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Commissioner of Income-tax and ors. Vs. Mahabir Prasad Poddar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal from Original Order No. 147 of 1970
Judge
Reported in[1974]93ITR215(Cal)
ActsIncome Tax Act, 1961 - Section 132, 132(1), 132(8) and 132(10)
AppellantCommissioner of Income-tax and ors.
RespondentMahabir Prasad Poddar
Appellant AdvocateDipak Sen and ;Suhas Sen, Advs.
Respondent AdvocateNone
Cases ReferredAssistant Collector of Customs v. Charan Das Malhotra
Excerpt:
- .....authorities contended that an order was made by the additional collector of customs extending the period of detention for a further period of 6 months and, therefore, they were competent to hold on to the goods seized for a further period of 6 months. the question that arose for consideration was whether the order of extension was valid because this order was not communicated to the party whose goods were seized. it was held that the order of extension did not become effective merely by passing the order and that it could become effective only on service of the same upon the party. it was further held that as the order was never issued and never communicated to the party, the order could not be treated to be an effective order authorising detention of the goods and, on that ground, it.....
Judgment:

B.C. Mitra, J.

1. The short points involved in this appeal and the other two appeals No. 155 of 1970 and No. 156 of 1970 are, firstly, whether the revenue has a statutory obligation to communicate to the first and second respondents the approval granted by the Commissioner of Income-tax for detention of books of account and documents seized under a warrant issued under Section 132(1) of the Income-tax Act, 1961, hereinafter referred to as the Act, and, secondly, whether an opportunity of being heard should have been given to the persons interested in the return of the books and documents before an order of approval is made by the Commissioner of Income-tax under Section 132(8) of the Act.

2. On August 30, 1965, several officers of the income-tax department entered the office of the first respondent at 62, Bentinck Street, his chamber at 3, Bysak Digbi Lane, and his residence at 14/1, Hariram Goenka Street, on the authority of warrants of authorization issued under Section 132 of the Act. After the search, the officers seized a large number of books, documents and papers belonging to the first respondent. Some of the documents seized were returned to the first respondent on February 8, 1966; some further documents were returned on February 10, 1966, and again on February 16, 1966. It is common case that certain other documents and papers are still being kept by the revenue and have not been returned to the first respondent in spite of demands. Aggrieved by this decision, the first respondent obtained a rule nisi for appropriate writs and orders directing the return of the books, documents and records. This rule was made absolute by a judgment and order dated January 9, 1970, against which this appeal has been preferred.

3. Section 132(8) of the Act provides that books of account and other documents which have been seized under Section 132(1) of the Act shall not be retained for a period exceeding 180 days from the date of seizure, unless reasons for retaining the same are recorded by the Income-tax Officer in writing and the approval of the Commissioner is obtained for such retention. Relying on this provision in the Act, it was argued by counsel for the appellants that the statute imposed no obligation on the revenue to communicate the approval of the Commissioner of Income-tax to the party. In other words, it was contended that, in the absence of a mandatory provision in the Act providing for communication of the order of approval, the revenue argued, that the order for search and seizure is not directed against a particular individual or a firm or a company. The authorization directs search and seizure of books from certain premises. The search and seizure are not directed against the premises. The search and seizure are not directed against a particular party so that the Income-tax Officer would communicate an order of approval to the party from whom books have been seized. It may be, it was argued, that books and documents lying in a particular premises may belong to different parties, and it may as well be, it was argued, that the revenue would not know to whom the books belong. It was for that reason, it was further submitted, that no provision had been made in Section 132(8) of the Act to communicate the approval of the Commissioner of Income-tax to any party.

4. It was argued, on the other hand, by counsel for the first and second respondents that the approval contemplated by Section 132(8) of the Act must be communicated to the party who is affected by the order of retention of the books. It was submitted that unless that was done, the order approving the detention was not a valid order at all. Secondly, it was argued, that unless the order was communicated to the party affected, the application contemplated by Sub-section (10) of Section 132 of the Act could not be made by the party aggrieved by the order for detention of the books. It was also argued that the very foundation of an application under Section 132(10) of the Act was the order of approval, and unless that order was communicated to the party claiming return of the books, it would never be possible to make the application contemplated by Section 132(10).

