O. Thomas Children''s Benefit Trust vs Agricultural Income Tax Officer and Another

P.A. Mohammed, J.—The petitioners in these writ petitions are the trustees of a family trust known as the "O. Thomas Children''s Benefit Trust". The assessment orders passed u/s 35 of the Agricultural Income Tax Act, 1950 (for short "the Act"), are challenged in these writ petitions. Exhibit P-l in both the cases is the assessment order passed in respect of the years 1981-82 and 1982-83 in exercise of power u/s 35 of the Act by the Agricultural Income Tax Officer, Aluva. Exhibit P-2 is the order passed in revision petitions filed by the petitioners. The Commissioner of Agricultural Income Tax as per exhibit P-2 order set aside the assessments for the years 1981-82 and 1982-83 and remanded the case to the assessing authority for fresh disposal. Thereafter, the petitioners have filed reference applications u/s 60(2) of the Act. Those applications were disposed of by exhibit P-3 order declining to refer the question to the High Court. Then the petitioners filed O. P. Nos. 7522 of 1990 and 8143 of 1990 u/s 60(3) of the Act. The said applications were disposed of by the Division Bench of this court on June 4, 1992. The Division Bench refused to entertain the reference in view of the decision of the Full Bench of this court in JACOB Vs. ADDITIONAL DEPUTY COMMISSIONER OF AGRICULTURAL Income Tax AND ANOTHER., , the original petitions were accordingly dismissed as not maintainable. However, while disposing of the said original petitions, the Division Bench observed thus :

"Counsel for the petitioners, Dr. K.B. Mohammed Kutty, prayed that the dismissal of these two original petitions shall not in any way affect or prejudice his right to assail the orders passed in revision u/s 60(2) of the Act in a petition filed under Article 226 of the Constitution of India. We make it clear that the dismissal of these petitions shall not in any way act as a bar or preclude the assessee from assailing the revisional orders in appropriate proceedings, including a petition that may be filed under Article 226 of the Constitution. We make this position clear."

The petitioners subsequently filed these two writ petitions challenging the original order u/s 35 as well as revisional order passed by the Commissioner both in respect of the years 1981-82 and 1982-83.

The contentions of learned counsel for the petitioners are two-fold : (1) the proceedings initiated u/s 35 are vitiated inasmuch as the statutory requirements specified u/s 35(1) of the Act have not been complied with, and (2) what is involved in these cases is a "mere change of opinion", that is to say, the officer who passed the orders u/s 35 is not justified in taking a different view in so far as the materials available at the time of the original assessment are concerned. In order to augment the first contention, counsel has brought to my notice the requirements stipulated u/s 35(1) of the Act, The relevant portion of the said provision is extracted hereunder :

"(1) If for any reason agricultural income chargeable to tax under this Act has escaped assessment in any financial year or has been assessed at too low a rate, the Agricultural Income Tax Officer may, at any time, within (five years) of the end of that year, serve on the person liable to pay the tax or, in the case of a company, on the principal officer thereof a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 17 and may proceed to assess or reassess such income, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section :

Provided that the tax shall be charged at the rate at which it would have been charged if such income had not escaped assessment, or full assessment, as the case may be :

Provided further that the Agricultural Income Tax Officer shall not issue a notice under this sub-section unless he has recorded his reasons for doing so."

From the above, it is clear that a notice shall be served on the person concerned containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 17 and may proceed to assess or reassess such income under the provisions of the Act. Section 17(2) is as follows :

"(2) In the case of any person whose total agricultural income is, in the opinion of the Agricultural Income Tax Officer, of such amount as to render such person liable to payment of agricultural Income Tax for any financial year, he may serve in that year a notice in the prescribed form requiring such person to furnish within such period not being less than thirty days as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) his total agricultural income during the previous year and the expenditure incurred by him out of that income."

The notice as contemplated under this section shall be served in the prescribed form requiring such person to furnish within such period not being less than 30 days as specified in the notice, a return in the prescribed form. That would indicate if an action u/s 35 is proposed to be initiated, a notice u/s 35(1) incorporating the requirements provided u/s 17(2) shall be served. What is significant in Sub-section (2) is that the notice must require the person concerned to furnish return within a period of 30 days. So a period of 30 days shall be given to the assessee for complying with the notice u/s 35(1). In other words, if the requirements as contemplated under Sub-section (2) of Section 17 are not complied with while issuing notice u/s 35, it cannot be said that there is compliance with the provisions provided u/s 35 of the Act. In this connection, it must be remembered that issue of a notice under Sub-section (1) of Section 35 is a condition precedent for invoking powers u/s 35. Only when a notice complying with all the conditions is served on the assessee, the officer concerned will get the jurisdiction to take action. This is a question concerning power or jurisdiction of the officer. That being so, it is a mandatory requirement which is required to be fulfilled strictly.

