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Giridharilal Jhajharia Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberF.M.A. No. 154 of 1967
Judge
Reported in[1970]78ITR133(Cal)
ActsIncome Tax Act, 1922 - Sections 34 and 35; ;Income Tax Act, 1961 - Sections 154 and 297(2)
AppellantGiridharilal Jhajharia
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal and ;Suhas Sen, Advs.
Respondent AdvocateA.K. Basu and ;D. Gupta, Advs.
Cases ReferredHazarimal Kuthiala v. Income
Excerpt:
- .....to meet that case. section 34 of the 1922 act speaks of notice under that section as a part of the revenue jurisdiction. as long as an opportunity is given to the assessee to meet the case contemplated in section 35 of the 1922 act, the provisions are complied with.11. counsel for the appellant relied upon the decision of the supreme court in m. chockalingam and m. meyyappan v. commissioner of income-tax, : [1963]48itr34(sc) , in support of the proposition that only a notice under section 35 of the 1922 act would invest the revenue with jurisdiction and a notice under section 154 of the act of 1961 would not have a similar effect. the supreme court in chockalingam's case said that a notice had to be sent to the assessee and he was to be given a reasonable opportunity of being heard as.....
Judgment:

Ray, J.

1. This appeal is from an order of Mitra J., dated November 23,1966.

2. The appellant made an application under Article 226 for the issue of a writ of certiorari to quash the records of the proceedings relating to orders dated April 6, 1964. The orders dated April 6, 1964, were passed by the revenue.

3. The orders were passed under these circumstances. The appellant filed returns for the assessment years 1956-57 and 1957-58, and was assessed on March 30, 1961, and March 20, 1962, respectively. By letter dated September 2, 1963, the petitioner was called to produce his books of account for 2012 Ram-Navami and 2013 Ram-Navami on September 6, 1968. The petitioner produced the books of account before respondent No. 2 as required and respondent No. 2 asked the petitioner to explain why there was a difference between the amounts of certain commission paid by Searsole Coal Co. Ltd. to the petitioner as disclosed by that company and the amounts shown in the returns filed by the petitioner. On January 27, 1964, the petitioner received two notices under Sections 154/155 of the Income-tax Act, 1961. By these notices the petitioner was informed that in respect of the assessments for the years 1956-57 and 1957-58 there were mistakes apparent from the record within the meaning of Sections 154/155 of the said 1961 Act, and rectification of such mistakes would have the effect of increasing the petitioner's liability. The appellant wrote to respondent No. 2 that on principle he had no objection to rectification of the error as in his view the commission amount received from Searsole Coal Co. Ltd. and disallowed in their hands in the income-tax proceedings should not have been completely excluded while computing the taxable income. He, however, added that the same should have been considered for rate purposes.

4. It is under these circumstances that two orders were passed on April 6, 1964. The effect of the two orders is that the appellant was made liable for payment of tax. In the orders dated April 6, 1964, for two assessment years the revenue authorities stated that in the original assessment which was completed on March 30, 1961, there appeared certain mistakes inasmuch as the Income-tax Officer failed to include a portion of the income of the commission, which was disallowed in the hands of the payer company, to the total income of the assessee-firm for the rate purposes and further that the appellant-assessee's profit in the share investment was not included in the total income. The orders concluded by stating that the mistake being apparent from the record was then rectified under Section 35 of the Income-tax Act, 1922, after obtaining no objection from the authorised representative of the assessee-firm.

5. The contentions on behalf of the appellant were first that the notice under Section 154 of the Income-tax Act, 1961, was invalid. It was said that a notice under Section 154 of the Income-tax Act, 1961, would be for assessment under the 1961 Act and in view of the fact that the assessment in the present case was under the Income-tax Act, 1922, a notice under Section 154 of the Income-tax Act, 1961, could not enure to the validity of rectification under Section 35 of the Income-tax Act, 1922. Secondly, it was said that if there, was any mistake it should be a mistake appearing from the record and that in the present case there was no such mistake. Thirdly, it was said that the revenue authorities looked into matters beyond their authority and jurisdiction and, therefore, the orders were bad. The pre-eminent question in this appeal is whether the notice in the present case under Section 154 of the Income-tax Act, 1961, is invalid and deprives the revenue authorities of jurisdiction under Section 35 of the Indian Income-tax Act, 1922. It will appear from Section 297 of the Income-tax Act, 1961, and particularly under Sub-section (2) and Clauses (a) and (b) thereof, that in spite of the repeal of the 1922 Income-tax Act, where a return of income has been filed before the commencement of the 1961 Act, by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if the 1961 Act had not been passed, and, secondly, where a return of income is filed after the commencement of the 1961 Act otherwise than in pursuance of a notice under Section 34 of the repealed Act (1922 Act) by any person for the assessment year ending on March 31, 1962, or any earlier year, the assessment of that person for that year, shall be made in accordance with the procedure specified in the 1922 Act.

