Patna High Court
Commissioner Of Income-Tax, Bihar And ... vs Banarsilal Rajgarhia. on 15 March, 1963
Equivalent citations: [1964]51ITR659(PATNA)
JUDGMENT
UNTWALIA J. - At the instance of the commissioner of Income-tax, Bihar and Orissa, Patna, the Income-tax Appellate Tribunal has, under section 66 (1) of the Indian Income-tax Act, 1922, drawn up a statement of the case and referred to this court to decide the following questions of law :
"(1) Whether by service of the notice under section 34 of the Indian Income-tax Act the Income-tax Officer could validly assume the jurisdiction to reassess the assessees income for the assessment year 1948-49 ?
(2) Whether the reassessment for the year 1948-49 made by the Income-tax Officer in pursuance of the said notice is valid in law ?"
On receipt of the information that a house had been purchased in the name of the assessees wife, Shrimati Maghi Devi, since deceased, for Rs. 35,000 on June 19, 1947, the Income-tax Officer issued a notice under section 34 of the Income-tax Act to the assessee. The said notice was served on March 14, 1956. In the notice it is stated :
"Whereas I have reason to believe that your income assessable to income-tax for the year ending 31st March, 1948, has...."
By the said notice, the assessee was required to file a return in the attached form of his total income and total world income assessable for the said year within thirty-five days of the receipt of the notice. The assessee on being served with the notice filed a petition on April 16, 1956, praying for one months time for submission of the return. In this petition the heading is :
"File No. C/406 Re : Return under section 34 for the year 1948-49." (vide page 7 of the paper-book).
Return was eventually filed for the assessment year 1948-49 showing a total income of Rs. 64,079 which was the same as computed in the original assessment made on January 31, 1949. On being called upon to explain and prove the nature and source of the money with which the house at Giridih was acquired in the name of his wife, the assessees counsel appeared and argued that the assessee was under no obligation to explain or prove the nature and source of the money in question, which represented the stridhan of the assessees wife, as was evident from the recitals in the sale deed executed in respect of the house in question. The Income-tax Officer did not accept this contention and included the sum of Rs. 35,000 in the total income of the assessee for the assessment year 1948-49. It may be mentioned here that the accounting period of the assessee was the calendar year and for the assessment year 1948-49 the relevant accounting period was 1947 calendar year during which period the house had been purchased in the name of the assessees wife. The inclusion of the said income on merits was maintained by the Appellate Assistant Commissioner who dismissed the assessees appeal on December 6, 1957. The assessee took the matter in second appeal before the Income-tax Tribunal and at a later stage took two additional grounds and attacked the reassessment under section 34 of the Income-tax Act as a nullity. For the first time, by these additional grounds, the point taken was that no notice under section 34 of the Income-tax Act was either issued or served in respect of the assessment year 1948-49, the one which was served on the basis of which the reassessment had been made was in respect of the year ending 31st March, 1948. The additional grounds taken by the assessee found favour with the Tribunal which, giving effect to them, held that the notice served on the assessee was for the assessment year 1947-48 and not for the relevant assessment year 1948-49, and, as the notice under section 34 did not call for a return of the assessee for the assessment year 1948-49, the Income-tax Officer could not proceed to reassess his income for that assessment year. The appeal was accordingly allowed by the Tribunal and the reassessment was set aside. Having heard learned counsel for the parties, the questions of law should be reframed as stated below in order to bring out the real controversy between the parties :
"Whether, on the facts and in the circumstances of this case, the assessment made by the Income-tax Officer under section 34 of the Income-tax Act, 1922, for the assessment year 1948-49 in pursuance of the notice served on the assessee on March 14, 1956, is invalid in law ?"
It has been contended on behalf of the Commissioner of Income-tax by Mr. R. J. Bahadur, learned standing counsel for the department, that in the first portion of the notice issued under section 34 of the Act the figure 1948 was an obvious clerical error or a misdescription for the year 1949, the notice was not invalid, the Income-tax Officer, on the facts of this case, did, to all intents and purposes, issue notice to reassess the income for the assessment year ending the 31st March, 1949, it was so understood by the assessee himself and, therefore, the assessment could not be held to be invalid by the Tribunal as being without jurisdiction as having been made without the issuance of a valid notice. In reply, Mr. S. N. Dutta, learned counsel for the assessee, submitted that the reassessment for the assessment year 1948-49 is invalid and without jurisdiction as having been made without service of any notice under section 34 calling upon the assessee to file a return for that assessment year. He further submitted that the mere fact that the assessee understood the notice in question to be one for the assessment year 1948-49, filed a return for that year and objected to the validity of the assessment for the first time by taking additional grounds before the Income-tax Tribunal, could not confer jurisdiction upon the Income-tax Officer or validate the proceedings under section 34 of the Income-tax Act for the assessment year 1948-49 when, as a matter of fact, no notice for that year had been issued to, or served on, the assessee.
