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Probodh Ch. Seth Vs. Income-tax Officer, C-ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 572 of 1968
Judge
Reported in[1972]84ITR538(Cal)
ActsIncome Tax Act, 1961 - Sections 143(3), 146 and 297(2); ;Income Tax Act, 1922
AppellantProbodh Ch. Seth
Respondentincome-tax Officer, C-ward and ors.
Appellant AdvocateJ.C. Pal, Adv.
Respondent AdvocateAjit Sengupta, Adv.
Cases ReferredP. M. Bharucha & Co. v. Venkatesan
Excerpt:
- .....an application to the respondent-income-tax officer requiring him to cancel the assessment and to make a reassessment as he was not givenreasonable opportunity to comply with the notice dated the 17th march, 1966. the petitioner's aforesaid application was accepted and the respondent-income-tax officer cancelled the assessment and made a fresh assessment for the said year under section 143(3)/146 of the 1961 act on 6th september, 1967. the petitioner took an appeal from the aforesaid order of assessment and in the grounds of appeal objections were taken to the inclusion of certain items in the total income and there was an omnibus ground at the end, namely, that the assessment was otherwise bad in law in the facts and circumstances of the case. apparently, before the appellate assistant.....
Judgment:

K.L. Roy, J.

1. This application under Article 226 of the Constitution raises a short but an interesting question as to the interpretation of Section 297(2)(a) of the Income-tax Act, 1961, For the assessment year 1961-62 the petitioner filed his return voluntarily on the 1st December, 1961, before the respondent-Income-tax Officer, Howrah, On the 1st February, 1963, a notice under Section 23(2) of the Income-tax Act, 1922, was issued and served on the petitioner by the said Income-tax Officer. On 17th March, 1966, a further notice under Section 23(2) of the aforesaid Act was issued calling upon the petitioner to attend on the 22nd March, 1966, at the Income-tax Officer's office for completion of the assessment. Or the 23rd March, 1966, the petitioner informed the Income-tax Officer that as the aforesaid notice was served on him after 1 p.m. on the 22nd it was not possible for him to comply therewith. Thereafter, on the 31st December, 1966, a notice under Section 221 of the Income-tax Act, 1961, was issued by the respondent-Income-tax Officer, on the petitioner to show cause why penalty should not be imposed on him for not paying the tax assessed. On the 11th January, 1967, another notice under Section 154/155 of the 1961 Act. was issued by the respondent-Income-tax Officer for rectification of the purported assessment made under Section 144 of that Act. On the 21st January, 1967, two applications were presented by the petitioner to the respondent-Income-tax Officer. In the first application the petitioner contended that the assessment was ultra vires as it was made under the 1961 Act and not under the 1922 Act, and therefore no question of penalty could arise. In the second, objection was taken to the competency of the notice of rectification of the order of assessment already made. On the 16th February, 1967, a notice of demand and a corresponding challan and the assessment order under Section 144 of the 1961 Act for the assessment year 1961-62 were served, on the assessee and on the same date the assessee made an application to the respondent-Income-tax Officer requiring him to cancel the assessment and to make a reassessment as he was not givenreasonable opportunity to comply with the notice dated the 17th March, 1966. The petitioner's aforesaid application was accepted and the respondent-Income-tax Officer cancelled the assessment and made a fresh assessment for the said year under Section 143(3)/146 of the 1961 Act on 6th September, 1967. The petitioner took an appeal from the aforesaid order of assessment and in the grounds of appeal objections were taken to the inclusion of certain items in the total income and there was an omnibus ground at the end, namely, that the assessment was otherwise bad in law in the facts and circumstances of the case. Apparently, before the Appellate Assistant Commissioner no arguments were advanced that the assessment was bad because it was made under the provisions of the 1961 Act and the Appellate Assistant Commissioner gave the petitioner certain reliefs by way of deductions which were given effect to by the respondent-Income-tax Officer under Section 250 of the 1961 Act in the order of assessment. No further appeals were taken by the petitioner to the Tribunal. On the 28th June, 1968, a challan was issued for realisation of the tax on the basis of the modified assessment and on the 18th July, 1968, the respondent-Income-tax Officer issued a notice under Section 221 of the 1961 Act on the petitioner to show cause why penalty should not be imposed for failure to pay the tax assessed and demanded within the time allowed by the Act. This rule was obtained on 20th August, 1968, calling upon the respondents, the Income-tax Officer, Howrah, the Appellate Assistant Commissioner and the Union of India to show cause why the aforesaid order of assessment as well as the demand for tax and the notice for showing cause why the penalty should not be imposed as well as the appellate order of the Appellate Assistant Commissioner should not be quashed.