6. The provisions contained in Section 297(2)(a) and (b) of the Income-tax Act, 1961, indicate that assessment proceedings under the Indian Income-tax Act, 1922, may be continued as if the, 1922 Income-tax Act had notbeen repealed. In the present case, assessment was done under the: 1922 Act. It is not disputed that rectification in the present case would also be under the 1922 Act. Counsel for the appellant contended that inasmuch as the rectification would be under the 1922 Act, only a notice under the 1922 Act would clothe the authorities with, jurisdiction to rectify under the 1922 Act. Therefore, it was said that the issue of a notice under Section 154 of the Income-tax Act, 1961, did not invest the revenue with jurisdiction to rectify under the 1922 Act.

7. The meaning of the word 'assessment' in the Indian Income-tax Act of 1922 in the light of the provisions contained in Section 297(2)(a) of the Income-tax Act, 1961, came up for consideration before the Supreme Court in the case of S. Sankappa v. Income-tax Officer, Bangalore, : [1968]68ITR760(SC) . In that case the assessment years were 1958-1959 and 1960-61. The returns were filed under the 1922 Act. The application for registration was filed under the 1922 Act. The Income-tax Officer refused registration. The assessment was made. The appeals from the orders of assessment were allowed by an order dated November 26, 1966, revising the assessment. Subsequently, notices were issued on January 19, 1967, whereby the Income-tax Officer proposed to rectify individual assessment in respect of each of the years of assessment under Section 155 of the Income-tax Act, 1961. The validity of the notice was challenged. The High Court dismissed the applications. Appeals were taken to Supreme Court. In the Supreme Court it was contended that the proceedings for rectification under Section 35 of the 1922 Act could not be held to be proceedings for assessment within the meaning of that expression occurring in Section 297(2)(a) of the 1961 Act. It was also urged that in any case the provisions of Section 35(5) of the 1922 Act were not attracted. The Supreme Court did not accept the contention and said that the word 'assessment' was used in the Income-tax Act in a number of provisions in a comprehensive sense and included all proceedings starting with the filing of the return or issue of notice and ending with determination of the tax payable by the assessee. On that ratio the Supreme Court held that the proceedings for rectification of assessment of tax under Section 35 of the 1922 Act were proceedings of 'assessment'. It, therefore, follows that the jurisdiction of the revenue authorities to rectify flows first from the Indian Income-tax Act of 1922 and, secondly, from the provisions contained in Section 297(2)(a) of the Income-tax Act, 1961, which enact that the proceedings for-assessment may be continued as if the Act of 1922 had not been repealed. It is interesting to notice that in the case of S. Sankappa the notices for rectification were all issued under Section 154 of the 1961 Act. It is true that no contention was advanced about the validity of the notices. Under the 1961 Act, but it is to be observed that the Supreme Court has not struck down the notices which were issued in that case under the 1961 Act when the authority of the revenue to rectify the assessment was impeached. The Supreme Court further said in Sankappa's case that Section 297 of the 1961 Act permitted the Income-tax Officer to proceed in accordance with the provisions of the Act of 1922, and that he rightly proposed to take action under Section 35 of the 1922 Act on the basis of rectification in the assessment of the firm under Section 35 of those cases.

8. At this stage reference may also be made to another recent decision of the Supreme Court in the case of Kalawati Devi Harlalka v. Commissioner of Income-tax, : [1967]66ITR680(SC) . In Kalawati Devi's case, assessments were made on February 7, 1961, for the assessment years 1952-53 to 1960-61, under the Income-tax Act of 1922. On January 24, 1963, after the repeal of 1922 Act, the Commissioner issued a notice under Section 33B of the Income-tax Act of 1922 for reassessment. It was held that the Commissioner had jurisdiction to issue notices under Section 33B of the Act of 1922, in view of Section 297(2) of the Act of 1961. These authorities of the Supreme Court indicate that the jurisdiction of the revenue to rectify flows from the operation of provisions contained in Section 297(2) of the Act of 1961 and the other provisions in the Income-tax Act of 1922.

9. The other question is: Does jurisdiction under Section 35 of the 1922 Act flow from the issue of the notice and, if so, will the notice issued under the Act of 1961 rob the revenue of the jurisdiction to rectify under Section 35 of the 1922 Act? In the 1922 Act, there are three sections which speak of notice, namely, Sections 33B, 34 and 35. In Section 33B of the Act of 1922, it will appear that the Commissioner has power to revise the orders after giving the assessee an opportunity of being heard. Though the word 'notice' is not mentioned, the statute speaks of an opportunity being given to the assessee of being heard. Section 35 of the Act of 1922, which confers power on the revenue to rectify, speaks of notice by enacting that no rectification shall be made having the effect of enhancing an assessment or reducing a refund unless the Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed the assessee reasonable opportunity of being heard. In Section 34 of the Act of 1922, it will appear that in cases falling under Clause (a) and in cases under Clause (b) of Section 34 of the Act of 1922 a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 of the 1922 Act is to be given. Section 154 of the Act of 1961, which corresponds to Section 35 of the Act of 1922, also speaks of a notice of the intention of the revenue authorities to enhance the assessment or reduce the refund and to give an opportunity to the assessee of being heard.