In my opinion, the contention put forward on behalf of the Commissioner of Income-tax is well founded and has got to be accepted as correct. It appears from the assessment order dated February 21, 1957, that the notice under section 34 (1) (a) of the Act was issued in this case on receipt of the information to the effect that the assessee had purchased a house for Rs. 35,000 on June 19, 1947, in the name of his wife, Srimati Maghi Devi, and the nature and source of this investment had escaped consideration at the time of the original assessment. It is obvious that the house was purchased during the accounting year 1947, the corresponding assessment year of which was 1948-49. The assessee must have been aware of this. Although, therefore, in the first portion of the notice the year of assessment was mentioned as ending on March 31, 1948, the assessee was not misled by the clerical mistake. He followed it correctly to be a notice for filing a return for the year ending March 31, 1949, filed a time petition for filing the return in respect of that year and did actually file the return for that year. It may well be that in the form of return which was attached with the notice the year was correctly mentioned as 1948-49 and that also led the assessee to believe and rightly think that he was required to file the return for the assessment year 1948-49 or it may be that he knew that he had already been assessed for the assessment year 1948-49 in respect of the accounting year 1947 and the proceeding under section 34 had been started against him because the purchase of the house in the said accounting year in the name of the assessees wife had escaped consideration and assessment at the hands of the Income-tax Officer at the time of the original assessment. Whatever may be the reason, it is abundantly clear that the proceeding was started in respect of the assessment year 1948-49, it was taken to be so by the assessee himself and hence, in my opinion, the assessment could not be invalidated on account of the obvious clerical mistake in the notice in mentioning the year of assessment. The notice was issued after obtaining the sanction of the Commissioner, which sanction must have been obtained with reference to the facts of this case for reassessment of income for the year 1948-49 as the house had been purchased in the accounting year 1947. The jurisdiction had rightly been assumed by the Income-tax Officer to reassess the assessee by issuance of a valid notice which did not suffer from any of the infirmities or violation of any of the conditions precedent for the assumption of jurisdiction. The obvious clerical error or misdescription in the notice, in my judgment, could not invalidate the notice, and, consequently, the reassessment proceeding or the order.
Learned counsel for the assessee has placed strong reliance upon a decision of the Calcutta High Court in Commissioner of Agricultural Income-tax v. Sultan Ali Gharami, the decision of the Bombay High Court in Commissioner of Income-tax v. Ramsukh Motilal, the decision of this court in Commissioner of Income-tax v. Maharaja Pratap Singh Bahadur and the decision of the Supreme Court in Y. Narayana Chetty v. Income-tax Officer.
The case decided by the Calcutta High Court was one under the Bengal Agricultural Income-tax Act, 1944. Under section 24 (1) of the said Act, corresponding to section 22 (1) of the Income-tax Act, 1922, a general notice was published in the press calling for returns of agricultural income of the previous year relative to the assessment year 1944-45. The assessee did not file a return in compliance with that notice nor was any individual notice under section 24 (2) served on him at any time during the assessment year. On March 16, 1946, the assessee received a notice under section 24 (2) requiring him to file a return for the assessment year 1944-45 and he complied with that notice by filing a return on June 15, 1948. The Agricultural Income-tax Officer thereafter served two notices upon the assessee, one under section 24 (4) and the other under section 25 (2) respectively, corresponding to section 22 (4) and 23 (2) of the Income-tax Act, requiring the assessee to produce his accounts and any evidence on which he wished to rely in support of his return. He failed to comply with either of the two notices. The Income-tax Officer thereupon made a best judgment assessment under section 25 (5). The said assessment was attacked on the ground that no notice under section 24 (2) having been served on the assessee during the assessment year, the assessment made in 1948 without the issue of a notice under section 38 corresponding to section 34 of the Income-tax Act was wholly invalid. It was held that the assessment order made for the assessment year 1944-45 without service of a notice under section 38 (1) was not valid. The reason for the decision to be found in the judgment of the High Court is that the proceedings were commenced without complying with the statutory requirements of a notice under section 38, the absence of which could not be brushed aside, and which rendered the proceedings illegal and the illegality of the proceedings was not waived. It was, however, observed in that judgment :
"...... it may be that when any particular notice is in fact issued a defect in it or an irregularity concerning it will not affect the validity of the assessment."
In my opinion, this case is clearly distinguishable; rather the observation of Chakravartti J., as he then was, which is extracted above, supports the contention raised on behalf of the department in the instant case.