This court in T.A. George Vs. Agricultural Income Tax Officer and Another, observed (headnote of KLT) :

"It is now well-settled that a valid notice u/s 35 of the Act is a condition precedent to the assumption of jurisdiction by the tax officer to reopen the assessment u/s 35 of the Act. If the notice does not give the assessee the minimum time insisted on by the section, the notice is clearly illegal and that will also be a failure to comply with a condition precedent for the exercise of jurisdiction u/s 35."

While holding so, this court placed reliance on the decision of the Supreme Court in Y. Narayana Chetty and Another Vs. The Income Tax Officer, Nellore and Others, . In that decision, the Supreme Court observed (headnote) ;

"The notice prescribed by Section 34 of the Income Tax Act for the purpose of initiating reassessment proceedings is not a mere procedural requirement : the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made u/s 34. If no notice is issued or if the notice issued is shown to be invalid then the proceedings taken by the Income Tax Officer without a notice or in pursuance of an invalid notice would be illegal and void."

The law laid down by the Supreme Court can be applied without any demur in the facts of the present case. There is no dispute in this case that the notices were issued under Sub-section (1) of Section 35. However, the petitioner in O.P. No. 14186 of 1992 has been granted only five days for replying to the notice. The petitioner in O.P. No. 14208 of 1992 has been granted only seven days. In other words, the requirement insisted upon u/s 17(2) of the Act has not been complied with and therefore the notice issued under Sub-section (1) of Section 35 can only be an invalid notice. Once the notice is found to be an invalid notice, then the entire proceedings initiated in pursuance of such invalid notice would be illegal and void. The Government Pleader submitted, placing reliance on the averments contained in the counter-affidavit filed on behalf of the respondent that the notice u/s 35 was issued on January 24, 1985. As per letter dated February 4, 1985, the assessee requested time till the end of the month to study the matter and to give objection. But no objection was seen received till October 29, 1985, namely, the date of revision of assessments. The assessee has got ample time for filing the objection to the notice as well as for filing revised return if he is willing. The refusal to avail of this opportunity is only delaying tactics. There is no question of limitation as the notice was issued on January 25, 1985, and the revised assessment u/s 35 completed on October 29, 1985. On the basis of the above averments contained in the counter-affidavit, the Government Pleader argued that there is substantial compliance with the provisions while taking action u/s 35. I find it difficult to accept this contention of the Government Pleader. Even assuming that the assessee had been given sufficient time after the issue of notice to file an explanation, that would not be a requirement for substantial compliance as pointed out by the Government Pleader. The question is as to how the officer has dealt with proceedings. It is the duty of the officer to issue notice in compliance with the provisions contained in Sub-section (1) of Section 35 read with Sub-section (2) of Section 17. The requirements contained in those provisions cannot be dispensed with or abrogated or obliterated by pleading that after the issue of notice sufficient time had been given to the assessee. I am fortified in so observing because what is involved is the question of jurisdiction. Only when there is a valid notice, the officer can assume jurisdiction to invoke the power u/s 35. In the presence of an invalid notice, no such power can be assumed. In fact what has happened in this case is that the power has been wrongly assumed and the proceedings taken in pursuance of such assumption of power are clearly unauthorised and illegal.

As far as the second point is concerned, the assessment years in question are 1981-82 and 1982-83, the relevant financial year being 1980-81 and 1981-82. In the present case, the assessment orders were originally passed by the assessing authority for the years 1981-82 and 1982-83 based on the first inspection report made on July 5, 1976, What is revealed from this proceeding is that there was a second inspection on September 13, 1983, and that report was relied on for invoking the power u/s 35 in respect of the years 1981-82 and 1982-83. Since the original assessment order is not before this court, it is difficult for me to decide this question because on what material the earlier assessment was made cannot be fully understood. However, I find an infirmity in this process in view of the reliance made in the second inspection report. But at the same time, I do not propose to give a final conclusion on this question in the absence of full relevant particulars.

It is also pertinent to note that the Commissioner in exhibit P-3 order observed : "But since the assessing authority had failed to follow the statutory provisions as laid down u/s 35 in completing the assessment, they were found to be irregular and so in accordance with the provisions u/s 34 of the Agrl. Income Tax Act, the assessments were set aside and were remanded to the officer for fresh disposal." The Commissioner clearly found that the assessing authority had failed to follow the statutory provisions as laid down u/s 35 of the Act and so they were found to be irregular. When the assessments are found to be irregular, the only way open before the Commissioner is to set aside the order because the assumption of power u/s 35 is erroneous. Instead of setting aside the orders, the Commissioner has remanded the case for fresh disposal. That is clearly an ineffective action as far as the power of the Commissioner is concerned. In exhibit P-2 order, the Commissioner observed that "when the escape was noticed the assessing authority issued a notice. This is not correct". That also indicates that the proceedings initiated by the officer is clearly erroneous.

In view of the discussion hereinabove, the impugned orders in both the original petitions are set aside. Accordingly, exhibits P-l and P-2 orders in both the cases are quashed. The original petitions are allowed as above.