Sitaram Rathore vs Commissioner of Income Tax

S.K. Dubey, J.—The aforesaid two references are at the instance of the assessee, out of order passed by the Tribunal, Delhi Bench SMC(C), New Delhi, on 30-10-1982 in IT Appeal No. 1716 (Delhi) of 1982 and IT Appeal No. 1710 (Delhi) of 1982, relating to the assessment year 1976-77. The questions referred are common which are as under: " 1. On the facts and in the circumstances of the case, the Tribunal has erred in not declaring that order framed by the Addl. ITO, Guna as a nullity?

On the facts and in the circumstances of the case, the Tribunal erred in not confirming the AAC order for cancelling the assessment which was framed by the Addl. ITO, Guna, on 15-3-1979?

On the facts and in the circumstances of the case, the Tribunal erred in setting aside the assessment order of ITO."

Facts giving rise to these two References are these. The assessee is a partner in two firms. One of these firms was carrying on business as Liquor Contractor at Guna. The assessee being resident of Guna and his place of business being at Guna, he filed voluntary returns on 19-8-1976 before the Additional ITO at Guna, who had the jurisdiction to deal with the assessment cases of the assessee. The Commissioner for administrative convenience, and to centralise all the cases of the liquor contractors, passed an order dated 7-4-1977 to transfer the cases of the liquor contractors to the ITO, A Ward, Bhopal. The transfer order was made effective from 1-5-1977. In view of this order, the aforesaid two cases of the assessee were also to be transferred. However, the ITO, Guna, accepted the return as filed and completed the assessment u/s 143(1) of the income tax Act, 1961 (''the Act''), on 15-3-1979, whereby the tax payable was assessed as Rs. 2,770 in the case of M.C.C. No. 186 of 1983 and Rs. 2,200 in the case of M.C.C. No. 187 of 1983. The assessee objected to this assessment, being without jurisdiction. ITO, Guna, did not reply to the assessee''s objection; hence, aggrieved by the assessment orders, the assessee filed two separate appeals. The AAC, Gwalior, vide order Annexure B, cancelled the assessment, being beyond jurisdiction. Aggrieved by this order, the Commissioner preferred appeals before the Tribunal. The Tribunal held that the appeals were competent as the assessee had denied his liability to be assessed. How ever, the orders of assessment passed by the ITO, Guna, were not declared to be nullity as the Tribunal held that initially the ITO, Guna, had the jurisdiction where the proceedings were validly commenced on filing of voluntary returns by the assessee, which were accepted by the ITO, Guna, in making the assessment. The Tribunal observed that ITO, Guna, committed an irregularity in making the assessment as after the order of Commissioner, the ITO, Bhopal, alone was competent to make the assessment. Therefore, the Tribunal vide order dated 30-10-1982 (Annexure ''C''), set aside the order of the AAC and directed the ITO of competent jurisdiction to proceed afresh with the assessment. The assessee, aggrieved by the order of the Tribunal, filed an application u/s 256(1) of the Act for referring the aforesaid questions of law for opinion of this Court.

Shri K.K. Lahoti, the learned counsel for the assessee, contended that section 124(1) of the Act confers the jurisdiction on the ITOs to perform their function in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct. As the Commissioner had directed the cases of the liquor contractors to be assessed by the ITO, Bhopal, the ITO, Guna, had no jurisdiction to proceed with the case and to pass an order of assessment u/s 143 on the returns filed u/s 139 of the Act, as the jurisdiction was taken away and, therefore, ITO, Guna was not competent to proceed with the assessment cases because there was inherent lack of jurisdiction; therefore, the order of assessment was a nullity. Not raising objection amounting to waiver or consent cannot confer jurisdiction as the ITO has to exercise his power within the limitations prescribed under the law; the order being a nullity, it could have been challenged at any stage, even in collateral proceedings. Counsel placed reliance on a decision of the Supreme Court in Kiran Singh and Others Vs. Chaman Paswan and Others, and a decision of the Gujarat High Court in the case of MANDAL GINNING AND PRESSING CO. LTD. Vs. COMMISSIONER OF Income Tax. KESHAVLAL HIRACHAND v. COMMISSIONER OF Income Tax. DIGVIJAY WOOLLEN MILLS LTD. v. COMMISSIONER OF Income Tax.,

