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Civil Reference No. 5 of 1952, decided on 2nd May 1960.

S. 63 (1) and Civil Procedure Code (V of 1908) O. V, r. 12-Assessee's employee receiving notices-Employee not empowered in writing to accept service as agent-Employee appearing in response to Notice and praying for adjournment which was not granted-Validity of service.

Service of notice-Authority to accept service of notice as agent must be in writing-[Civil Procedure Code (V of 1908), O. V, r. 12].

S. 63 (1) read with Civil Procedure Code (V of 1908), O. VI, r. 2-Service of notice on employee not having control and management of business, invalid.

S. 66 (1)-Statement of case-Proviso appended to question on basis of common ground' that authority to accept service need not be in writing-Whether Tribunal can refer question excluding a part of question of law on an incorrect view-(Quaere)

S. M. Sohail and H. A. Taib for Appellant.

Abdul Haque for Respondent.

Date of hearing : 21st March 1960.

Messrs Muhammad Idrees Barry & Company are a firm carrying on the business of cloth merchants in Anarkali Lahore. They were assessed by the Income-tax Officer, A' Ward, Lahore, for the assessment year 1950-51 on the strength of a notice under section 22 (4) of the Income-tax Act served on Habib-ur-Rahman, an employee of the firm. The firm, when a further notice under section 22 (4) was issued for the production of account books, prayed for an adjournment on the ground of illness of the accountant but this prayer was not granted and the Income-tax Officer made an assessment to the best of his judgment under section 23 (4). In the appeal against the assessment before the Appellate Assistant Commissioner it was urged that service on Habib-ur-Rahman was not in accordance with law. The Appellate Assistant Commissioner accepted this contention and holding that Habib-ur-Rahman had not been proved to have an authority for receiving notice on behalf of the firm, set aside the assessment and directed the Income-tax Officer to take proceedings afresh in accordance with law. Against the decision of the Appellate Assistant Commissioner there was an appeal by the Income-tax Commissioner to the Income-tax Appellate Tribunal. The Tribunal held that service of notice on Habib-ur-Rahman was proper and valid service. The Tribunal relied on the fact that the partners of the firm Muhammad Idress Barry & Company did not reside in Lahore but in Karachi, that the business was being looked after by the employees, that Habib ur-Rahman was one of the employees, that Habib-ur-Rahman had received the notice during office hours in the business premises of the firm and that on some previous occasions notices had been received by Habib-ur-Rahman on behalf of the firm and his authority to receive such notices had not been repudiated. The applicant submitted an application to the Appellate Tribunal for referring the following question of law to the High Court :-

Is Habib-ur-Rahman the agent or Manager empowered to accept service of the notice from the Income-tax Officer, Lahore, on behalf of the assessee firm of Messrs Muhammad Idrees Barry & Co., Lahore within the meaning of Order V, Rule 9 (1) of the Code of Civil Procedure

The Tribunal agreed that a question be referred but put the question in the following form :-

Whether there is any material in support of the Tribunal's finding that Habib-ur-Rahman was the assessee's agent empowered to accept service of notice within the meaning of Order V, Rule 12 of the Code of Civil Procedure, read with section 63 (1) of the Income-tax Act

A kind of proviso was added to this question. The proviso runs :-

"This question, however, is subject to the common ground that an authority to accept service within the meaning of rule 12 of Order V, need not be in writing."

2. When the case came to-the High Court, it was heard by this bench and we came to the conclusion that service on Habib ur-Rahman would not be valid under Order V, rule 12, but we were also of the opinion that there had been in fact effective service on the assessee. It may be stated here that Habib-ur- Rahman had, after receiving the notice in question, handed over the notice to Manzur Ahmad who was admittedly the Manager of the firm and the Manager had sent the notice to one of the partners of the firm at Karachi and he had been directed to consult a lawyer. In response to the notice under section 22 (4) the application for adjournment, already referred to, had been put in. We were of the opinion that the irregularity in the service of notice had been waived and the applicant was estopped from questioning the validity of service. The question, as framed, referred only to the validity of service under Order V, rule 12, Civil Procedure Code. As the true object of the question was only a determination of the validity of service after reframing the question in a suitable manner we answered it in the affirmative against the assessee.

3. There was an appeal against our decision to the Supreme Court, and the Supreme Court held that our jurisdiction extended only to answering the question actually referred. Our order was set aside and the case remanded to us for a fresh decision.