10. Counsel for the. appellant contended that notice under Section 35 of the Act, 1922, was the foundation of a jurisdiction. I am unable to accept that contention for two reasons. First, it appears as the Supreme Court has held in the aforementioned decisions in Kalawati and Sankappa that the jurisdiction with regard to the assessment is under the Income-tax Act of 1922, and the assessment proceedings are saved by the provisions contained in Section 297 of the Act of 1961, and rectification being a part of the assessment proceedings, the jurisdiction to rectify flows from the intrinsic provisions contained in the sections. In the case of Section 34 of the Income-tax Act of 1922, however, it will appear that the notice is the foundation of jurisdiction. In other words, a notice under Section 34 of the Act of 1922 is a jurisdictional fact. Notice under Sections 33B and 35 of the Act of 1922 is spoken of in order to give the assessee an opportunity of knowing what the revenue is going to do. Secondly, in cases falling, under Section 35 of the Act of 1922, there is the possibility of enhancing assessment or the reduction of the refund because of a mistake apparent from the record and the assessee is to be informed of the intention of the revenue to do so. In National Rayon Corporation v. G.R. Bahmani, [1965] 56 I.T.R. 114 (Bom.), on which counsel for the appellant relied, it will appear that the Bombay High Court held that the jurisdiction of the Income-tax Officer to make an order of rectification under Section 35 of the Act of 1922 depended upon the existence of a mistake apparent from the record. The jurisdiction to rectify flows from a mistake apparent from the record. This decision does not hold that only a notice under Section 3.5 would confer jurisdiction upon the revenue to rectify. The jurisdiction to rectify flows from the provisions contained in the statute in case of mistake apparent from the record. The provisions in Section 35 of the 1922 Act speak of notice of intention to rectify and an opportunity to the assessee to meet that case. Section 34 of the 1922 Act speaks of notice under that section as a part of the revenue jurisdiction. As long as an opportunity is given to the assessee to meet the case contemplated in Section 35 of the 1922 Act, the provisions are complied with.

11. Counsel for the appellant relied upon the decision of the Supreme Court in M. Chockalingam and M. Meyyappan v. Commissioner of Income-tax, : [1963]48ITR34(SC) , in support of the proposition that only a notice under Section 35 of the 1922 Act would invest the revenue with jurisdiction and a notice under Section 154 of the Act of 1961 would not have a similar effect. The Supreme Court in Chockalingam's case said that a notice had to be sent to the assessee and he was to be given a reasonable opportunity of being heard as the, statute itself enacted. The Supreme Court said that if that opportunity was not given and if a fair hearing was not given, the proceedings would be bad. The Supreme Court decision in Chockalingam's case does not lay down that a notice must be expressly under Section 35 of the Act of 1922 to clothe the revenue with jurisdiction.

12. The authority of the revenue to rectify also came up for consideration before the Supreme Court in the case of Maharana Mills (Private) Ltd. v. Income-tax Officer, Porbandar, : [1959]36ITR350(SC) . The Supreme Court said that the object of the provisions as to notice in Section 35 of the Act is that no order should be passed to the detriment of an assessee without affording him an opportunity, but it cannot be said that the rule is so rigid that if the assessee knew of the proceedings and the matter had been discussed with him, then an adverse order would be invalid merely because no notice under Section 63 of the 1922 Act was given. In other words, as long as reasonable opportunity has been given to show cause, the jurisdiction to rectify under Section 35 is not liable to be impeached on the ground of notice in any particular form. It cannot be disputed in the present case that an opportunity was given nor can it be said in the present case that the assessee did not know as to what the revenue might have to do. As a matter of fact, it appears from the record that the assessee appeared and made submissions, produced books and endorsed a note on the order that there was no objection. These three features are important. First, that notice has been given, secondly, that the matter was discussed by the assessee and, thirdly, that the assessee did not take any objection to the proceedings as a result of the notice.

13. In that view of the matter it has now to be considered as to whether the issue of a notice under Section 154 of the Act of 1961 will have the effect of nullifying the proceedings. The decisions in S. Sankappa's case also indicates that a notice issued under Section 154 of the 1961 Act will not render invalid rectification of the assessment under the 1922 Act. The notice need not be construed so rigidly. Counsel for the appellant relied on the decision of the Supreme Court in S.C. Prashar v. Vasantsen Dwarkadas, : [1963]49ITR1(SC) . A firm, P.L., was assessed for the year 1942-1943. The income of another firm, V. D., for the year 1942-43 was assessed and was included in the income of D, a partner of the firm, P. L., which was assessed. By an order passed on a reference to the High Court the order of the Income-tax Officer that the income of the firm of V. D. which was added to the income of D, a partner of the firm, P. L., was upheld.

