Hazari Sah vs Agricultural Income Tax Officer and Others

Hari Lal Agrawal and S.K. Choudhuri, JJ

All these six writ applications under Articles 226 and 227 of the Constitution of India have been heard together and are being disposed of by this judgment as most of the facts are common and the same assessment order made under the provisions of the Bihar Agricultural income tax Act, 1948, is under challenge in all these applications. The assessment order is dated 19th August, 1972, and is passed by the Agricultural income tax officer, Sitamarhi (respondent no. 1) contained in Annexure 1 to all the writ applications, and the consequent demand notices issued for the respective agricultural years, which are 1370 to 1375 fasli, have been separately made as Annexure 2 to each of the writ applications.

C.W.J.C. no. 1424 of 1972, however, stands apart from the other five applications and relates to the agricultural year 1370 fasli beginning from the 15th of September 1962 to 3rd of September 1963. The proceeding u/s 29 of the Bihar Agricultural income tax Act, 1948 (briefly the ''Act'') in all the six cases however, was started simultaneously on 7.1.1971 as it appears from the very order of assessment (Annexure 1) under challenge.

Mr. K.N. Jain, learned counsel appearing for the petitioner, contended that this application must succeed on the simple question of limitation as the prescribed period fixed u/s 29 of the Act for starting a proceeding u/s 29 had expired long before. As would appear from the discussion made hereafter, the contention is sound and must be accepted.

Section 29 of the Act provides the machinery for assessing agricultural "income escaping assessment" and lays down that....if upon Information which has come into his possession, the Agricultural income tax officer is satisfied that reasonable ground exists to believe that any agricultural income chargeable to agricultural income tax in any year has for any reason escaped assessment, or has not been assessed, or has been under-assessed, or has been assessed as too low a rate, or has been made the subject of excessive relief or deduction under the Act, he may serve a notice.

(a) within six years of the end of that year where he has reasons to believe that the assessee has concealed, omitted or has failed to disclose fully the particulars of such income or has furnished incorrect particulars of such income and thereby returned figures below the real amount, or

(b) within three years of the end of that year in any other case, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 19 and proceed to assess or reassess such income to tax....

It will be seen that the proceeding which was initiated on 7.1.1971 was beyond the period of six years, even the larger period of limitation provided for initiation thereof from the end of the agricultural year under this case. In this case, therefore, it is, not necessary to consider the various other contentions which were argued at some length by the learned counsel for the petitioner and this application must succeed on this ground alone.

Now I propose to take up the other three cases where the period of assessment falls within six years, but beyond the period of three years, and consider as to whether they would be covered by the first clause, namely, Clause (a) prescribing a period of six years, or Clause (b) where a smaller period of three years only has been prescribed.

C.W.J.C. no. 1441 of 1972 relates to the assessment year 1371 fasli, C.W.J.C. no. 1438 of 1972 for the assessment year 1372 fasli and C.W.J.C. no. 1437 of 1972 for the assessment year 1373 fasli. The corresponding English dates for these would be 4.9.1963 to 21.9.1964, 22.9.1964 to 10.9.1965 and 11.9.1965 to 29.9.1966 respectively. As already said earlier, the proceedings in all the six assessment proceedings were initiated simultaneously on 7.1.1971. Apparently, therefore, the said initiation was beyond three years of the expiry of the agricultural years involved in the above mentioned three cases.

Mr. K.N. Jain contended that all these cases were not covered within the mischief of Clause (a) of Section 29 of the Act. Learned Government Pleader No. IV however, strenuously argued that they were covered by that clause itself. It is manifest that if these assessments are not covered by Clause (a) and fall within the ambit of Clause (b), they will be also barred by limitation by application of the three years rule.

