Skip to content


Hungerford Investment Trust Ltd. and Anr. Vs. Income-tax Officer, 'F' Ward and Ors. (23.04.1982 - CALHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal No. 16 of 1976
Judge
Reported in[1983]142ITR601(Cal)
ActsIncome Tax Act, 1961 - Sections 2(35), 148 and 282
AppellantHungerford Investment Trust Ltd. and Anr.
Respondentincome-tax Officer, 'F' Ward and Ors.
Appellant AdvocateD. Pal, Adv.
Respondent AdvocateAjit Sengupta, Adv.
Excerpt:
- .....the indian companies act, 1913. since1956, the appellant no. 1 has been holding 51% shares in the indian company. the appellant no. 2, b. n. garg, was appointed a director of the appellant no. 1 for the purpose of looking after certain pending litigations in india. it appears that on the 6th december, 1974, the ito, company dist. ii, calcutta, wrote a letter to the appellant no. 2 for and on behalf of the appellant no. 1 wherein it was stated that the income had escaped assessment in terms of clause (a) of section 147 and, therefore, appellant no. 2 was asked to show cause why assessment for the years 1965-66, 1966-67 and 1967-68 should not be reopened. in that letter it was stated that the ito intended to treat the appellant no. 2 as the principal officer of the company, i.e.,.....
Judgment:

R.N. Pyne, J.

1. The subject-matter of this appeal which is directed against a judgment and order of Sabyasachi Mukharji J. dated December 18, 1975 : [1977]106ITR649(Cal) , is a notice dated 25th February, 1975, under Section 148 of the I.T. Act, 1961, for the assessment year 1966-67.

2. The appellant No. 1 is a foreign non-resident company and has its registered office at Singapore. It is stated that the appellant did not have any place of business or establishment or connection with India. Up to1955, the appellant held all the shares of M/s. Turner Morrison & Co. Ltd., a company incorporated under the Indian Companies Act, 1913. Since1956, the appellant No. 1 has been holding 51% shares in the Indian company. The appellant No. 2, B. N. Garg, was appointed a director of the appellant No. 1 for the purpose of looking after certain pending litigations in India. It appears that on the 6th December, 1974, the ITO, Company Dist. II, Calcutta, wrote a letter to the appellant No. 2 for and on behalf of the appellant No. 1 wherein it was stated that the income had escaped assessment in terms of Clause (a) of Section 147 and, therefore, appellant No. 2 was asked to show cause why assessment for the years 1965-66, 1966-67 and 1967-68 should not be reopened. In that letter it was stated that the ITO intended to treat the appellant No. 2 as the principal officer of the company, i.e., appellant No. 1, under Section 2(35)(b) of the I.T. Act, 1961, as according to the ITO the appellant No. 2 was looking after and managing the affairs of the appellant No. 1 because there was no person other than the appellant No. 2 to look after and manage the affairs of the appellant-company including its legal affairs. By that letter the appellant No. 2 was asked to submit his representation by 28th December, 1974. Portion of the said letter relevant to the instant appeal is as follows :

'In this connection I am to state that you have been treated as the 'principal officer' of the company Under Section 2(35)(b) of the I.T. Act, 1961, as you are looking after and managing the affairs of the company in India and as there is no other person than you to look after and manage the affairs of the company including legal affairs.'

3. In his reply dated 24th February, 1975, the appellant No. 2 stated that the said letter dated 6th December, 1974, was received by him on or about 19th February, 1975, and that he was only looking after the legal cases of the appellant-company in India, and, therefore, he could not be made the 'principal officer' of the appellant-company. Thereafter, on 25th February, 1975, the impugned notice under Section 148 of the I.T. Act was issued. The said notice was addressed in the manner as follows :

'To

M/s. Hungerford Investment Trust Ltd. represented by Sri B.N. Garg., Director, 3, Park Mansion, Park St. Cal.'

4. The appellants challenged the said notice in an application made under Article 226 of the Constitution of India. It was mainly contended on behalf of the appellants (who were the petitioners in the court of the first instance) that the appellant No. 2 was not and/or could not be treated as a principal officer as denned ins, 2(35) of the I.T. Act, 1961 (hereinafter referred to as the 'said Act'). Therefore, the notice under Section 148 was not properly served as required under Section 282 of the said Act. Inasmuch as there was no proper service of the said notice under Section 148, proceedings for reopening of the assessment, purported to be taken by the said notice, was invalid and without jurisdiction. Learned judge of the court of the first instance negatived the contention of the appellants and held that it could not be said that the finding that the appellant No. 2 was connected with the management and administration of the appellant No. 1 was based on no material or was wholly arbitrary. It was further held that it was manifest that the appellant No. 2 was being treated as the principal officer and the notice was served upon him in that capacity. Therefore, the said application of the appellants was dismissed and the rule nisi was discharged by the learned judge of the court of the first instance by his judgment and order dated 18th Dec., 1975,

5. In the judgment, Sabyasachi Mukharji J. observed as follows--See : [1977]106ITR649(Cal) :

'It has been alleged that the petitioner No. 2 was only a director. It is also the case of the petitioners that petitioner No. 2 looks after the litigations and the pending work of the petitioner No. 1 in India. It is indisputable that there is no other authority in India to deal with the afiairs of the petitioner No. 1. In these circumstances, if the Income-tax Officer treats the petitioner No. 2 as one connected with the management or administration of the company, can it be said that the Income-tax Officer was acting without material or whimsically. It is not necessary that the person concerned should be actually managing or administering the company. What is required in connection with the management or the administration of the company. In the facts and circumstances of this case, in my opinion, it cannot be said that the finding that the petitioner No. 2 was connected with the management or administration of petitioner No. 1 is based on no material or is wholly arbitrary. It is the Income-tax Officer's intention that is important on this aspect of the matter provided his intention was based upon some material....

