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Writ Petition No. 1486 of 1965, decided on 3rd July 1968.
Rectification of assessment of partner‑Original assessment on firm set aside by Commissioner of Income‑tax under revision ‑ Consequential order by Income‑tax Officer‑ Final order for purposes of S. 35(5)‑Indian Income‑tax Act, 1922, S, 35(5).
The assessee, a Hindu undivided family, was a partner in a firm. The assessment of the assessee for 1950‑51 was made on October 30, 1953, subject to rectification under section 35(5), on completion of the assessment of the firm. The assessment of the firm was made on November 30, 1954, wherein the income was estimated at 26 lakhs of rupees. On a revision petition filed by the firm under section 33‑A, Income‑tax Act, the Commissioner of Income‑tax, by his order dated August 31, 1955, set aside the Income‑tax Officer's order and directed him to make a fresh assessment after giving sufficient opportunity to the firm to produce accounts. In pursuance of this order, the Income‑tax Officer gave notices to the firm which, however, did not avail of the opportunity. Hence, the Income‑tax Officer passed an assessment order on January 29, 1963, estimating income again at Rs. 26 lakhs. Consequently, the Income‑tax Officer having jurisdiction over the assessee passed an order under section 35(5), Income‑tax Act, 1922, on March 16, 1965, adding its share of income, viz., Rs. 13 lakhs. The assessee filed a writ petition contending that as the impugned order was passed more than a years after the Commissioner of Income‑tax's order dated August 31, 1955, it was time‑barred. Rejecting this plea, the Court:
Held, that by virtue of the order of the Commissioner of Income‑tax dated August 31, 1955, the order of the Income‑tax Officer dated November 30, 1954, lost its finality. The consequential order passed by the Income‑tax Officer on January 29, 1963, is a fresh order, though the original estimate of income was confirmed, and is also a final order, as no appeal or revision was filed and, hence, the rectification order dated March 16, 1965. was within four years and was valid.
Bhopal Sugar Industries Ltd. v. Income‑tax Officer, Bhopal (1960) 40 I T R 618 (S C) and S. Sangappa v. Income‑tax Officer (1968) 68 I T R 760 (S C) ref.
P. Ramarao for Petitioner.
T. Ananta Babu for Respondent.
This is a petition under Article 226 of the Constitution for the issue of a writ of certiorari to call for the records relating to G. 1. No. K. 205/50‑51 and quash the rectification order passed on March 16, 1965, by the respondent, namely, the Income‑tax‑ Officer, "A" Ward, Nizamabad, under section 35(5) of the Indian Income‑tax Act, 1922.
Two grounds are taken in this writ petition and they are:
(1) That inasmuch as the notice under section 35(5) of the Income‑tax Act, 1922, was issued on August 28, 1964, after the Income‑tax Act of 1961 came into force, the proceedings under section 35 of the 1922‑Act were not saved by the repealing section 297 of the 1961‑Act, and, consequently, the proceedings under section 35 of the old Act are void ab initio.
(2) That the rectification order made under section 35 is barred by limitation.
At the hearing of this writ petition Mr. P. Rama Rao, the learned Advocate for the petitioner, did not press the first point because it is concluded against him by a decision of the Supreme Court in S. Sangappa v. Income‑tax Officer ((1968) 68 I T R 760 (S C)). He confined his arguments only to the second point.
The facts, so far as they are material for deciding this point, are as follows: The petitioner was assessed in the status of a Hindu undivided family for the years 1949‑50 and 1950‑51. In the course of the assessment proceedings for 190‑51 it was represented to the respondent that the petitioner had got 0‑8-0 share in the firm of Messrs Sriram Haricharandas, Bombay. The assessment of the petitioner for the assessment year 1950‑51 was completed on October 30, 1953; wherein it was specifically mentioned that the assessment order was subject to rectification under section 35 of the Income‑tax Act, 1922, as the share income belonging to the assessee in several firms including the firm of Messrs Sriram Haricharandas, Bombay, were not available at that time.
