Commissioner Of Income-Tax, Calcutta v. Bidhu Bhushan Sarkar (Dead) Through His Legal Representative Mihir Kumar Sarkar

COMMISSIONER OF INCOME-TAX, CALCUTTA BIDHU BHUSHAN SARKAR (DEAD) 'fllJlOUGH HIS LEGAL REPRESENTATIVE MIHIR KUMAR SARKAR October 3, 1966 ( J. C. SHAH, V. RAMASWAMJ AND V. BHARGAVA, JJ.] Income-tax Act, 1922, ss. 5(7A), 34-Proceeding pursuant to notice under s. 34 "filed" by Additional Income-tax Officer as another prloceed-ing for same year pending before Principal income-tax Officer-Latter Issuing another notice under s. 34-Whether proceeding on first notice still pending-Whether second notice and assessment thereafter val/4-Whether transfer under s. 5(7A) only possible when proceedings pend-ing-Notice under s. 34 iust before expiry of eight years-Assessment completed within one year thereafter-Whether valid or barred by limit~ tion. In proceedings pursuant to a notice under s. 34 of the Income-tax Act, 1922, the Additional Income-tax Officer passed an order to the effect that the income should be taken in the assessment on a second re-turn for the same year pending before the Principal Income-tax Officer, for which tbete was another file and that the case was, therefore, "filed". The Principal Officer, after issuing a n<>tice under s. 34, passed an assessment order, but in an appeal against that order, he himself pointed out that he had no jurisdiction to make the order. The Appellate Assis-tant Commissioner therefore set aside the assessment order. The Com-missioner thereafter transferred the case from the Additional Officer to the Principal Officer. The latter then issued another notice to the assessee under s. 34 and in pursuance of that notice passed an assessment order. The assessee appealed against this order to the Appellate Assistant Commissioner on the grounds, that (i) the notice under s. 34 of the Principal Officer was invalid 'because the proceedings instituted on the first notice by the Additional Officer were still. pending; and (ii) if tb.e first n<>tice of the Additional Officer was still effective, the assessment made was barred by time. The Appellate Assistant Commissioner accept-ed these contentions and allowed the appeal but the Tribunal reversed this decision. The High Court, on a reference held in faVC>ur of the assessee. On appeal to this Court, HELD : (i) In the circumstances of the case the word "filed"' in the order of the Additional Officer was equivalent to "disposed of', so that after that Qrder no proceedings on the basis of his notice remained pend-ing. What the Additional Officer intended and did, in effect, was to terminate the proceedings before him without making any order of assessment on the ground that the order of assessment in respect of the income in question would be made by the Principal Officer in the proceed-ings before him. [690 G-691 A] Esthuri Aswathiah v. Income-tax Officer, Mysore State, [1961] 2 S.C.R. 911; 41, I.T.R. 539 and Ha;i Mohamed Main v. C.l.T. Calcutta, (Calcutta High Court, Income-tax Reference No. 128 of 1961, judg-ment dated Feb. 23, 1955), referred to. 35 !.T.R. 532, P. T. Ank/esaria and Ors. v. CJ.T., Bombay Sout/1, distinguished. Even if the order of the Additional Officer were to be regarded "" in-valid; its effect could not be that the proceedings before him must be held to have continued after that order was made. by him. Even an in-valid order terminating proceedings has the effect of terminating them; and in such a. case the appropriate method for correcting the illegality committed is to have that order vacated by appellate or other higbel' authorities having jurisdiction to intervene. [692 E-F] The High Court erred in holding that the proceedings on the notice issued by the Additional Officer were pending on the view that unless there was a case pending, there could be no transfer of s case under s. 5(7A). The word "case" in s. 5(7A) is used in a comprehensive •ease including both pending proceedings as well as proceedings to be instituted in future. [693 B-D] (ii) The order of assessment was not barred by time. The notice having been validly issued by the Principal Officer within the period of eight years prescribed by s. 34( 3), the actual order of assessment could be made vahdly before the expiry of one year from the date of the notice. t693 HJ CIVIL APPELLATE ]URISDJrTION : Civil Appeal No. 401 of 1965. Appeal from the judgment and order dated January 10, 1962 of the High Court at Calcutta in Income-tax Reference No. 22 of 1960. S. V. Gupte, Solicitor-General, N. D. Karkhanis and R. N. Sacht/Jey, for the appellant. A. K. Sen, P. K. Mukherjee and S. K. Bane1jee, for the res- pondent. The Judgment of the Court was delivered by Bbargua, J.