribunal came to the conclusion that the question whether, on the facts of the case, the notices were valid or not was pure question of law for adjudication of which no further facts need be found. The Tribunal noted that the points involving pure questions of law can be raised at any stage of the assessment or appellate proceedings and it was competent for the assessee to raise the question in the course of proceedings for reassessment pursuant to the order of the Appellate Assistant Commissioner setting aside the original assessment. The Tribunal also held that there was no valid notice under section 34 served on the assessee and the assessments were rightly held to be bad in law by the Appellate Assistant Commissioner. Thereafter, at the instance of the assessee (sic) the following two questions have been referred to us :

'Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner was competent to entertain the assessee's objection in regard to the invalidity of the notices under section 34

(2) Whether, on the facts and in the circumstances of the case, the assessments under section 34 were bad in law ?'

4. In Income-tax Reference No. 15 of 1971, the assessee is a member of one of the branches of the Hindu undivided family of Nanala Tribhovandas which is the assessee in Income-tax Reference No. 8 of 1971. That Hindu undivided family consisted of Tribhovandas Harkishandas as the karta, and his three sons, Thakorlal, Ishverlal and Nanalal. Nanalal died and his legal representatives represented the branch of Nanalal. The assessee, Kalidas Nanalal, is one of those legal representatives, being the son of deceased, Nanalal. Kalidas, the assessee, and the respondent in Income-tax Reference No. 15 of 1971, wanted to appear in the appeals and some opportunities appear to have been given to him for representing in those appeals filed by the Hindu undivided family. All through those proceedings Kalidas was making the grievance that he should be separately heard as his interest was to be protected in view of the disputes between his branch and the other branches of the Hindu undivided family. The Tribunal has referred the identical two questions which it referred to the High Court in Income-tax Reference No. 8 of 1971, on the ground that in respect of the appeals filed by the Hindu undivided family in the name of Nanalal Tribhovandas by its karta, Tribhovandas Harkishandas, Dohad, the Tribunal has held against the revenue and Income-tax Reference No. 8 of 1971 had been made at the instance of the revenue which we have already referred to. In the opinion of the Tribunal the same questions of law also arise in the matters where Kalidas Nanala was the assessee and hence the very same two questions have been referred to us in Kalidas Nanalal's case also to this High Court.

5. Under section 34 (1) of the Indian Income-tax Act, 1922, if the Income-tax Officer has reason to believe as set out in clause (a), or has information in his possession as set out in clause (b), he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four year of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under section 22, sub-section (2). The proviso to sub-section (1) of section 34 begins by stating that the Income-tax Officer shall not issue a notice under clause (a) of sub-section (1) for any year, unless he has recorded his reasons for doing so, and in any case falling under clause (ii), unless the Central Board of Revenue, and in any other case, the Commissioner, is satisfied on such reason recorded that it is a fit case for the issue of such notice. In the instant case, the Income-tax Officer has issued the notice purporting to be under section 34(1) with the approval of the Commissioner. Under section 22 (2) of the Act, the notice required to be served upon the party concerned must require him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and, therefore, when one reads section 34 (1) with the proviso to section 22 (2), it is obvious that the notice in connection with the reassessment proceedings under section 34 (1) must call upon the person concerned to file a return within such period not being less than thirty days. In Banarsi Debi v. Income-tax Officer the Supreme Court has held that the word 'issued' and the word 'served', occurring in section 34 (1) are inter changeable words and, therefore, it is obvious that the relevant date for the purpose of computing the period of thirty days under section 22 (2) is the date on which the notices were served upon the assessee concerned. Under these circumstances, it is also obvious that the notices which were received by the assessee, Hindu undivided family, on April 1, 1954, called upon the assessee to file the return under section 22 (2) in the reassessment proceedings on or before, April 15, 1954, were not in accordance with law inasmuch as the statutory period of thirty days from the date of the receipt of the notice by the assessee was not complied with.

