Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, CALCUTTA
Vs.
RESPONDENT:
BIDHU BHUSHAN SARKAR (DEAD) THROUGH HIS LEGAL REPRESENTATIVE
DATE OF JUDGMENT:
03/10/1966
BENCH:
BHARGAVA, VISHISHTHA
BENCH:
BHARGAVA, VISHISHTHA
SHAH, J.C.
RAMASWAMI, V.
CITATION:
1967 AIR 916 1967 SCR (1) 685
ACT:
Income-tax Act, 1922, ss. 5(7A), 34-Proceeding pursuant to
notice under s. 34 "filed" by Additional Income-tax Officer
as another proceeding for same year pending before Principal
Income-tax Officer-Latter issuing another notice under s.
34-Whether proceeding on first notice still pending-Whether
second notice and assessment thereafter valid-Whether
transfer under s. 5(7A) only possible when proceedings pend-
ing-Notice under s. 34 just before expiry of eight years-
Assessment completed within one year thereafter-Whether
valid or barred by limitation.
HEADNOTE:
In proceedings pursuant to a notice under s. 34 of the
Income-tax Act 1922 , the Additional Income-tax Officer
passed an order to the effect that the income should be
taken in the assessment on a second return for the same year
pending before the Principal Income-tax Officer, for which
there was another file and that the case was, therefore,
"filed".
The Principal Officer, after issuing a notice under s. 34,
passed an assessment order, but in an appeal against that
order, he himself pointed out that he had no jurisdiction to
make the order. The Appellate Assistant Commissioner
therefore set aside the assessment order. The Commissioner
thereafter transferred the case from the Additional Officer
to the Principal Officer. The latter then issued another
notice to the under s. 34 and in pursuance of that notice
passed an assessment order.
The assessee appealed against this order to the Appellate
Assistant Commissioner on the grounds, that (i) the notice
under S. 34 of the Principal Officer was invalid because the
proceedings instituted on the first notice by the Additional
Officer were still pending; and (ii) if the first notice of
the Additional Officer was still effective, the assessment
made was barred by time. The Appellate Assistant
Commissioner accepted these contentions and allowed the
appeal but the Tribunal reversed this decision. The High
Court, on a ’reference held in favour of the assessee.
On appeal to this Court,
HELD : (i) In the circumstances of the case the word "filed"
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in the order of the Additional Officer was equivalent to
"disposed of", so that after that order no proceedings on
the basis of his notice remained pending. What the
Additional Officer intended and did, in effect, was to
terminate the proceedings before him without making any
order of assessment on the ground that the order of
assessment in respect of the income in question would be
made by the Principal Officer in the proceedings before him.
[690 G-691 A]
Esthuri Aswathiah v. income-tax Officer, Mysore State,
[1961] 2 S.C.R. 911; 41, I.T.R. 539 and Haji Mohamed Main v.
C.I.T. Calcutta, (Calcutta High Court, Income-tax Reference
No. 128 of 1961, judgment dated Feb. 23, 1955), referred to.
686
P. T. Anklesaria and Ors. v. C.I.T., Bombay South, 35
I.T.R. 532, distinguished.
Even if the order of the Additional Officer were to be
regarded as invalid, its effect could not be that the
proceedings before him must be held to have continued after
that order was made by him. Even an invalid order
terminating proceedings has the effect of terminating them;
and in such a case the appropriate method for correcting the
illegality committed is to have that order vacated by
appellate or other higher authorities having jurisdiction to
intervene. [692 E-F]
The High Court erred in holding that the proceedings on the
notice issued by the Additional Officer were pending on the
view that unless there was a case pending, there could be no
transfer of a case under s. 5(7A). The word "case" in s.
5(7A) is used in a comprehensive sense including both
pending proceedings as well as proceedings to be instituted
in future. [693 B-D]
(ii)The order of assessment was not barred by time. The
notice having been validly issued by the Principal Officer
within the period of eight years prescribed by s. 34(3), the
actual order of assessment could be made validly before the
expiry of one year from the date of the notice. [693 H]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 401 of 1965.
Appeal from the judgment and order dated January 10, 1962 of
the High Court at Calcutta in Income-tax Reference No. 22 of
1960.
S.V. Gupte, Solicitor-General, N. D. Karkhanis and R. N.
Sachthey, for the appellant.
A.K. Sen, P. K. Mukherjee and S. K. Banerjee, for the
respondent.
The Judgment of the Court was delivered by
Bhargava, J.- The assessee in the proceedings out of which
this appeal has arisen was Bidhu Bhushan Sarkar, who died
and is now represented in these proceedings through his
legal representative. The assessee used to be assessed by
the Income-tax Officer of District 24 Parganas in Bengal.
For the assessment year 1947-48, the assessee filed a
voluntary return before the Income-tax Officer on December
22, 1947, showing a net loss of Rs. 330/-. This return was
filed without any notice under S. 22(2) of the Income-tax
Act having been served on him. Before any proceedings could
be completed on that return, there was change in territorial
jurisdiction and as a result, the assessee’s place of
business came within the jurisdiction of the Income-tax
Officer District 1(2), Calcutta. In this Income-tax Office,
there were a number of Income-tax Officers. The senior-most
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Income-tax Officer used to be designated as Income-tax
Officer, District 1(2), and was treated as the principal
Income tax Officer (hereinafter referred to as "the
P.I.T.O."). Since there were a number of Addi-
687
tional Income-tax Officers, there was distribution of
jurisdiction,and the case of the assessee fell within the
jurisdiction of the 8th Additional Income-tax Officer,
District 1(2) (hereinafter referred. to as "the A.I.T.O."),
and consequently, came up before him. On January 16, 1949,
the A.I.T.O. started departmental proceedings with the
object of taking proceedings under s. 34, presumably because
he considered the voluntary return declaring a loss of Rs.
330/- as invalid. He thereafter issued a notice under s. 34
on February 23, 1950. In the meantime, on March 31, 1949,
the assessee had filed another voluntary return for the same
assessment year in respect of his income from military
contracts before the P.I.T.O., and in this return be
declared a loss of’ Rs. 11,33,940/-. The proceedings
pending before the A.I.T.O. in pursuance of his notice dated
23rd February, 1950 came up, before him on the 4th February,
1952. On that date, he passed’ the following order which
may, for convenience, be reproduced in full, as this case
turns mainly upon the interpretation of this order :-
" Mr. Kalipada Bose, constituted attorney, Appears and
submits that the old return already submitted may be treated
to be submitted in response to notice under s.
34(1)(a). The income should be taken in the
assessment of the military contract income for
which there is another file. The case is,
therefore, filed."
The proceedings before the P.I.T.O. on the voluntary return,
filed by the assessee on the 31st March, 1949, were
continuing,and in those proceedings he issued a notice under
s. 23(2) on 1st August, 1950. Subsequently, on 12th
February, 1952, he cancelled those proceedings on the view
that a voluntary return of loss was not valid, took
proceedings under s. 34, and issued a notice under that
section on the same day. These proceedings. under s. 34
culminated in an order of assessment by the P.I.T.O. under
s. 34(4) passed on 31st January, 1953. The assessee filed’
an appeal against that order of assessment and when the
appeal came up, the P.I.T.O. himself drew the attention of
the Appellate Assistant Commissioner to the fact that he had
no jurisdiction over the assessee as there was already a
file of the assessee with the A.I.T.O. He, therefore,
requested that the assessment should be set aside as it was
void ab initio. The Appellate Assistant Commissioner
accepted this request of the P.I.T.O., set aside-the
assessment on 7th December, 1955, and made a direction that
the assessment could be completed according to law by the
officer having proper jurisdiction over the case.
Thereafter, on the 30th December, 1955, the Commissioner of
Income tax made an order transfer-ring the case of the
assessee from the A.I.T.O. to the P.I.T.O. There was an
appeal by the assessee against the direction of the
Appellate Assistant Commissioner that the assessment should
be completed
688
by the officer having proper jurisdiction over the case.
That appeal was allowed by the Income-tax Appellate Tribunal
on the 23rd April,1957, and the direction of the Appellate
Assistant Commissionerwas set aside. In the meantime, in
pursuance of the direction of the Appellate Assistant
Commissioner contained in his order dated 7th December,
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1955, and the order of transfer by the Commissioner made on
30th December, 1955, the P.I.T.O., on 11th February, 1956,
issued a fresh notice under s. 34 to the assessee, and in
pursuance of that notice, made an assessment on 2nd May,
1956.
Against this assessment dated 2nd May, 1956, there was
an .appeal to the Appellate Assistant Commissioner
challenging the assessment on various grounds, one of which
was that the notice dated 11th February, 1956 was invalid,
because the proceedings ,instituted on the notice under s.
34 dated 23rd February, 1950 were still pending, and while
these proceedings had not terminated, another fresh notice
under s. 34 could not be validly issued. A further ground
was that if the notice dated 23rd February, 1950 is
considered as still effective, when the assessment was made
on 2nd May, 1956, that assessment was barred by time. These
pleas were accepted by the Appellate Assistant Commissioner,
but the Income-tax Appellate Tribunal, on appeal, reversed
his decision and decided both the points against the
assessee and in favour of the department. On an application
under s. 66(1), the Tribunal then referred the following two
questions for opinion of the Calcutta High Court
"(1) Were the notice u/s. 34 issued by the Principal Income-
tax Officer on 11th February, 1956 and the assessment raised
in pursuance thereof, valid in law, in view of the fact that
the proceedings commenced by the 8th Addl. Income-tax
Officer u/s. 34 on the basis of notice dated 23rd February,
1950 were "filed" ?
(2) Whether on the facts and circumstances of the case, the
assessment dated 2nd May, 1956 made by the Principal (main)
Income tax Officer, Distt. 1(2) was barred by time ?"
The High Court disagreed with the view of the Tribunal and
held that the notice dated 23rd February, 1950 was valid,
and proceedings on it were continuing, so that the revenue
authorities ’Could not extend the period of limitation by
assessing after the expiry of eight years by issuing a
second notice on the eve of the expiry of eight years to
obtain a period of one additional year from the date of the
service of the second notice. The assessment was,
therefore, held to be barred by limitation on the ground
that .it should have been completed. by 31st March, 1956.
This appeal
689
has now been brought up to this Court by the Commissioner of
Income-tax, Calcutta, on a certificate granted under s.
66A(2) by the High Court.
It appears in this case that at one stage there was a
contest between the parties as to whether the notice dated
23rd February, 1950 was validly issued under s. 34 or not.
Even before the High Court it seems that some attempt was
made on behalf of the assessee to raise the question that
the notice dated 23rd February, 1950 under s. 34 was invalid
on the ground that it was issued without completing the
assessment on the voluntary returns submitted on December
22, 1947 and March 31, 1949. On behalf of the Commissioner,
the contention before the High Court was that on the
question referred to the Court it was not open to the
assessee to raise this contention. The objection raised by
the Commissioner was rightly accepted by the High Court. It
is plain from the two questions referred to the High Court
that the High Court was not called upon to express any
opinion about the validity of the notice dated 23rd
February, 1950. The first question only invited the opinion
of the High Court on the limited point whether, in view of
the fact that proceedings commenced by the A.I.T.O. on the
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basis of notice dated 23rd February, 1950 were merely filed,
the notice under s. 34 issued by the P.I.T.O. and the
assessment based on it were valid in law. The only other
question was whether the order of assessment dated 2nd May,
1956 made by the P.I.T.O. was barred by time. Neither of
these questions enlarged the scope of the reference before
the High Court so as to permit it to examine the validity of
the notice dated 23rd February, 1950, and the Court,
therefore, was right in refusing to go into this question.
In this appeal, consequently, we are only concerned with the
correctness of the answer returned by the High Court to the
two questions referred to it by the Tribunal. The answer
given by the High Court to the two questions referred to it
is clearly based on the view taken by that Court that the
order of the A.I.T.O. dated 4th February, 1952, did not
terminate or put an end to the proceedings which were going
on before him in pursuance of the notice under s. 34 dated
23rd February, 1950, and it is the correctness of this view
of the High Court that has to be examined.
Learned Solicitor-General, appearing on behalf of the
Commissioner, urged before us that in interpreting the
effect of the order made by the A.I.T.O. on the 4th
February, 1952, we should try to discover what was the real
intention of the A.I.T.O. when he ordered that the case is
"filed". The intention has to be inferred from all the
surrounding circumstances in which the order was made. At
the time when this case came up before him on 4th February,
1952, the A.I.T.O. was expecting a return to be filed by
690
the assessee in response to the notice which had been issued
by him under s. 34. A constituted attorney appeared for the
assessee and requested that the return already filed on the
22nd December, 1947 may be treated as the return submitted
in response to the notice. The A.I.T.O., noted this fact.
Further, it appears that he was already aware that another
proceeding on the basis of a voluntary return was pending
before the P.I.T.O., and consequently in his order he
recorded his opinion that the income (referring to the
income to which the voluntary return dated 22nd December,
1947 related) should be taken ’in the assessment of the
military contract income for which there was another file.
