Skip to content


Commissioner of Income-tax Vs. Keshardeo Bubna - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 209 of 1974
Judge
Reported in[1984]146ITR113(Cal)
ActsIncome Tax Act, 1961 - Sections 143, 144, 147 and 148
AppellantCommissioner of Income-tax
RespondentKeshardeo Bubna
Appellant AdvocateS.K. Mitra and ;M.L. Bhattacharjee, Advs.
Respondent AdvocateD. Pal and ;Manas Banerjee, Advs.
Cases ReferredIndian Aluminium Cables Ltd. v. Excise and Taxation Officer
Excerpt:
- .....notices also did not have any column for that purpose. in response to these notices the assessee filed returns on 17th february, 1967, showing the status of huf on which the ito completed the assessments determining the total income at rs. 34,759 for the assessment year 1964-65 and rs. 29,507 for the assessment year 1965-66.3. the assessee filed appeals before the aac and contended that the assessments were illegal and ab initio void. it was pointed out that whereas the assessments were completed in the status of huf, the notices under section 148 were issued in the name of sri keshardeo bubna without giving any indication of the status of the assessee. it was argued that the notices under section 148 which were addressed to the individual, sri keshardeo bubna, could not be made a.....
Judgment:

Suhas Chandra Sen, J.

1. The Income-tax Appellate Tribunal has referred the following two questions of law to this court under Section 256(1) of the I.T. Act, 1961 :

'1. Whether, on the facts and in the circumstances of the case, the return of income furnished by the assessee was a valid return of income within the meaning of Section 139(4) read with Section 139(1) of the I.T. Act, 1961 ?

2. If the answer to question No. 1 is in the affirmative, then, whether, on the facts and in the circumstances of the case, the Tribunal was correct in cancelling the assessment made by the Income-tax Officer within four years from the end of the relevant assessment year on the basis of the return of income furnished by the assessee as void ?'

2. The facts briefly are that there was a search in the premises of the assessee in December, 1965, and some account books were seized therefrom. On a perusal of those books the ITO came to believe that the income of the assessee from pawn-broking business for the assessment years 1964-65 and 1965-66 had escaped assessment. He, therefore, served notices under Section 148 for these two years on the assessee on 3rd February, 1967. No status was shown in those notices. The notices also did not have any column for that purpose. In response to these notices the assessee filed returns on 17th February, 1967, showing the status of HUF on which the ITO completed the assessments determining the total income at Rs. 34,759 for the assessment year 1964-65 and Rs. 29,507 for the assessment year 1965-66.

3. The assessee filed appeals before the AAC and contended that the assessments were illegal and ab initio void. It was pointed out that whereas the assessments were completed in the status of HUF, the notices under Section 148 were issued in the name of Sri Keshardeo Bubna without giving any indication of the status of the assessee. It was argued that the notices under Section 148 which were addressed to the individual, Sri Keshardeo Bubna, could not be made a valid foundation for proceedings to reassess the income of the HUF of which Sri Bubna was the karta. The AAC held that the notices were defective and not valid in the eye of law and as such the assessment proceedings based on the same were ab initio void. He accordingly cancelled both the assessments.

4. Before the Tribunal it was contended on behalf of the ITO that on the facts of this case a valid notice has been issued by the ITO under Section 147 of the I.T. Act. It was also argued that the returns filed by the assessee were valid as these returns could have been filed voluntarily on the dates they were filed under the provisions of Section 139(4) of the I.T. Act.

5. The Tribunal held that the notices served on the assessee were defective in so far as the assessee's status was not mentioned therein. In regard to the departmental representative's reliance on the case of Raman Chettiar : [1965]55ITR630(SC) , it was held that this decision turned on a different point, namely, obtaining of the sanction of the Commissioner and so the same was of no help to the Department. The departmental appeals were accordingly dismissed.

6. When the application for reference under Section 256(1) was taken up by the Tribunal, it was argued on behalf of the assessee that the question whether the returns filed by the assessee could be treated as returns filed voluntarily under Section 139(4) was not raised before the AAC and this point should not have been allowed to be raised before the Tribunal for the first time. The Tribunal pointed out that there was no objection by the assessee to the raising of this point which was a pure question of law when the appeal was actually argued before the Tribunal. The Tribunal, therefore, referred the two questions of law to this court.

