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G.D. Jatia and ors. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome Tax Reference No. 63 of 1972
Judge
Reported in[1980]122ITR1023(Cal)
ActsIndian Income Tax Act, 1922 - Sections 22, 22(2), 22(4), 23, 24B, 24B(3) and 34(1A)
AppellantG.D. Jatia and ors.
RespondentCommissioner of Income-tax
Appellant AdvocateDebi Pal and ;S. Dutta, Advs.
Respondent AdvocateSuhas Sen and ;Ajoy Mitra, Advs.
Cases ReferredIn C. A. Abraham v. Income
Excerpt:
- .....with law.3. thereafter, on july 28, 1962, the ito issued a notice under section 22(4) to the legal representatives of the said assessee, who, however, did not comply with such notice. on august 13, 1962, total income of the deceased for the said assessment year was reassessed at rs. 22,46,546.4. the legal representatives of the assessee thereafter made an application under section 27 of the act on october 16, 1962, contending, inter alia, that the notice under section 34(1a) was issued at a time when proceedings under section 34(1)(a) for the same year were pending and, accordingly, the initiation of proceedings under section 34(1a) was void ab initio. the ito rejected the said application. an appeal was preferred from the said order of the ito. before the aac, it was contended.....
Judgment:

Dipak Kumar Sen, J.

1. The facts and the proceeding leading up to the present reference are shortly as follows. One K. L. Jatia, since deceased, was assessed to income-tax in the assessment year 1945-46, the relevant previous year being the period from October 30, 1943, to October 17, 1944. The total income was computed at Rs. 82,095 which was later revised to Rs. 37,269. Subsequently, on receipt of information that the income of the assessee exceeding Rs. 1 lakh had escaped assessment in the said assessment year, the ITO issued to the assessee a notice under Section 34(1A) on March 29, 1956. The assessee did not comply therewith and did not file any return pursuant thereto, A subsequent notice under Section 22(4) of the 1922 Act served on the assessee on July 12, 1956, was similarly ignored. Thereafter, on January 19, 1958, the assessee died. After his death, the ITO reassessed his income for the said assessment year under Section 34 and computed the same to be Rs. 22,18,546.

2. Being aggrieved by the order of reassessment the legal heirs and representatives of the assessee preferred an appeal contending, inter alia, that they had not been brought on record and that the reassessment had been made on the deceased without giving any reasonable opportunity to his legal heirs and representatives. The AAC allowed this appeal and set aside the assessment. The ITO was directed to make a fresh reassessment in accordance with law.

3. Thereafter, on July 28, 1962, the ITO issued a notice under Section 22(4) to the legal representatives of the said assessee, who, however, did not comply with such notice. On August 13, 1962, total income of the deceased for the said assessment year was reassessed at Rs. 22,46,546.

4. The legal representatives of the assessee thereafter made an application under Section 27 of the Act on October 16, 1962, contending, inter alia, that the notice under Section 34(1A) was issued at a time when proceedings under Section 34(1)(a) for the same year were pending and, accordingly, the initiation of proceedings under Section 34(1A) was void ab initio. The ITO rejected the said application. An appeal was preferred from the said order of the ITO. Before the AAC, it was contended that the reassessment proceedings couldnot have been initiated without serving fresh notices to the legal representatives of the assessee and that service of notice under Section 22(4) on them was improper. The AAC allowed the appeal and directed the ITO to make a fresh assessment according to law.

5. From this order of the AAC, a further appeal was preferred by the revenue to the Income-tax Appellate Tribunal. There was a difference of opinion between the two members of the Tribunal. The Judicial Member, inter alia, held that the reassessment made without serving a notice under Section 34(1A) on the legal heirs and representatives and made on only a notice under Section 22(2), was unlawful.

6. The Accountant Member, on the other hand, held that as notice under Section 34(1A) had already been served on the assessee before his death, the ITO was authorised to issue notice under Section 22(4) on the legal representatives of the assessee and make the reassessment.

7. On a reference, the third Member concurred with the Accountant Member and held that by reason of the judgment of the Supreme Court in Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) , the fiction introduced in Section 34(1) was also available under Section 34(1A) and, therefore, Section 24B could be invoked and reassessment could be completed in the hands of the legal representatives in the instant case.

