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V. S. Sivalingam Chettiar Vs. Commissioner of Income Tax Madras. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 175 of 1962 (Reference No. 100 of 1962)
Reported in[1966]62ITR678(Mad)
AppellantV. S. Sivalingam Chettiar
RespondentCommissioner of Income Tax Madras.
Cases ReferredT. Muthuraman v. Commissioner of Income
Excerpt:
- t.n. district police act, 1859 [act no. 24/1859]. section 10 & tamil nadu special police subordinate service rules, rule 14(b), clause (iv) explanation (1); [a.p. shah,c.j., f.m. ibrajhim kalifulla & v. ramasubramanian, jj] rule 14(b),ci.(iv) explanation (1) providing that a person acquitted or discharged on benefit of doubt shall be treated as person involved in criminal case - validity being questioned - held, the impugned rule 14(b) ci.(iv) explanation (1) has been issued in exercise of the power conferred upon the government under the tamil nadu district police act, the criminal city police act and the proviso to article 309 of the constitution., the rule is not assailed on the ground of lack of competence. it is challenged only on the ground that it is violative of articles 14 and..........and for the second year it was file on february 1, 1957. the income-tax officer found that the income returned by sivalingam chettiar as an individual in fact belonged to her joint family and assessed the joint family accordingly. on the reruns filed as an individual he noted 'n. a.' apparently signifying nil assessment. this he did on january 27, 1956, in respect of the return for the assessment year 1955-56 and on february 27, 1957, in the other case. from the supplemental statement, which we called for from the tribunal, we find that notices were served on sivalingam chettiar in a respect of both the years under section 22(4) and 23(2). the assessee produced his books, which were examined and also tapered by his representative. in the file relating to the first of the two years,.....
Judgment:

VEERASWAMI, J. - This reference is concerned with the validity of the certain orders made under section 34(1) (b) of the income-tax Act, 1922, relating to the assessment years 1955-56 and 1956-57. The assessee is the son of V. S. Chettiappa Chettiar. Until 1939, they constituted a Hindu joint family. But in that they became divided and the partition of the family was accepted the revenue with effect from April 1, 1939. Thereafter, the father was assessee as an individual and the son in the status of the Hindu undivided and the son in the status of the Hindu undivided family. Chettiappa Chettiar died On May 17, 1941, leaving a will dated November 11, 1939 bequeathing his entire property to his son, Sivalingam Chettiar. Since the death of this father Sivalingam Chettiar submitted return one as an individual and the other as a Hindu undivided family, and they were assessed as such. He made similar returns of the assessment years here in question in response to notices under section 22(2) of the Act. For the first of the years the return which was dated August 29, 1954, was filed on September 5, 1955 and for the second year it was file on February 1, 1957. The income-tax officer found that the income returned by Sivalingam Chettiar as an individual in fact belonged to her joint family and assessed the joint family accordingly. On the reruns filed as an individual he noted 'N. A.' apparently signifying nil assessment. This he did on January 27, 1956, in respect of the return for the assessment year 1955-56 and on February 27, 1957, in the other case. From the supplemental statement, which we called for from the Tribunal, we find that notices were served on Sivalingam Chettiar in a respect of both the years under section 22(4) and 23(2). The assessee produced his books, which were examined and also tapered by his representative. In the file relating to the first of the two years, the Income-tax officer that, as the income from the properties belonging to the estate of Chettiappa Chettiar would be added to the family to V. S. Sivalingam Chettiar, there was on income to be assessed on the return find by Sivalingam Chettiar as an individual. He went on to add :' Hence, for this year this will be closed as N. A.' For the next year a similar note was made by the income-tax officer, which read :

'As already decided in the assessment order for 1955-56 there is no separate income from this estate... Since a return is filed and the income is clubbed with that of A in 252(S) here nil income. N. A. for 1956-57.'