6. It was contended on behalf of the revenue before us that whatever might be the legal position, it was not open to the Income-tax Officer in proceedings taken up by him after remand by the order of the Appellate Assistant Commissioner dated September 12, 1959, to entertain the contention that the notices under section 34 (1) dated March 10, 1954, were not properly served and proceedings under section 34 (1) were invalid for non-compliance with the statutory period of thirty days contemplated by section 22 (2). Mr. Kaji on behalf of the revenue contended that by the order dated September 12, 1959, the Appellate Assistant Commissioner had clearly directed the Income-tax Officer to make assessments in reassessment proceedings for the three relevant years accordings to law 'after giving the appellant reasonable opportunity of meeting the points that the Income-tax Officer may make out in a specific notice under section 23 (3) and after proper examination of the material and data that has been produced and may be produced'. Mr. Kaji contended that in view of the specific directions given by the Appellate Assistant Commissioner in his order dated September 12, 1959, and particularly in view of the fact that in terms the Appellate Assistant Commissioner had held that the action under section 34 was fully justified and was quite legal and proper and that the notices under section 34 issued by the Income-tax Officer were perfectly legal and valid, it was not open to the assessee in proceedings taken by the Income-tax Officer on remand after September 12, 1959, to urge that the notices under section 34 were invalid nor was it open either to the Income-tax Officer or to the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal to consider the question of the validity of those notices after September 12, 1959. We are unable to accept this contention urged by Mr. Kaji because the validity of notices under section 34 goes to the root of the matter and it goes to the very basis of the jurisdiction of the Income-tax Officer to entertain reassessment proceedings under section 34. In the absence of such valid notices the Income-tax Officer has no jurisdiction to reopen the assessments which are already completed and to initiate reassessment proceedings. If one were to accept the contention of Mr. Kaji, in our opinion, it would amount to taking a hyper technical view of the matter and to allow the real substance of the question to be over-looked for the sake of mere technicalities. When there is a question of jurisdiction to entertain any proceedings under section 34, the mere technicality that in earlier any proceedings before the Appellate Assistant Commissioner, this particular contention regarding the validity of the notices under section 34 was not urged is totally beside the point because, if in fact the Income-tax Officer has no jurisdiction to initiate reassessment proceedings or to pass any order in reassessment proceedings, then the fact that this particular contention was not urged at an earlier stage is beside the point.

7. As the Madras High Court has observed in Commissioner of Income-tax v. Estate of late N. Veeraswami Chettiar :

'..... in a proceeding for reopening an assessment and making a reassessment under section 34, the Income-tax Officer acquires jurisdiction in a particular manner and it is open (sic-really meant to be 'not open') to the appellate authority to make a direction which would have the effect of conferring jurisdiction in a case where such jurisdiction has not been properly acquired by the Income-tax Officer. From the words of the section itself, it is seen that no authority other than the Income-tax Officer has jurisdiction under section 34 of the Act. If the present case had been one where the initiation of the proceedings had been validly launched it would be open to the Appellate Assistant Commissioner in appeal before him, while setting aside the assessment, to issue directions. But it is unthinkable that a direction can be made in the exercise of the powers under section 31 of the Act which goes to the extent of conferring jurisdiction upon the Income-tax Officer if he is not lawfully seized of jurisdiction. To our minds, the direction issued by the Appellate Assistant Commissioner travels far beyond the scope of section 31 of the Act in the circumstances of the case. If the direction is neither lawful nor valid, it cannot come within the scope of the saving proviso and serve to remove the bar of limitation.'

8. In that particular case the order of remand passed by the Appellate Assistant Commissioner in terms directed the Income-tax Officer to interpret the bar of limitation in a particular manner which was contrary to law and the observations made by the learned judges of the Madras High Court were made in the context of those facts.