The assessment of the firm of Messrs Sriram Haricharandas, Bombay was completed on November 30, 1954, computing the total income of the firm at Rs. 26,00,000. Against that assessment order, the firm preferred a revision application, R. P. C. No. 6 of 1955‑56, under section 33‑4 of the Income‑tax Act, 1922, to the Commissioner of Income‑tax, Bombay, and the latter passed the following order on August 31, 1955:
"Order under section 33‑A(2) of the Income‑tax Act.
This revision petition is in respect of the assessment made on the firm of Sriram Haricharandas of Bombay for the year 1950‑51. The assessment was. made under section 23(4) of Act. The petitioner prays that it may be revised after looking into the books which he is prepared to produce. The assessee had filed a petition under section 27 but it had been rejected by the Income‑tax Officer as being out of time. As the assessee did not file the petition under section 27 in time the assessment under section 23(4) stands, and I cannot direct the Income‑tax Officer to make a fresh assessment under section 27. However the estimate of the Income‑tax Officer had no proper basis as he had no information regarding the scope of the business done during the year, and it is possible that the estimate is excessive. The Income‑tax Officer is directed to look into the accounts which the assessee produces before him and arrive at an estimate of the income after taking into account the infor mation contained in the books and substitute such estimate for the income already assessed and modify the assessment accordingly.
(Sd.) V. Krishnamachari,
Bombay, Commissioner of Income‑tax
31st August 1955. (Central) Bombay."
It will be observed that the Commissioner was apparently satisfied that the Income‑tax Officer had made the order without giving an adequate opportunity to the assessee to present his case, and so he directed the Income‑tax Officer to look into the accounts of the firm which the firm was ready and willing to produce, then arrive at an estimate of the income after taking into account the information contained in the books, substitute such income for the income already assessed and modify the assessment accordingly. Pursuant to the directions given by the Commis sioner, the Income‑tax Officer, Section IV (Central), Bombay, passed a final order on January 29, 1963, estimating the total income of Messrs Sriram Haricharandas, Bombay at Rs. 26,00,000.
That order, which is termed "consequential order" under section 33‑A (2) of the Income‑tax Act, reads as follows:
"Consequential order under section 33‑A(2) of the Income‑tax Act:
Name of the assessee: Messrs Sriram Haricharandas.
Assessment year: 1950‑51.
As a result of the Commissioner of Income‑tax's order dated August 31, 1955, in the Revision Petition No. R. P. C. 6 of 1955‑56, the Income‑tax Officer was directed to modify the assessment on the basis of the books of accounts of the assessee. In this connection several appointments were given to the assessee, as a result of which some statements of accounts were tiled but, after partial examination of accounts, the assessee adopted an unco‑operative attitude, with the result the examination of accounts remained completed half‑way only.
As the matter could not be kept pending indefinitely, a final opportunity was given to the assessee to produce the relevant books of account on January 16, 1963, but none attended on the due date or sent a written reply. It appears the assessee is no longer interested in pursuing the matter.
In view of the above, the original estimate of the assessee's income of Rs. 26,00,000 is confirmed.
(Sd.) V. R. Amin,
Bombay, Income‑tax Officer, Section IV
the 29th Jan., 1963. (Central), Bombay."
Subsequent to this, the share of the income of the petitioner after ascertainment was duly intimated to the respon dent by the Income‑tax Officer, Section IV (Central), Bombay. Thereafter the respondent passed the rectification order under section 35(5) of the Act on March 16, 1965, by including Rs. 13,00,000 as the share income of the petitioner derived from that firm. It is the validity of this order that is challenged in this writ petition.
