ULCHALA ILLURI HANUMANTHIAH vs Income Tax OFFICER, KURNOOL, AND ANOTHER.

SESHACHELAPATI, J. - This is a petition under article 226 of the Constitution of India praying for the issue of a writ of certiorari to call for the records relating to the notice of attachment dated February 21, 1958, issued by the second respondent and to quash the order passed therein for the recovery of the tax.

The facts relevant for the disposal of this petition are briefly these : The petitioner is a resident of Kurnool and was doing business in ground-nuts. He submitted a return for the year 1946-47, showing an assessable income if Rs. 4,938. During the course of assessment in the year 1947-48, it was found that he had deliberately concealed a large portion of his income by suppression of entries with respect to stocks and by claiming fictitious losses and other manipulation in the accounts. Taking all the circumstances into consideration, the Income- tax Officer estimated his income at Rs. 60,550. A notice u/s 28(3) of the Act was issued to the assessee to show cause why a penalty should not be imposed on him. By an explanation dated March 15, 1948, the petitioner refuted the allegations mentioned in the notice and denied that he had deliberately suppressed his income or furnished inaccurate or false particulars. By an order dated September 8, 1953, the Income Tax Officer imposed penalty of Rs. 10,000 on the petitioner u/s 28(1)(c) of the Act. Aggrieved by that order, the petitioner filed an appeal to the Income Tax Appellate Assistant Commissioner. By an order dated September 13, 1956, the appeal was allowed by Appellate Assistant Commissioner to ground that the petitioner was not given opportunity of being heard. The order of penalty was therefore set aside. The Department filed an appeal against the order of the Appellate Assistant Commissioner to the Income Tax Appellate Tribunal. In the meanwhile, for the assessment year 1952-53, the Income Tax Officer by an order dated March 23, 1957, determined the tax payable by the petitioner as Rs. 38,152-7-0. The petitioner field an appeal before the Income Tax Appellate Assistant Commissioner, who, by his order dated October 25, 1957, reduced the amount to Rs. 20,544-10-0.

By reason of the order of the Appellate Assistant Commissioner dated September 13, 1956, canceling the penalty of Rs. 10,000 imposed on the petitioner, the petitioner became entitled to the refund of the said amount. A sum of Rs. 2,596-13-0 was adjusted against the tax due from the assessee for the year 1950-51. A balance of Rs. 7,403-3-0 was still due to the assessee by way of refund. Further, for the assessment years 1948-49, 1949-50, and 1950-51, the assessee became entitled to certain refunds. Taking into account all these figures, it was found that the assessee had still to pay as Income Tax a sum of Rs. 9,318-15-0, for the year 1952-53. So, a certificate u/s 46(2) of the Act was issued on February 3, 1958, for that sum.

The Income Tax Appellate Tribunal having set aside the order of the Appellate Assistant Commissioner canceling the penalty, the Department took the view that the original demand for penalty got revived and since the amount paid by the petitioner was adjusted towards his tax arrears he became liable to pay the same, and issued a certificate u/s 46(2) of the Act on February 3, 1958. In pursuance of the said certificate, the Special Deputy Tahsildar, Income Tax Arrears, served a demand notice dated February 21, 1958, on the assessee for the realization of a sum of Rs. 19,318.94. This writ petition is to quash the said notice and interdict further proceeding in implementation thereof.

The learned counsel for the petitioner has advanced two arguments : (1) that the present impugned notice with respect to the penalty of Rs. 10,000, is barred u/s 46(7) of the Act, as the certificate dated February 3, 1958, u/s 46(2) was issued more than one year from the date of the demand, and also that there was no further demand u/s 29 of the Act, (2) that, in any event, the notice dated February 21, 1958, is bad by reason of the penalty of Rs. 10,000, also also included in the demand.

It may be stated at once that two separate certificates were issued on February 3, 1958, one with respect to the arrears of tax after adjustment of amount due with respect to the assessment year 1952-53, and another for Rs. 10,000. So far as the certificate u/s 46(2) with respect of Rs. 9,318-15-0 is concerned, I do not think, there is any legal disability or error. The original assessment order was made on March 23, 1957, and the amount of tax was reduced in appeal to a sum of Rs. 20,544-10-0. Adjustments were made from the refund due to the petitioner, including the penalty of Rs. 10,000 in a sum of Rs. 11,225-11-0, and for the balance of Rs. 9,318-15-0, a certificate was issued on February 3, 1958. The certificate issued u/s 46(2) for this amount is, therefore, well within time, and the petitioner, could not have any grievance whatever. I may add that in the petition the legality of the certificate with respect to Rs. 9,318-15-0 has not definitely been challenged.

