Commissioner of Income Tax vs Indra Jitendra Narain Singh and Others

Untwalia, C.J.—This is a reference made by the Income Tax Appellate Tribunal, Patna Bench, as per direction of this court given u/s 66(2) of the Indian Income Tax Act, 1922, hereinafter called " the Act ". Facts may be stated conveniently as'' far as possible from the statement of the case itself. The assessment year in question is 1947-48, the corresponding previous year being 1946-47. Assessment was originally made u/s 23 of the Act on February 11, 1948, on a total income of Rs. 4,56,683. The assessee was a resident of Padma in the district of Hazaribagh. He died during the pendency of this reference and his heirs have been substituted. Hereafter, in this judgment, by the "assessee" would be meant the original assessee. He was assessed to Income Tax previously by the Income Tax Officer, Hazaribagh, within whose jurisdiction Padma lies. In September, 1940, the assessee''s case was transferred to the Income Tax Officer, Special Circle, Patna, and he was assessed by that officer up to October, 1944. From October, 1944 to July, 1947, he was again assessed by the Income Tax Officer, Hazaribagh, to whom his case had been transferred back. By order dated August I, 1947, made by the Commissioner of Income Tax, Bihar and Orissa, u/s 5(7A) of the Act, the assessee''s case was transferred from Hazaribagh to the Income Tax Officer, Special Circle, Patna. The original assessment for 1947-48 was made by the Income Tax Officer, Special Circle, Patna, on February 11, 1948. By a notification dated April 21, 1951, the Commissioner of Income Tax, Patna, transferred the cases of various assessees including that of the assessee from the Income Tax Officer, Special Circle, Patna, to the Income Tax Officer, Special Circle, Ranchi, as a special circle was created there also. The Central Board of Revenue, by a notification issued u/s 5(7A) on August 18, 1952, transferred the assessee''s case from the Income Tax Officer, Special Circle, Ranchi, to the Income Tax, Officer, Central Circle II, Calcutta. The assessee filed a writ petition under Article 32 of the Constitution before the Supreme Court challenging the transfer of his case from Ranchi to Calcutta. The Supreme Court allowed the writ application on March 23, 1956, and quashed the order of the Central Board of Revenue dated August 18, 1952. An order of injunction was made restraining the Income Tax authorities from realising any money on the basis of assessment orders passed by the Calcutta officer.

After the decision of the Supreme Court the Income Tax Officer, Special Circle, Ranchi, getting jurisdiction over the assessee again, purported to issue notices u/s 22(2) read with Section 34 of the Act for the assessment year 1947-48. The notices were served on the assessee by affixation at the assessee''s Patna residence on March 24, 1956, as the assessee was not found there. Similarly, notices were also served at the Padma residence of the assessee on March 28, 1956, because he was not to be found there either. . No return was filed in response to the notice u/s 22(2) read with Section 34 of the Act. A notice u/s 22(4) was also issued on February 18, 1957, fixing March 1, 1957, as the date for production of account books, etc. The assessee neither filed the return nor complied with the notice issued u/s 22(4). A best judgment assessment was, therefore, made and completed u/s 23(4) of the Act on March 2, 1957. A much larger sum of income was assessed in the revised assessment. The assessee did not file any appeal from the best judgment assessment made u/s 23(4) read with Section 34 of the Act. But he filed a petition on March 23, 1957, u/s 27 of the Act for re-opening the assessment. By that time his case was again transferred to the Income Tax Officer, Hazaribagh. That officer dealt with his (assessee''s) application filed u/s 27 of the Act. The grounds taken in the application u/s 27 were the following :

" (i) That the Income Tax Officer, Special Circle, Ranchi, had no jurisdiction in the case of the assessee and, as such, the notices issued u/s 34/22(2) and Section 22(4) were invalid.

(ii) That the notice u/s 34 was not received by the assessee as he was at Berhampur at the time of the alleged service.

(iii) That the notice u/s 22(4), dated February 18, 1957, was received by the assessee on March 2, 1957, when the case was fixed for hearing and it was not possible for the assessee to comply with the terms of the aforesaid notice. "