It is an undisputed fact that the petitioner has not filed any return for any of the assessment years in question so much so that he had never been assessed under this Act. We have extensively extracted the relevant provision contained in Clause (a) and the conditions which entitle the Agricultural income tax Officer to fall within that provision are, as mentioned in that clause, itself, whether the assessee has (i) concealed, (ii) omitted, (iii) failed to disclose fully the particulars of his income or (iv) has furnished incorrect particulars of such income, and thereby returned figures below the real amount. In our considered opinion, any of the four contingencies contemplated by Clause (a) would arise where an assessee had filed a return, and while doing so, he might have committed any of the four acts mentioned in this clause, namely, had concealed any income, (ii) omitted any income, (iii) failed to disclose fully the particulars of income, and (iv) furnished incorrect particulars. Any one of the conditions must appear from the return, if any, that might be filed, and the cases which are not covered by this clause, necessarily are put under the succeeding Clause (b) providing a smaller period of three years limitation. All the above four conditions in the context in which they are used in Clause (a) necessarily contemplate the filing of a return. But that apart, the expression used in this clause is, in our opinion, very explicit, when it says that on account of those omissions or commissions on the part of the assessee, he had returned a figure of taxable income below the real amount.

Mr. Ram Balak Mahto, learned Government pleader, however, adopted a line of argument that this provision being the machinery section, and not the charging provision, interpretation should be given to effectuate the very purpose of the Act, and not to defeat the same. In other words, learned counsel purported to submit that this interpretation would expose to a larger period of six years a person who has been honest to some extent and filed a return, although it may be incorrect, but will give a smaller period of only three years to a dishonest person who has altogether failed to submit any return and, therefore, such interpretation of the provision would be unreasonable. In support of this contention he cited two decisions, namely, (1) Gursahai Saigal Vs. Commissioner of Income Tax, Punjab, which has been followed by a Bench of this court in (2) Messrs Mukundi Lal Banshidhar and another V. The State of Bihar and others (C.W.J.C. nos. 2805 and 2817 of 1975) disposed of on 12th April, 1976.

Before, however, dealing with these two cases, we must indicate that the argument of the learned Government Pleader is by itself misconceived as the expression contained in Section 29 and its two clauses is explicit and does not call for any complicated rules or principles of interpretation. There is no basis for this part of the contention of the learned Government Pleader that a more scrupulous dealer would escape only after three years availing the shorter period of limitation, if this interpretation is put. The underlying, purpose for providing the contingencies contemplated by Section 29 are entirely different. Whereas a person apparently liable to tax under the provisions of this Act is before the assessing authorities, and a machinery is provided under the Act for detection of such persons; the factors and Information, if any, which may come into the possession of the Taxing Officer with respect to a return which has been filed regarding any concealment or omission or furnishing of incorrect particulars, etc, cannot be easily found and would be largely obscure. Informations may be divergent and come from sources remote and distant. In our opinion, a longer period was needed for such purpose and, therefore, the Legislature has rightly prescribed a longer period to cover such contingencies than for detecting a person who is prima facie liable for a taxable income but did not file any return. There the legislature intended that the Revenue authorities should be more diligent in their work and expected that a period of three years would be quite sufficient for such cases.

We may also support our view from the provisions contained in Section 21 where the circumstances falling under clause (a) has been more seriously viewed and penalty has also been provided, Clause (b) of Section 29 itself, lays down that in cases falling under this clause, a notice has to be issued u/s 19(2).

Section 19 provides that the Agricultural income tax Officer shall, on or before the prescribed date in each year, give notice, by publication according to the prescribed manner, requiring every person whose total agricultural income during the previous year exceeded the maximum amount exempted from the tax; to furnish within a period to be fixed by him in the notice, a return in the prescribed form, etc. Then comes Sub-section (2) which empowers the Agricultural income tax Officer that if inspite of the notice as aforesaid, any person who is liable to file return for any financial year, he may serve in that year a notice upon him requiring him to furnish a return within a period of not less than thirty days.

By this provision, it is manifest that the Legislature intended the Agricultural income tax Officer to be very much vigilant and to net all such persons who although were liable to file return, had omitted to do so, before the financial year in question was out. The period, therefore, left for taking steps for bringing on the record such persons by the Agricultural income tax Officer is hardly four to six months. Whereas this period is enlarged to three years u/s 29(b), if the condition precedent contemplated in that Section were attracted to any given case. In our opinion, therefore, this view cannot be said to be involving any Interpretation based upon any rule of construction of the relevant provision and the conclusion is inevitable. The Supreme court in the case of Gursahai Saigal V. The Commissioner of income tax (supra) observed:

Now it is well recognised that the rub of construction on which the assesses relies applies only to a taxing provision and has no application to all provisions in a taxing statute. It does not, for example, apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say in accordance with the clear intention of the legislature which is to make a charge levied effective.