Shri R.D. Jain, the learned counsel for the revenue, contended that the assessee filed a voluntary return u/s 139(1) before the ITO, Guna, who had the jurisdiction to deal with the cases of assessment of the assessee because of the residence and the place of business. The returns filed by the assessee were accepted as it is. Therefore, no failure of justice is occasioned or prejudice is caused to the assessee. Besides, the Commissioner when passed the order of transfer of the case with a view to centralise all particular class of cases, the assessee did not make any prayer for transfer of his cases. Therefore, in view of section 124(5), the assessee was not entitled to call in question the jurisdiction of the ITO, Guna, as he ought to have raised the objection under clause (a) of sub-section (5) of section 124 within a period of one month from the date on which he filed the return under sub-section (1) of section 139 or after the completion of the assessment, whichever is earlier. That not having been done and there being no inherent lack of jurisdiction, the order of the AAC was rightly set aside by the Tribunal, but, the Tribunal committed an error in directing the ITO of competent jurisdiction to proceed afresh with the assessment. The learned counsel placed reliance on AIR 1945 9 (Federal Court) Seth Teomal v. ITC AIR 1959 SC 742 ; Guduthur Bros. Vs. The Income Tax Officer, Special Circle, Bangalore, ; Central Potteries Ltd. Vs. State of Maharashtra and Others, Firm Rasulji Buxji Kathawala v. ITC AIR 1957 Raj. 34; R. Chinnaswami Naidu and Sons and Others Vs. First Income Tax Officer, Circle I, Coimbatore, It was also that as the Tribunal has directed the competent ITO to proceed afresh, the question remains only academic which now need not be answered. The learned counsel, in support of his contention, relied on Commission of Income Tax Vs. P.P. Contractor,

After hearing counsels on both sides, we are of the opinion that it is not a case of inherent lack of jurisdiction of the ITO who has to deal with the case within the limits of the area assigned to him, but it is a case of transfer of particular class of cases, to be dealt with by a particular ITO and that power of allocation of work and transfer of cases vests with the Commissioner under sub-section (1) of section 124. As both counsels state that it is a case falling u/s 124, it would be appropriate to quote section 124 in extenso:

"124. Jurisdiction of income tax Officers. -(1) income tax Officers shall perform their functions in respect of such areas or of such persons or classes of persons or of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct.

(2) Where any directions issued under sub-section (1) have assigned to two or more income tax Officers, the same area or the same persons or classes of persons or the same incomes or classes of income or the same cases or classes of cases, they shall have concurrent jurisdiction and shall perform their functions in relation to the said area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, in accordance with such general or special orders in writing as the Commissioner or the Inspecting Assistant Commissioner authorised by the Commissioner in this behalf, may make for the purpose of facilitating the performance of such functions.

(3) Within the limits of the area assigned to him, the income tax Officer shall have jurisdiction-

(a) in respect of any person carrying on a business or profession, if the place at which he carries on his business or profession is situate within the area, or where his business or profession is carried on in more places than one, if the principal place of his business or profession is situate within the area, and

(b) in respect of any other person residing within the area.

(4) Where a question arises under this section as to whether an Income- tax Officer has jurisdiction to assess any person, the question shall be determined by the Commissioner; or where the question is one relating to areas within the jurisdiction of different Commissioners, by the Commissioners concerned or, if they are not in agreement, by the Board.

(5) No person shall be entitled to call in question the jurisdiction of an income tax Officer-

(a) after the expiry of the month from the date on which he has made a return under sub-section (1) of section 139 or after the completion of the assessment, whichever is earlier;

(b) where he has made no such return, after the expiry of the time allowed by the notice under sub-section (2) of section 139 or u/s 148 for the making of the return.

(6) Subject to the provisions of sub-section (5), where an assessee calls in question the jurisdiction of the income tax Officer, then the income tax Officer shall, if not satisfied with the correctness of the claim, refer the matter for determination under sub-section (4) before assessment is made.

(7) Notwithstanding anything contained in this section or in section 130A, every income tax Officer shall have all the powers conferred by or under this Act on an income tax Officer in respect of any income accruing or arising or received within the area for which he is appointed."

A look into sub-section (1) of section 124 shows that ITOs have to perform their functions in respect of such areas or of such persons or classes of persons or classes (sic) of such incomes or classes of income or of such cases or classes of cases as the Commissioner may direct.

