SRINIVASAN J. - This is a petition under article 226 of the Constitution seeking the issue of a writ of certiorari or other appropriate writ to call for the records of the Income-tax Officer and to quash the certificate issued to the Collector under section 46 of the Income-tax Act. The facts set out in the affidavit accompanying the petition are these. The petitioner was the karta of a Hindu Undivided family, which was carrying on business in Bangalore. In Samvat year 1998, the assessee-petitioner had also business in art silk and cotton yarn with dealers in Bombay and Madras. In respect of the profits arising in British India, an assessment was made in 1943-44. The tax was paid. Subsequently, the business came to an end and the assessee left for his native place. It is also alleged that in 1945 the Hindu undivided family ceased to exist.
Under section 22(2) of the Act, a notice was issued to the petitioner calling for the submission of a return for the assessment year 1944-45. The petitioner submitted a nil return with reference to the account year November 9, 1942, to September 22, 1943, corresponding to the Samvat year 1999. It was also claimed that the business was closed down in the previous year. Thereafter, the petitioner claims that he received no further communication from the Income-tax officer.
The petitioner returned to Bangalore in 1947. A notice was received by him from the Amildar on June 26, 1953, demanding certain sums towards income-tax, excess profits tax was excess profits tax deposit. Then the petitioner became aware that these demands related to the assessment year 1944-45. As he had submitted a return disclosing a nil income for that year, the petitioner corresponded with the income-tax authorities and finally obtained duplicate copies of the assessment orders made by the department. These assessment orders were made ex parte, the petitioner contending that no notice under section 22(4) or 23(2) of the Act had been received by him. He subsequently came to understand that such notices were apparently sent to an address, where he had a temporary residence in Marwar for a short time. Contending that he received demand notices and assessment orders only in January 1955, he filed appeals. These appeals were dismissed as time-barred.
Following this, he filed a writ petition, W. P. No. 409 of 1957, in this court seeking for a writ of prohibition against the collection of taxes. This court held that there was no initial lack of jurisdiction and that the authority enforcing the collection being the Amildar of Bangalore, could not be made a party to the writ petition. The request of the petitioner that the petition should be converted into one of certiorari seeking to set aside the certificate issued by the Income-tax Officer was turned down, this court holding that it was open to the petitioner to file a separate writ application.
In these circumstances, the petitioner has filed the present petitioner Besides contending that there was no valid service of any notice demand and that the assessments are illegal and improper, the petitioner place strong reliance on the fact that the initiation of recovery proceedings under section 46 of the Act is wholly without jurisdiction having been started nearly nine years after the issue of the demand notice. The machinery of section 46 of the Act, it is claimed, is not a valuable to the income-tax department after the expire of the period of limitation specifically provided in that section.
In the counter affidavit filed by the department, it is stated that the petitioner-assessee representing the Hindu undivided family had no assessable Indian income for the assessment year 1939-40 and that such income was below the taxable limit in the seceding year. There were, however, assessments for the years 1941-42, 1942-43 and 1943-44. The department questions the truth of the allegation that there was a partition in the family; but that aspect of the matter is not necessary to be examined in the present proceedings. The department admits that the assessment proceedings for the assessment year 1944-45 started with the issue of notice under section 22(2) of the Act. The original notice was returned unserved. The department ascertained from the auditors of the assessee that the address was 'Sumerpur Post Office, Marwar'. A notice issued to the assessee at the above address was received by him and, in response thereto, a nil return was filed. Subsequent notices under section 23(2) of the Act elicited no response. The department purported to contact the Presidency postmaster and ascertained from him that the relevant notice had been delivered. Further letters from the department were not replied to by the assessee. In this state of things, the department proceeded to make an assessment, presumably on the best of judgment basis determining the total income at Rs. 43,355 and the tax at Rs. 14,423-11-0 and a demand notice was issued. It appears to have been returned with the endorsement 'Refused'.
Admittedly, no further action was immediately taken by the department. The assessment was completed on December 11, 1944, and the demand under section 29 was issued on December 12, 1944. It was returned unserved on January 5, 1945.
