Rameswardas Radhakissen vs Commissioner of Income Tax

D.N. Sinha, J.—This is a reference u/s 66(1) of the Indian income tax Act, 1922 (hereinafter referred to as the "said Act"). The facts, as appear from the statement of case submitted by the Appellate Tribunal, are as follows: The Assessee is Rameswardas Radhakissen a Hindu undivided family (H.U.F.). The assessment year in question is 1954-55 and the relevant accounting period is March 24, 1953 to April 10, 1954. The case is governed by the provisions of the said Act. One Madanlal Kedia, his son Keshar Deo and the two sons of his deceased brother, namely, Bhimsen and Durgaprasad, constituted a Hindu joint family at the relevant time. Madan Lal Kedia was the Karia thereof. Notice u/s 22(2) of the said Act was served on the Assessee on August 13, 1954. It was served during the life time of Madanlal Kedia who died in October 1954. After his death, Bhimsen was the seniormost member and presumably acted as the Karta. It is stated that after the death of Madanlal, quarrels started amongst the members of the family and Bhimsen Kedia did not file the return in response to the said notice, nor did he attend the proceedings for assessment. Durgaprasad Kedia the next senior member made an application in April, 1958, for time to file the return and actually filed the same on July 15, 1958, within the extended time. The income tax Officer came to the conclusion that Bhimsen Kedia being the Karta of the H.U.F. as shown by the record, the return filed by Durgaprasad Kedia, who did not even describe himself as Karta in the return filed by him, was not in accordance with law and he refused to accept it. Notice was given to the Karta with copies to other members that unless the return was filed in accordance with law, the Assessee would be liable to be treated as a defaulter u/s 22(2) of the said Act and the assessment was liable to be proceeded against u/s 23(4) (Best-Judgment Assessment) of the said Act. There was no compliance with the said notice. Therefore, action was taken u/s 28 and assessment was made u/s 23(4) on January 31, 1959. Demand notice was served on the Assessee on February 19, 1959 and it is not disputed that Durgaprasad Kedia was aware of it. An application u/s 27 of the said Act, through Durgaprasad, was filed for re-opening the said assessment and an appeal was filed u/s 30 of the said Act against the quantum of assessment. The application u/s 27 was rejected whereupon the Assessee preferred an appeal against the said order before the appellate Assistant Commissioner. According to the agreed statement of the case, the appeal against the rejection of the application u/s 27 was withdrawn. The appeal against the quantum of assessment was then heard by the appellate Assistant Commissioner, who by his order dated July 7, 1960, gave a substantial reduction to the Assessee in the amount assessed. It will appear from the said order, which appears at pp. 9-11 of the paper book, that in the said appeal, only the quantum was challenged and no other point was agitated. Against this order, an appeal was preferred to the income tax Appellate Tribunal. In that appeal, the Assessee sought to challenge the order on the ground that the order of assessment u/s 23(4) was bad, on the same grounds as had been taken in the application u/s 27. The Appellate Tribunal by its order dated February 20, 1962, refused to go into such questions, holding that the proper forum for it was in proceedings u/s 27 and not in the appeal against the quantum. As regards the quantum, however, it was further reduced. Thereafter, an application was made by the Assessee u/s 66(1) of the said Act and the Appellate Tribunal thereupon referred the following question of law for determination by this High Court:

Whether in the facts and circumstances of the case, the validity of the assessment u/s 23(4) of the income tax Act could be questioned in an appeal against the quantum of assessment framed u/s 23(4) of the Act?

There is preponderance of authority which supports the conclusion arrived at by the Appellate Tribunal and the answer to the question must be in the negative. Actually Mr. Pal appearing oh behalf of the Assessee does not contest the proposition but has tried to distinguish it on a ground which I shall presently mention. He has placed before us the leading authorities on the point, which I shall briefly enumerate.

The first case to be considered is a Bench decision of this Court-- NABA KUMAR SINGH DUDHURIA Vs. COMMISSIONER OF Income Tax, BENGAL., . In that case, one of the questions of law referred to the Court by the Appellate Tribunal was whether in an appeal u/s 30(1) the validity of an assessment u/s 23(4) can be challenged when no proceeding u/s 27 of the Act was taken to cancel the order u/s 23(4)?