In the case of Commissioner of Income-tax v. Ramsukh Motilal decided by the Bombay High Court, the notice under section 34 served upon the assessee gave only six days time to make the return. In that situation, it was held that the notice was clearly illegal and the illegality could not be waived by the assessee. It is to be noticed, however, that the time mentioned in the notice was in clear violation of the statutory requirement and it was not a case of an obvious clerical mistake in mentioning the time within which the assessee was required to file his return. Chagla C.J., with reference to the facts of that case, said that "if a notice is not given as provided by section 34, then in the eye of the law it is no notice at all, and clearly the Income-tax Officer proceeded to assess the assessee under section 34 without complying with the condition precedent laid down in section 34 which alone could have given him jurisdiction to assessee the assessee." In the instant case, however, I have found that there was no illegality committed by the Income-tax Officer and the requirements of law including the condition precedent laid down in section 34 were complied with by him. The figure in regard to the year of assessment, as I have said above, was obviously a clerical error which did not mislead the assessee nor was it such as to render the notice illegal in the eye of law. In the Patna case decided by my Lord the Chief Justice sitting with Rajkishore Prasad J., the notice under section 34 was issued on the 8th August, 1948, without compliance with the conditions laid down in the proviso to that section as it stood amended and re-enacted on 8th September, 1948, with retrospective effect from the 30th March, 1948. The peremptory requirements of section 34 having not been complied with, it was held that the proceedings taken under section 34 were not legal and valid. The present proceeding does not suffer from any such defects.
The facts of the case in Narayana Chetty v. Income-tax Officer decided by the Supreme Court are that there were three firms carrying on business in yarn and cloth and all of these registered under section 26A of the Income-tax Act. In the assessment years 1943-44 and 1944-45, the Income-tax Officer treated the three firms as separate entities and assessed them separately. The name of one of those firms was Prabhat Textiles. On August 14, 1951, the Income-tax Officer issued notice against this firm under section 34 of the Act and in the proceedings thus commenced he held that the firm was a fictitious one and the real partners were two persons who were carrying on the business in the names of Chilla Pichayya and Bellapu Audeyya. As a result of this finding, the Income-tax Officer cancelled the registration of the said firm under rule 68 of the Income-tax Rules and passed fresh orders of assessment against the said firm on the basis that it was an unregistered firm for the assessment years 1943-44 and 1944-45. Similar actions were taken in respect of the other two firms. One of the arguments advanced in the Supreme Court was that the Income-tax Officer had purported to act under section 34 (1) (a) against the three firms and the proceedings against the firms were attacked on the ground that the notices were invalid. In regard to the question of law, it was held by the Supreme Court "that the service of the requisite notice on the assessee is a condition precedent to the validity of any reassessment made under section 34, and if a valid notice is not issued as required, proceedings taken by the Income-tax Officer in pursuance of an invalid notice and consequent orders of reassessment passed by him would be void and inoperative." The notice against the three firms was attacked as defective because it was purported to have been issued against the firm and no notice had been issued against the respective partners of the firm. But this contention was not accepted. On a consideration of the relevant provisions of the Act, it was held that the notice issued in the name of the firm and served on one of the partners was a valid one. The proposition of law laid down by the Supreme Court can be said to be well established by now but, as I have already said, it cannot be applied to the facts of this case and the Income-tax Tribunal committed an error of law in holding that the notice served upon the assessee in this case was invalid in law.
Reliance was placed on behalf of the department upon a decision of the Madras High Court in the case of Commissioner of Income-tax v. K. M. N. N. Swaminathan Chettiar. In that case, the notice under section 34 was addressed to the assessee without any indication as to whether it was his personal assessment or the assessment made on him as the karta of the family for the year 1939-40 that was proposed to be reopened, but he understood the notice as calling upon him to make a fresh return only in respect of the family income and submitted a return of such income as the karta of the family. He made no complaint until the matter reached the Income-tax Appellate Tribunal, as to any irregularity in the issue of the notice. In these circumstances, firstly, it was held that the service of notice under section 34 on the assessee was perfectly in order as he was the "person liable to pay the whole of the tax imposed under the supplementary assessment." It was further observed : "Even assuming that the notice did not give the correct particulars as to the person or to the income sought to be assessed the irregularity must, in the circumstances of this case, be deemed to have been waived by the assessee." In the instant case, however, I am definitely of the opinion that there was no irregularity in the notice, to all intents and purposes, the notice related to the assessment year 1948-49, it was understood to be so by the assessee and the mere clerical mistake in mentioning the year of assessment in the notice did not have, on the facts of this case, effect of making it a notice under section 34 of the Income-tax Act for reassessment of the income in respect of the assessment year 1947-48. At the worst, the mistake amounted to an irregularity which was waived by the assessee. My concluded opinion, therefore, is that the question of law as referred above must be answered in the negative in favour of the department and against the assessee. The Commissioner of Income-tax is entitled to get the costs of this reference, the hearing fee of which is assessed at Rs. 250.
RAMASWAMI C.J. - I agree.
Question answered in the negative.