The Income Tax Officer, Hazaribagh, held that at the relevant time the Income Tax Officer, Special Circle, Ranchi, had jurisdiction because the Supreme Court set aside the order of the Central Board of Revenue dated August 18, 1952, the result of which was that the order of the Commissioner dated April 21, 1951, transferring the assessee''s case from Patna to Ranchi was revived and remained intact. He further held that the notice u/s 34 read with Section 22 of the Act was properly served by affixation at the assessee''s residence at Padma on March 28, 1956, and thus, there was a failure on the part of the assessee to comply with the aforesaid notice. He finally held that the assessee had been given sufficient time to comply with the notices under Sections 22(2) and 22(4) of the Act but he failed to comply with them. The Income Tax Officer refused to re-open the assessment and dismissed the petition filed u/s 27 of the Act. On an appeal by the assessee, the Appellate Assistant Commissioner upheld the view of the Income Tax Officer on the first point. He also held that the Income Tax Officer, Ranchi, was competent to issue the notices under Sections 34 and 22(4) and that the former notice had been validly served on the assessee by affixation. The Appellate Assistant Commissioner, however, found that the notice u/s 22(4) fixing the hearing of the case by the Income Tax Officer on March 1, 1957, was served on the assessee on March 2, 1957. He, therefore, held that there was no default on the part of the assessee in complying with the notice u/s 22(4). As, however, the assessee failed to comply with the notice u/s 22(2), he upheld the decision of the Income Tax Officer rejecting the application u/s 27 of the Act. The matter was taken up in a further appeal before the Tribunal. The memorandum of appeal was filed in time but there was a defect in it. The correct order of the Appellate Assistant Commissioner passed in an appeal against the order u/s 27 of the Act was filed. But then the correct order of the Income Tax Officer, Hazaribagh, made u/s 27 of the Act was not filed nor was it mentioned in the memorandum that the appeal was to challenge that order. Instead of filing the correct order and giving the correct name of the Income Tax Officer, the assessee enclosed with the memorandum a copy of the assessment order of the Income Tax Officer, Ranchi, made u/s 23(4) of the Act. In the memorandum reference was made to that Income Tax Officer and to the date of his assessment order. Some time later it was pointed out to the assessee that there was some defect in his memorandum of appeal. After lapse of some time a petition, was filed explaining the circumstances under which this mistake had occurred and praying to the Tribunal to accept the correct, order of the Income Tax Officer, Hazaribagh, made u/s 27 of the Act. Accordingly, the memorandum was also corrected, a correct copy of the order was filed and the appeal before the Tribunal proceeded to disposal on merits. The Tribunal allowing the appeal of the assessee held that the Income Tax Officer, Ranchi, had no jurisdiction to issue notice u/s 22(2) read with Section 34 of the Act; in any event, the assessee was prevented from filing the return u/s 22 of the Act because he was under the belief that he was not amenable to the jurisdiction of the Ranchi Income Tax Officer. The Tribunal, therefore, has allowed the appeal and directed the reopening of the assessment in accordance with Section 27 of the Act. On being asked by the Commissioner of Income Tax, Bihar and Orissa, to refer a case to this court u/s 66(1) of the Act, the Tribunal refused to do so. This court directed it to state a case. It has accordingly done it and referred two questions of law to this court for determination. They are the following :

" 1. Whether, on the facts and in the circumstances of the case, the appeal filed before the Tribunal was competent and within time ?

Whether, on the facts and in the circumstances of the case, the assessment by the Income Tax Officer, Special Circle, Ranchi, is legal and valid and not liable to be cancelled ? "

The first question must be answered in favour of the assessee and against the department. On the facts and in the circumstances of this case, as discussed by the Tribunal in its order, the appeal filed before it was competent and was accepted to be in time. The Tribunal had power to accept the filing of the certified copy of the correct order of the Income Tax Officer, Hazaribagh, even on expiry of the time limit fixed for the filing of the appeal under Rule 10(2) of the Appellate Tribunal Rules, 1946. In my opinion, the Tribunal has correctly accepted the filing of the correct copy of the Income Tax Officer''s order and condoned the delay. Therefore, the appeal must be deemed to have been filed in time and it was competent.

There are two parts to the second question, namely:

"(i) Whether, as a matter of fact and in law, the Income Tax Officer, Special Circle, Ranchi, had jurisdiction or not ?

(ii) If he had jurisdiction, whether the assessee''s belief that he had no jurisdiction and his (assessee''s) failure to file the return because of that erroneous belief was a sufficient cause for non-compliance with his obligation to file a return even after service of notice u/s 22(2) read with Section 34 of the Act ? "