The question that fell for consideration in the Supreme Court case was as to whether on a construction of Sub-sections (6), (8) and (9) of Section 18A of the Indian income tax Act, 1922, the interest referred to in Sub-section (8) was chargeable for failure on the part of the assessee to submit an estimate of his income and pay tax as required in terms of Sub-section (3) of that Section. The High Court has answered the question against the assesses and the Supreme court upheld that view.

The case of this court was under the Bihar Agricultural Produce Markets Acts, 1960 (Bihar Act XVI of 1960). In that case a notice was issued upon the petitioners for production of books of accounts in Form C under Sub-section (5) of Section 27A of the Act. The notice was, however, issued by the Secretary of the Market Committee, and not by the Assessment sub-committee. The notice was challenged on the ground that it was ultra vires as it was the Assessment sub-committee which had jurisdiction to issue such a notice. Overruling this contention, it was held by this court that the provision contained in Sub-section (7) of Section 27A was not to be read in isolation but in conjunction with the notice in Form C which clearly authorised best judgment assessment also in cases where no return was filed. The learned Judges in putting this construction, no doubt, observed "To hold otherwise, would be not only to frustrate the charging section levying market fee, but also to allow such defaulting traders to go a (Sic) scot-free, and defeat the very object for which the Act has been passed." As already observed earlier, we ate not called upon in this case to give any meaning to any provision of the law by putting our own construction and in our considered view, the language and the scheme of the Act by itself is unambiguous and clear. The principles laid down in these authorities, therefore, have no application to the facts of the cases before us.

Some argument was also advanced by Mr. Jain that the service of a notice u/s 29 was a condition precedent for proceeding to make the assessment u/s 29. In the writ applications, which are almost in identical terms, it has been asserted by the petitioner that no notice u/s 29 was served upon the petitioner. No counter-affidavit has been filed on behalf of the respondents to controvert this assertion of the petitioners. In the order (Annexure 1), it has, however, been stated that the proceeding u/s 29 began on 7.1.1971, but at no place in the whole of the impugned order, the fact of service of the notice has been stated. The fact, however, remains that the petitioner had participated in the assessment proceeding and it appears from the order itself that the petitioner had produced two notices before the assessing authority, namely, respondent no. 1, issued u/s 29 upon Misri Lal Sah and Ramautar Sah, his two cousins, and had contended that in as much as there had been a previous partition in the family of the petitioner, the notice issued u/s 29 of the Act upon those persons was not valid and binding on the petitioner. It, therefore, stands proved that the notice issued u/s 29 of the Act was duly served upon some members of the family of the petitioner. Whereas according to the petitioner , they were members of an erstwhile joint Hindu family, the stand of the respondent no I was that the family still remained joint. Several documents were produced on behalf of the petition in support of the plea that the family had disrupted and there was a partition. On a consideration of all those materials the learned Agricultural income tax officer took a view that the plea of the petitioner of partition in the family was merely a pretext and that the family still continued to be joint. The notice has however not been filed in this court by the petitioner.

Mr. Ram Balak Mahto, however, contended that the service of the notice lost all importance inasmuch as the petitioner admittedly had appeared before respondent no. 1 and, therefore, the point of absence of any notice lost all its force. The argument of Mr. Jain, however, was that the service of the notice u/s 29 was a condition precedent for foundation of starting the proceeding u/s 29. He cited some decisions under the income tax Act in relation to assessment u/s 34 of the old Act which contained a similar provision, to bring home his point that if the notice was invalid, the mere participation of the petitioner in the assessment proceeding would not amount to waiver of the illegality. Reference in this connection may be made to a decision of the Bombay High court in the case of (3) Commissioner of income tax, Bombay city--1 vs. Ramsukh Motilal (27 Income Tax Reports 54) and of the Supreme court in the case of (4) Y. Narayana Chetty and another vs Income tax officer and others (35 income tax Reports 388), where the above view of the Bombay High court was affirmed. In these cases it has been held that the notice prescribed u/s 34 of the income tax Act for the purpose of initiating re-assessment proceedings is not a mere procedural requirement, but service of the prescribed notice on the assessee is a condition precedent to the validity of any re-assessment made u/s 34.

