Income Tax Appellate Tribunal - Kolkata
B.F. Goodrich Co. vs Deputy Commissioner Of Income-Tax on 10 October, 1995
Equivalent citations: [1996]57ITD309(KOL)
ORDER
R.V. Easwar, Judicial Member
1. This is an appeal filed by the assessee, a company, for the assessment year 1985-86 against the order of the CIT(A)-X, Calcutta, dated 26-10-1990.
2. The assessee is a non-resident company. On 10-9-1985, a return of income was filed for the assessment year 1985-86 signed by Sri J.D. Ong in his capacity as Chairman of the Board and Chief Executive Officer. The Assessing Officer having found that the signature in the verification of the return is not in accordance with the provisions of Section 140(c) of the I.T. Act, 1961, treated the return as "invalid return". As the return of income filed by the assessee consists of taxable income, a notice was issued to the assessee under Section 148 of the I.T. Act and accordingly by his letter dated 9-11-1987, the Assessing Officer wrote to the appellant explaining the reasons for re-opening of the assessment. The contents of the letter are as under :--
On verification of the return for the assessment year 1985-86 filed by you on 10-9-1985, it is found that the verification portion of the return was not signed by a person required under Section 140(c) of the Income-tax Act, 1961 but by the Chairman of the Board and Chief Executive Officer. As such, I regret to inform you that the said return is invalid.
You are, therefore, required to file a fresh return duly signed by the Managing Director/Director of your company. Formal notice under Section 148 is enclosed herewith.
Please also note that the statement of income filed along with the said return did not contain the details of agreements under which the Technical fees, Royalty and Engineering Service were received. Moreover, original TDS certificates in respect of Technical Fees from Madras Rubber Factory Ltd. have to be filed in place of the photo copies of certificates filed by you.
The above wanting documents and information may please be filed along with the fresh return in order to expedite the assessment.
3. The limitation period for finalising the assessment for the assessment year 1985-86 ends on 31-3-1988. However, the assessee filed the return in response to notice under Section 148 only on 11 -4-1988 under protest. The authorised representative for the assessee addressed a letter to the Assessing Officer wherein it was claimed that the assessee was not given an opportunity to rectify the alleged defect mentioned in the letter of the Assessing Officer dated 9-11-1987, as per the statutory requirements of the proviso to Section 139(9) of the Act. It was further stated that for the assessment years 1981 -82 to 1984-85, the returns were signed and verified by the same person which had been accepted by the Assessing Officer. Even for the assessment year 1986-87, an objection was raised that the return signed by one Sri G.K. Sherwood, who was not a competent person, as specified under Section 140(c) of the Act, was replaced by a fresh return duly signed and verified by Mr. J.D. Ong which has been accepted by the Department. Thus it was contended that the department having admitted that Sri J.D. Ong is a competent person to sign and verify the returns for the earlier years, should have accepted the same for the year under consideration. Or in the alternative, he should have called for the rectification as per Section 139(9) of the Act. In sum and substance, the plea of the assessee before the Assessing Officer as well as before the first appellate authority was that the original return filed on 10-9-1985 is a valid return and the assessment having not been completed before the expiry of the limitation period, i.e., 31-3-1988, the Assessing Officer has missed the bus and cannot re-open the assessment by issuing notice under Section 148 of the Act and make the assessment on 23-1-1989 inasmuch as, the notice issued under Section 148 is bad in law in the face of a valid return already on record. The first appellate authority has confirmed the assessment and held that the original return is invalid inasmuch as the defect in the first return for the assessment year 1985-86 was not rectified by the assessee in spite of the fact that the assessee is made aware by the letter of the Assessing Officer dated 9-11-1987.
4. The case of the assessee before the Tribunal is that the return filed on 10-9-1985 signed and verified by Sri J.D. Ong is a valid return and thus the assessment made on 23-1 -1989 is beyond the period of limitation and bad in law. It was further submitted before us that under the Companies Act, no person can become a Chairman without being a director thereof and therefore, having mentioned in the verification part of the return, Sri J.D. Ong as Chairman of the Board would implicitly connote that he is a director within the meaning of Section 140(c) of the Act. The Ld. authorised representative has quoted several decisions, i.e., CIT v. Anand & Co. [1994] 207 ITR 418 (Cal.), Grindlays Bank Ltd. v. ITO[1980] 122 ITR 55 (SC)/107 Taxman 67/107 Taxman 93 (sic) and also Sheonath Singh v. CIT[1958] 33 ITR 591 (Cal.) to project his case that the technical triviality such as improper mention of the status of the signatory in the verification column should not cover the fate of the assessee and at best an opportunity could have been given to rectify the defect. The Ld. departmental representative, on the other hand, has strongly supported the order of the CIT(A).
5. We have heard the rival contentions. A good deal of the arguments on behalf of the assessee was directed against the finding of the revenue authorities that the return was an invalid return. The reason is obvious. If the return is invalid the ITO would be legally correct in issuing the notice under Section 148 and in re-opening the assessment since the return filed originally was non est in law. On the other hand, if the return was valid and the defect in the signature was not a material irregularity affecting the validity of the return and could have been cured on proper opportunity being given to the assessee, then the notice issued by the ITO to re-open the assessment would be without jurisdiction, because the original return had not been disposed of and no valid notice re-opening the assessment could be issued when the original return itself is pending. We shall therefore proceed to consider whether the defect in the signature affects the validity of the return. There is no express provision in the Income-tax Act indicating the consequences that flow from a defect in the signature in the return of income. We have to therefore try to ascertain the legal position by referring to the other pieces of the legislation for guidance. There can be no better guide in this regard than the Code of Civil Procedure (CPC, for short) which governs the civil law in India. Order VI, Rule 14 of the CPC deals with the signing of the pleadings. It shows that every pleading should be signed by the party and his pleader, if any. If the party is unable to sign by reason of absence or for other good cause, the pleadings may be signed by any person duly authorised by him to sign the same. This provision has been held to be a procedural provision and it has been held that the omission to sign or defect in the signature or verification in the plaint is a curable defect and may be cured at any stage by amendment. It has also been held that any defect in the signature in the plaint may be allowed to be remedied even after the expiry of the limitation. Such defect has been held to be curable by amendment even in appeal. A collection of various authorities on the question including the view of the Privy Council as well as the view taken by'the Calcutta High Court is to be found in the judgment of the Calcutta High Court in Sheonath Singh's case (supra). In this decision the discussion starts at page 600 and it starts with the observation that however rigid may be the principles applicable to appeals filed before the Tribunal (the High Court was concerned with a defect in the memorandum of appeal before the Tribunal), they cannot be more rigid than the principles applicable to plaints and memoranda of appeal filed before the Civil Courts. The judgment thereafter refers to Order VI, Rule 14 of the CPC and proceeds to refer to the various aspects of the issue such as the effect of omission to sign the plaint, defective signature in the plaint, etc. The position was ultimately summarised at page 602 to the effect that "the rule as to the signature of a plaint or a memorandum of appeal by the plaintiff or the appellant, although expressed in the relevant statute in the language of a mandatory provision has never been regarded as mandatory, but the rule being a procedural rule has been treated as only directory, non-compliance or defective compliance therewith being held to be irregularities, curable by the Court at its own instance and not illegalities affecting the jurisdiction of the Court". This decision has very recently been applied by the Calcutta High Court in Anand & Co. 's case (supra). There, the assessee challenged the notice issued under Section 148 of the Act on the ground that it did not contain the distinct signature of the ITO but only contained a curved line purporting to be the signature. The contention on behalf of the revenue before the High Court was that the absence of or a defect in the signature in any notice is immaterial so long as the source of the notice or the documents is not questioned and that at worst it may be a case of an irregularity not fatal to the validity of the notice. While accepting the contention of the revenue the Calcutta High Court referred to the decision in Sheonath Singh's case (supra) as well as the Patna High Court in Gown Kumari Devi v. CIT[1959] 37 ITR 220. Order VI Rule 14 and Order V Rule 10 of the CPC were also referred to. The Calcutta High Court referred to another decision of its own in B.K. Gooyce v. CIT[1966] 62 ITR 109 where the notice was not signed at all and where it was held that this cannot be cured. After referring to these authorities it was held that the Tribunal in that case, inasmuch as it had taken the view that the notice was invalid, had taken an unduly technical view of the whole matter. The High Court observed that the judiciary in this country has never gone on technical trivialities and even in litigation between the private parties the Courts have shown a wide measure of forgiveness in similar acts of omission or failure. The following observations of the Calcutta High Court in the last paragraph at page 425 of the Report are relevant to the present controversy :
We shall have to bear in mind that if, in any civil litigation, the Court can grant the concession of admitting an unsigned plaint or memorandum of appeal, why should the Tribunal take so rigid a view and make a fetish of the requirement of full signature legible or decipherable when the matter affects one of great public importance, that is, the revenue of the people. There must be some reasonable amount of elasticity in the sphere of procedures involving the collection of due revenue and securing due relief to taxpayers.
6. The position under the Registration Act, 1908 is also similar. There Section 87 of the said Act provides that nothing done in good faith pursuant to the Act by any Registering Authority shall be deemed invalid merely by reason of any defect in the procedure. Accordingly, it has been held that even the omission by the Executant's representative to endorse his signature in the document presented for registration is not a defect that will invalidate a bona fide registration (see the case of Manvari v. Nounith 1882 AWN 78). The defect or absence of signature in the document presented for registration has not been held to invalidate the registration or to result in the invalidity of the document.
7. We may turn to the provisions requiring the signature of the persons in the application for registration of a firm under Section 185 of the Act. Sub-section (2) of Section 185 provides that where the ITO considers that the application for registration is not in order, he shall intimate the defect to the firm and grant an opportunity to rectify the defect. In construing this provision, it has been held by the Madras High Court in CIT v. Ganesh Fire Works Industries [1984] 147 ITR 781 that the absence of the signature of a partner in the application for registration is a curable defect and the ITO should have given opportunity to the firm to rectify the same.
8. The same view has been taken by the Orissa High Court in Addl. CIT v. K. Padmalochan Sahu [1974] 95 ITR 113 and by the Punjab and Haryana High Court in Gian Chand Vir Bhan v. CIT [1960] 39 ITR 414.
9. It therefore appears to us that there is a consensus of judicial opinion in this country that the absence of or a defect in the signature of a party in a document is a curable defect and does not invalidate the document. The legal position has also been given effect to in the Income-tax Act by the introduction of Section 292B by the Taxation Laws (Amendment) Act, 1975, with effect from 1-10-1975. In substance the provision says that no return of income furnished or purported to have been furnished in pursuance of any of the provisions of the Income-tax Act shall be invalid or be deemed to be invalid merely by reason of any mistake, defect or omission in such return if such return is in substance and effect in conformity with or according to the intent and purposes of this Act. The provision applies to the facts of the present case. It is nobody's case that Mr. Ong who signed the return of income had nothing to do with the company. The case of the revenue authorities is that he was not a managing director. Mr. Ong was the Chairman of the Board which means the Board of Directors and unless a person is a director of the company he cannot be the Chairman of the Board. Therefore, the return of income bearing his signature must be held to be one purported to be a return filed by the company, admitting taxable income and inviting the income-tax authorities to make an assessment on it. The return was thus in conformity with the intent and purpose of the Act, namely, that an assessment must be made. It is no doubt true that Mr. Ong was not the Managing Director of the company who alone was competent to sign the return under Section 140(c) of the Act. That however should not make the return invalid in view of the legal position to which we have adverted to earlier as well as Section 292B of the Act. The question would then be whether in view of Section 139(9) of the Act, an opportunity ought to have been given to the assessee to rectify the defect in the signature. It was in this connection pointed out on behalf of the revenue that Section 139(9) provided only for rectification of defects or for curing of the immaterial irregularities in the return and where the return itself has not been properly signed that was a material irregularity affecting the validity of the return which was beyond the scope of the provisions of Section 139(9). The argument appears to be well taken but on closer scrutiny we find that it cannot be accepted. The Calcutta High Court had occasion to consider the provisions of Section 139(9) in CIT v. Rai Bahadur Bissesswarlat Motilal Malwasie Trust[1992] 195 ITR 825. In that case it was contended on behalf of the assessee that had the ITO intimated the assessee that the return was not accompanied by the audit report in the prescribed form as contemplated by Section 139(9), the assessee would have supplied the report and inasmuch as no such opportunity was given to the assessee, the denial of exemption of its income under Section 11 was not justified. On behalf of the revenue a contention was taken that non-filing of the audit report was not a defect covered by the Explanation to Section 139(9) and therefore the assessee was not entitled to the opportunity. The High Court rejected the revenue's contention by holding that the defects specified in the Explanation to Section 139(9) are only illustrative and not exhaustive and it was open to the Legislature to add to the categories of defects. In effect it was held that the ITO was not bound to consider only those defects mentioned in the Explanation and to hold so would lead to inconvenient consequences and absurd results not intended by the Legislature. It was however observed that the ITO's powers to call upon the assessee to remove the defects did not extend to defects making the return invalid. We have already seen that the defect in the signature in the return in the present case is a matter of procedure or a curable defect and did not render the return invalid. Therefore the ITO ought to have afforded an opportunity to the assesses of rectifying the defect in the signature as held by the Calcutta High Court.
10. That takes to the question as to whether the assessee was given any opportunity in the present case to rectify the defect in the signature. The departmental authorities have held that the assessee took no steps to rectify the defect even though it was informed of the same by letter qated 9-11-1987. This letter is reproduced in the order of the CIT(A) and the same has been reproduced in the earlier part of this order. A reading of the above letter of the ITO reveals two things. The first is that he had concluded that the return containing the defective signature was invalid. The second is that the assessment was being re-opened under Section 148 and a notice was enclosed with the letter. We are unable to read the letter as affording an opportunity to the assessee to rectify the defect in the return. The ITO has already reached the conclusion that the return was invalid and in terms has called upon the assessee to file a fresh return duly signed by the Managing Director in response to the notice under Section 148 enclosed with the letter. The letter can hardly be treated as affording an opportunity to the assessee to rectify the defect, especially when the assessment was being re-opened under Section 148, apparently on the -ground that the assessee had failed to file a return of its income. The issue of the notice, apart from the categorical view expressed in clear terms in the letter that the original return was invalid, supports our view that the ITO considered the original return as non est in law. To speak of any opportunity to the assessee in the face of such a categorical stand taken by the ITO in the letter, would be meaningless. The issue of the notice under Section 148 clinched the position and thereafter the ITO, even if she had wanted, could not have validly received any return from the assessee except a return filed in response to the notice. We are unable to appreciate as to how both the revenue authorities came to the conclusion that the assessee was given opportunity to rectify the defect but did not avail of the same. It is clear in the present case that no opportunity to rectify the defect was specifically afforded to the assessee.
11 .The income-tax authorities, especially the CIT(A), has been at pains to point out the contumacious conduct of the assessee in delaying the filing of a rectified return till the period of limitation was over. The gist of his allegation is that the assessee knew that the signature in the return was defective but still protested to the ITO against the absence of any opportunity given to rectify the same only by letter dated 27/28-9-1988 by which time the assessment under Section 143(3) had become hopelessly barred. The answer to this allegation is again that the ITO having noticed the defect as early as 9-11 -1987, when she issued the letter informing the assessee that the return was invalid and also issued notice under Section 148, could have, instead of hastening to do so, intimated the defect in the signature and called upon the assessee to furnish a rectified return. That perhaps would have solved the problem easily since on 9-11-1987 the assessment had not become barred and there was time to complete the assessee till 31-3-1988. The legal position regarding the defective returns including defects in the signature, being what it is--and this we have discussed earlier--the assessee, if it had expected an opportunity to be given to rectify the defect, could not be said to be wholly unjustified in its expectation. The return admittedly had been verified by the ITO and we have her statement to this effect in the letter dated 9-11-1987. At that point of time an opportunity should have been given to the assessee to rectify the return instead of treating the same as invalid. It therefore, appears to us that the allegation against the assessee that it resorted to dilatory tactics in order to thwart an assessment on it is notjustified.
12. It will not be out of place to refer here to the legislative history relating to the signature on the return of a company. When the 1961 Act came into force, Section 140(c) stated that the return in the case of a company should be signed and verified by the principal officer thereof. The principal officer was defined in Section 2(35) as the Secretary, Treasurer, Manager or Agent of the company or any person connected with the management or administration of the company upon whom the ITO had served a notice of his intention to treat him as the principal officer. Taxation Laws (Amendment) Act, 1975 substituted the present Section 140(c) which provided that the managing director shall sign and verify the company's return and for any unavoidable reason if he is not able to sign or where there is no Managing Director, a Director shall sign and verify the return. In Circular No. 204, dated 24-7-1976 [see 110 ITR (Statutes) 38] the object of this provision was stated to be to ensure that the returns of income are signed by the persons mainly responsible for the affairs of the company and that such persons are not able to avoid the penal consequences of tax fraud. The background of this amendment is the recommendations made by the Wanchoo Committee in their final report. The relevant extract of the recommendations is reproduced below:--
We have examined the adequacy of Section 277 of the Income-tax Act, 1961 which deals with prosecution for false statement in declaration, etc. We consider that this provision is not adequate to bring to book those persons who are in fact responsible for false returns being furnished to the department. Section 140 of the Act authorises the return of income being signed in the case of a company by its 'principal officer'. Clause (35) of Section 2 defines a 'principal officer' as the secretary, treasurer, manager or agent of the company or any person connected with the management or administration of the company upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer. Section 277 as it stands at present contemplates prosecution of that person only who knowingly makes a false statement in any verification under the Act. In the case of a company, the return is usually signed by the Secretary who is merely an employee and thus it is he who can be prosecuted under Section 277 of the Act. The managing director and other directors who are in fact the persons in charge of running the concern, and in that capacity are normally responsible for commission of tax offences escape prosecution. Similarly, in the case of partnerships, the managing partners escape prosecution if the return is signed by the partner who does not actively participate in managing the business. In order to get at the persons who are really responsible for tax offences, we recommend that the definition of 'principal officer' for the purpose of signing of the return should be amended so as to provide that the return of income of a limited company should be signed by the person mainly responsible for the management or administration of the affairs of the company. In other words, the liability for signing the return should be fixed primarily on the managing director, failing which on the working director. Similarly, in the case of a partnership, the responsibility to sign the return should rest on the managing partner or the partners in charge of the financial affairs of the firm." (See page 3316, Vol. 4 of Sampath Iyengar's Law of Income-tax, 7th Edn.).
The background of the amendment and the stated object indicate that the responsibility for any tax fraud in the case of a company was sought to be fastened on the managing director or any director. They also indicate that if the return is not signed by such person, it should be the duty of the tax authorities to refuse to proceed with the assessment on the basis of such return since the return has not teen owned up by the officer sought to be made responsible.lt is therefore in the interests of the revenue that the responsibility should be sought to be fixed on the particular person named in Section 140(c) and for this purpose the company should be asked to rectify the return by getting the signature of the managing director or the director. Let us for the sake of argument assume that in a case where the assessee is a company the revenue authorities are able to detect a concealment of income and take proceedings to prosecute the company. Let us also assume that the return of the company was signed not by the managing director or the director as provided by Section 140(c) as amended but was signed by the Chief Accountant. In such a case it would be easy for the company to get out of the prosecution proceedings by merely pointing out that the return filed by it was invalid in law, not having been signed by the proper person. If the return itself is invalid, there can be no assessment even, much less penalty or prosecution proceedings, subject to certain exceptions which are not relevant for the present purpose. It is exactly to prevent such mischiefs that it is always necessary in the interests of revenue to insist on the rectification of returns containing defects such as wrong person signing the return. The object and purpose of the statutory provision being so, it is difficult to imagine that a defective signature would result in the invalidity of the return itself and is not to be considered a curable defect or immaterial irregularity. Thus even from the point of view of proper revenue administration, it would be an untenable proposition to hold that a defect in the signature in the return of income invalidates the return.
13. We have already referred to the various authorities including the judgments of the Calcutta High Court both under the Income-tax Law and under the Civil Law on the question whether the absence of a signature or a defective signature would invalidate the document. The stand taken by the revenue authorities in the present case is inconsistent with the legal position as expounded by the judgments. Our attention was however drawn to a decision of the Calcutta High Court in National Insurance Co. Ltd. v. CIT[1995] 213 ITR 862. This judgment no doubt appears to assist the revenue's stand since there is close similarity between the facts of the present case and the facts in the case before the High Court. However, the ultimate decision in that case turned on the fact that the assessee therein did not avail of the specific opportunity given by the ITO to rectify the defect in the signature. The action of the departmental authorities treating the return as invalid was therefore upheld by the High Court. In the present case we have already seen that such opportunity was not given to the assessee. The Ld. D.R. pointed out that Section 139(9) read with the Explanation thereto did not contemplate any opportunity to be given for rectifying a defect in the signature and when the statutory provisions are clear the assessee cannot complain of lack of opportunity. A perusal of the list of defects menti9ned in the Explanation shows that those are all defects or omissions which affect the completeness of the return of income and the omission to furnish the information and documents necessary form the proper framing of the assessment. The provision is intended to facilitate the assessment in an expeditious manner. A defect in the signature in the verification of the return is out of place in the setting of Section 139(9). It is true as contended by the Ld. D.R. that the sub-section does not make the provision for rectification of defects in the signature in the return. However, such a provision has to be read into the Income-tax Act on the basis of the recent judgment of the Supreme Court in CIT v. Ajanta Electricals [1995] 215 ITR 114. While interpreting the powers of the ITO to extend the time for filing the return, the Supreme Court held that though the CPC by itself does not apply to the proceedings under the Income-tax Act, there is no reason why a principle o£ procedure evolved for doing justice cannot be called in aid while interpreting the procedural provisions contained in the Act. It was argued on behalf of the revenue that there was no express provision in the Income-tax Act, which is a self-contained code, enabling the ITO to pass an order on an application for extension of time to file the return. This argument was rejected by the Supreme Court by observing as under:
For various reasons, the Legislature may not make provisions in detail in matters of procedure to be followed. It may rest with conferring discretionary power upon the Court or the authority and leave it to the Court or that authority to exercise that power in its discretion as deemed proper and just depending upon the facts and circumstances of each case. Whether a particular thing could be done or not in the absence of a specific provision to that effect would depend upon the object of that provision and other relevant factors like the consequences which may follow if it is held that it cannot be done." (page 121 of the report) The aforesaid observations of the Supreme Court can be applied to the present case also. The omission to confer a specific power on the ITO to grant an opportunity to the assessee to rectify a return has to be supplied by applying the principles laid down by the Supreme Court. We have earlier seen that the Calcutta High Court held in Sheonath Singh's case (supra) and in Anand & Co.'s case (supra) that even applying the rigorous principles of the Civil Procedure Code which are mainly concerned with private litigation in Civil Courts, a defect in the signature or the absence of the signature in the Plaint cannot be and has not been held to be fatal to the validity of the Plaint. Similar principles have to be imported into the provisions of the Income-tax Act as has been held by the Supreme Court in the recent judgment. Even otherwise from the observations of the Supreme Court extracted above, it is our duty to infer a power on the part of the ITO to call upon the assessee to rectify the defect in the signature in the return.
14. Accordingly, we hold that the return filed by the assessee in the present case on 10-9-1985 was not an invalid return but was only a defective return and such defect was a curable defect. The return has not been disposed of. There can be no dispute after the judgments of the Supreme Court in CIT v.. Ranchhoddas Karsondas [1959] 36 ITR 569 and in CIT v.. S. Raman Chettiar[1965] 55 ITR 630 that no notice under Section 148 for re-opening the assessment can be validly issued during the pendency of the original return. Therefore the notice issued by the ITO on 9-11 -1987 under Section 148 of the Act is without jurisdiction. If the notice is without jurisdiction the assessment made on 23-1-1989 is also invalid. We hold accordingly, and allow the assessee's appeal.