8. On an application by the assessee under Section 66(1) of the Indian I. T. Act, 1922, the Tribunal has drawn up a statement of case and referred to this court for its opinion the following questions as questions of law arising out of its order :

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a notice under Section 34(1) of the Indian Income-tax Act, 1922, having been served on K. L. Jatia during his lifetime, the assessment proceedings were rightly continued and completed after his death in the hands of his legal heirs without serving a fresh notice under Section 34(1A) or under Section 34 of the said Act on such legal heirs

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Section 24B(3) of the Indian Income-tax Act, 1922, was attracted in the case ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in view of the default of the legal heirs in respect of the notice that was served on them in the aforesaid proceedings and no sufficient cause having been shown for such default, the Income-tax Officer's order under Section 27 of the said Act refusing to reopen the assessment was in order '

9. The assessee also made an application under Section 66(2) of the Indian I.T. Act, 1922. Pursuant to the said application this court directed the Tribunal to draw up a statement of case and refer an additional question. This is the subject-matter of Income-tax Reference No. 469 of 1972 intituled G. D. Jatia, Legal Representatives of K. L. Jatia (Deed.) v. CIT, also before us. The said question is as follows :

' Whether, on the facts and in the circumstances of the case, the service of notice under Section 22(4) of the Indian Income-tax Act, 1922, upon the heirs and legal representatives of Kanailal Jatia, deceased, was valid in law '

10. In order to appreciate the controversy in the present reference, it is convenient to refer to the relevant sections, all contained in Chap. IV of the Indian I. T. Act, 1922, under the general heading ' Deductions and Assessment '. Section 24B was introduced by way of amendment in 1933 and it reads, inter alia, as follows :

'24B. Tax of deceased person payable by representative.--(1) Where a person dies, his executor, administrator or other legal representative shall be liable to pay out of the estate of the deceased person to the extent to which the estate is capable of meeting the charge the tax assessed as payable by such person, or any tax which would have been payable by him under this Act if he had not died.

(2) Where a person dies before the publication of the notice referred to in Sub-section (1) of Section 22 or before he is served with a notice under Sub-section (2) of Section 22 or Section 34, as the case may be, his executor, administrator, or other legal representative shall, on the serving of the notice under Sub-section (2) of Section 22 or under Section 34, as the case may be, comply therewith, and the Income-tax Officer may proceed to assess the total income of the deceased person as if such executor, administrator or other legal representative were the assessee.

(3) Where a person dies, without having furnished a return which he has been required to furnish under the provisions of Section 22 or having furnished a return which the Income-tax Officer has reason to believe to be incorrect or incomplete, the Income-tax Officer may make an assessment of the total income of such person and determine the tax payable by him on the basis of such assessment, and for this purpose may, by the issue of the appropriate notice which would have had to be served upon the deceased person had he survived, require from the executor, administrator or other legal representative of the deceased person any accounts, documents or other evidence which he might under the provisions of Sections 22 and 23 have required from the deceased person. '

11. The material part of Section 34, as it stood at the relevant time, is as follows :

' 34. Income escaping assessment.--(1) If-

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed.......

he may, in cases falling under Clause (a) at any time......serve on theassessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under the sub-section :......

(1A) If, in the case of any assessee, the Income-tax Officer has reason to believe-

(i) that income, profits or gains chargeable to income-tax have escaped assessment for any year in respect of which the relevant previous year falls wholly or partly within the period beginning on the 1st day of September, 1939, and ending on the 31st day of March, 1946 ; and

(ii) that the income, profits or gains which have so escaped assessment for any such year or years amount, or are likely to amount, to one lakh of rupees or more ;

he may, notwithstanding that the period of eight years......specifiedin Sub-section (1) has expired in respect thereof, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22, and may proceed to assess or reassess the income, profits or gains of the assessee for all or any of the years referred to in Clause (i), and thereupon the provisions of this Act (excepting those contained in Clauses (i) and (iii) of the proviso to Sub-section (1) and in Sub-sections (2) and (3) of this section) shall, so far as may be, apply accordingly :

Provided that the Income-tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so, and the Central Board of Revenue is satisfied on such reasons recorded that it is a fit case for the issue of such notice :

Provided further that no such notice shall be issued after the 31st day of March, 1956.'