- --The assessee in the proceedings out of which this appeal has arisen was Bidhu Bhushan Sarkar, who died and is now represented in these proceedings through his leg-<1l repre-sentative. The assessee used to be assessed by the Income-tax Officer of District 24 Parganas in Bengal. For the assessment year 1947-48, the assessee filed a voluntary return before the Income-tax Officer on December 22, 1947, showing a net loss of Rs. 330/-. This return was filed without any notice under s. 22(2) of the Income-tax Act having been served on him. Before any proceedings could be completed on that return, there was change in territorial jurisdiction and as a result, the asscssee's place of busines• came within the jurisdiction of the Income-tax Officer District 1(2), Calcutta. In this Income-tax Office, there were a number of Income-tax Officers. The senior-most Income-tax Officer used to be designated as Income-tax Officer, District 1(2), and was treated as the principal Income tax Officer (hereinafter referred to as "the P.l.T.0."). Since there were a number of Addi- A tional Income-tax Officers, there was distribution of jurisdiction. and the case of the assessee fell within the jurisdiction of the 8th Additional Income-tax Officer, District 1(2) (hereinafter referred to as "the A.l.T.0."), and consequently, came up before him. On January 16, 1949, the A.l.T.O. started departmental proceed-ings with the object of taking proceedings under s. 34, presumably B because he considered the voluntary ;eturn declaring a loss of Rs. 330/- as invalid. He then:after issued a notice under s. 34 on February 23, 1950. In the meantime, on March 31, 1949; the assessee had filed another voluntary return for the same assess-ment year in respect of his income from military contracts be-fore the P.I.T.O., and in this return be declared a loss of Rs. 11,33,940/-. The proceedings pending before the A.I.T.0. c in pursuance of his notice dated 23rd February, 1950 came up before him on the 4th February, 1952. On that date, he passed the following order which may, for convenience, be reproduced in full, as this case turns mainly upon the interpretation of this order:-"Mr. Kalipada Bose, constituted attorney, appears D and submits that the old return already submitted may be treated to be suBmitted in response to notice under s. 34(1)(a). The income should be taken in the assess-ment of the military contract income for which there is another file. The case is, therefore, filed." E The proceedings before the P.I.T.O. on th~ voluntary return filed by the assessee on the 31st March, 1949, were continuing, and in those proceedings he issued a notice under. s. 23(2) on !st August, 1950. Subsequently, on 12th February, 1952, he can-celled those proceedings on the view that a voluntary return of loss was not valid, took proceedings under s. 34, and issued a notice under that section on the same day. These proceedings F under s. 34 culminated in an order of assessment by the P.J.T.O. under s. 34(4) passed on 31st January, 1953. The assessee filed an appeal against that order of assessment and when the appeal came up, the P.I.T.O. himself drew the attention of the Appellate Assistant Commissioner to the fact that he had no jurisdiction over the assessee as them was already a file of the asses see with the G A:.J.T.O. He, therefore, requested that the assessment should be set aside as it was void ab initia. The Appellate Assistant Commis-. sioner accepted this request of the P.I.T.O., set aside the assessment on 7th December, 1955, and made a direction that the assessment could be completed according to law by the officer having proper jurisdiction over the case. Thereafter, on the 30th December, H 1955, the Commissioner of Income tax made .an order transfer-ring the case ofthe-assesste from the A.I.T.O. to the P.I.T.O. There was an appeal by the assessee against the direction of the Appellate Assistant Commissioner that the assessment should be completed by the officer having proper jurisdiction over the case. That appeal. was allowed by the Income-tax Appe!late Tribunal on the 23rd April, 1957, and the direction of the Appellate Assistant Commissioner was set aside. In the meantime, in pursuance of the direction of the Appellate Assistant Commissioner contained in his order dated 7th December, 1955, and the order of transfer by the Commissioner made on 30th December, 1955, the P.l.T.O., on 11th February, 1956, issued a fresh notice under s. 34 to the assessee, and in pursuance of that notice, made an assessment on 2nd May, 1956. Against this assessment dared 2nd May, 1956, there was an appeal to the Appellate Assistant Commissioner challenging the assessment on various grounds, one of which was that the notice dated 1 lth February, 1956 was invalid, because the proceedings instituted on the notice under s. 34 dated 23rd February, 1950 were still pending, and while these proceedings had not terminated, another fresh notice under s. 34 could not be validly issued. A further ground was that if the notice dated 23rd February, 1950 is considered as still effective, when the assessment was made on 2nd May, 1956, that assessment was barred by time. These pleas were accepted by the Appellate Assistant Commissioner, but the Income-tax Appellate Tribunal, on appeal, reversed his decision and decided both the points against the a~sessee and in favour of the department. On an application under s. 66(1), the Tribunal then referred the following two questions for opinion of the Cal-;:utta High Court :- "(!) Were the notice u/s. 34 issued by the Principal In-come-tax Officer on I Ith February, 1956 and the as-sessment raised in pursuance thereof, valid in law, in view of the fact that the proceedings commenced by the 8th Addi. Income-tax Officer u/s. 34 on the basis of notice dated 23rd February, 1950 were "filed" ? (2) Whether on the facts and circumstances of the case, the assessment dated 2nd May, 1956 made by the Principal (main) Income tax Officer, Distt. 1(2) was barred by time ?" The High Court disagreed with the view of the Tribunal and held that the notice dated 23rd February, 1950 was valid and proceedings on it were continuing, so that the revenue authorities could not extend the period of limitation by assessing after the expiry of eight years by issuing a second notice on the eve of the expiry of eight years to obtain a period of one additional year from the date of the service of the second notice. The assessment was, therefore, held to be barred by limitation on the ground that it should have been completed by 31st March, 1956. This appeal A has now been brought up to this Court by the Commissioner of Income-tax, Calcutta, on a certificate granted under s. 66A(2) by the High Court. It appears in this case that at one stage there was a contest between the parties as to whether the notice dated 23rd February, 1950 was validly issued under s. 34 or not. Even before the High B Court it seems that some attempt was made on behalf of the assessee to raise the question that the notice dated 23rd February, 1950 under s. 34 was invalid on the ground that it was issued with-out completing the assessment on the voluntary returns subtnitted on December 22, 1947 and March 31, 1949. On behalf of the Com-missioner, the contention before the High Court was that on the c question referred to the Court it was not open to the assessee to raise this contention. The objection raised by the Commissioner was rightly accepted by the High Court. lt is· plain from the two . questions referred to the High Court that the High Court was not called upon to. express any opinion about the validity of the notice dated 23rd February, 1950. The first question only in-D vited the opinion of the High Court on the limited point whether, in view of the fact that proceedings commenced by the A.l.T.O. on the basjs of notice dated 23rd February, 1950 were merely filed, the notice under s. 34 issued by the P.I.T.O. and the assess-ment based on it were valid in law. The only other question was whether the order of assessment dated 2nd May, 1956 made by the P.I.T.O. was barred by time. Neither of these questions enlarged E the scope of the reference before the High Court so as to permit it to examine the validity of the notice dated 23rd February, 1950, and the Court, therefore, was right in refusing·to go into this question. In this appeal, consequently, we are only concerned with the correctness of the answer returned by the High Court to the two questions referred to it by the Tribunal. The answer given by the High Court to the two questions referred to it is clearly based on the view taken by that Court that the order of the A.l.T.O. dated 4th February, 1952, did not terminate or put an end to the proceedings which were going on before him in pursuance of the notice under s. 34 dated 23rd February, 1950, and it is the correct-ness of this view of the High Court that has to be examined. Learned Solicitor-General, appearing on behalf of the Commis-sioner, urged before us that in interpreting the effect of the order made by the A.I.T.O. on the 4th February, 1952, we should try to discover what was the real intention of the A.I.T.O. when he ordered that the case is "filed". The intention has to be inferred from all the surrounding circumstanoes in which the order was made. At the time when this case came up before him on 4th February, 1952, the A.l.T.O. was expecting a return to be filed by the assessee in response to the notice which had been issued by him under s. 34. A constituted attorney appeared for the assessee and requested that the return already filed on the 22nd December, 1947 may be treated as the return submitted in response to the notice. The A.I.T.O., noted this fact. Further, it appears that he was already aware that another proceeding on the basis of a voluntary return was pending before the P.I.T.O., and consequently in his order he recorded his opinion that the income (referring to the income to which the voluntary return date