7. This case relates to the assessment years 1964-65 and 1965-66. The returns pursuant to notices under Section 148 were filed by the assessee in the status of HUF on 17th February, 1967. It has been argued that the notices were, issued under Section 147 on the assessee on 3rd February, 1967, in respect of both the assessment years. The Tribunal has held that the notices were bad. That finding, however, will not render the assessments bad because the returns having been filed within a period of four years could be treated as valid returns and assessments could be made on these returns in accordance with law.

8. This argument advanced on behalf of the Revenue finds support from the decision of the Supreme Court in the case of CIT v. S. Raman Chettiar : [1965]55ITR630(SC) . In that case for the assessment year 1944-45, the ITO issued a notice under Section 34 of the Indian I.T. Act, 1922, on April 3, 1948. A return was filed by the assessee pursuant to the notice on September 4, 1948. Prior sanction of the Commissioner for issue of the notice under Section 34 had not been obtained; the assessee also disclosed his income below the taxable limit. The proceedings for assessment were dropped by the ITO. In the case of assessment proceedings for the year 1945-46, the Appellate Tribunal held that a sum of Rs. 46,760 was assessable in the assessment year 1944-45. Thereupon, the ITO issued a notice under Section 34 on February 27, 1953, in respect of the assessment year 1944-45, and passed an assessment Order on June 30, 1953. The validity of the notice issued under Section 34 on February 27, 1957, and the assessment made pursuant thereto on 30th June, 1953, was challenged. It was argued on behalf of the assessee that 'in this case assessment could have been made by the ITO till March 31, 1949, under Section 23 treating the return as one made under Section 22'. The Supreme Court in that context observed as follows (p. 634):

'Section 22(3) permits an assessee to furnish a return at any time before the assessment is made. By virtue of Section 34(3), as it stood in 1949, assessment could have been made at least up to March 31, 1949, if the return was valid. Therefore, it may be implied, as laid down in S. Santosha Nadar v. First Additional Income-tax Officer, Tuticorin : [1961]42ITR715(Mad) and Commissioner of Income-tax v. Bhagwandas Amersey : [1963]50ITR239(Bom) , that the return must be filed before the time mentioned in Section 34(3). This condition is, however, satisfied in the case. Mr. Sastri says that it is further implicit in Section 22(3) that the return must be voluntary. We are-unable to appreciate that every return made under Section 22(3) must be a voluntary return, in the sense that it must be suo motu. If a return is made in pursuance to a general notice under Section 22(1), or a special notice under Section 22(2), it is a return made voluntarily but not suo motu. It is a return made in response to a public notice or a special notice. If no return is made in response to notices under Section 22(1) and Section 22(2), the Act attaches certain penalties. In our view, it is not correct first to describe a return made under Section 22(3) in response to a notice under Section 22(1) or Section 22(2) as voluntary, and then say that a return made in response to a notice under Section 34 is not voluntary just because it warns the assessee that some income has escaped assessment. In our opinion, both types of returns are under Section 22(3) of the Act. In the first type of cases it is directly under Section 22(3). In the case of a notice under Section 34, it is deemed to be a notice under Section 22(2) and the return deemed to be a return under Section 22(3). From the language of Section 22(3), we are unable to say that the return dated September 4, 1948, was not a return within Section 22(3).'

9. On behalf of the assessee it has been contended that the Supreme Court has laid down a contrary proposition of law in the case of CIT v. K. Adinarayana Murthy : [1967]65ITR607(SC) . If the notice under Section 148 is invalid, the return filed pursuant to such a notice is also non est and no assessment can be made on the basis of such a return. It has been further argued that there is a conflict between the two judgments of the Supreme Court in the cases of CIT v. K. Adinarayana Murthy : [1967]65ITR607(SC) and CIT v. S. Raman Chettiar : [1965]55ITR630(SC) , and the later decision of the Supreme Court should be followed.