The counter-affidavit of the department further discloses that, in September, 1950, it was ascertained that the petitioner was carrying on business in Bangalore city. On December 11, 1950, a certificate under section 46(2) of the Act was issued to the Collector of Madras. The Collector forwarded the certificate for necessary action to the Deputy Commissioner, Bangalore, and it was in pursuance of this certificate that action was taken for the recovery of the tax from the petitioner. The subsequent correspondence between the petitioner and the income-tax department and the writ petition filed by him in the Madras High Court are also referred to.
It is also contended by the department that, on a proper construction of section 46 of the Act read with section 42, the recovery proceedings cannot be validly attacked on the ground of limitation.
It is unnecessary at this stage to consider whether the assessment is liable to be attacked on any ground. There is no doubt that the department adopted the prior procedure under the Act and did in fact address its communication to the assessee at his last known place of residence. In fact, the notice under section 22(2) of the Act had been served upon the assessee at that place and the assessee had not chosen to given any other address to the department. The normal procedure by which the petitioner-assessee could attack the assessment was pursued by him, but with no effect Treating the assessment as having been properly made, the question that now arises in this writ petition is whether the certificate issued under section 46(2) of the Act is valid and whether in pursuance of that certificate steps could lawfully be taken for the recovery of the arrears of tax. It is not disputed by the department that till 1950, when the certificate was issued to the Collector of Madras, no steps had been taken; that is to say, between the date of the services of the demand, which may be presumed to the shortly after making the order of assessment in December, 1944, and the issue of the certificate in 1950, no step in enforcement of the demand had been taken by the department. The question, therefore, is whether the issue of the certificate in 1950 and enforcement of collection in 1953 are vitiated by the provision relating to limitation contained in the Act. The Explanation to section 46(7) of the Act states that proceeding for the recovery of any sum shall be deemed to have been commenced within the meaning of this section if some action is taken to recover the whole or any part of the sum within the period referred to in the section. The period referred to is specified in the following terms : 'Save in accordance with the provisions of sub-section (1) of section 42......... no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under this Act.' There is a proviso to this sub-section, which it is not necessary to refer to. According to this provision, therefore, the normal period of limitation for commencement of any proceedings in recovery is one year from the last day of the financial year in which any demand is made. The demand notice in the present case purports to have been issued on December 12, 1944, and to have been returned unserved on January 5, 1945. Assuming that the services of the demand notice was effected, it would follow that the period of limitation prescribed under section 46(7) of the Act would expire with the end of the next financial year, that is, by 31st March, 1946. Save in the cases expected by that sub-section, no recovery proceedings could be commenced after that date. The question, therefore, is whether the case of the assessee-petitioner is one which falls within the excepted class of case, i.e., whether sub-section (1) of section 42 applies to this case of the petitioner.
In a case to which sub-section (1) of section 42 applies, the first proviso to that sub-section lays down that 'where the person entitled to the income, profits or gains is not resident in the taxable territories, the income-tax so chargeable may be recovered by deduction under any of the provisions of section 18 and any priors of tax may be recovered also in accordance with the provisions of this Act from any assets of the non-resident person which are, or may at any time come, within the taxable territories'. This proviso, accordingly, lays down that any arrears of tax could be recovered by proceedings against properties of the assessee, which properties may come at any time within the taxable territories. The proviso read along with section 46(7) of the Act removes the period of limitation otherwise provided for in the latter section. Learned counsel for the department contends that this removal of the fetter upon the period of limitation is operative against any non-resident, who is in arrears of tax. The question is whether this interpretation in correct.