With respect to the demand for Rs. 10,000, I should think, different consideration arise. It is not in dispute that the demand notice was duly issued on September 8, 1953. The petitioner applied for the payment of penalty in installments and the last of such payments was made on March 28, 1955. By an order dated September 13, 1956, the Appellate Assistant Commissioner canceled the penalty and the Appellate Tribunal set aside the appellate order.

The contention of Mr. Kondaiah is that the effect of the Income Tax Appellate Tribunals order is the restoration of the original demand, and as there was no enhancement in the demand there was no need to issue a fresh notice u/s 29 of the Act. Section 29 of the Act requires that when any tax, penalty or interest is due in consequence of any order passed under or in pursuance of this Act, the Income Tax officer should serve upon the assessee or other person liable to pay the tax, penalty or interest a notice of demand in the prescribed form specifying the sum. Section 45 of Act provides that if any amount specified as a payable in a notice issued u/s 29 or an order u/s 31 or section 33 is not paid within the time to the person mentioned in the notice or order, or when no time is prescribed, on or before the first day of the second month following the date of the service of notice or order, the assessee shall be deemed to be in a default, provided that where an appeal is pending u/s 30 the Income Tax Officer may, in his discretion, treat the assessee as not being in default. It is elementary that proceedings u/s 46 of the Act cannot be taken unless the assessee is in default within the meaning of section 45. The question in this case is, could the petitioner be considered to be in default within the meaning of section 45 of the Act. The notice of demand issued u/s 29 with respect to the penalty on September 8, 1953, was complied with, as the petitioner had paid the entire amount in installments ending with March 28,1955. The order of the Income Tax Appellate Tribunal does not specify any amount either by way of tax or penalty due from the assessee (petitioner). All that the Tribunal did was by its order dated December 16, 1957, to reverse the decision of the Appellate Assistant Commissioner and to direct him to dispose of the appeal on the merits. It is not a case where the appellate order has specified the sum due from the assessee. It is not the case of the Department that in pursuance of the order dated September 16, 1957, there was any fresh demand u/s 29 of the Act issued to the petitioner. I am unable to agree with the contention of Mr. Kondaiah that the certificate issued on February 3, 1958, is within time as being within one year from December 16, 1957. It would be so, if the appellate order made u/s 33 of the Act had specified any sum payable. In such a case, as held by the Calcutta High-Court in Ladhuram Taparia v. D. K. Ghosh ), when a proper notice of demand had already been given in respect of a tax determined by the assessment order, the subsequent orders in appeal had only reduced the amount of tax demanded and not enhanced it, it is not necessary that a second notice of demand u/s 29 of the Act should be served on the assessee. Now, in this case, the appellate order of the Income Tax appellate Tribunal has not dealt with the quantum of the tax at all. It simply restored the appeal and directed its fresh disposal. In such a case, the only question is whether the original demand issued on September, 8, 1953, is revived. Assuming that it is revived, from what date is it revived ? I cannot agree with contention of Mr. Kondaiah that the demand must be deemed to have revived as from December 16, 1957, such that, the certificate issued on February 3, 1958, would be in time within the meaning of section 46(7). In the events that had happened, the original demand was complied with. If, by reason of the order of the Income Tax Appellate Tribunal there is a restoration of the appeal, a notice u/s 29 should have been issued. It seems to me further that unless the appeal is disposed of, it would not be possible to say precisely what is the amount that the petitioner would have to pay by way of penalty.

Mr. Kondaiah contended that under the proviso to section 45(1), it is open to the petitioner to approach the Income Tax Officer and obtain stay, and that the petitioner, not having done so, is not entitled to claim the present relief from this court. There is, no doubt, considerable force in this contention. But, that circumstance would not relieve the Department of the duty of establish that the assessee was in default within the meaning of section 45, so as to justify the proceedings u/s 46(2) of the Act. I am of opinion, that in this case the impugned notice for the recovery of Rs. 10,000 is not valid and is hit at by section 46(7), and that it should therefore be quashed. This order would certainly not preclude the authorities from taking steps for the realization of the amount after the disposal of the appeal, now pending before the Appellate Assistant Commissioner.

There is absolutely no force in the contention of learned counsel for the petitioner that the present notice given for the realization of Rs. 19,318-15-0 is bad because of the clubbing together of the sums of Rs. 9,318-15-0 and Rs. 10,000. So far as the demand for Rs. 9,318-15-0 is concerned, I have taken the view that it is perfectly legitimate and, as a matter of fact, it is covered by a separate certificate. The result of this decision is that the present notice dated February 21, 1958, shall be amended or modified by deletion of Rs. 10,000, and steps for the realization of the balance may be taken in accordance with law. Since the challenge of the petitioner in regard to the notice dated February 21, 1958, has succeeded only in part, I make no order as to costs.

Order accordingly.