The proposition laid down by the above authorities are well established and cannot be disputed. The factual position in the cases before us are, however, entirely different, inasmuch as the assessment of the agricultural income tax for all the years in question by a consolidated order (Annexure 1) has been made on the Hindu undivided family of the petitioner and his brothers and the fact remains that the notice u/s 29 of the Act was served on some of the members of the family. There is, therefore, no scope for the application of the principles laid down in the above Authorities to the present cases. C.W.J.C. nos. 1437, 1438 and 1441 of 1972, however, must succeed for the view that we have taken with respect of the application of clause (b) of Section 29 of the Act and on the basis of that view, it must be held that the proceedings taken by respondent no. 1 being beyond the prescribed period of limitation of three years, must be held to be invalid.

Now remains for consideration two applications namely C.W.J.C. nos. 1439 and 1440 of 1972. C.W.J.C. no. 1440 is for 1374 fasli and C.W.J.C. no. 1439 is for 1375 fasli. The corresponding period recording to the English calendar in these two proceedings is from 30.9.1966 to 18.9.1967 and 19.9.1967 to 6.9.1968 respectively. Both these period are apparently within three years from the initiation of the proceeding and these two writ applications cannot be attacked on any of the arounds that we have noticed earlier advanced on behalf of the learned counsel for the petitioner. The assessment proceedings for the period covered by these writ applications are neither barred by limitation nor can be said to be without jurisdiction on the ground of non-service of the notice u/s 29 of the Act.

Mr. Jain, however, raised two additional grounds with respect to these two applications. Firstly he contended that the finding of respondent no. 1 that the family of the petitioner still continued to be a joint Hindu family should be set aside as, according to him, there was sufficient material to prove that even if there was no partition by metes and bounds, there was evidence indicating unequivocal expression on the part of different members of this family seeking partition, and that by itself was sufficient under the Hindu Law for disruption of the joint status of the family. We, however, do not feel persuaded to examine this question nor do we like to express any concluded opinion for the view that we are inclined to take with respect to the next argument of Mr. Jain.

Some arguments were also advanced by Mr. Jain that the best judgment assessed was arbitrary and capricious and was not based upon any cogent estimate or material. For the above reason again we do not feel inclined to examine this aspect of the case either and consider some authorities which were cited by him.

The next argument advanced by Mr. Jain which deserves some consideration and on which we feel inclined to grant relief to the petitioner was that the Commissioner of Agricultural income tax (respondent no. 2) rejected the applications filed by the petitioner for the purpose of exercising his suo motu revisional power u/s 27 of the Act.

It may be stated that the petitioner filed a petition on or about 4.11.1972 before the Commissioner (respondent no. 2) requesting him to exercise his suo motu revisional power vested in him u/s 27 of the Act. Respondent no. 2, however, rejected the petition by his order dated 6.11.1972 (Annexure 6). In this order, respondent no. 2 has rejected the said petition on the ground that "his (petitioners) first and proper remedy lies in appeal u/s 25....Further more, the present revision petition has been filed u/s 27 of the Act, and proviso (b) to the said section expressly bars action u/s 27 in respect of any order passed u/s 29, unless an order u/s 25 has been previously passed in respect of that order. Therefore, the present revision petition is not maintainable".

This calls for consideration of Section 27 of the Act. This section prescribes the power of revision and lays down that the prescribed authority (which in this case is the Commissioner) "may, upon application or of its own motion, revise any order passed under Sections..29..or any order passed under this section by any authority other than the Board." This power of revision, therefore, invests the prescribed authority to revise an order passed u/s 29, either upon an application or of its own] motion. The power to revise, however, has been hedged by three conditions enumerated in three clauses to the proviso added to this section. According to proviso (a) "where the prescribed authority revises any order of its own motion no proceedings for such revision shall be Initiated at any time except before the expiry of three years from the date of such order", whereas according to clause (b), "no order under Sections 29...shall be revised upon application of an assessee unless an order u/s 25 has been previously passed in respect of that order." The third clause is not relevant for our purpose, which is simply to the effect that before passing an order prejudicial to the assessee, the prescribed authority must grant him a hearing.