The contention of Mr. Rama Rao, on behalf of the petitioner, was as follows:
" The assessment of the firm of Messrs Sriram Haricharandas, Bombay, was made by the Income‑tax Officer, Bombay, by an order under section 23(4) of the Income‑tax Act, 1922, on November 30, 1953, computing the income of the firm at Rs. 26,00,003. As against the said assessment order, the firm filed a revision petition under section 33‑A to the Commissioner of Income‑tax and the latter passed an order on August 31, 1955. Section 35(5) prescribes a period of limitation of four years for rectification of a mistake apparent from the record and the starting point for the computation of the period of limitation is the date of assessment of the firm or the dale of the order, if any, passed on appeal, revision or reference. In the instant case the order under section 33‑A was passed by the Commissioner of Income‑tax on August 31, 1955, and, there fore, the period of limitation of four years provided by sec tion 35(5) should be computed from that date. The impugned order of rectification was made by the respondent on March 16, 1965. Hence it is barred by limitation, However, that order is sought to be justified on the footing that it was passed within four years from the date of the "consequential order" passed by the Income‑tax Officer, Section IV (Central), Bombay on January 29, 1963. Such a consequential order is not contemplated by any of the provisions of the Income‑tax Act, 1922, and, therefore, it has no existence in the eye of the law. Further, section 35(5) of the Act contemplates only a final order passed under section 33‑A by the Commissioner. There fore, the "consequential order" passed on January 29, 1963, is not an order passed under section 33‑A by the Commissioner and as such the period of limitation cannot be computed from the date of the said order. The order that may perhaps be taken into account for purposes of computing the period of limitation is the order under section 33‑A made by the Com missioner, and as the said order was passed on August 31, 1955, the period of four years from the said date had expired by the time the impugned order under section 35(5) was passed by the respondent and, as such, the order is without juris diction. Furthermore, a final order‑ under section 33‑A con templates an enhancement or a reduction of the assessment, and as in the instant case the order passed by the Commis sioner under section 33‑A neither reduced nor enhanced the assessment the four‑year period cannot be computed even from the date of the order under section 33‑A. The only order that should be taken into reckoning is the order made by the Income‑tax Officer, Bombay, on November 30, 1954, under section 23(4)."
In our opinion, this contention is manifestly untenable for the simple reason that it turns a blind eye to the true nature and effect of the order passed by the Commissioner of Income tax under section 33‑A of the Income‑tax Act, on August 31, 1955, and the consequential order passed by the Income‑tax Officer, Bombay, on January 29, 1963. Even a bare reading of the Commissioner's order shows that the revision was entertained by him on an application made by the firm of Messrs Sriram Haricharandas, and their grievance was that the Income tax Officer had made the assessment under section 23(4) of the Act without giving them adequate opportunity to produce their books of account and without scrutinising them. The Commissioner was satisfied that the Income‑tax Officer had acted somewhat arbitrarily and the estimate of income arrived at by him might be excessive. So he gave a direction to the Income tax Officer in the following terms:
"The Income‑tax Officer is directed to look into the accounts which the assessee produces before him and arrive at an estimate of the income after taking into account the infor mation contained in the books and substitute such estimate for the income already assessed and modify the assessment accordingly."
It will be seen that what the Commissioner did was to direct to Income‑tax Officer to investigate into the matter de novo and give such relief to the assessee‑firm as was just and proper. In other words, the order of the Income‑tax Officer was in effect set aside and the Income‑tax Officer was directed to make a fresh assessment. To put it in another form, the order passed by the Income‑tax Officer on November 30, 1954, lost its finality because a further investigation into the accounts and a conse quential modification of that order were contemplated by the order passed by the Commissioner.
It was in pursuance of that order of the Commissioner that the Income‑tax Officer, Bombay, reopened the matter and gave the assessee‑firm adequate and ample opportunity to produce their accounts and substantiate their claim. But, as the order of the Income‑tax Officer dated January 29, 1963, shows, the assessee‑firm adopted a non‑co‑operative attitude and the scrutiny of the accounts could not be completed although the matter was hanging fire for over seven years. Ultimately the Income‑tax Officer gave a final opportunity to the firm to produce the relevant books of account on January 16, 1963, but no one attended his office on the date nor was any intimation sent. The Income‑tax Officer was, therefore, satisfied that the assessee was no longer interested in pursuing the matter and so on January 29, 1963, passed the impugned order, the operative portion of which says:
"In view of the above, the original estimate of the assessee's income of Rs. 26,00,000 is confirmed."
It is plain, therefore, that what the Income‑tax Officer passed was really a fresh assessment order, despite the fact that the original estimate was confirmed. What is of greater significance is that that order was not taken up in appeal or revision and it became the final order passed in the case of the firm, as contemplated by subsection (5) of section 35. So that, the said order was in truth an order of assessment of the firm and was also the final order passed in the case of the firm. That being so, the period of limitation of four years should be reckoned as from the date of that order, that is to say, from January 29, 1963, and as the impugned order of rectification was passed by the respondent, i.e., Income‑tax Officer, "A" Ward, Nizamabad, on March 16, 1965, it is well within time and is not open to attack on the ground that it is barred by limitation.