The question, therefore, was substantially the same as asked in this case. McNair, J. said as follows:

It is further contended that although machinery is provided by Section 27 for challenging the assessment there is a further and alternate remedy open to the Assessees u/s 30 of the income tax Act as now amended. Prior to amendment there was a specific proviso u/s 30 that no appeal shall lie in respect of an assessment made u/s 23(4) or under that sub-section read with Section 27. That proviso has now been deleted and Section 30 provides, so far as is material, in Sub-section (2) that any Assessee objecting to the amount of income assessed u/s 23 or Section 27 or the amount of tax determined u/s 23 or Section 27 or denying his liability to be assessed under this Act or objecting to a refusal of an income tax Officer to make a fresh assessment u/s 27 or objecting to penalties and to other matters which are specifically set out in the Section may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order...Section 30 gives the Assessees the right to object to the amount of income assessed u/s 23 or Section 27. They may also object to the amount of tax determined under those Sections and they may appeal if they object to the refusal of the income tax Officer to make a fresh assessment u/s 27. To that extent only has the proviso in the same Section of the Act prior to the amendment been limited. What the Assessees are apparently trying to do now as it appears to me is to raise an objection not merely to the amount of the assessment or to the amount of tax determined under any provision of Section 23, but to object to the validity of the assessment. Although Section 30 as amended grants them a right of objecting to the quantum of the assessment, it does not in my view give them the right to leave aside the machinery which has been provided by Section 27 and to come to the Court and ask that the Court should deal with it without having had the matter dealt with, as provided by the Act, by the income tax authorities. It appears to me that on repealing the proviso in the old Section the Legislature has expressly limited the manner in which appeals may be allowed against decisions u/s 23 or Section 27 and by inserting the words applicable to Section 23 or Section 27 with the word ''amount'' they have definitely intended that the Assessee''s right, of appeal u/s 30 should be limited as regards those Sections to the quantum of the assessment or tax.

The next case to be considered is a Bench decision of the Allahabad High Court, Padampat Singhania Vs. Commr. of Income Tax, U.P. and Ajmer-Merwara, Lucknow, . In that case, the Allahabad High Court followed the Calcutta decision. The question formulated for the opinion of the High Court was as follows:

Whether the income tax Appellate Tribunal was legally correct in holding that the Appellate Assistant Commissioner was not competent to entertain an objection to the assessment being made u/s 23(4), income tax Act, in proceedings other than those through Section 27 of the Act?

Malik, C.J. relied on a previous decision of the Allahabad High Court, Chhotelal Gobardhan Das Vs. Commr. of Income Tax, U.P. and V.P. Lucknow, . In that case what happened was that proceedings were taken u/s 27 in respect of an order u/s 23(4). There was also an appeal against the quantum of the assessment. The application u/s 27 was rejected and there was no appeal against that order. The question as to the validity of an order u/s 23(4) was sought to be agitated in the other appeal before the appellate Assistant Commissioner and it was held that such a question could not be agitated in the appeal against the quantum. Relying on this decision, the learned Chief Justice held that the question asked should be answered in the affirmative.

The third case to be cited is a Bench decision of the Bombay High Court, Mauladin Ayub Firm Vs. Commissioner of Income Tax, Bombay South, . In that case, the question framed was as follows:

Whether in an appeal u/s 30(1), the validity of an assessment made u/s 23(4) for Assessee''s failure to comply with all the terms of the notice issued u/s 22(4), can be challenged when no application was made u/s 27 of the Act to get the assessment made u/s 23(4) cancelled?

Chagla, C.J. said as follows:

The larger question as to whether it is open to an Assessee to raise a question of the validity of the assessment even though he could have applied u/s 27 has been argued at some length and our attention has been drawn to various authorities and we might now proceed to consider it. Now, in this connection, we might look at what the legislative provision was with regard to appeal prior to the Act of 1939. Under the old Act, while Section 30 gave a right of appeal against the assessment under Sections 23 or 27, the proviso limited the right of appeal by providing that no appeal shall lie in respect of assessment made u/s 23(4) or under that sub-section read with Section 27. Therefore, against a best judgment assessment, the Assessee had no right of appeal at all. He could not appeal against the quantum of the assessable income determined by the income tax Officer. His only right was to appeal against an order made u/s 27 and if he did not do so the assessment u/s 23(4) not only became conclusive with regard to the matters covered by Section 27 but it also became conclusive with regard to the quantum. Now in the Act of 1939 the proviso was deleted with the result that an important additional right was given to the Assessee, namely, to challenge best judgment assessment with regard to the quantum. But the provision with regard to challenging the assessment with regard to its validity continued to be the same. In other words, an appeal could only lie with regard to the validity of the assessment provided an application has been made u/s 27 and the application was refused by the income tax Officer.