12. Dr. Debi Pal, learned counsel for the assessee, has drawn our attention to the difference in language between Section 34(1)(a) and Section 34(1A). He submitted that the notice under Section 34(1)(a), in the language of the section itself, has been deemed to be a notice under Section 22(2) and also provides that the other provisions of the Act would apply accordingly. On the other hand, in Section 34(1A) there is no such deeming clause. All that the said section requires is that a notice thereunder might contain all or any of the requirements which may be included in a notice under Section 22(2).

13. Dr. Pal submitted that a notice issued under Section 34(1)(a) could be followed by a notice under Section 22(4), but after a notice under Section 34(1A) a notice under Section 22(4) could not be validly issued without serving a fresh notice under Section 22(2).

14. Dr. Pal next contended that Section 24B(2) had no application in the facts of the instant case inasmuch as the assessee did not die before he was served with a notice under Section 22(2) or Section 34. Sub-section (3) of Section 24B would only apply if the pre-conditions indicated therein were in existence. Such preconditions were non-compliance by the deceased assessee to furnish a return required to be furnished under Section 22 or submission of an incorrect or incomplete return. In the instant case, neither of these conditions were in existence. The deceased-assessee was served with a notice under Section 22 and he had filed a return on which an assessment had also been made.

15. Dr. Pal contended that in Sub-section (2) of Section 24B, Section 34 of the Act has been specifically mentioned whereas in Sub-section (3) of Section 24B there was no reference whatsoever to Section 34 or 34(1A). Therefore, non-compliance with a notice under Section 34(1A) by not furnishing a return pursuant thereto would not give the ITO jurisdiction to proceed under Section 34B(3).

16. Dr. Pal next contended that the impugned reassessment has been made in the hands of the legal representatives of the assessee after serving a notice under Section 22(4). This notice under Section 22(4) not being preceded by a notice under Section 22(2) was invalid and the ITO had no jurisdiction to proceed thereunder and make a best judgment assessment under Section 23(4).

17. Mr. Suhas Sen, learned counsel for the revenue, has contended on the other hand that the reassessment made in the instant case was proper, justified and lawful. The liability of an estate for taxes due from the deceased has been clearly laid down in Section 24B. The rest of the said section provided the machinery of such assessment and must be construed in a manner so that the scheme may be implemented and that the machinery would be workable. He contended further that the Supreme Court had laiddown in Kantamani Venkata Narayana and Sons' case : [1967]63ITR638(SC) , there was no distinction between a notice under Section 34(1)(a)and Section 34(1A) and that a notice under Section 34(1)(a) would also be deemed to be a notice under Section 34(1A).

18. It followed that, in the instant case, the assessee not having complied with the notice under Section 34(1A) must be deemed also under Section 34(1)(a) to have failed to file a return as required under Section 22 before he died and the ITO had jurisdiction to reassess the legal heirs and representatives of the deceased by invoking the other provisions of the Act which would be applicable for the purpose of such assessment.

19. In support of the respective contentions of the parties a number of decisions were cited at the Bar. It should be convenient to consider the same in their chronological order.

(a) CIT v. Mahaliram Ramjidas [1940] 8 ITR 442. This was cited on behalf of the revenue for the following observation of the Judicial Committee on Section 34 of the Indian I.T. Act, 1922 (p. 448) I

'The section, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable.' (b) P. R. Mukherjee v. CIT : [1956]30ITR535(Cal) . Dr. Pal drew our attention to the following observation of Chakravartti C.J., in his judgment (p. 546):

' The statute does not prescribe any form in which the notice contemplated by Section 34 should be issued...... All that the section itselfsays is that the Income-tax Officer may 'serve on the assessee............anotice under Sub-section (2) of Section 22 '. The main notice to be issued is, therefore, a notice under Section 22(2) of the Act and Section 34 only authorises the issue of such a notice in spite of there having been a previous assessment or in spite of the time for the issue of a notice in the normal way having expired.' (c) A. N. Lakshman Shenoy v. ITO : [1958]34ITR275(SC) . This decision was cited on behalf of the revenue for the following observation of the Supreme Court on Section 34 of the Indian I.T. Act, 1922 (p. 297) :

' It is to be remembered that where an assessment starts with a notice under Section 34 of the Indian Income-tax Act......all the relevant provi-sons of that Act apply as effectively as where the assessment starts with a notice under Section 22(2)......in the ordinary course.' (d) Gursahai Saigal v. CIT : [1963]48ITR1(Mad) . This decision was cited on behalf of the revenue. Approving the decision of the PrivyCouncil in Mahaliram Ramjidas' case [1940] 8 ITR 442, the Supreme Court observed as follows (p. 7 of : [1963]48ITR1(Bom) ) :