Neither of these orders was communicated to the assessee. The joint family represented by Sivalingam Chettiar preferred appeals against the clubbing of the income shown in the individual return with the income of the family. These appeals were allowed. While disposing of them the Appellant Assistant Commissioner of income-tax made the following direction to the income-tax officer in respect of the assessment year 1956-57 :

'He is directed to assess V. S. Sivalingam Chettiar in the his individual capacity in respect of the same income if it is not already done.'

Treating this as information under section 34(1) (b), notices were served on Sivalingam Chettiar to charge the income returned by him as an individual. The assessees objection that as the returns for the two years had not been disposed of proceeding under section 34(1) (b) would be in valid, was overruled and assessments were completed. The assessee failed in the his further appeals. On a direction from this court, the Tribunal has referred the following question for decision of this court :

'(1) Whether the assessment made under section 34(1) (b) of the Act is justified ?

(2) Whether the observation of the Appellant Commissioner in the appellant order for 1956-57 passed on the Hindu undivided family constituted a finding or direction justifying action under section 3 ?'

On these question the points that arise for decision are : '(1) whether the returned filed by the assessee as an individual were pending without any orders passed on them, and (2) whether, if there were order made they were non est on account of the fact that on note of them was served on the assessee. On the first point the contention of Mr. K. Srinivasan for the assessee is that the noting of the income-tax officer on the files relating to the two assessment years did not amount order passed under section 23 and that, therefore the returns must be considered to by pending with the result the proceedings under section 34 would be wholly without jurisdiction. If there were no orders passed on the returns and they should be considered as pending returns the proceeding under section 34 (1) (b) would undoubtedly be illegal. When this reference came up before us in the first instance, we considered that a supplemental statement of the case was required, since neither the statement of the case as originally made nor the order of the Tribunal in the appeal it clear what orders were passed on the returns, and whether they were pending, when proceedings under section 34 were taken. In fact, the Tribunal in its order in the appeal had stated that no assessments were made not he assessee as an individual. From the facts mentioned in the supplemental statement since submitted to this court, it is clear that the income-tax officer did make certain orders, which we have already adverted to. The question is whether they can be regarded as orders made under section 23(3). The contention to the for the assessee is that since in his returns as an individual he had disclosed taxable income, the Income-tax officer had no power under section 23(3) to find that he had nil income and if this be so the findings of nil income or in noting as nil assessment were no orders within the purview of section 23(3) We are unable to accept this contention. The noting of the income-tax officer were clearly intended to close the returns on his finding that what was shown as income of the individual really belonged to the joint family. Section 23(3), in our opinion covers such orders as well. The power under section 23 is to assessee the total income and determine the tax. Such an assessment is made on the basis of a return held either under section 22(1) or under section 22(2). Though where there is income less than the taxable limit there is no a return filed under section 22(1) when one is actually made the income-tax officer may well act on it just as he will on return filed under section 22(2), though of an income less than the taxable limit. If the income tax officer is satisfied that the rerun is correct, he proceeds under section 22(1). But if he is not he has to adopt the procedure prescribed by section 23(2) and the first part of sub-section (3) of that section. Whether the income-tax officer acts under sub-section (1) and sub-section (3) lies in the procedure to be followed by the Income tax officer depending on his satisfaction in relation to the correctness of the return. When he acts under section 23(3), he considers the evidence produced by the assessee and proceeds to make an order in writing, assessing the total income and determining the tax payable by him on the basis of such assessment. The proves of assessment involving as it done the fixation of the total income, necessarily implies a determination as to the quantum and the ownership of the income. Where income below the taxable limit is returned, the income-tax officer may he find a taxable income. Likewise, where a taxable income is returned it is upon to the income-tax officer to find that the income returned did not belong to the assessee and, therefore, he had nil income. We are of the view that the power to assessee includes the determination of the quantum of income either way. We do not think that in that respect there is any difference between sub-section (1) and (3) of section 23.