The contention that a consequential order as the one passed by the Income‑tax Officer, Bombay, is not contemplated by section 35(5) is also devoid of substance. It was incumbent upon the Income‑tax Officer to give effect to the order passed by the Commissioner. It was in obedience to the directions given by the Commissioner that the Income‑tax Officer gave further opportunity to the assessee‑firm to adduce evidence and ultimately as the firm failed to avail itself of the opportunity, he computed the income of the firm at the original figure, namely, Rs. 26,00,000. Thus, although there was no variation from the original order, the order was in truth one of assessment and it was also the final order in the case of the firm, as envisaged by subsection (5) of section 35. It is hardly necessary to point out that by no stretch of imagination can the order of the Commis sioner be regarded as a final order in respect of the firm because by that order the Commissioner directed the Income‑tax Officer to modify his previous order in the light of a further scrutiny of the accounts of the firm.
In this connection it is useful to refer to the decision of the Supreme Court in Bhopal Sugar Industries Ltd v. Income‑tax Officer, Bhopal ((1960) 40 I T R 618 (S C)). In that case the assessee‑company, which manufactured and sold sugar, used sugar‑cane purchased from other cultivators as well as grown in its own farms. It claimed deduction of agricultural income from its total income by valuing the sugarcane grown in its own farms at market value and deducting therefrom the agricultural expenses. In its order in appeal the Appellate Tribunal directed the income tax Officer to a certain the average transport charges per maund from the purchasing centres to the assessee's factory and to add it to the rate of Rs. 1‑4‑6 per maund in order to ascertain the market value and give any relief that may be due to the assessee. The assessee applied to the Income‑tax Officer to give effect to the directions of the Tribunal, but the officer in his letter dated March 24, 1955, held that no relief could be given to it, mis reading the clear terms of the Tribunal that he had to ascertain the cost of transportation from the farms to the factory instead of the average transport charges from the centres to the factory. The assessee applied to the Judicial Commissioner of Bhopal for the issue of a writ to compel the officer to carry out the directions of the Appellate Tribunal. The Judicial Commissioner found that the officer had acted arbitrarily and in clear violation of the directions given by the Tribunal, but proceeded to consider the correctness of the Tribunal's order and held that there was no manifest injustice done to the assessee.
On appeal to the Supreme Court it was held that by his letter dated March 24, 1955, the Income‑tax Officer had virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal was in effect a denial of justice. The order of the Appellate Tribunal having become final, it was not open to the Judicial Commissioner to hold that the order was wrong. As the Income‑tax Officer had failed to carry out a legal duty imposed on him and such failure was destructive of a basic principle of justice, a writ of mandamus should issue ex debito justitiae to compel him to carry out the directions given by the Appellate Tribunal. In that view the Supreme Court reversed the judgment of the Judicial Com missioner. In the course of the judgment of the Supreme Court, S. K. Das, J., speaking for the Court, made the following obser vations (at page 622):
"We think that the learned Judicial Commissioner was clearly in error in holding that no manifest injustice resulted from the order of the respondent conveyed in his letter dated March 24, 1955. By that order the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal is in effect a denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of Courts. If a subordinate Tribunal refuses to carry out directions given to it by a superior Tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning by .which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the superior tribunal, yet held that no manifest injustice resulted from such refusal.
It must be remembered that the order of the Tribunal dated April 22, 1954, was not under challenge before the Judicial Commissioner. That order had become final and binding on the parties, and the respondent could not question it in any way. As a matter of fact, the Commissioner of Income tax had made an application for a reference, which application was subsequently withdrawn. The Judicial Commissioner was not sitting in appeal over the Tribunal and we do not think that, in the circumstances of this case, it was open to him to say that the order of the Tribunal was wrong and, therefore, there was no justice in disregarding that order. As we have said earlier, such a view is destructive of one of the basic principles of the administration of justice."
It follows that there are no merits in this writ petition and it is accordingly dismissed with costs. Advocate's fee Rs. 250.
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