'... ...we are dealing here with a provision which lays down the machinery for the assessment of interest...... The proper way to deal with sucha provision is to give it an interpretation which, to use the words of the Privy Council in Mahaliram Ramjidas's case [1940] 8 ITR 442, ' makes the machinery workable.......'.' (e) K. S. Rashid and Son v. ITO : [1964]52ITR355(SC) . This decision was cited by the revenue for the following observations of the Supreme Court on Section 34(1A) (p. 361, 362) :

' It is true that Section 34(1) uses the clause ' as if the notice were a notice issued under that sub-section ' and Section 34(1A) does not; but the two provisions were not inserted in the Act at the same time; Section 34(1) in the present form was enacted in 1948, whereas Section 34(1A) was enacted in 1954. It is quite likely that the draftsman who drafted Section 34(1A) took the view that the last clause in question which occurred in Section 34(1) was really superfluous and that may account for its omission in Section 34(1A). In our opinion, therefore, construing the relevant words in Section 34(1A), it would be difficult to accede to the argument that the said omission was deliberate and significant, and its consequence is that the provisions of Section 22 and all other provisions consequent upon the application of Section 22 become irrelevant in dealing with cases under Section 34(1A).

If Section 22 is held to be inapplicable to proceedings under Section 34(1A), the consequence would be entirely irrational and fantastic. The powers conferred on the Income-tax Officer under Section 23(2) to take evidence would then not be available to him, and, indeed, all the powers prescribed and the procedure laid down by Section 23 would become irrelevant. Likewise, the provisions in regard to appeals and revisions contained in Sections 30, 31, 33, 33A and 33B would also be inapplicable. As we have already seen, the inapplicability of these provisions is the main foundation of the attack against the validity of Section 34(1A)......... In our opinion,this approach is wholly misconceived. We are satisfied that it could not have been the intention of the legislature when it enacted Section 34(1A) that the procedure prescribed by the relevant provisions of the Act beginning with Section 22 should not be applicable to proceedings taken under Section 34(1A), and that the procedure to be followed in the said proceedings and the powers to be exercised by the Income-tax Officers dealing with them should be what is vaguely described as ' the inherent or incidental powers ' of such officers.'

(f) CIT v. Ajax Products Ltd. : [1965]55ITR741(SC) . This decision was cited on behalf of the assessee for the proposition laid down by the Supreme Court as follows (p. 750) :

' This court in Commissioner of Income-tax v. Amarchand N. Shroff : [1963]48ITR59(SC) , rightly administered a caution that fictions should not be stretched beyond the purpose for which they were enacted.' (g) Kantamani Venkata Narayana and Sons v. First Addl. ITO : [1967]63ITR638(SC) . In this decision cited by the revenue, P. R. Mukherjee's case : [1956]30ITR535(Cal) was approved by the Supreme Court. The relevant observations of the Supreme Court are as follows (p. 640 of 63 ITR) :

' The notice issued by the Income-tax Officer did not specifically refer to Section 34(1)(a) of the Income-tax Act : it did not set out the clause under which it was issued. But on that account the proceeding under Section 34 is not vitiated. It was held by the Calcutta High Court in P. R. Mukherjee v. Commissioner of Income-tax : [1956]30ITR535(Cal) that it is not necessary or imperative that a notice under Section 34 must specify under which of the two clauses, Clause (a) or Clause (b) of Sub-section (1) of Section 34, the notice is issued. The main notice to be issued in a case under Section 34 is the notice under Section 22(2) and Section 34 merely authorises the issue of such a notice.' (h) Kalawati Devi Harlalka v. CIT : [1967]66ITR680(SC) . This was cited on behalf of the revenue to show the wide connotation of the expression ' assessment '. The relevant observations of the Supreme Court are as follows (p. 688) :