This remark recorded by him in his order gives clear
indication that he felt at that stage that it would not be
right for him to continue the proceedings which were pending
before him, obviously because another proceeding for
assessment of the same assessee was pending before his
senior Officer, viz., the P.I.T.O. He, therefore, ordered
the case to be filed. In making this order, the only
intention the A.I.T.0 could have was that the proceedings
before him should no longer remain in existence as being
unnecessary proceedings. The very income which he was
called upon to assess to tax was to be taken into account by
his senior officer and, therefore, he felt that he should
not continue simultaneous proceedings for the same purpose
as the proceedings before his senior Officer. In ordering
that the case be filed, therefore, he clearly intended that
the proceedings before him should be terminated or dropped.
There is no indication in the order that what the A.I.T.O.
intended was that the proceedings before him should continue
to remain pending and should be dealt with by him at
subsequent stage. In fact, if the A.I.T.O. had thought that
those proceedings before him had to continue and he did not
want any conflict with his senior officer, the order that he
would have made in the circumstances before him was that
these proceedings be also submitted to the P.I.T.O. He seems
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to have considered it unnecessary to do so, because his
opinion was that, in the assessment proceedings going on
before the P.I.T.O., the income to which the proceedings
before him related would also be included, so that there was
no need for any proceedings remaining in existence before
him. The intention, thus, clearly was to drop the
proceedings and not to continue them any further. Of
course, he could have expressed his intention more clearly
by saying that he was cancelling the proceedings before him,
or was terminating them. We think that the learned counsel
for the Commissioner has rightly contended that, in the
circumstances of this case, the word "filed" should be
interpreted as being equivalent to "disposed of", so that
after that order, no proceedings on the basis of notice
dated 23rd February, 1950 remained pending before the
A.I.T.O. In effect, therefore, what he did was to terminate
the proceedings before him without making any order of
assessment, on the ground that the order of assessment
691
in respect of the income in question would be made by the
P.I.T.O. in the proceedings before him.
An order in language not contemplated by the Income-tax Act
in proceedings on a notice under s. 34(1) came for interpre-
tation before this Court in Esthuri Aswathiah v. Income-tax
Officer, Mysore State.(’) In that case, the assessee had
submitted a return showing that he had no assessable income.
Thereupon, the Income-tax Officer made an order "no
proceedings." Subsequently, when a notice under s. 34(1) for
reassessment was issued, an objection was taken that the
notice was incompetent, because proceedings on the return
filed were still pending. This Court held that the
submission that the previous return "had not been disposed
of" and until the assessment pursuant to that return was
made, no notice under s. 34(1) for reassessment could be
issued, had no substance. It was further held that the
Income-tax Officer had passed the order "no proceeding" and
such an order, in the circumstances of the case, meant that
the Income-tax Officer accepted the return and assessed the
income as ’nil’. In that case, thus, the order "no
proceeding" was interpreted in the light of the
circumstances in which that order was passed. In the case
before us, the order directing that the case be-filed has to
be similarly interpreted in the circumstances in which it
was passed; and as we have indicated above, the only proper
interpretation is that the A.I.T.O. intended to conclude the
proceedings before himself in view of the fact that
proceedings were going on before his senior officer.
Our attention was also drawn to a decision of the Calcutta
High Court in Income-tax Reference No. 128 of 1961-Haji
Mohamed Mian v. The Commissioner of Income-tax, Calcutta in
which judgment was delivered on February 23 1965. In that
case also, proceedings had begun on the basis of a notice
under s. 22(2) of the Income-tax Act, and, at a latter
stage, the Income-tax Officer ordered that the proceedings
be filed on the ground that no return had been filed by the
assessee in response to the notice. The order of the
Income-tax Officer was interpreted as amounting to dropping
of the proceedings, and it was further held that the
dropping of the proceedings meant the termination thereof
without any order of assessment. In that case also,
therefore, the subsequent issue of notice under s. 34 was
held to be valid and not vitiated on the ground that
proceedings for assessment in pursuance of the notice under
s. 22(2) were still going on.
Mr. A. K. Sen, on behalf of the assessee, urged before us
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that once proceedings had been started under s. 34 by issue
of the not’ Ice dated 23rd February, 1950, the proceedings
brought into existence
(1) [1961] 2 S.C.R. 911
692
could not be dropped, because the scheme of the Income-tax
Act is that such proceedings must end in some final order of
assessment, even though that order may be to the effect that
there is no taxable income and no tax is determined as
payable. He relied on a decision of the Bombay High Court
in P. T. Anklesaria and others v. Commissioner of Income-
tax, Bombay South(’) in which the Income-tax Officer
received a voluntary return, though without any notice under
s. 22(2), issued a notice under s. 23(2), and again, after
obtaining the permission of the Commissioner to issue a
notice under s. 34, he issued a notice under s. 23(2), and
failed to issue any notice under s. 34. Thereafter, the
Income-tax Officer made the following order -
"Return has been filed under S. 34 claiming a loss of Rs.
74,140/- only. Since I find that no income has escaped
assessment, proceedings under section 34 are dropped."
In these circumstances, the High Court held that as there
was a valid return voluntarily filed by the assessee, the
order of the Income-tax Officer was invalid and bad in law.
There was no provision by which the Income-tax Officer could
refuse to assess the loss shown in the return, especially
when he had actually issued a notice under s. 23(2) after
the return had been made. It was urged before us that, on
the principle laid down in that case, the order made by the
A.I.T.O. directing that the case be filed must be held to be
an invalid order as it was essential that he should have
passed an order assessing the income and then determining
the tax payable under s. 23, even if the result of the
determination was that the tax payable was nil. Even if it
be accepted that the order made by the A.I.T.O. in the
present case was invalid, its effect cannot be that the
proceedings before the A.I.T.O. must be held to have
continued after that order was made by him. Even an invalid
order terminating proceedings has the effect of terminating
them; and in such a case, the appropriate method for
correcting the illegality committed is to have that order
vacated by appellate or other higher authorities having
jurisdiction to intervene. As long as the order is not set
aside, it remains in force and takes full effect. The order
was not totally without jurisdiction; at best, it was an
order not contemplated by law and it could not be treated as
a non-existent order. In the present case also, the order
of the A.I.T.O. directing that the case be filed could have
been set right on appeal, or by a reference to the High
Court, in case the Triburial refused to correct it. While
it was not set aside, the only conclusion possible is that
the proceedings before the A.I.T.O. terminated and did not
any longer continue to remain pending.
The High Court, in dealing with this question, proceeded on
the further basis that when the order of transfer was made
by the
(1) 35 I.T.R. 532.
693
Commissioner of Income-tax on 30th December, 1956, this pro-
ceeding must have been treated as pending, because,
otherwise,. the order of transfer would not relate to any
pending case at all. The High Court held: "Therefore, when
the transfer of the case was made under s. 5 (7A), it cannot
be said that the notice issued by the Additional Officer had
been wiped out, or did not remain alive. If there was no
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case, there could not be any transfer of the case." We are
unable to accept the view of the High Court that an order of
transfer could not have been made unless some. specific
proceeding for assessment of the assessee to tax was
actually pending. The explanation to s. 5(7A) makes it
clear that the word " case", in relation to any person whose
name is specified in the order of transfer, means all
proceedings under the Act in respect of any year which may
be pending on the date of the transfer,. and also includes
all proceedings under the Act which may be commenced after
the date of the transfer in respect of any year. The word
"case " is thus used in a comprehensive sense of including
both pending proceedings as well as proceedings to be
instituted in future. Consequently, an order of transfer
can be validly made even if there be no proceedings pending
for assessment of tax and the purpose of the transfer may
simply be that all future proceedings are to take place
before the officer to whom the case of the assessee is
transferred. In the present case, the proceedings on the
notice dated 23rd February, 1950, had already been termi-
nated by the A.I.T.O. by his order directing that the case
be filed. Consequently, the effect of the order of transfer
was that all the records relating to the assessment of the
assessee had to be sent to the P.I.T.O., and this was with
the object that, in future, all .proceedings relating to
assessment of this assessee were to be taken by the P.I.T.O.
and not the A.I.T.O. The order does not necessarily,
indicate that those proceedings which the A.I.T.O. had
actually terminated were still to be treated as pending and
to stand transferred as pending proceedings.
Since the case of the assessee was transferred to the
P.I.T.O. at the stage when no proceeding Was pending before
the A.I.T.O., the P.I.T.O. became seized of the jurisdiction
to take any proceedings against the assessee which the law
permitted. It was clearly in exercise of this jurisdiction
that the P.I.T.O. issued the Subsequent notice dated 11th
February, 1956. That notice was, therefore, competently
issued by him and was also valid, because it was issued
before the expiry of eight years from the end of the
relevant assessment year 1947-48. The notice having been
issued validly within the period of limitation permitted by
s. 34(3), the actual order of assessment could be made
validly before the expiry of the period of one year from the
date of the notice. The order of assessment dated 2nd May,
1956, was consequently a valid order and was not barred by
time.