4. The question, as framed, appears to us to mean only this : "was there material on the file from which legally an inference of fact was possible that the firm had given authority to Habib-ur-Rahman to accept service of notice." With respect to this point we had stated our opinion in the order that we passed and after hearing learned counsel for the income-tax Commis sioner, we have seen no reason to change our opinion. The main basis of the inference by the Tribunal, that authority to accept notices had been given to Habib-ur-Rahman, was the previous acceptance of notices by him and we found that this fact was capable of an explanation other than actual giving of authority. We have now, in view of the remand, fully examined the material again. In accordance with the order of the Income-tax Appellate Tribunal, there were three instances of acceptance of notice on behalf of the firm by Habib-ur-Rahman. The first instance was the receipt of a letter issued by the Income- tax officer on the 28th October 1948. The second was a notice under section 23 (2) in connection with the assessment year 1949-50 on the 23rd of August 1950 by which the assessee was called upon to appear on the 29th of August 1950 and the assessee's representative did appear in response to such notice. The third was a no demand notice served on Habib-ur-Rahman on the 5th of September 1950. The additional facts referred to by the Income-tax Appellate Tribunal are that notice was served on Habib-ur-Rabman who is an employee of the firm during office hours on the business premises of the assessee. It will be proper to reproduce here the same paragraph which has been reproduced by the Income-tax Appellate Tribunal itself while referring the question to the High Court as the basis of their decision. It runs :-

"Having regard to the facts that the partners do not ordinarily reside in Lahore, that the business in Lahore is being looked after by their employees, that Habib-ur-Rahman is an employee of the firm, that the notice was served during office hours on the business premises of the assessee, that on various occasions in the past Habib-ur-Rahman has been receiving notices on behalf of the firm and the assessee has been acting in response to such notices, lead to the irresistible conclusion that Habib ur-Rahman was in fact empowered to accept such notices on behalf of the firm. His authority to receive such a notice has never been repudiated in the past and even on the present occasion the assessee took steps following the service of notice under section 22 (2) on Habib-ur-Rahman. Manzur Ahmad admits that the notice was made over to him and that he communicated this to Muhammad Idrees Barry from whom necessary instructions were later received. The assessee's plea that in point of fact Habib-ur-Rahman had no power to receive notices is an after-thought and has been set up as a pretence for not filing the return. As will appear from the statement of Manzur Ahmad, the reason why a return could not be filed was that the accounts were not ready at the material time and, indeed, in response to a notice under section 22 (4) an appli cation for time to produce the accounts was made."

The fact that one letter and two notices, one being merely a no demand notice and the other a notice under section 23 (2) were received by Habib-ur-Rahman cannot be the basis of a conclusion that Habib-ur-Rahman had been given authority by the partners to accept notices on their behalf. Appearance in response to a notice accepted by Habib. ur-Rahman was only once. We can add to the above instances the present case also because here too there was no repudiation of the acceptance of notice by Habib ur-Rahman. But the fact that an employer appears before the officer who serves a notice on receiving information from his employee may be due to reasons other than the employee being an agent appointed for receipt of notices. The employer may not want to take a chance, (and in fact generally employers do not take a chance), of first having an order passed against him ex pare and then appealing against the order on the ground that it was passed on an invalid notice. The ordinary reaction of an employer would be to go and appear even though the employee is not authorized to receive notices. If a fact be such that it is reason ably capable of an explanation other than the inference which is relied upon, then it cannot legally form sufficient basis for the inference. It has to be kept in mind that the finding as to authority having been given to receive notices implies that the principal did say "I grant authority to receive notices." This will be something not very usual in which the principal is not very much interested, for it will only go against his interests and will not in any way advance theirs. He will, if he gives such authority, be bound by service in his absence though he is other wise entitled to personal service. The fact that the present notice was served on the premises of the firm and during office hours does not appear to us to make any difference.

S. It has been argued by learned counsel for the respondent that the Tribunal, when they found service sufficient, were not relying simply on an inference .of actual authority given by the firm to Habib-ur-Rahman but had also in mind Order III, rule 2 (b), Civil Procedure Code, in accordance with which persons carrying on business on behalf of others are recognized agents of such other and, therefore, service of notice on them is sufficient. Before proceeding further, it will be convenient to reproduce here Order III, rules 2 and 3, Civil Procedure Code : -

"2. The recognized agents of parties by whom such appearances, applications and acts may be made or done are :-

(a) persons holding powers-of-attorney, authorising them to make and do such appearances, applications and acts on behalf of such parties ;

(b) persons carrying on trade or business for and in the names of parties not resident within the local limits of the jurisdiction of the Court within which limits the appearance, application or act is made or done, in matters connected with such trade or business only, where no other agent is expressly authorised to make and do such appearances, applications and acts."

