A.P. Sivaraman and Others vs Income Tax Officer and Others

T.L. Viswanatha Iyer, J.—Petitioners Nos. 1 to 3 and 5 and one Kunhiraman, the husband of the fourth petitioner, to whom I shall hereinafter refer as the petitioners, were employees of a firm, New Anandsagar Colour Merchants, Kannoor. According to the petitioners, they were receiving salary from the firm as per the agreement entered into with the latter as a percentage of the net profit of the firm. It is said that the agreement, however, provided that the amount credited to the petitioners will be paid and allowed to be withdrawn only if the Income Tax Department allowed the same as an admissible deduction in the assessment of the firm.

The petitioners filed returns for the years 1980-81 to 1983-84 returning the various amounts received by them as salary from the firm. These returns were accepted in toto as they were and the assessments completed on the petitioners for these years, copies of which are exhibits P-1 to P-14.

When the firm''s assessments were taken up for these years, the Income Tax Officer disallowed a part of the salary paid to the petitioners as excessive and unreasonable. The firm went up in appeal and the appeal was allowed in part reducing the disallowance to a certain extent The firm accepted the assessments and paid the tax due from them.

The petitioners applied for rectification of their assessments by filing applications, exhibits P-15 to P-27, to make them in accord with the firm''s assessments. Some of these applications were delayed being filed out of the period prescribed by Section 154 of the Income Tax Act, 1961, and, therefore, the petitioners filed applications, exhibits P-28 to P-32, before the Central Board of Direct Taxes (fourth respondent) u/s 119(2) of the Act to condone the delay in filing the applications and to issue directions to the first respondent assessing authority to dispose of the petitioner''s applications, exhibits P-15 to P-27, on the merits. The controversy arises hereafter.

The fourth respondent informed the petitioners by exhibit P-33 letter dated May 31, 1988, that they may contact the Chief Commissioner of Income Tax at Bangalore, namely, the second respondent, in regard to their applications. According to the petitioners, this amounted to a transfer of their applications for condonation of delay to the Chief Commissioner at Bangalore, to whom the power to condone the delay u/s 119(2) of the Act had been delegated, the petitioners accordingly wrote a letter, exhibit P-34, requesting the second respondent, Chief Commissioner at Bangalore, to afford them an opportunity of being heard before orders were passed on exhibits P-27 to P-32. The petitioners thereafter received letters of which exhibit P-35 dated February 28, 1989, is a specimen, written in pursuance of exhibit P-33, that the fourth respondent did not find its way to condoning the delay in filing the applications for rectification u/s 119(2). The petitioners retorted by exhibit P-36 dated March 28, 1989, telling the fourth respondent-Board that they had become functus officio in the matter after the files were transferred to the second respondent. In the meanwhile, the jurisdiction of the second respondent over Kerala ceased and the new Chief Commissionerate was established at Ernakulam so that the petitioners wrote exhibit P-37 on December 2, 1989, to the Chief Commissioner at Ernakulam (third respondent) to take up their applications early. They got a reply from the third respondent, namely, exhibit P-38, stating that the fourth respondent-Board had already dismissed their applications by exhibit P-35 and, therefore, there was no scope for any further consideration of the matter. The petitioners challenge exhibits P-35 and P-38 in this original petition.

The petitioners'' contentions are that the fourth respondent-Board had become functus officio by transferring the files to the second respondent-Chief Commissioner at Bangalore, as evident from exhibit P-33 and, therefore, exhibit P-35 order was null and void. Secondly, they also contended that exhibit P-35 had been passed without affording them an opportunity of being heard and for that reason also the said order is null and void.

The respondents, on the other hand, point out in their counter-affidavit the circumstances in which the various orders were passed. It is stated that the assessments had been made only as per the returns and that the petitioners'' case for rectification arose only when the Income Tax Officer disallowed part of the salary paid to the petitioners in the firm''s assessments. It is said that enquiries revealed that the petitioners were closely related to the partners of the firm. The petitioners challenged the orders of assessment in revision before the Commissioner of Income Tax, who dismissed the revision petitions by order, exhibit P-39, dated November 27, 1986. It is pointed out that the petitioners have no cause thereafter to apply for rectification before the Income Tax Officer.

Having heard counsel on both sides, I do not find any reason to interfere with the order, exhibit P-35. As pointed out in the counter-affidavit, this is a case where the returns filed by the petitioners were all accepted and the assessments completed only on that basis. It is true that in the firm''s assessment part of the salary paid to the petitioners was disallowed as excessive and unreasonable. But the petitioners challenged their assessments on the very same ground as in the rectification applications before the Commissioner of Income Tax and lost by the order, exhibit P-39, dated November 27, 1986. They did not challenge exhibit P-39. They accepted it. There is, therefore, no cause for rectification as alleged by the petitioners. Apart from that the petitioners'' applications, exhibits P-15 to P-27, were filed mostly out of time. The question whether there was sufficient cause for condonation of delay or not is a matter within the discretion of the Board. The Board considered the matter and found that there was no ground for condonation of the delay. It is not true to say that the Board became functus officio and that it had no jurisdiction to deal with the applications. There is no evidence to show that the files had been transferred to the Chief Commissioner of Income Tax at Bangalore or that the Board thereby divested itself of its jurisdiction. On the other hand, it is clear that all that the petitioners were asked to do by exhibit P-33 was to gather information regarding their applications from the said Chief Commissioner and not that the files had been transferred to him. The question of functus officio does not, therefore, arise. No question of any oral hearing also arises. Nor can it be said that the order, exhibit P-35, is invalid because of the failure to afford an oral hearing. It must be noted that Section 119 of the Income Tax Act does not provide for any oral hearing of such applications. What it empowers the Board is to issue directions in appropriate cases. That does not postulate any hearing. Nor do the facts of this case justify the submission that applications of this nature have to be orally heard before orders are passed. The petitioners'' complaint of absence of oral hearing does not, therefore, appeal to me. I am of the opinion that there is no violation of the principles of natural justice in not affording an opportunity to the petitioners to be orally heard.

It is evident that the applications for rectification and the petitions for condonation of delay are engineered by the disallowance in the firm''s assessment of portions of the salary paid to the petitioners as excessive and unreasonable. Perhaps the attempt is to see if anything could be salvaged in the petitioners'' assessments though those assessments are based strictly and fully only on the returns filed by them without any change whatsoever therein. Those assessments also stand confirmed by the Commissioner of Income Tax in revision for valid reasons. The petitioners urged the very same reasons before the Commissioner and lost. They accepted the order, exhibit P-39.

I do not, therefore, find any substance in any of the grievances raised by the petitioners. The original petition is without merit. It is accordingly dismissed without, however, any order as to costs.