But what is argued by Mr. Srinivasan is that an order under section 23 is a quasi-judicial order and that when the income-tax officer makes an order under sub-section (3) of section 23 after considering the prose and cons of the evidence produced before him, it has to be a speaking order giving reasons for his conclusion. Learned consular says that the requirements is section 23(3) that the income-tax officer shall make an order in writing implies that his power under the section is to make a reasoned order and not an over merely seating nil assessment or nil income. We did not think that the a contention is of any substance. That an order made under section 23 is of a quasi-judicial character is obvious and for thus purpose there is in difference, as we already mentioned, between section 23 requires the over made thunder to be in writing. But we do not fancy that an order under section 23(1) can be in anywise different. In our opinion, no particular significance a can be attached to the requirement that an order under section 23(3) should be in writing. In this case in the income-tax officer has made sufficient indication as to why he found there was nil income. That, we think, is within his power under section 23(3). We did not accept the argument for the assessee that if a return in made of there is no chargeable income. The power to assess under section 23(3) is wide enough and, as we said, the determination of the total income takes within its purview the finding of nil income or more chargeable income than what has been returned. We are of the view, therefore that the Income-tax officer had jurisdiction to make the orders, which he did and that what he actually did amounted to order within the scope of section 23(3).

This conclusion of is also supported by authority. M. CT. Muthuraman v. Commissioner of income-tax was decided on more or less analogous facts and circumstances. On a finding that the income returned by the assessee in that case in his individual capacity pertained to a Hindu undivided family, the Income-tax Officer closed the returns filed as an individual with the order 'N. A.' (not assessed). When this view was reversed on appeal proceedings were later taken under section 34(1). A similar objection as in the instant case, was taken there on the ground that the order 'N. A' was no order at all the and, the returns being pending the proceedings under section 34(1) (b) would be without jurisdiction. Dealing with this objection this court held :

'We are of opinion that the proceeding for 1953-54 and 1954-55 were lawful by terminated by the income-tax officer. It is true that section 23 does not in express terms provide for closing the assessment proceeding with an order that on assessee would be levied. Though the assessee had offered an item of income for assessment as his, the income-tax officer came to the conclusion that it was the Hindu undivided family that was liable to be assessed on that income and not the assessee. It was conclusion, whether it was right or wrong, that he had jurisdiction to reach; and, once he reached that conclusion, he could not tax the assessee. In Esthuri Aswathiah v. Income-tax officer Mysore State, their Lordships of the Supreme Court pointed out that the order on proceeding terminated the assessment proceeding and that it should be construed as meaning that the assessee had no assessable income... The assessment proceeding that commenced with the return filed by the assessee were lawfully terminated when they were closed with the entry N. A. There after the finally of the termination of those assessment proceeding could be vacated only be recovers to section 34, as this was not a case for the application of section 35.'

With respect, we concur with the view except that we would add that such an order of termination of the returns, as in that case, would well be within the purview of section 23. It should be remembered that the power of the income tax officer to assess is only under that section, and when a return is filed he is called upon to dispose of it by making an assessment which means by determining the quantum of chargeable income which may be nil or anything fix the tax payable on that basis. Mr. Srinviasan, however, contends that this court in that case was not right in applying Esthuri Aswathiah v. Income-tax officer Mysore State to the fact there. He says that Esthuri Aswathiah v. Income-tax officer, Mysore State was a case of a return of income below the taxable limit and the income-tax officer accepting the return. That being therefore, an order under sub-section (1) of section 23, according to the learned counsel for the assessee simply accepting the rotten the principle applicable to that cannot be applied to an order made under section 23(3). We are unable to accept this view. We have already held that in the context of the power to assess there is on distinction between sub-section (1) and sub-section (3) of section 23. Acceptances of the return on a satisfaction that it is correct or non-acceptance of it on the impression of the income-tax officer that the return is not satisfactory does not bear upon the scope of the power to assess but only relates to the procedure that the income-tax officer will have to follows. Where he is not satisfied with the correctness of the return, he has to follow the procedure prescribed by sub-section (2) of section 23 before he exercises his power to assess the total income.