' In C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) , this court observed : ' A review of the provisions of Chapter IV of the Act sufficiently discloses that the word ' assessment ' has been used in its widest connotation in that Chapter. The title of the Chapter is ' Deductions and Assessment '. The section which deals with assessment merely as computation of income is Section 23 ; but several sections deal not with computation of income, but determination of liability, machinery for imposing liability and the procedure in that behalf... ...Section 24B deals with collection of taxout of the estate of deceased persons,... ...and Section 34 deals with ' assessment ' of incomes which have escaped assessment. The expression ' assessment ' used in these sections is not used merely in the sense of computation of income...... '. ' (i) Ganashyamdas Jatia v. ITO : [1973]87ITR683(Cal) . This is a decision of a single Bench of this court where the same assessee, inter alia, challenged the same reassessment proceedings, as in the instant reference, inan application under Article 226 of the Constitution. The learned judge had quashed the recovery proceedings following the reassessment. On appeal, this part of the judgment and order of the learned judge was set aside. But the learned judge dealing with the other questions held, inter alia, as follows :

(i) Section 34(1A) provides that notice might be served containing the requirements as in Section 22 of the Act.

(ii) Therefore, the requirements of the provisions of Section 22 are included in the notice under Section 34(1A).

(iii) Following K. S. Rashid & Sons : [1964]52ITR355(SC) , the learned judge held that a fresh notice under Section 34(1A) was not necessary to be served on the legal representatives and that the reassessment proceedings had been validly initiated.

20. A cross-objection had been filed on behalf of the assessee against this part of the judgment. In view of the pendency of the present reference, the appeal court did not deal with this part of the controversy but left the matter to be decided in the reference and the cross-objection was dismissed with liberty to agitate the point in the present reference.

21. In the instant case, admittedly, a notice under Section 34(1A) had been served on the assessee before his death. There is no specific provision in the Act whereby another notice under the same Section 34(1A) could be served on the assessee's legal representatives after the assessee's death. The next question which arises is whether on the notice under Section 34(1A) served on the deceased prior to his death the reassessment could be proceeded with on the legal representatives. In our view, in such a case the proceedings could be validly continued and reassessment could lawfully be made on the legal representative of the deceased. In spite of the issue of a notice under Section 34(1A), the assessee did not file a return. Therefore, under Section 24B(3), the ITO could make the reassessment calling upon the legal representatives to furnish accounts, documents or other evidence which he could have required from the deceased-assessee by an appropriate notice under the provisions of Sections 22 and 23. In the instant case, if we equate a notice under Section 34(1A) with a notice under Section 22(2) following the Supreme Court decision in Kantamani's case : [1967]63ITR638(SC) , the preconditions laid down in Section 24B(3) can be said to exist and the ITO had jurisdiction to make the reassessment.

22. A notice under Section 22(4) had already been served on the assessee before his death which was also not complied with and, therefore, a further notice under Section 22(4) may not have been required to be issued on the legal representatives. By another appropriate notice they could have been called uponto produce accounts and evidence. We also hold that, in any event, another notice under Section 22(4) could be validly issued on the legal representative as authorised by Section 24B(3).

23. We do not accept the contention of the assessee that the notice served under Section 22(4) on the legal representatives was invalid inasmuch as no notice under Section 22(2) had been served on them earlier. We hold that the ITO was not required to serve a notice under Section 22(2) on the legal representatives inasmuch as a notice under Section 34(1A) containing the provisions of Section 22(2) had already been served on the assessee before he died. We equate this notice with a notice under Section 22(2).

24. For the above reasons, we answer the questions as follows : Question No. 1 is answered in the affirmative and in favour of the revenue :

Question No. 2 is answered in the affirmative and also in favour of the revenue :

On instructions, Dr. Pal has not pressed question No. 3 and we decline to answer the same. The reference is disposed of accordingly. There will be no order as to costs.

At the conclusion of our judgment, learned counsel for the assessee orally applied for a certificate under Section 261 of the Act stating that this case was a fit one for appeal to the Supreme Court. It was contended that this case was of sufficient public and/or private importance and the controversy involved was likely to recur in future years. Learned counsel for the revenue contended to the contrary and submitted that the Act of 1922 having been repealed such controversy could no longer arise under the later statute as under Section 159 of the 1961 Act a legal representative for all purposes would be deemed to be an assessee.

25. In our view, the question appears to be concluded by the decisions of the Supreme Court in the cases of K. S. Rashid : [1964]52ITR355(SC) and Kantamani Venkata Narayana & Sons : [1967]63ITR638(SC) and, therefore, it does not appear to us that an appeal to the Supreme Court on this question is called for. Accordingly, we reject the application of the assessee.

C.K. Banerji, J.

26. I agree.


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