Section 25 of the Act prescribes a right of appeal by an assessee against the order of assessment. On reading the order passed by respondent no. 2, it is apparent that he has passed an order under the Impression that there was no power in him to revise an order of assessment unless the assessee had exhausted the remedy of appeal available to him. It is this view of respondent no. 2 which has been seriously contested before us.

Mr. Jain contended that the two clauses appearing in the proviso (a) and (b) to Section 27 laying down two conditions for the exercise of the revisional power by the prescribed authority contemplate different contingencies, quite independent from each other. According to him, whereas clause (a) prescribing a period of three years applies exclusively to a case of revision under the suo motu power (own motion), clause (b) laying down the condition of exhausting the appellate remedy contained u/s 25 necessarily covers only a case on the regular application of the assessee filed before the prescribed authority for revising the order of the assessing authority.

Having carefully examined the provision of Section 27 and the two clauses, namely, (a) and (b) in particular, we find ourselves in complete agreement with the contention advanced by Mr. Jain and accordingly hold that the second condition of the assessee having exhausted the appellate remedy before going to the Commissioner for revision would have no application where the prescribed authority feels Inclined to revise any order of the assessing authority under the suo motu power of revision, that is, of its own motion.

On reference to the petition that was filed before respondent no. 2, it would appear that the petitioner after stating the various grounds upon which a revision was called for, specifically prayed that the learned Commissioner be further pleased to exercise the suo motu revisional powers u/s 27 of the Act read with rule 18(5) of the Rules.

A question, however, still remains for our decision as to whether it could be the privilege of the petitioner to make such an application before respondent no. 2, and if such an application was made, whether that would be treated as a regular application by the assessee. The contention of Mr. Jain was that it is the right of the assessee as well to make an application before the prescribed authority imploring upon him to exercise the suo motu power, and such an application could not be treated as a regular application for revision filed by the assessee. We think that Mr. Jain is right in his contention which finds support from some authorities also.

A Bench of the Madras High Court in the case of Raj Brothers Agencies V. The Board of Revenue (30 Sales Tax Cases, 410) observed that once the Board of Revenue under the Madras General Sales Tax Act is invested with the power to revise an order made by its subordinate, notwithstanding that the power is described as a suo motu power, an assessee who is aggrieved by such an order would be entitled to bring it to the notice of the Board in order that it may invoke its powers. This case itself went before the Supreme Court and was affirmed in 31 Sales Tax Cases 434. The Supreme Court clearly lays down that it is open to an assessee or the Revenue to bring to the notice of the Board any error made by the subordinate authorities, and it is up to the Board to consider whether the case is a fit case for exercising its revisional jurisdiction.

The aforesaid authorities clearly clinch the issue and it must be held that respondent no. 2 committed an apparent error of jurisdiction in rejecting the application of the petitioner for exercise of suo motu revisional powers merely on the ground that to that application clause (b) of the proviso to Section 27 of the Act applied.

The cumulative result of all the discussions made above is that C.W.J.C. nos. 1424, 1437, 1438 and 1441 of 1972 must succeed on a simple ground that the proceedings taken with respect to the fasli years falling in these writ applications were barred by limitation in the first application under clause (a) itself, whereas in the other three applications under clause (b) of Section 29 of the Act. The order of assessment concerning these applications contained in Annexures 1 and the Demand Notice (Annexure 2) are hereby quashed and cancelled. It is, however, not possible to quash the said order relating to the remaining two cases, namely, C.W.J.C. nos. 1439 and 1440 of 1972 are concerned, for the view that we have taken. With respect to these applications, we would only set aside the order of the Commissioner of Agricultural income tax (respondent no. 1) dated 6.11.1972 (Annexure 6) and direct him to re-consider the application of the petitioner (Annexure 5) filed before him in its right perspective for exercise of his sua motu revisional power in accordance with law and in the light of the observations made in our judgment. Let appropriate writs issued accordingly. The petitioner will be entitled to his costs. Hearing fee Rs. 200/- only.