Learned counsel for the assessee then urges that, in view of Commissioner of Income-tax v. Commissioner of Income-tax as to the jurisdiction and validity of an order like 'N. A', is no longer tenable. We fail to see that Commissioner of Income-tax v. Raman Chettiar, we should hold that the view taken in M. CT. Muthuraman v. Commissioner of Income-tax as to the jurisdiction and validity of an order like 'N. A.', is no longer tenable. We fail to see that Commissioner of Income-tax v. Rama Chettiar will have that effect. The point as to the validity of an order dropping proceedings, because the return filed was of an income below the taxable limit, does not appear to have been raised and decided in that case. We are of opinion, therefore, that the returns of the assessee as an individual were closed by valid and proper orders so that the returns could number be considered as pending returns.

It is next urged for the assessee that in much as no communication of the orders on the individual returns were ever made of him, they should be considered for that reason as honest and with the result the returns must be deemed to be pending. The basis for this argument is that the assessee, by failure on the part of the Income-tax Officer to serve notices of the orders, was deprived of his right under section 33A((2). Learned counsel for the assessee also adds that the orders on his individual returns being prejudicial to him, it is but necessary in order to invest them with validity that they should have been communicated to him. The question is not free from difficulty; but, having regard to the scheme of the Act, we are of the view that failure to serve notices of the orders had not the effect of rendering them invalid. That such a failure does not a affect the validity of the orders was the view expressed by this court in M. CT. Muthuraman v. Commissioner of Income-tax. The learned judges observed :

'That the orders terminating the assessment proceedings were not apparently communicated to the assessee did not affect the legality of those orders or their finality.'

It is true, as contended by learned counsel for the assessee, no reasons were given for that conclusion. But we are satisfied, if we may say so with respect, that that is the correct view to take. Whether orders are made under the Act, which affect the assessee in some form or other, it has provided for service of notice and the remedy thereagainst. Section 29 requires notice of demand to be served on an assessee; but the section makes it a condition that a notice of demand will be required to be served only when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of the Act. Learned counsel for the revenue argues that it is visualised by the section that there should be an order made under the Act under which tax, penalty or interest is due before a notice of demand is served, and that this means that service of notice does not bear on the validity of an order. In other words, what he point out is that there should be first a valid order, and then only a notice of demand is required to be served, so that service of notice is not a condition to the validity of the order itself. Through prima facie the argument may appear to be tenable, the question may arise as to whether proceeding under section 34 could be initiated between the date of an order under the Act and service of notice of that order. But an examination of some of the other provision of the Act like section 24(3), 23(5) and (6), 27, proviso (2) to section 30(1) and the related provision in section 30 lead us to the conclusion that where orders are passed under or in pursuance of the Act, which are prejudicial to an assessee, notice of the order is required to be served and, for purpose of resorting to the remedy, limitation is to count from the date of service of notice of such order. In this case, from a purely fiscal point of view, it can hardly be said that the orders made by the Income-tax Officer on the returns by the assessee as an individual were in any way prejudicial to him. The orders did not fasten on the assessee any liability to tax. Nor did they contain any finding which could by any means be said to be against the assessee as an individual. All that was held by the income-tax Officer was that the income, which the assessee claimed to be his as an individual, did not belong to him. That means that he was not held liable to pay any tax. In that sense, as it seems to us, not prejudiced as he was by the order passed by the Income-tax Officer, failure to serve notice thereof did not deprive these orders of their validity. In our view, on a strict reading of the Act, it does not appear to contemplate service of notice in such cases. Nevertheless, we feel that it is desirable from many points of view that the revenue serve notice on assessees of such orders. It will not only tend to fairness to the assessee but also avoid deserving complaints that an order of which the assessee was not aware of forms the basis of proceeding under section 34.

We accordingly answer the first question against the assessee, and, in view of this answer, we do not think it necessary to answer the second question, more especially because the orders under section 34 were made well within the four-year period of limitation. The revenue will be entitled to its costs. Counsels fee Rs. 250.

Question answered accordingly.


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