5. In support of his contention, counsel for the appellant relied upon a decision of the Supreme Court in Mohammad Afzal Khan v. State of Jammu and Kashmir, : 1957CriLJ320 , for the proposition that an order made in a matter need not be communicated to the person concerned. That was, however, a case relating to an order of detention made under the Jammu and Kashmir Preventive Detention Act. The petitioner, in that case, was arrested under an order made by the State Government. He duly submitted his representation and thereafter made an application to the State High Court under Section 491 of the Code of Criminal Procedure. The State Government had reviewed the case of the petitioner under Section 4(2) of the said Act in consultation with a person nominated for the purpose and was satisfied that the detention should continue. During the pendency of the habeas corpus petition, the State Government made the order continuing the detention. Thereafter, orders were made extending the petitioner's detention from time to time. A second petition by the petitioner under Section 491 of the Criminal Procedure Code was also dismissed. The contention on behalf of the petitioner that the order of detention must be communicated to the petitioner was rejected. It was further held that failure to communicate the order does not make the detention illegal. This decision, in our view, is of no assistance to the appellant in this case, because the provisions in Section 14 of the Jammu and Kashmir Preventive Detention Act are not in pari materia with Section 132 of the Income-tax Act, 1961. Secondly, the question in this appeal is that the respondent's right to apply to the Central Board of Revenue is affected by reason of non-communication of the order of approval. No such point was involved in the case before the Supreme Court. Counsel for the appellant also relied on another decision of the Supreme Court in Bidya Deb Barman v. District Magistrate, Tripura, : 1969CriLJ525 . That again was a case under the Preventive Detention Act.

6. On the question of communication of the order to the detenu, it was held that there was no provision in the Act that an approval of the detention order must be communicated to the detenu. For the reasons mentioned above, this decision is also of no assistance to the appellant in this case. Reliance was placed by the counsel for the appellant on another decision of the Supreme Court in S. Narayanappa v. Commissioner of Income-tax, : [1967]63ITR219(SC) . In that case it was held that proceedings for assessment or reassessment under Section 34(1) of the Indian Income-tax Act, 1922, started with the issue of a notice and it was only after the service of the notice that the assessee whose income was sought to be assessed becomes a party to those proceedings and that the earlier stage of the proceeding for recording the reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. While this decision is an authority for the proposition that the recording of reasons and obtaining the approval of the Commissioner under Section 132(8) of the Act, for retention of the books, beyond the prescribed period of 180 days is administrative in character and not quasi-judicial, it is no authority for the proposition that the order approving the detention of the books need not be communicated to the party affected.