10. In our opinion, there is no conflict between the two decisions of the Supreme Court that has been cited before us. In the case of CIT v. K. Adinarayana Murthy : [1967]65ITR607(SC) , a notice under Section 34 was issued for the assessment year 1949-50 on March 22, 1957, in the status of an individual. A return had been filed by the assessee pursuant to that notice. The ITO, however, dropped the proceedings pursuant to the first notice and issued a fresh notice under Section 34 on February 12, 1958, which was served on the assessee describing the assessee as an HUF, The question that came up before the Supreme Court was whether it was competent for the ITO to issue the second notice dated February 12, 1958, ignoring the return already filed by the assessee in pursuance of the first notice under Section 34. It was argued before the Supreme Court that the assessee filed his return in the status of an HUF in response to the first notice and the ITO ought not to have ignored that return. The Supreme Court repelled that argument and observed (p. 610) :

'We are unable to accept the argument put forward on behalf of the assessee as correct. The Income-tax Officer could not have validly acted on the return filed by the assessee in the status of 'Hindu undivided family' and any assessment made by the Income-tax Officer on such return would have been invalid in law because the notice under Section 34 had been issued in the status of 'individual' and sanction of the Commissioner for the issue of a notice under Section 34 was also obtained on that basis. We, therefore, consider that the Income-tax Officer was entitled to ignore the return filed by the assessee as non est in law. It is not disputed that the Income-tax Officer issued the first notice under Section 34 of the Act on March, 22, 1957, to the assessee in the status of 'individual', The Appellate Tribunal has stated in paragraph 3 of the statement of the case that the Income-tax Officer had taken the view that the correct status of the assessee was 'individual' and in accordance with that view 'a notice under, Section 34 was issued to the assessee as above for making an assessment in the status of 'individual'. As there was some ambiguity in the statement of the case on this point, we referred to the original file of the income-tax proceedings and satisfied ourselves that the assertion of fact made in the statement of the case is correct. It appears that on February 13, 1957, the Income-tax Officer had applied for the sanction of the Commissioner for instituting proceedings under Section 34(1)(a) of the Act against the assessee to make an assessment in the status of an 'individual' with regard to the procurement agency business. Sanction of the Commissioner was given to the proposal of the Income-tax Officer and thereafter the first notice under Section 34 of the Act was issued on March 22, 1957. In this state of facts we are of opinion that the proceeding taken under the first notice under Section 34 of the Act was invalid and ultra vires. The correct status of the assessee was that of 'Hindu undivided family' as was held by the Appellate Assistant Commissioner in the assessment for the year 1954-55, and since the first notice under Section 34 was issued to the asses-see as an 'individual' for making assessment in that status, it is manifest that the proceedings taken under that notice were illegal and without jurisdiction. Under the scheme of the income-tax Act the 'individual' and the 'Hindu undivided family' are treated as separate units of assessment and if a notice under Section 34 of the Act is wrongly issued to the assessee in the status of an 'individual' and not in the correct status of 'Hindu undivided family' the notice is illegal and all proceedings taken under that notice are ultra vires and without jurisdiction.'

11. It has to be borne in mind that when the notice dated March 22, 1957, was issued, the ITO could not lawfully make an assessment under Section 23 and the assessee could not file a valid return of income for the assessment year 1949-50. The proceedings for assessment had become barred by limitation and the only way an assessment could have been made on that date was by taking recourse to the provisions of Section 34. By issuing a notice under Section 34 in the status of an individual, the ITO could not have assessed the assessee in the status of an HUF. Even if the assessee filed a return voluntarily as an HUF after limitation had set in, the ITO could not proceed to assess the HUF without invoking the jurisdiction for doing so by issuing a proper notice under Section 34. Seen in the context of the facts of the two cases, there does not appear to be any conflict between the two judgments of the Supreme Court.

12. The facts of the case before us are similar to the facts of the case of Rawan Chettiar : [1965]55ITR630(SC) . In this case the assessee could have filed returns for the assessment years 1964-65 and 1965-66 at any time before 31st March, 1969, and 31st March, 1970. The returns were actually filed on 17th February, 1967. The assessments were completed on 28th March, 1969, and there was no legal impediment to completing those assessments. The ITO in this case did not have to fall back upon a notice under Section 148 to overcome the period of limitation or to reopen a completed assessment. It has been argued on behalf of the assessee that if the notice under Section 148 is held to be bad, it must follow that the returns made in pursuance of it must also be treated as bad. The Supreme Court in the case of CIT v. S. Raman Chettiar : [1965]55ITR630(SC) , specifically rejected this argument and held that there was no substance in this contention. The Supreme Court Observed that 'we are unable to appreciate that if the Income-tax Officer had based his assessment on the return treating it to be a return under Section 22(3), the assessment would not stand a moment's scrutiny.'