It was then contended that before treating a person concerned as a principal officer under Section 2(35) of the Income-tax Act, 1961, the Income-tax Officer should determine that question upon hearing the submission or representation made by the person concerned. I am unable to accept this contention. For treating a person as the principal officer forthe purpose of Section 2(35) of the Income-tax Act, if on prima facie materials which have rational connection with that finding, the Income-tax Officer indicates the intention to the person concerned treating him as the principal officer, in my opinion, the requirements of law are fulfilled. It is a part of the machinery provision and must be construed and viewed in that light. The fact that the expression, 'principal officer' was scored out in the notice actually served does not, in my opinion, affect the position. In the fact and circumstances of the case it is manifest that the petitioner No. 2 was being treated as the principal officer and the notice was served upon him in that capacity.'

This appeal is preferred against the said judgment and order dated 18th December, 1975.

6. On behalf of the appellant it was submitted that Mr. Garg could not be treated to be a principal officer of the company without complying with the statutory requirement, i.e., Section 2(35)(b) of the I.T. Act, 1961. Before he could be treated as a principal officer, the ITO must cause a notice of his intention of treating him as a principal officer to be served upon him. His proposal or intention of treating Mr. Garg as principal officer is to be communicated to him. In this case the ITO has only communicated his decision but not his proposal or intention. It was further submitted that before a person is treated as a principal officer under Section 2(35)(b) he should be given a notice of the proposal or intention of the ITO so that he might make a representation before a final decision was taken by him; otherwise, it was merely an empty ritual. According to counsel, the condition laid down in the said sub-section is not an empty formality or empty ritual but a safeguard against a decision of the ITO which may affect a person concerned. It was also the submission of the counsel that on the materials there was nothing to show that Garg was connected with the management and administration of the company.

7. Counsel for the appellant further submitted that the notice under Section 148 was addressed to Hungerford Investment Trust Ltd. represented by Mr. Garg. The words 'principal officer' have been struck out by the ITO. Therefore, the notice was addressed to the company and not to its principal officer. A notice addressed to the company can under the law be served at the registered place of the company. Admittedly, the company had no registered place in India or as a matter of fact any place of business in India. The service of notice, therefore, was not in accordance with law. Notice under Section 148 is the foundation of jurisdiction. If the notice is illegal or invalid or the service of the notice is not in accordance with law no valid jurisdiction can be assumed on the basis of such a notice.

8. On behalf of the respondent it was submitted that there were prima facie materials on the record of this case to treat Garg as the principal officer of the company under Section 2(35)(b) of the Act. Garg is the only director of the appellant-company and in the facts and circumstances of the case he was connected with the management or administration of the assessee-company. It was further submitted that in the instant case notice dated December 6, 1974, was served by the ITO upon Garg intimating him the intention to treat him as the principal officer of the assessee-company under Section 2(35)(b) of the Act. It was submitted that it was not necessary to give a hearing before treating a person as the principal officer of a company. In this connection, reliance was placed on the case of M.M. Ipoh v. CIT : [1968]67ITR106(SC) . It has been submitted that the question whether a person is a principal officer of the company should be determined in the assessment proceeding. The determination of the question of principal officer does not arise before the determination of the question of liability of the assessee.

9. In the instant case, in our view, the learned judge of the court of first instance came to a correct finding. We respectfully agree with the findings of the learned judge of the court of first instance as also with the reasoning for such finding. The appellant No. 2 is the only director in India of the appellant-company. Excepting the appellant No. 2 there is no other person in India connected with the management or administration of the appellant-company. In the facts and circumstances of this case the finding of the ITO that the appellant No. 2 was connected with the management or administration of the appellant-company could not be said to be wholly arbitrary or that the intention of the ITO to treat the appellant No. 2 a principal officer of the appellant No. 1 was based on no material. Considering the facts and circumstances of this case it appears to us that there were materials to support the intention of the ITO to treat the appellant No. 2 as the principal officer of the appellant No. 1 under Section 2(35)(b) of the Act. We are also in respectful agreement with the finding of the learned judge of the court of first instance that before treating a person concerned as a principal officer under Section 2(35) of the Act by the ITO it is not necessary to determine that question upon hearing the submission or representation of the person concerned. In the case of M. M. Ipoh v. CJT : [1968]67ITR106(SC) , it was observed that (p. 120); 'There is, in our judgment, nothing in the Act which supports the contention of counsel for the assessee that before proceedings in assessment can commence against an association of persons a notice must be issued and an order passed after giving opportunity to the person proposed to be treated as the principal officer, to show cause why he should not be so treated. It is open to the Income-tax Officer to serve a notice on a person who is intended to be treated as the principal officer. The person so served may object that he is not the principal officer or that the association is not properly formed. The Income-tax Officer will then consider whether the person served is the principal officer and whether he has some connection or concern with the income sought to be assessed.'

10. In our opinion, counsel for the respondent rightly submitted that the objection, if any, to the notice expressing the intention to treat the person concerned as the principal officer of the assessee-company should be determined at the time of assessment. In the facts and circumstances of this case it cannot be said that the notice under Section 148 is invalid or without jurisdiction.

11.For all the reasons stated above, this appeal is dismissed. There will, however, be no order as to costs.

S. C. Ghose, C.J.

12. I agree.


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