On the first point there is no doubt that the decision of the Tribunal is erroneous in law. The Central Board of Revenue had transferred the assessee''s case from Ranchi to Calcutta by its order dated August 18, 1952. That order was successfully challenged in the Supreme Court. The effect of the Supreme Court judgment dated March 23, 1956, was merely to quash the order of the Central Board of Revenue. It is plain that on the quashing of the order of the Central Board of Revenue the position which existed before the impugned order dated August 18, 1952, was revived and before that date, by virtue of the order dated April 21, 1951, passed by the Commissioner of Income Tax, the assessee was within the jurisdiction of the Income Tax Officer, Special Circle, Ranchi. The view of the Tribunal that a fresh order was necessary to transfer the case from Hazaribagh to Ranchi is quite obviously wrong in law. It is, no doubt, true that u/s 64 of the Act the Income Tax Officer, Hazaribagh, had jurisdiction in the assessee''s case. But then when the assessee''s case was rightly and legally transferred by the Commissioner to Ranchi, the Ranchi Income Tax Officer got jurisdiction and the Income Tax Officer, Hazaribagh, ceased to have any jurisdiction after the decision of the Supreme Court, which merely quashed the order of the Central Board of Revenue. There was no necessity of passing any fresh order u/s 5(7A) of the Act for transferring the assessee''s case to the Income Tax Officer, Ranchi.

In this connection, reference may be made to a Bench decision of this court, to which I was a party, in Raja Bahadur Kamakshya Narain Singh Vs. Income Tax Officer and Others, (C.W.J.C. No. 358 of 1967 decided on the 19th March, 1969). Therein, this very assessee had challenged the certificate proceedings which were commenced for realisation of Income Tax dues from him in relation to some other years, inter alia, on the ground that after the setting aside of the order of the Central Board of Revenue dated August 18, 1952, by the Supreme Court on March 23, 1956, the Ranchi Income Tax Officer had no jurisdiction. This argument was repelled and it was held in paragraph 7 of the judgment:

" The order of the Board was set aside by the Supreme Court. The usual and the natural consequence of it was that the file had to be sent back to the Income Tax Officer, Special Circle, Ranchi, as the order of the Income Tax Officer, dated the 21st April, 1951, transferring the petitioner''s file to Ranchi was never challenged before the Supreme Court, when the order of the Central Board of Revenue transferring his file from Ranch! to Calcutta was challenged."

Obviously, the expression " Income Tax Officer " in relation to the order dated 21st April, 1951, is a mistake for the expression "Commissioner of Income Tax ". And, finally, it was said in the 8th paragraph:

"I am rather inclined to think, as I have said above, that the natural consequence of the decision of the Supreme Court was that the Income Tax file of the petitioner came back to the Special Circle, Ranchi, and later on by a valid order again made by the Commissioner on the 8th May, 1951, it was transferred to the Income Tax Officer, Hazaribagh."

The first part of question No. 2 obviously, therefore, has got to be answered against the assessee and in favour of the department.

Coming to the second part of the question, suffice it to say that u/s 27 of the Act it was incumbent upon the assessee to satisfy the Income Tax Officer that he was prevented by sufficient cause from making the return required by Section 22. It is difficult to accept as a correct position in law the view of the Tribunal that the belief of the assessee that he was not amenable to the jurisdiction of the Ranchi Income Tax Officer prevented him from making the return required to be filed u/s 22. It is to be emphasised here that according to the finding of fact recorded at all stages the notice u/s 22(2) read with Section 34 of the Act was issued by the Income Tax Officer, Ranchi, and it was served on the assessee. He, therefore, could not persuade himself to say that he believed that the Ranchi Income Tax Officer had no jurisdiction over him and, consequently, he was unable to file the return. In my opinion, it was neither a cause nor a sufficient cause. And, in no manner, it can be said that the cause as alleged prevented the assessee from making return in compliance with the notice issued u/s 22 read with Section 34 of the Act.

Learned counsel for the assessee submitted that, as soon as he satisfied the Income Tax Officer that he was prevented by sufficient cause from complying with the notice issued u/s 22(4) of the Act, he was entitled to have the assessment reopened. Firstly, no such view has been taken by the Tribunal and rightly so. Secondly, the argument put forward on behalf of the assessee is not sound in law. There were two defaults on his part--one for his failure to make the return and the other for his failure to comply with the notice issued u/s 22(4) of the Act. Either was sufficient to clothe the Income Tax Officer with power to make a best judgment assessment. He exercised that power. The assessee was not entitled to succeed u/s 27 of the Act, until and unless he satisfied the Income Tax Officer in regard to both the defaults. He did satisfy with regard to one but failed to satisfy the Income Tax Officer or Appellate Assistant Commissioner in regard to the other and the Appellate Tribunal committed an error of law in regard to the latter. In this connection, reference may be made to a decision of the Bombay High Court in Chiranjilal Tibrewala Vs. Commissioner of Income Tax, Bombay City II, following a Privy Council decision noticed in that decision.

For the reasons stated above, the second question referred to this court must be answered in favour of the Commissioner of Income Tax and against the assessee. In the circumstances, ''there will be no order as to costs for this reference.

S.K. Jha, J.

I agree.