13. In that view of the, matter in this case the return being a valid return, the assessment made on that return cannot be said to be bad merely because the notice under Section 148 was held to be defective by the Tribunal. In this case it has further to be borne in mind that for issuing a notice under Section 148 within a period of four years from the end of the assessment year, the ITO did not have to obtain the sanction of the Commissioner. He could have proceeded to make an assessment under Section 143 or under Section 144 even without any return being filed by the assessee. He had jurisdiction to pass the orders of assessment under Section 143 or Section 144 and he did not have to invoke the jurisdiction by issuing a notice under Section 148 as in the case of Adinarayana Murthy : [1967]65ITR607(SC) .

14. An argument was advanced on behalf of the assessee that this construction of law should be avoided because in that event the ITO will have an unfettered discretion to start the proceeding under Section 148 or to make a regular assessment under Section 143 or Section 144 in all cases of reopening of assessment within a period of four years. We are unable to accept this contention. The proceedings for the assessment whether in a case of reopening under Section 147 and 148 or in a regular assessment under Section 143(3) are not different. Even in a case where a notice has been issued under Section 148 assessment will have to be done under the provisions of the I.T. Act as if the notice was a notice under Section 139(2) of the I.T. Act. This has been specifically provided by Section 148. Therefore, there is no question of two alternative procedures for assessment being open to the ITO, one in case of a notice under Section 148 and another in case of a regular assessment under Section 143.

15. It has also been argued that unlike the repealed Act, the Act of 1961 provides for an assessment under Section 147 itself. It has been argued that under the old Act under Section 34 only a notice could be issued but the assessment had to be done under Section 23 whereas under the new Act it has been specifically provided that under Section 147 'the Income-tax Officer may assess or reassess'. The phraseology used in Section 34 is that the ITO 'may proceed to assess or reassess'. It has been argued that the significance of the difference between the two phraseologies 'proceed to assess and reassess' has been pointed out by the Supreme Court in the case of Indian Aluminium Cables Ltd. v. Excise and Taxation Officer, : [1977]1SCR716 . In our opinion, the scheme of assessment proceedings under Section 34 of the repealed Act and the proceedings under Sections 147 and 148 of the new Act are not different in the way it has been suggested. Section 147 merely authorises the ITO to make an assessment. It is not an assessing section by itself. The ITO will have to fall back upon Section 143 or Section 144 to complete the assessment proceeding. The decision of the Supreme Court in the case of Indian Aluminium Cables Ltd. v. Excise and Taxation Officer, : [1977]1SCR716 , does not render any assistance to the contention of the assessee. In that case the Supreme Court was construing the provisions of the Punjab General Sales Tax Act. An argument was made on behalf of the appellant in that case that the assessing authority could not assess the tax payable by the appellant on the expiry of the period of five years from the end of each quarter. The Supreme Court repelled that argument and observed (p. 24 of 39 STC):

'If a dealer does not file a return being liable to pay tax, then action under Sub-section (5) or Sub-section (6), as the case may be, has to be taken by the assessing authority within the period of five years prescribed therein. The expression proceed to assess ' in those two Sub-sections as also in Sub-section (4) means taking some effective step towards proceeding to make the best judgment assessment in accordance with the Sub-section which may be applicable. In a given case action may be taken under Section 11A(1) of the Act treating the case as a case of escaped assessment within the meaning of the said section. But the assessing authority has got to proceed to assess or reassess within five years following the close of the year for which the turnover is proposed to be assessed or reassessed. '

16. Strong reliance has been placed by the assessee on the passage we have extracted above from the judgment of the Supreme Court. In our opinion, the problem before us is quite different. The distinction between 'assess' and 'proceed to assess' does not throw any light on the question before us.

17. In view of the facts of this case, and in view of the principles laid down by the Supreme Court in the case of CIT v. S. Raman Chettiar : [1965]55ITR630(SC) , the assessment orders must be held to be validly made.

18. We, therefore, answer the first question in the affirmative and in favour of the Revenue. The second question is answered in the negative and in favour of the Revenue.

19. Each party will bear and pay its own costs.

Sabyasacht Mukharji, J.

20. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //