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Writ Petitions Nos. 250 to 252 of 1955, decided on 29th April 1957.

Indian Income-tax Act (XI of 1922)

, Ss. 29, 34, 45, 46(2) & 63-Code of Civil Procedure (V of 1908), Order V, rr. 17, 19, 20 & 25-Notice of re-assessment-Notice of demand-Substituted service-Formalities to be observed-Service by affixture at local residence when persons to be served are known to be in Burma under enemy occupation-Whether due service.

An unregistered firm which had its business mainly in Rangoon and had a branch office in Madras was assessed for the assessment year 1939-40 without the income from Burma being taken into account as Burma was under enemy occupation. After the partners of the firm had left for Burma, the income-tax Officer initiated re-assessment proceedings under section 34 of the Indian Income-tax Act, 1922. The notice for reassessment was returned as the business premises at Madras were closed and again when sent by post to the residence of the partners it was returned with the information that they were in Rangoon. The notice was thereafter axed on the door of the premises of the partners and the proceedings were completed in the absence of the partners. The assessments for the years 1940-41 and 1941-42 were completed in their absence under section 23(4), the notices of demand under section 29 were served by affixture to the residences of the partners, and certificates under section 46 were issued to the Collector as the taxes levied remained unpaid:

Held

, (i) that there was no proper or due service of the notice under section 34 on the assessee and the substituted service by affixture did not constitute due service; for, in the case of none of the notices so served was there a verified statement nor any examination on oath of the person who served the notice, in accordance with Order V, rule 19, of the Code of Civil Procedure, and recourse was not had to the provisions of the Order V, rule 20, and substituted service was not ordered on the ground that the assessee was avoiding service; due service under Order V, rules 17 and 19, meant that the notice was served in such a way that the assessee had or could obtain knowledge of the proceedings under section 34, or at least the Income-tax Officer could bona fide believe that the assessee had or could have obtained such knowledge; with the partners known to be in Rangoon where they could not be reached by normal means of communication, the substituted service was un business like and ridiculous;

(ii) that certificates could be issued to the Collector under section 46(2) only if the assessee was in default; under section 45 the firm could not have been in default when there was no due service of the notices of demand issued under section 29; and as the notices of demand were served by affixture to the residences of the partners when it was known or should have been known that they were in Burma and even the certificates under section 46(2) were issued when they were in Burma without any means of knowing that they had been assessed to tax, the issue of the certificates under section 46 (2) and the further proceedings of the revenue authorities were without jurisdiction.

[Case-Law referred].

M. R. M. Abdul Karim for Petitioner.

C. S. Rama Rao Sahib for Respondent.

JUDGMENT

RAJAGOPALAN, J.-

The petitioner firm which consisted of two partners, Ebrahim Ali and Muhammad Esoof, was unregistered for purposes of assessment to income-tax. The firm had its business mainly in Rangoon, and it had a branch office at Madras. The partners were residents of Ilayangudi in Ramanathapuram District. On 1st April 1941, Esoof left for Burma, and his partner Ebrahim followed him in November 1941. Subsequent to March 1942, when Burma was occupied by enemy forces communications between India and Burma were severed for the duration of the war. Ebrahim and Esoof returned to Ilayangudi in 1945-46. The partnership was dissolved in 1947.

For the - assessment, year 1939-40 the firm lodged a return, which showed that its income was below the assessable limit. The assessment was completed on 6th March' 1940. The income from Burma was not taken into account then. The explanation given in paragraph 3 of the counter affidavit was:

"At this time because of enemy occupation of Burma, the income from foreign business at Burma was not taken into account."

Proceedings under section 34 of the Income-tax Act were taken in January 1942. By then, it should be remembered both the partners had left for Burma. It was common ground before us that the branch office at Madras was closed in February 1942, and the premises vacated. Eventually, service of the notice issued under section 34 was effected by affixture to the residence at Ilayangudi of the two partners, where their wives lived. The partners could however get no knowledge of these proceedings. The proceedings under section 34 were completed on 22nd March 1944, in the absence of the partners of the assessee firm. They were not represented by any one else either.

As the partners were still in Burma, no returns were filed by them for the assessment years 1940-41 and 1941-42. The assessments for these two years were completed under section 23 (4) of the Act on 25th February 1942, and 20th February 1942 respectively. Notices of demand under section 29 for these two years were served by affixture to the residences of the partners at Ilayangudi.

The notice of demand, after the assessment for 1939-40 was completed under section 34, was served by affixture at Madras, though the premises had been vacated even in 1942 by the assessee. As the taxes levied for the three years remained unpaid the Department issued certificates to the Collector under section 46 (2) of the Act. For the tax due for 1941-42 a certificate was issued on 25th June 1942. For the tax due for 1940-41 a certificate was issued on 15th March 1943. It was issued on 17th May 1946, for the tax due for 1939-40.

Ebrahim and Esoof returned to India by 1946. The petitioner claimed that it was only in November 1953, that they came to know that demands for the three years were outstanding. After some correspondence with the Department the petitioner preferred applications under article 226 of the Constitution.

In W. P. No. 250 of 1955 the petitioner challenged the validity of the assessment under section 34 for 1939-40 on two grounds : (1) The proceedings were vitiated because the notices initiating the proceedings had not been duly served on the firm or its partners, and (2) the Department had no "definite information" on the basis of which it could initiate proceedings under section 34. The validity of the subsequent proceedings also was attacked.

In W. P. Nos. 251 and 252 of 1955 the petitioner challenged the validity of the proceedings taken by the Collector to recover the arrears claimed by the Department for 1940-41 and 1941-42 respectively, principally on the ground that the notices of demand issued under section 29 had not been duly served on the assessee.

Since the main question for determination is whether the prescribed notices had been duly served we shall examine the relevant statutory provisions. Section 63 of the Income-tax Act runs:

"63. (1) A notice of requisition under this Act may be served on the person therein named either by post or as if it were a summons issued by a Court, under the Code of Civil Procedure, 1908 (Act V of 1908).

(2) Any such notice of requisition may, in the case of a ..firm ..be addressed to any member of the firm

We shall next set out the relevant provisions of the Civil Procedure Code, which are made applicable by section 63 of the Income-tax Act to notices issued under the provisions of that Act.

Order V, rule 12 directs:

"Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent - empowered to accept service, in which case service on such agent shall be sufficient."

Rule 17 of Order V lays down the procedure to be adopted when personal service could not be effected under rule 12. The relevant portion of rule 17 runs:

" where the serving officer, after using all due and reasonable diligence cannot find the defendant and there is no agent empowered to accept service of the summons on his behalf ..the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain, and shall then return the original to the Court from which it was issued, with a report endorsed thereon or annexed thereto stating that he has so affixed the copy, the circumstances under which he did so and the name and address of the person (if any) by whom the house was identified and in whose presence the copy was affixed."

To make service by affixture effective, the requirements of Order V, rule 19, have to be complied with. That runs:

"Where a summons is returned under rule 17, the Court shall, if the return under that rule has not been verified by the affidavit of the serving officer, and may, if it has been so verified, examine the serving officer on oath, or cause him to be so examined by another Court, touching his proceedings, and may make such further enquiry in the matter as it thinks fit; and shall either declare that the summons has been duly served or order such service as it thinks fit."

To adapt this to proceedings under the Income-tax Act we have to read "Income-tax Officer" for the word "Court". Admittedly in the case of none of the, notices served by the Income-tax Officer was there a verified statement, nor any examination on oath, of the person who served the notice by affixture.

Rule 20 of Order V provides for substituted service of notice where the Court is satisfied that there is reason to believe that the defendant is keeping out of the way for purpose of avoiding service or that for any other reason the summons cannot be served in the ordinary way and it is common ground that the provisions of this rule were not in any way attracted to the notices issued in the present case.