"3. (1) Processes served on the recognized agent of a party shall be as effectual as if the same had been served on the party in person, unless the Court otherwise directs.

(2) The provisions for the service of process on a party to a suit shall apply to the service of process on his recognized agent."

It must be stated in the first place that what learned counsel contends does not appear to be the basis of the finding of the income-tax Appellate Tribunal or included in the question referred to us, It will be observed that while Order V, rule 12, C. P. C., speaks of an agent being authorized to accept notices, Order 111, rule 2 does not speak of an actual authority but of the legal effect of a person carrying on business on behalf of and in the name of another. The question, as framed, refers to an actual authority and the same is the finding of the Tribunal. They say "Habib-ur-Rahman was in fact empowered to accept such notices on behalf of the firm." This is not the language which we expect from them if what they mean to say was that as Habib-ur- Rahman was a person carrying on business in the name of and on behalf of the partner of the firm and therefore, although not in fact authorised, he had in law authority to accept notices on behalf of the firm. The proviso, which has been added to the question refer red, also points to the same conclusion. It says that according to both parties authority need not be in writing which means that the question envisages an actual authority though the authority need not be in writing but only oral. In fact, even learned counsel for the respondent took up this plea only on account of a doubt expressed by us during arguments. When we heard the case last time and answered the question in favour of the Income-tax Commissioner, this point had not been argued before us. But even if we were to assume that the Income-tax Appellate Tribunal in fact intended to find that Habib-ur-Rahman was "a person carrying on business for and in the name of" the assessee, we would have no difficulty in finding that there was no material on the record on which such a finding could be based. Habib-ur Rahman is just one of the employees of the firm. He is a salesman, or rather a supervisor salesman, to he is over the heads of other salesman, but every employee in the firm is not carrying on business on behalf of the firm. These words refer to the person who has control and management of the firm and entitled to act on behalf of the firm. A person cannot be said to be carrying on business on behalf of another unless he is able to act on behalf of that other. If the business includes "purchase and sale" he should be empowered to purchase and sell. He should at the same time be the person whose orders are to be carried out in respect of business although such orders may be subject to the control of the owner himself. It will be observed that a person who falls under clause (b) of rule 2 of Order III would himself be entitled to file a suit or to defend that suit without any power-of-attorney. He would even be entitled to receive payments, to give discharges and to incur debts for the purpose of the business. Now, it can hardly be contended that Habib-ur-Rahman could have filed a suit without any authority from the firm in respect of any business of the firm. It has to be accepted that he was just taking orders from Manzur Ahmad who is the Manager of the firm. Although he is a salesman, he cannot himself reduce any price unless it be done with the orders of Manzur Ahmad.

6. Whatever the way in which we look at the question, it has to be answered in favour of the assessee and against the Income -tax Commissioner. There is one thing, however, a defect in the framing of the question which we should point out before we end. To the question has been appended a proviso as to its being common ground that the authority need not be in writing. As has been already held by us in our previous order, Order V, rule 12, C. P. C., contemplates only an authority is writing and an oral authority is not within it. We need not discuss this question as it has already been discussed in our previous order. What then are we to do if to the question referred to us has been appended a proviso which proceeds on incorrect assumption of law The question referred to us does require a decision as to whether authority had been granted in accordance with Order V, rule 12, C. P. C. If our opinion be that authority can only be in writing, then supposing we were to reach a conclusion that authority was oral, we could not answer the question in the affirmative. But the Income-tax Appellate Tribunal has already decided the question of law partly for us by saying that even an oral authority is within rule 12 of Order V. While the Income- tax Appellate Tribunal can refer to us any question of law, we are not sure that it can refer to us a question of law excluding from the question of law a part of it on a view which we regard as incorrect. However, in view of the fact that we have answered even the first part of the question against the Income-tax Commissioner, it is not necessary to consider what will be the effect of referring to the High Court a question which is burdened with an improper assumption of law.

7. We answer the question referred in the negative. There shall be no order as to costs.

Question answered in negative.

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