14. Thereafter, the Income-tax Officer served a notice under Section 34 of the1922 Act on the firm, P.L. The firm, P. L., made an application for issueof a writ restraining the authorities from taking any steps pursuant to thenotice under Section 34. At page 221 of the report in S.C. Prashar's case, itwill appear that the view of the Supreme Court was that P. L. was not aparty before the Appellate Tribunal, and, therefore, there was difficulty inappreciating how the firm of P. L. could be treated as an assessee withinthe meaning of Section 34. The decision of the Supreme Court inS. C. Prashar's case does not, in my opinion, assist the appellant withregard to the impeachment of the notice issued under Section. 154 of the Actof 1961 in the present case. Counsel for the appellant also relied on thedecision in Sewlal Daga's case, [1965] 55 I.T.R. 406 (Cal.) in support of the proposition that noticeunder Section 35 of the Act of 1922 was mandatory. In Daga's case theproceedings were under Section 34 and the notices were not issued to theproper persons. This decision is also of no help to the appellant. Counselfor the appellant also relied on the decision in Income-tax Officer v. ArvindN. Mafattal, : [1962]45ITR271(SC) , but that decision also does not establish that a notice is to beissued expressly under Section 35 of the 1922 Act to invest the revenuewith jurisdiction.The contention of the appellant in regard to the notice is answered bythe decision of the Supreme Court in Hazarimal Kuthiala v. Income-tax Officer, Ambala, : [1961]41ITR12(SC) . The Commissioner of Income-tax there acted under Section 5(5)and (7A) of the Indian Income-tax Act, 1922, and made an. order on November 4, 1953, that the assessment of the firm would be done by the Income-tax Officer, Ambala, and not by the Income-tax Officer, Patiala. TheIncome-tax Officer, Ambala, issued a notice under Section 34 of the PatialaIncome-tax Act to the Income-tax Officer, Patiala, to reopen the assessmentfor the year 1945-46. The firm contended that the officer at Ambala hadno jurisdiction and the order of the Commissioner was contended to be ultravires since it was not issued under the Patiala Act which applied to therelevant assessment year. The Supreme Court, in dealing with the contention that the assessment which was ordered to be done by the officer atAmbala was not made under the Patiala Income-tax Act, said that theargument completely lost sight of the position at law 'that the exercise ofa power will be referable to a jurisdiction which confers the validity upon itand not to a jurisdiction under which it will be nugatory'. The exercise ofa power in the present case was under the 1922 Act. Parties including boththe revenue and the assessee knew that the action was taken under the Actof 1922. The assessee knew of the intention of the revenue to proceed under the Act of 1922. It, therefore, follows that the failure to give notice under Section 35 of the 1922 Act, which the appellant impeached as inherent in the lack of initial jurisdiction of the revenue authorities, is unsound from two points of view. First, the jurisdiction flows from the provisions under the 1922 Act and does not flow from a notice, and, secondly, the exercise of a power is referable to a jurisdiction which confers authority upon it and not to a jurisdiction which will make it nugatory. The reference to Section 154 of the 1961 Act in the notice is a mere irregularity at the worst for the reason that the assessee is given notice of possibility of enhancement and is given reasonable opportunity of being heard.

15. The other contention on behalf of the appellant was that the rectification was made beyond the record. In order to deal with the appellant's contention it must be first noticed that the rectification that is contemplated under Section 35 of the Act of 1922 is when there is a mistake apparent from the record, and secondly, that the assessee did not raise the contention that the rectification was sought to be done on the basis of materials not confined to the records of the assessee's case, but on the records of Searsole Coal Company Ltd. The learned judge rightly held that if the appellant had any grievance on that score the appellant should have contended that specific ground before the revenue. On the contrary, it appears that the assessee appeared before the revenue and did not contend that the revenue had no jurisdiction to rectify. The second important feature with regard to the rectification under Section 35 as will appear in Maharana Mills case is that the record contemplated by Section 35 does not only mean the year of assessment but all proceedings on which the assessment order was passed by the Income-tax Officer. The orders dated April 6, 1964, appearing at pages 19 and 21 of the paper book will indicate that the mistake being apparent from the record was rectified under Section 35 of the Act after obtaining no objection from the authorised representative of the assessee-firm.

16. All the contentions advanced by the appellant fail. The appeal is dismissed. Each party will pay and bear its own costs.

S.K. Mukherjea, J.

17. I agree.


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