7. Counsel for the respondent, on the other hand, contended that his client was vitally affected by the detention of the books and documents. He argued that the statute authorised detention of the books for a limited period of 180 days but the detention could be continued beyond that period upon two conditions being fulfilled, namely : (i) that the Income-tax Officer has recorded reasons for detention of the books beyond a period of 180 days, and (ii) that the Commissioner has made an order giving his approval to such detention. Therefore, it was argued that the law authorised the department to detain the books beyond the limited period on fulfilment of two conditions and where an order approving such detention was made by the Commissioner, such an order would not be a valid and lawful order until it was communicated to the party affected. In support of this contention counsel for the respondent relied on an unreported Bench decision of this court in Matter No. 257 of 1967 (I. T. Rao v. Bilahute Bhudan Bag). That was, however, a case of search and seizure under Section 110 of the Customs Act, 1962. Under section 110 of the Customs Act, the customs authorities are required to return the goods seized upon expiry of 6 months from the date of seizure unless a notice under Clause (a) of Section 124 of the Act is served in the meantime. The goods, however, may be detained beyond the period of 6 months although a notice under Section 124(a) had not been served provided the Collector of Customs extends the period by an order made and sufficient cause is shown in terms of the proviso to Subsection (2) of Section 110 of the Act. The customs authorities contended that an order was made by the Additional Collector of Customs extending the period of detention for a further period of 6 months and, therefore, they were competent to hold on to the goods seized for a further period of 6 months. The question that arose for consideration was whether the order of extension was valid because this order was not communicated to the party whose goods were seized. It was held that the order of extension did not become effective merely by passing the order and that it could become effective only on service of the same upon the party. It was further held that as the order was never issued and never communicated to the party, the order could not be treated to be an effective order authorising detention of the goods and, on that ground, it was held that the detention of the goods beyond the period of 6 months was illegal. Relying on this decision, counsel for the respondent urged that in this case also, although there were allegations that the Commissioner had made several orders authorising detention of the goods beyond the period prescribed by Section 132(8) of the Act, none of the orders had been communicated to the respondent, and, therefore, these orders have not become effective and binding on the party. It was, therefore, argued that since there was no valid and effective order of detention of books, such detention beyond the period of 180 days is illegal. It seems to us that the contention of the counsel for the respondent that an order in order to be an effective order must be communicated to the party who is affected by the order is sound. It is now well-settled that where an order is made by an authority, competent to make the same, if by such an order a party is to be affected or prejudiced, the order must be communicated to that party in order to be an effective order and in the absence of such communication such an order cannot be said to be a valid order having the effect of prejudicing the rights of parties; See Bachhittar Singh v. State of Punjab, : AIR1963SC395 , State of Punjab v. Amar Singh Harika, : (1966)IILLJ188SC and Nripendra N. Majumdar v. N. M. Bardhan, : AIR1959Cal219 . Where an order has the effect of depriving a person of his right to property or otherwise affecting him prejudicially, such an order to be effective and valid must be communicated to the party whose rights are affected and who is otherwise prejudiced by the order. An order made by an authority under a statutory provision does not become an order as soon as it is drawn up and signed. It does not become an effective and valid order until it is served upon the party affected. If it is allowed to remain in the office file without being communicated to the party affected, it could never acquire the character of a valid order under the statute which authorised the making of such an order. I should not be understood, however, to say that all orders made, under a statute of whatever description must be published and communicated. The requirement of communication arises only when a party is likely to be deprived of his right to property or is likely to be otherwise prejudiced by the order. Before proceeding to consider the next contention of the counsel for the appellant, I should refer to another decision of the Supreme Court, on which reliance was placed by counsel for the respondent on this point, namely, Commissioner of Income-tax v. Jawahar Lal Rastogi, : [1970]78ITR486(SC) . That decision is, however, an authority for the proposition that, in exercise of the powers under Section 32 of the Act, indiscriminate search and seizure cannot be carried out by the department. It is also an authority for the proposition that detention of all books and documents for a period exceeding 180 days without complying with the requirements of the statute is illegal. We do not, however, see how this decision is of any assistance to the respondent so far as the question of communication of the order to him is concerned.

8. All in all, it seems to me that the approval of the proposal of the authorised officer for retention of the books beyond the period of 180 days must be communicated to the party affected by the order. Counsel for the appellants strenuously argued that, since the books and documents were seized from a premises and not from a person, it would not be known to the department as to whom the order was to be communicated, and since the department would not know the party to whom the order was to be communicated, the duty or obligation to communicate the Commissioner's approval ought not to be imposed upon the department. While I do not see any great difficulty in ascertaining the name of the person who had the custody or possession of the books seized, the provision in Sub-section (10) of Section 132 seems to me to be decisive on the question. That Sub-section gives a person, legally entitled to the books, the right to apply to the Board, stating in such application the reasons for his objection to the approval given by the Commissioner under Sub-section (8). This is a statutory right and in order to exercise this right, the person legally entitled to the books must know when the order was made and for what period and for what further period beyond 180 days the books are sought to be retained. A closer look at the provisions in Sub-section (10) will abundantly make it clear that the person legally entitled to the books has been given the right to apply to the Board against each order of approval made by the Commissioner. It should not be overlooked that under the proviso to Sub-section (8) the Commissioner may authorise retention of the books for any length of time but the period of retention should not exceed 30 days, after all the proceedings under the statute have been completed. Therefore, it is possible for the Commissioner to give his approval to a proposal for retention of the books any number of times and for any length of period subject to the limitation in the proviso. Against each order of approval made by the Commissioner, the person legally entitled to the books has the right to apply to the Board for return of the books to him. This statutory right would be completely denied to the party legally entitled to the books if he is not told when the order of approval was made and for what length of time. In considering a question such as this, due regard must be paid to the object sought to be attained by the statute. The legislature clearly intended that the party legally entitled to the books must have an opportunity of agitating his grievance against the order of retention approved by the Commissioner, by an application to the Board, and difficulties of serving the notice upon the person affected, which may aot be real in most cases cannot, in my view, be set up to deny and defeat the statutory right to a person legally entitled to the books.