Order V, rule 25, provides:

"Where the defendant resides out of India and has no agent in India empowered to accept service, the summons may be addressed to the defendant at the place where he is residing and sent to him by post, if there is postal communication between such place and the place where the Court is situate.,"

Rule 31 of Order V was added by a Madras amendment in 1945.

Rule 31 (1) runs:

"The Court may, on the application of the plaintiff and on such terms as to security or otherwise as .the Court thinks fit, dispense with the service of summons on a defendant ' who is resident in territory belonging to or occupied by a State at war with the Central Government:

Provided that an order dispensing with service of summons shall not be made unless the Court is satisfied that the defendant is resident in such territory and that service of summons on him in the mode prescribed by the Code is not possible."

Here again, to apply these provisions we have to read "Income-tax Officer" for the word "Court" and "assessee" for the word "defendant." With reference to the notices issued under section 34 of the' Act for the assessment year 1939-40, the question whether the requirements of section 63 of the Act, which by its terms ultimately made the relevant provisions of Order V of the Code of Civil Procedure applicable, were satisfied, has to be answered with reference to the facts set out in paragraph 5 of the counter affidavit filed on behalf of the Department. That paragraph run:

"On 16th January 1942, a notice under section 34 of the Income-tax Act was issued and this was served by affixture in the presence of the assessee's wife in the following circumstances. On 2nd September 1941, the assessee had been asked to send the Rangoon assessment order for 1939-40 to which no reply was received. In response to the section 34 notice the peon returned the cover on 31st January 1942, saying the assessee had locked the door of the business premises (at Madras) and gone home. A cover sent by registered post on 16th January 1942, was returned saying that the proprietor had left for Burma. The Income-tax Officer thereupon directed the Inspector to take a peon with him and serve it as it was unlikely that the assessee would have left for Burma at that time. The Inspector thereupon made enquiries and ascertained that the partners were reported to have left to Ilayangudi in Ramnad District. Thereupon a notice was issued in the name of Md. Esoof and this was returned on 10th March 1942, saying that the assessee was at Rangoon. Then a registered post notice was issued to the present petitioner. On 19th March 1942, the notices sent to both were returned stating they were at Rangoon. The Income-tax Officer directed the Inspector to make enquires. The Inspector made enquiries and understood that the partners had vacated their premises and had no office at Madras and that they had left for Ilayangudi. He also understood that the post peon's report was not correct as nobody would at that juncture leave for Rangoon. Notices were thereupon sent to the Income-tax Officer, Sivaganga, for service at the petitioner's place of residence at Ilayangudi. The Income-tax Officer, Sivaganga, sent a peon and this was served by affixture on the door of the premises of both partners the service being duly attested by the headman of the village."

The plea that the Income-tax Officer was under the impression that the assesses were not in. Burma but in India, is really inconsistent with the plea set out in paragraph 3, which we have extracted above, and which related to an even earlier period. It could not be denied that in fact the two partners were in Rangoon long before the initiation of the proceedings under section 34 in January 1942. The Income-tax Officer was made aware of that even before March 1942.

It was not the case of the Department that recourse was had to Order V, rule 31, of the Code of Civil Procedure and that service of notice was dispensed with on the ground, that the two partners of the assessee firm were themselves resident in a country occupied by Japan which was at war with India. Nor could Order V, rule 25, apply because postal communications had been cut between India and Burma. It was not a case of the Income-tax Officer having ordered substituted service under Order V, rule 20. It could not have been applied because it could not be claimed that the assessee was keeping out of the way for the purpose of avoiding service.

Service of the notice under section 34 was by affixture to the last known residence of the partners at Ilayangudi where their wives resided. Whether the assessee was "duly" served with these notices has to be decided with reference to the requirements of Order V, rule 17, and Order V, rule 19, of the Code of Civil Procedure. What rule 17 requires is that "the serving officer after using all the due and reasonable diligence could not find the assessee." When the assessee was known to be in Rangoon, it was futile to look for him at Ilayangudi or to claim that he could not be found at Ilayangudi. Service by affixture under such circumstances could never be due service within the meaning of the Order V, rule 19, of the Code of Civil Procedure. Besides the further requirements of rule 19 were not satisfied in this case.

What was really done in this case was to reduce the service of notice to a meaningless ritual. Due service under the enabling provisions of Order V, rule 17, and Order V, rule 19, of the Code of Civil Procedure should mean that notice was served in such a way that the assessee had or could obtain knowledge of the proceedings, under section. 34, or at least the Income-tax Officer could bona fide believe that the assessee had or could have obtained such knowledge. With the assessee known to be in Rangoon, postal communication between which place and India was served by war conditions, it was impossible to expect that the assessee would have reasonable chance of knowing that proceedings under section 34 had been launched.

Even with reference to substituted service, for which, Order V, rule 20, provides, what was necessary was; to use the words of Reading, C. J., in Porter v. Freudenberg ((1915) 1 K B 857 at 888) "In order that substituted service may be permitted, it must be clearly shown that the plaintiff is in fact unable to effect personal service and that the writ is likely to reach the defendant or come to his knowledge if the method of substituted service which is asked for by the plaintiff is adopted."

In Solaman v. Jatindranath (A I R 1929 Cal. 553 at 557) Rankin, C. J., observed:

"Substituted service is not to be used in any way which is unbusinesslike and ridiculous."

With both the partners of the assessee firm known to be in Rangoon, where they could not be reached by normal means of communications, substituted service would have been in the words of Rankin, C. J., unbusinesslike and ridiculous. But, as we pointed out, recourse was not had to the provisions of Order V, rule 20, of the Code of Civil Procedure and substituted service was not in fact ordered. Order V, rule 31, it should be remembered, was added by the Madras amendment only in 1945. That was not available to the Income-tax Officer in 1942.

It is not necessary for us to specify what the Income-tax Officer should have done to secure due service of the notice he had issued under section 34. It is enough to say that there was no proper or due service of the notice on the assessee, and that the service by affixture did not, in the circumstances of this case, constitute due service of the notice.

The next contention of the learned counsel for the assessee was that, even if there had been due service of the notice on the assessee, the further requirement of section 34, as it stood in 1942, that the Income-tax Officer had "definite information", was not satisfied in this case. It should be remembered that when the assessment for 1939-40 wasp completed first it was known that the assessee had income to Burma but that was not taken into account. The contention of the learned counsel for the assessee appears will be founded, but it may not be necessary to pursue the matter further or to rest our decision on that feature of the case.

The notice of demand under section 29 with reference to the assessment for 1939-40 completed under section 34 was served in 1944 by affixture to the premises at Madras, which admittedly the petitioner had vacated in 1942. It is not necessary to discuss further the validity of that service, when the basis of the demand, the assessment under section 34, had itself no validity.

The rule is made absolute in W. P. No. 250 of 1955. The order of assessment under section 34 is set aside. The petition is allowed with costs. Counsel's fee Rs. 250.

The only point that the learned counsel for the petitioners wanted to be decided in W. P. Nos. 251 and 252 of 1955 was whether the notices of demand issued under section 29 for the 1940-41 and 1941-42 assessments had been duly served on the assessee. There should be no difficulty in answering that question in the negative and in favour of the petitioners. Certificates under section 46 (2) of the Act could be issued only if the assessee was in default; and under section 45 the petitioner firm could not have been in default when there was no due services of the notices of demand issued under section 29. These notices were served by affixture to the residence of the partners, when it was known or should have been known that they were still in Burma. Even the certificates under section 46(2) were issued when the partners were still in Burma, without any means of knowing that they had been assessed to tax. The issue of the certificate and the further proceedings of the Revenue authorities were without jurisdiction. Though it was a writ of prohibition that the petitioners asked for in these two writ petitions, the more appropriate relief appears to be to set aside the certificates issued under section 46 (2) of the Act, in relation to the assessment years 1940-41 and 1941-42 by the issue of a writ of certiorari. To that extent these petitions are allowed. There will be no order as to costs in W. P. Nos. 251 and 252 of 1955.

Rule made absolute.

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