Before proceeding to interpret the proviso, it is necessary to consider the main part of the section itself. Obviously, the proviso cannot stand by itself unless there are special feature attendant thereupon and unless the wording of the proviso requires that it should be treated as dealing with a subject-matter which is not covered by the main part of the section. Section 42(1) of the Act is headed : 'Income deemed to accrue or arise within the taxable territories.' It states that all income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories, or through or from any asset or source of income in the taxable territories, or through or from any money lent at interest and brought into the taxable territories in cash or in kind, or through or from the sale, exchange or transfer of a capital assets in the taxable territories, shall be deemed to be income accruing or arising within the taxable territories. The latter part of the section provides that, in a case where the person is not resident in the taxable territories, such income shall be chargeable to income-tax either in his name or in the name of his agent. The proviso that we have to interpret is the proviso to the above and it specifically mentions, 'provided that where the person entitled to the income, profits or gains is not resident in the taxable territories, the income-tax so chargeable may be recovered..........' This proviso therefore deals with income-tax 'so chargeable' and arrears of tax of that description. The phrase 'so chargeable' in the context must therefore relate to income which is deemed to accrue or arise within the taxable territories being one or other of the several classes mentioned above. It is undisputed that the income in the present case is income which accrued in the taxable territories itself and the fiction embodied in section 42(1) of 'deemed accrual' does not apply to the income of the assessee-petitioner. If the income of the assessee which has been brought to tax in the present instance is not to be deemed to be income accruing or arising within the taxable territories, but is income which actually accrued within the taxable territories, we can find no warrant for holding that the proviso will apply to such income or to the tax levied on such income. Learned counsel for the department purports to contend that while, no doubt the main part of the section deals with what is to be deemed to be income accruing or arising within the taxable territories, the proviso applies even in respect of income of a non-resident, which accrued in the taxable territories, so that the recovery of income-tax and arrears of tax may be made in accordance with the terms of the proviso. We are unable to agree. No authority which would support the claim to the extensive amplitude of the proviso is brought to our notice. As we section and can have no independent existence. Unless there are words in the proviso which compel us to give it an area of operation outside the scope of the main section itself, the proviso must necessarily stand limited to that class of cases dealt with in the main section. If, therefore, the main section deals with only income which actually accrued outside the taxable territories, but which, by force of the main section, is deemed to accrue in the taxable territories, the proviso referring to the income-tax so chargeable and any arrears of tax must relate only to income which deemed to accrue, but not to income which actually accrued within the taxable territories. As we have said, it is not the case of the department that the income brought to assessment in the present case was income which arose outside the taxable territories, but, which by operation of section 42(1), was deemed to accrue within the taxable territories. It was income which actually accrued with the taxable territories and section 42(1) will not apply thereto. The proviso that we have referred to will also not apply.
On that conclusion, it necessarily follows that the exception contemplated in the proviso to section 46(7) of the Act is not attracted.
This is not a case, where the period of limitation of one year prescribed, stands enlarged by the operation of that proviso. The commencement of any proceeding towards recovery of tax taken by the department was in 1950, by the issue of the certificate to the Collector, long after the expiry of one year from the last day of the assessement year in which the demand was made. The issue of the certificate to the collector is one of the proceedings contemplated by section 46 and that proceeding was clearly beyond the period of one year prescribed.
It also appears that, in 1957, certain orders were made by the Income-tax Officer imposing penalties upon the assessee-petitioner under section 46(1) of the Act. These orders, learned counsel for the department states, were made on February 22, 1957, and February 27, 1957. Learned counsel, however, is not able to state whether and, if so, on what date, any certificate to the Collector was issued for the recovery of these penalties. Apparently, the Amildar of Bangalore served a notice in respect of the arrears of tax and of the penalties only in July, 1958. Even if the penalties had been validly imposed, action to recover those penalties should have been taken within one year from the close of the assessment year in which the relevant demands were made. There is no evidentiary material before us to show when any certificate was issued to the Collector in respect of these penalties. there is, no doubt, the further question whether the orders imposing penalties of the payment of any arrears of tax. In view of the paucity of material, both sides agree that any question relating to these penalties might be left open.
The open result is that the petitioner succeeds. The certificate issued to the Collector is liable to be quashed. The rule nisi is made absolute. The petitioner will be entitled to his costs. Counsels fee Rs. 200.