9. A good deal was sought to be made out of the question that the person legally entitled to the books who has been given a right to apply to the Board under Sub-section (10) may not be the person from whose custody the books have been seized. It was argued that it will be impossible to the authorised officer to determine who is the person legally entitled to the books as he has no power to determine a dispute with regard to the ownership of the books. I do not, however, visualise any difficulty at all because the person legally entitled to the books may be a person different from the person from whose possession or custody the books have been seized. Assuming that the two persons are different, the department's obligation will be fully discharged, if the approval of the Commissioner to the order of retention and the period for which the books are to be retained are communicated to the person from whose custody the books have been seized. If such a person is not the legal owner of the books, it will not be for the department to look out and determine the legal owner and communicate the Commissioner's approval to him over again. It will be for the person legally entitled to the books, if he is not the person from whose custody the books have been seized, to make such enquiries, as he can, to find out the person from whose custody the books had been seized and all the particulars relating to the Commissioner's approval to enable him to exercise his right of applying to the Board under Sub-section (10) of the Act. That, in our view, is the answer to the contention raised on behalf of the appellants that communication of the Commissioner's order of approval to the pirty from whose possession books have been seized may not enable the person legally entitled to the books to exercise his right under Sub-section (10) of the Act. We, therefore, hold that the trial court was right in coming to the conclusion that, since the approval of the Commissioner was not communicated to the respondent, the order of retention of the books and documents beyond the period of 180 days was not a valid order under Section 132(8) of the Act.

10. I now proceed to consider the next contention of the respondents that an opportunity of being heard should have been given to the respondents before the Commissioner approved the retention of the books beyond the period of 180 days. Although this point was taken in the petition by the first respondent, it was not argued in the trial court. The only point taken before the trial court was that the approval given by the Commissioner under Section 132(8) of the Act was not a valid order because it was not communicated to the first respondent.

11. Mr. Pal argued that the provision in Sub-section (8) authorising the Commissioner to give his approval to the retention of the books beyond the prescribed period, required a judicial or quasi-judicial approach. It was submitted that the order of the Commissioner giving approval was not an administrative or executive order which could be made by him without hearing the party who is likely to be affected by the order. It was further argued that the provision, that reasons for retaining the books should be recorded by the authorised officer and these reasons must be valid and relevant for the purpose for retention of the books beyond the period of 180 days (sic). The statute provided, it was argued, that valid and relevant reasons must be recorded before the Commissioner could give his approval to the retention of the books beyond a prescribed period and such reasons should not be arbitrary and irrelevant. The authorised officer, it was further argued, must apply his mind to the necessity for retention of the books beyond the prescribed period and must record some valid reasons to justify retention beyond the prescribed period. It was next contended that the party affected by the order of retention should be heard on the question of requirement for retention beyond the prescribed period and for that purpose he should be given the opportunity to controvert and dispute the reasons recorded by the authorised officer. In support of this contention reliance was placed by the counsel for the respondents on a decision of the Supreme Court in Assistant Collector of Customs v. Charan Das Malhotra, : 1973ECR1(SC) . In that case, the Supreme Court considered the proviso to Sub-section (2) of Section 110 of the Customs Act, 1962. This proviso says that the period of 6 months during which the goods may be retained under Section 110(2) may, on sufficient cause being shown, be extended by the Collector of Customs for a period not exceeding 6 months. Dealing with the question whether an opportunity should be given by the Collector of Customs before making an order of detention of the goods beyond the period of 6 months, the Supreme Court held that there could be no doubt that the proviso mentioned above contemplated some sort of inquiry and the Collector was not expected to make the order of extension mechanically or as a matter of routine but only on being satisfied that there existed facts which indicated that the investigation could not be completed within the time prescribed by Section 110(2), and for that reason extension became necessary. It was further held that the necessity for detention of the goods beyond 6 months was not a matter of subjective satisfaction of the Collector. With regard to the nature of the power under the proviso to Section 110(2) it was held that the power was quasi-judicial or at any rate one requiring a judicial approach and, consequently, an opportunity of being heard ought to have been given to the party whose goods were seized.

12. It is to be seen that the decision of the Supreme Court was based on the terms of the proviso to Section 110(2) of the Act which requires that the order could be made by the Collector of Customs 'on sufficient cause being shown' There is no such provision in Section 132(8) of the Act. The only requirement in Section 132(8) is that the authorised officer should record reasons for retaining the books before the Commissioner could give his approval to such retention. Secondly, it should not be overlooked that Section 132 of the Act specifically provided for giving an opportunity of being heard in some of the Sub-sections, for instance, there is a provision in Sub-section (5) that the Income-tax Officer should afford a reasonable opportunity to the person concerned of being heard. Again, in subsection (12) it is provided that on receipt of an application under subsection (10), or on receipt of an application under Sub-section (11), the notifying authority may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. The legislature, therefore, has provided for an opportunity of being heard being given to a party whenever such an opportunity is intended to be given. But there is no such provision in Sub-section (8) requiring the Commissioner to give an opportunity of being heard being given to the party before making an order approving the retention of the books beyond the prescribed period. It is clear that Parliament has deliberately left out any such provision of opportunity of being heard given to a party in Sub-section (8) and this omission should not be lost sight of, nor should it be ignored in dealing with the contention of the respondent that the order of approval is bad as no opportunity of being heard was given to him before it was made. On this question, reference remains to be made to a decision of the Supreme Court in S. Naraya-nappa v. Commissioner of Income-tax, In that case proceedings were started against an assessee under Section 34(1) of the Indian Income-tax Act, 1922, and a reference Was made to the High Court on the question whether the Income-tax Officer had jurisdiction to initiate proceedings for assessment under Section 34(1)(a) of the Indian Income-tax Act, 1922. One of the contentions on behalf of the assessee was that the Income-tax Officer should have communicated to him the reasons which led the officer to initiate the proceedings under Section 34 of the Act. Dealing with this contention, the Supreme Court held, at page 222 of the report, as follows:

'In our opinion, the argument of the appellant on this point is misconceived. The proceedings for assessment or reassessment under Section 34(1)(a) of the Income-tax Act start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier stage of the proceedings for recording the reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. The scheme of Section 34 of the Act is that if the conditions of the main section are satisfied, a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22. But. before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under Section 34 and obtain the sanction of the Commissioner who must be satisfied that the action taken under Section 34 was justified. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under Section 34 must also be communicated to the assessee.'

13. Although that was a decision under Section 34 of the Indian Income-tax Act, 1922, the observations of the Supreme Court that the earlier stages of the proceedings for recording reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and not quasi-judicial, are very relevant and pertinent. There is nothing in Section 132(8) of the Act to indicate that the Commissioner should have a quasi-judicial approach in giving his order of approval to the retention of the books. On the other hand, it seems to us that the order of the Commissioner in giving the approval is nothing but an administrative order and the respondent is not entitled to a show-cause notice or to an opportunity of being heard before the Commissioner makes the order approving retention of the books beyond the prescribed period. I must emphasize that, in this case, the two significant features are, firstly, that the statute has clearly provided for an opportunity of being heard being given to a party in some of the other Sub-sections of Section 132 and no such provision has been made in Sub-section (8). Secondly, the statute does not require that the reasons recorded by the authorised officer should be communicated to the party affected by the order, nor that such a party should be heard by the Commissioner before he made the order approving the retention of the books beyond the prescribed period.

14. For the reasons mentioned above, this appeal fails and is accordingly dismissed. There will be no order as to costs.

A.K. Sinha, J.

15. I agree.


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