The learned Chief Justice also held that where Section 27 had no application, then in that event, a question that might arise in appeal which has a bearing with regard to an order made by the income tax Officer u/s 23(4) can be litigated in an appeal u/s 30. The learned Chief Justice also approved of the Calcutta and Allahabad decisions mentioned above.

In our opinion, these decisions amply establish the proposition that the proper forum for agitating a challenge to an order made u/s 23(4) is an application made u/s 27. In an appeal purely against the quantum, no such question can be agitated. Or in other words, in such an appeal, only the question of quantum can be agitated. In fact, in this case, in the appeal against the quantum the Assessee only raised the question of quantum and obtained benefit in that respect. The point raised now is really an after-thought. Mr. Pal has referred to a decision of the Madhya Pradesh High Court. Suganchand Kanhaiyalal Rathi Vs. The Commissioner of Income Tax, which according to him supports his contention. In our opinion, it does not. It was held there that the particular question that was agitated there did not come under the scope of Section 27 and the particular question raised in the appeal u/s 30 against the quantum of assessment was one which related, although indirectly, to the question of quantum and was thus a proper subject to be dealt with in the appeal. This, in our opinion, does not destroy the proposition laid down by the authorities cited above.

Mr. Pal tried to get out of the mischief of these authorities by distinguishing this case as follows: He says that in this case, the Karta of the H.U.F. was ''hostile'' and could not be expected either to make a return or contest the proceeding u/s 23(4). He says that the return was, therefore, made by Durgaprasad, but according to the form of application prescribed for an application u/s 27, it had to be signed by the Karta or Manager and as such Durgaprasad could not make such an application and he ought to be allowed to agitate the objections u/s 23(4), in an appeal against the quantum. Otherwise, he would have no remedy. In our opinion, this argument cannot be accepted. We are not concerned here with Durgaprasad or Bhimsen Kedia. The Assessee is a Hindu undivided family (H.U.F.) and both the applications u/s 27 and Section 30 in respect of the quantum were made on behalf of the Assessee and not on behalf of these individuals. There is nothing in the agreed statement of case to show that Bhimsen was ''hostile''. But assuming that there was some quarrel among the various members forming the H.U.F., it cannot be said that an application did not lie u/s 27 by the Assessee. It may be that because of certain internal quarrels there were practical difficulties in making such an application. That, however, cannot affect the law so far as the scope of Section 27 or Section 30 Is concerned. If an application could not at all be made u/s 27, in law that would be a different thing. As to what would happen if one member of a H.U.F. quarrels with another, is a question of nicety, but no such question has been referred to us for determination. Actually, Mr. Pal has taken several inconsistent stands. He says that we should consider Durgaprasad as the person involved in the assessment and he was incompetent to make an application u/s 27. The fact is that he did make an application and went up in an appeal but voluntarily withdrew it. Therefore, he is precluded from raising grounds which, would have been decided if he continued, with the appeal. Also we find that during the course of proceedings Durgaprasad has taken up the position that the return filed by him was a valid one. Then again, if by reason of the prescribed form u/s 27, an application could not be made under the signature of Durgaprasad then the prescribed form u/s 30 regarding the quantum being identical, no appeal could be filed against the quantum. An appeal was however filed by the Assessee against the quantum and it got relief and Durgaprasad is not questioning it but accepting the benefit thereof.

All we are concerned with in this case, is the respective scope of an application u/s 27 challenging an order u/s 23(4) and of an appeal u/s 30 regarding the quantum of assessment. It is not disputed that the H.U.F. could in law make an application u/s 27 as also prefer an appeal u/s 30. Therefore, the above-mentioned decisions apply to the facts of this case and Mr. Pal has not been able to establish that in the facts and circumstances of this case, it does not.

For the reasons above-mentioned, the question referred should be answered in the negative. The department is entitled to the cost of the reference. :.

Sen J.

I agree.