9. We find that this decision in Commissioner of Income-tax v. Estate of late N. Veeraswami Chettiar was followed by the same High Court in N. Naganatha Iyer v. Commissioner of Income-tax. The facts in that case were that the assessee, a member of a Hindu undivided family, who was also a partner in a firm in his individual capacity, submitted his returns for the assessment years 1948-49 and 1949-50. The Income-tax Officer ignored the returns and issued notice under section 34 (1) (a). The assessee submitted returns in protest in pursuance of the notice and the Income-tax Officer completed the assessments. On appeal, the Appellate Assistant Commissioner upheld the action under section 34 but set aside the assessments and directed the Income-tax Officer to proceed under section 34 (1) (b). It was held by the Madras High Court that, as the assessee had submitted his returns, the reassessment proceedings ignoring the returns were void and the direction given by the Appellate Assistant Commissioner that the Income-tax Officer should proceed under section 34 (1) (b) was neither lawful not valid. Following its earlier decision in Commissioner of Income-tax v. Estate of late N. Veeraswami Chettiar it was held that a direction cannot be given by the Appellate Assistant Commissioner in the exercise of his powers under section 31 which goes to the extent of conferring jurisdiction on the Income-tax Officer where he is not lawfully seized of jurisdiction. At page 654 of the report in N. Naganatha Iyer v. Commissioner of Income-tax, the learned judges of the Madras High Court have set out the passage which we have set out hereinabove and they held, relying on the principle set out in that passage, that the direction given by the Appellate Assistant Commissioner while setting aside the order of assessment the the Income-tax Officer should invoke the provisions of section 34 (1) (b) and the action of the Income-tax Officer in reassessing the income were neither lawful nor valid. The proceeding under section 34 initiated by the Income-tax Officer even in the first instance was wholly void, irregular and illegal.

10. We respectfully agree with the observations of the learned judges of the High Court of Madras and apply that principle to the facts of the present case. In our opinion, right from April, 1954, the proceedings in reassessment were wholly void and illegal. In view of that conclusion it necessarily follows that the Appellate Assistant Commissioner could not confer jurisdiction on the Income-tax Officer to decide the question on merits when he passed the order on September 12, 1959. The jurisdiction of the Income-tax Officer to initiate reassessment proceedings under section 34 is a jurisdiction which he derives under section 34 and not by virtue of any directions given to him by the Appellate Assistant Commissioner. Moreover, the Appellate Assistant Commissioner himself had no jurisdiction under section 31 of the Act of 1922 to issue directions which went to the extent of conferring jurisdiction upon the Income-tax Officer when he was not lawfully seized of jurisdiction.

11. In view of these conclusions we are not referring to the authorities relied upon by Mr. Kaji in support of his contention that the Income-tax Officer, after the order of remand of September 12, 1959, could only act within the four corners of the order passed by the Appellate Assistant Commissioner on September 12, 1959. The three authorities which Mr. Kaji relied upon in support of this contention were : (1) P. Subba Rao & Co. v. Appellate Assistant Commissioner of Income-tax, which was a decision of the Andhra Pradesh High Court; (2) decision of the Bombay High Court in Commissioner of Income-tax v. Indo-Aden Salt Works Co. and (3) the decision of the Bombay High Court in Commissioner of Income-tax v. Devidayal Metal Industries Pvt. Ltd. In our opinion, the question which arises for our consideration is totally different from the questions which arose before the different High Courts in the three decisions relied upon by Mr. Kaji and, therefore, we follow the principle laid down by the Madras High Court in the two decisions referred to above.

12. We, therefore, answer the questions referred to us as follows :

Question No. 1. - In the affirmative.

Question No. 2. - In the affirmative.

13. The Commissioner will pay the costs of the assessee in Reference No. 8 of 1971. Since the assessee in Reference No. 15 of 1971 has not appeared, there will be no order as to costs in that reference but the questions in that reference are also answer in the affirmative so far as each of the two questions is concerned.


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