2. Mr. J. C. Pal, learned counsel for the petitioner, referred me to the relative provisions of Section 297 of the Income-tax Act, 1961. Sub-section (1) repeals the Indian Income-tax Act, 1922. Sub-section (2) provides that notwithstanding the repeal of the 1922 Act,--

' (a) Where a return of income has been filed before the commencement of this 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 this Act had not been passed ;

(b) Where a return of income is filed after the commencement of this Act.... the assessment of that person for that year shall be made in accordance with the procedure specified in this Act. '

3. The Income-tax Act, 1961, was brought into operation from the 1st April, 1962. Mr. Pal contends that as in this case the petitioner's return for 1961-62 was filed before the 1st April, 1962, the assessment for that year should have been made under the provisions of the 1922 Act, the respondent-Income-tax Officer had no jurisdiction to make the assessmentunder the 1961 Act. As such the order of assessment and all subsequent proceedings were ultra vires and invalid and the order passed in appeal therefrom was also invalid and void. Mr. Pal further submitted that though the words used in Section 297(2)(a) are ' may be taken and continued ', the rule is mandatory and the Income-tax Officer has no option but to make the assessment under the provisions of the repealed Act. In this connection an observation made by the Supreme Court in Jain Brothers v. Union of India, : [1970]77ITR107(SC) . is instructive. In that case the question was whether the provisions in Section 297(2)(f) and (g) relating to the imposition of penalty in the 1961 Act should be applied to the case of an assessee whose assessment has been made under the repealed Act. Their Lordships observed that imposition of penalty could take place only after assessment had been completed and for this reason there was every justification for providing in Clauses (f) and (g) that the date of the completion of the assessment would be determinative of the enactment under which the proceedings for penalty were to be held. It might be that the legislature considered that a separate treatment should be given in the matter of assessment itself and under Clauses (a) and (b) of Section 297(2) the point of time when a return of income had been filed was made decisive for the purpose of application of the Act of 1922 or the Act of 1961. Mr. Pal's contention that in this case it was the provisions of the Act of 1922 that were applicable for the purpose of the petitioner's assessment for 1961-62 must be accepted. Mr. Pal next referred me to the penultimate paragraph in the judgment of the Supreme Court in Shivram Poddar v. Income-tax Officer, : [1964]51ITR823(SC) ., where after deprecating the practice of taking recourse to the High Court under Article 226 for obtaining relief in matters of assessment of income-tax as the Income-tax Act itself provided complete machinery for assessment and for relief in respect of improper or erroneous orders made by the revenue authorities, the court observed that resort to the High Court in exercise of its extraordinary jurisdiction conferred or recognised by the Constitution in matters relating to assessment, levy and collection of income-tax might be permitted only when questions of infringement of fundamental rights or where on undisputed facts the taxing authorities were shown to have assumed jurisdiction which they did not possess. According to Mr. Pal in this case on the undisputed facts the respondent-Income-tax Officer could have no jurisdiction to make the assessment under the 1961 Act and, hence, this court could exercise its extraordinary powers under Section 226 and quash the impugned orders.

4. Mr. Sen Gupta, the learned counsel for the respondents, submittedthat there could be no dispute that the respondent-Income-tax Officer hadthe jurisdiction to make the assessment of the petitioner in respect of theassessment year 1960-61. He had such jurisdiction under the relevant provisions of the Income-tax Act and such jurisdiction could not be taken away by his applying the wrong provisions of law in making that assessment. The provisions of the Income-tax Act for the assessment and recovery of tax from an assessee are in the nature of procedural law and an error committed in respect of such law does not go to the root of the jurisdiction of the Income-tax Officer which would invalidate any orders passed by him ab initio. Such an order would merely be an erroneous order which could be rectified or corrected by appropriate procedure in appeal or otherwise as provided in the Act itself. In Hazari Mal Kuthiala v. Income-tax Officer, Special Circle, Ambala Cantt., : [1961]41ITR12(SC) , the Supreme Court had to consider a case where the Commissioner of Income-tax, purporting to act under Section 5(7A) of the Indian Income-tax Act, made an order that the assessment of the petitioner-firm would be done by a particular Income-tax Officer, Ambala, and not by the Income-tax Officer, Patiala. It was contended by the petitioner that the officer at Ambala had no jurisdiction as the order of the Commissioner was ultra vires since it was not issued under the Patiala Act which applied to the case of the petitioner. This contention was negatived by the Supreme Court in the following words:

'The Patiala Income-tax Act contained provisions almost similar to Sections 5(5) and 5(7A) of the Indian Income-tax Act. Sub-section (5) differed in this that the Commissioner of Income-tax .vas required to consult the Minister-in-charge before taking action under that sub-section. The only substantial difference in the latter sub-section was that the Explanation which was added to Section 5(7A) of the Indian Income-tax Act as a result of the decision of this court in Bidi Supply Co. v. Union of India, : [1956]29ITR717(SC) ., did not find place in the Patiala Act. The Commissioner, when he transferred this case, referred not to the Patiala Income-tax Act, but to the Indian Income-tax Act and it is contended that if the Patiala Income-tax Act was in force for purposes of reassessment, action should have been taken under that Act and not the Indian Income-tax Act This argument, however, loses point, because the exercise of a power will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be natatory. This principle is well-settled : see Pitamber Vajirshet v. Dhondu Navlapa, [1888] I.T.R. 12 Bom. 486.. '

5. The Gujarat High Court had to consider a similar case where the Income-tax Officer issued a notice proposing to rectify under Section 154 of the 1961 Act an assessment order made on the petitioner under Sections 23(3)/34(1)(a) of the 1922 Act. The notice as well as the subsequentorder of rectification was challenged on the ground that as the assessment for the year 1949-50 could be and was made under the 1922 Act no rectification could be made under the provisions of the 1961 Act. Relying on the aforesaid observations of the Supreme Court the Gujarat High Court in P. M. Bharucha & Co. v. Venkatesan, Income-tax Officer, Circle I, Ward A, Bhaimagar, : [1969]74ITR513(Guj) ., held:

' It is, therefore, clear that proceedings for rectification of an order of assessment are proceedings for assessment and where an assessment order is made pursuant to a return of income filed before the commencement of the new Act, proceedings for rectification would, by reason of Section 297(2)(a), be governed by Section 35 of the old Act... It is, therefore, clear that the respondent had no power to make an order of rectification under Section 154 of the new Act ....

But that does not necessarily lead to the conclusion that tne order of rectification made by the respondent was without jurisdiction. It is now well-settled that a wrong reference to the power under which an order is made does not per se vitiate the order, if there is some other power under which the order could lawfully be made. The validity of the order has to be tested by reference to the question whether the Income-tax Officer had any power at all to make the order. If the power is otherwise established, the fact that the source of the power has been incorrectly described would not make the order invalid : the order cannot fail merely because it purports to be made under a wrong provision if it can be shown to be within the power of the Income-tax Officer under some other provisions of law. Now, though the order of rectification could not be made by the respondent under Section 154 of the new Act, it cannot be said that the respondent had no power at all to make it. The respondent had power to make an order of rectification under Section 35 of the old Act and the order of rectification could not, therefore, be regarded as an order made by the respondent without jurisdiction . . . The order of rectification cannot, therefore, be assailed as an order made in exercise of a power which did not exist; It was an order made in exercise of the power under Section 35 of the old Act.'

6. In this case also the respondent-Income tax Officer had abundant authority to make the assessment under the corresponding provisions of the the 1922 Act which are more or less in pari materia with the assessment sections of the 1961 Act. It cannot, therefore, be said that the order of assessment and the consequential orders and notices thereto were void ab initio as being without jurisdiction. Undoubtedly, the proper thing for the authorities would have been to rectify the order and make it in consonance with the provisions of the repealed Act of 1922. But. unfortunately, the fact that under the provisions of Section 297(2)(a) the assessment should have been made under the provisions of the old Act was not brought to the attention of either the respondent-Income-tax Officer or the respondent-Appellate Assistant Commissioner. Now, possibly it is too late for anybody to make any rectification of the impugned orders and notices. For this state of affairs the petitioner has nobody but himself to blame. He should have filed an appeal to the Tribunal from the order of the Appellate Assistant Commissioner and pointed out that the order of assessment was erroneous as it was not made under the provisions of the 1922 Act and the Tribunal could have passed the necessary orders enabling the respondent-Income-tax Officer to rectify the order of assessment. As I am satisfied that there was no initial lack of jurisdiction in the respondent-Income-tax Officer in making the assessment, this rule must be discharged. In the circumstances of the case, there will be no order as to costs. The interim order would stand discharged. The petitioner would be at liberty to apply for cancellation of the security furnished by him.


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