When a question arises relating to jurisdiction, it is the Commissioner who has to determine the question under sub-section (4) of the section. Sub-section (5) of the section lays down at what stage and within what period such question relating to jurisdiction of an ITO has to be raised. Therefore, by the scheme of the provision of section 124, it is clear that in that context, the jurisdiction of the ITO refers to limits of areas, place of assessment, or classes of persons or classes of income or such classes as the Commissioner may direct. In such cases, a party may waive objection to irregular exercise or assumption of jurisdiction; in such a case the order will not be a nullity. However, where there is a want of inherent jurisdiction, in that case, the order will be a nullity. An authority lacks in jurisdiction in the sense that the subject-matter is not at all amenable to its decision; in such a case, acquiescence of the parties would not be material inasmuch as it is settled that by agreement, jurisdiction cannot be conferred. See a recent decision of the Supreme Court in the case of Tarapore and Co. Vs. State of M.P.,

Lack of jurisdiction of a Court or Tribunal to decide a particular matter may be of many varieties. Lack of jurisdiction may be due to want of jurisdiction over the place, which may be due to want of jurisdiction in respect of the person; it may be due to want of proper constitution of the Tribunal or Court. It may also be due to lack of authority under the law under which the Court or the Tribunal proceeds to decide a particular matter or when there is a statutory bar. Therefore, while dealing with a case where the question of jurisdiction is raised, the distinction between want of inherent jurisdiction and irregular exercise and assumption of jurisdiction should be borne in mind.

The Supreme Court in the case of Central Potteries (supra), while dealing with a case under the provisions of the C.P. and Bazar Sales Tax Act, 1947, held that when the taxing authorities derive their jurisdiction to make assessment under the provisions of the Act and assessee voluntarily files the return under sections 3 and 10(1) of the Act on which the assessment has been made, it would be idle to contend that the proceedings taken on its own return are without jurisdiction and ob served in para 7 thus:

"7. In this connection it should be remembered that there is a fundamental distinction between want of jurisdiction and irregular assumption of jurisdiction, and that whereas an order passed by an authority with respect to a matter over which it has no jurisdiction is a nullity and is open to collateral attack, an order passed by an authority which has jurisdiction over the matter, but has assumed it otherwise than in the mode prescribed by law, is not a nullity. It may be liable to be questioned in those very proceedings, but subject to that it is good, and not open to collateral attack. Therefore, even if the proceedings for assessment were taken against a non-registered dealer without the issue of a notice u/s 10(1) that would be a mere irregularity in the assumption of jurisdiction and the orders of assessment in those proceedings cannot be held to be without jurisdiction and no suit will lie for impeaching them on the ground that section 10(1) had not been followed. This must a fortiori be so when the appellant has itself submitted to the jurisdiction and made a return. We accordingly agree with the learned Judges that even if the registration of the appellant as a dealer u/s 8 is bad that has no effect on the validity of the proceedings taken against it under the Act and the assessment of tax made thereunder."

In the case in hand, it is not disputed that initially, the ITO, Guna, had the jurisdiction because of the place of business and residence of the assessee within the specified limits of the area assigned to ITO, Guna. The assessee submitted voluntary return u/s 139. However, to deal with a particular class of cases, i.e., of liquor contractors, the Commissioner passed an order that all such class of cases shall be dealt with by the ITO, Bhopal, and that order was communicated. So, it can be said that after the order of transfer, ITO, Guna, lacked in competency to proceed further as from the stage of transfer, it was ITO, Bhopal who was to exercise the jurisdiction; such exercise of jurisdiction by ITO, Guna, would amount to illegal assumption of jurisdiction in proceeding with the case. It is also well-settled that such jurisdictional defect or a procedural irregularity is open to correction by an appellate Court where it occasions in failure of justice or results in prejudice. See George Vs. Thekkekkara Vareed, ). Though the assessee has not shown any prejudice or failure of justice and his return was accepted, as filed, however, the Tribunal considering it to be a case of a denial of the liability, to be assessed, in view of the order of transfer of cases and legal competence of the ITO, Guna, to proceed with the assessment under the provisions of the Act, it relied on the decision of the Supreme Court in the case of Guduthur Bros, (supra) wherein it has been held that during the course of assessment if an ITO has committed an illegality, who had the jurisdiction to continue the proceedings which were lawfully initiated, the illegality can be cured by relating it back from the stage when illegality was detected or occasioned. Therefore, in our opinion, the Tribunal has not committed any error in setting aside the order of the AAC and directing the competent ITO to proceed with the assessment afresh.

Though Shri Jain, the learned counsel for the revenue, relying upon the decisions cited by him, contended that as the ITO, Guna, had the jurisdiction and the assessment proceedings were under the Act, the assessment orders were not nullity, it was a procedural irregularity, the question would not have been agitated in appeal in view of the bar created u/s 124(5), order directing to proceed afresh would be merely an empty formality as the voluntary returns were filed, the same assessment would follow; therefore, in the absence of prejudice or occasion in failure of justice, the cases ought not to have been remitted to ITO, Bhopal. We are not inclined to deal with this submission because the revenue has not applied for reference on it, and the Tribunal, has considered it to be a case of denial of the liability to be assessed by the ITO, Guna, under the provisions of the Act. In view of the above discussion, the questions referred to us are answered in the negative, i.e., in favour of the revenue and against the assessee.