Commissioner of Income Tax vs Smt. Kailasa Devi and Smt. Rukmini Bai

Ramachandra Rao, J.—In compliance with the directions of this court u/s 256(2) of the Income Tax Act of 1961, the Income Tax Appellate Tribunal referred the following question in R.C. No. 53/1973 for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the assessment made on Smt. Kailasa Devi, u/s 143(3) read with Section 147(a) of the Income Tax Act, 1961, for the assessment year 1959-60, is legal and valid ?"

In R.C. No. 54/1973, the question referred is :

"Whether, on the facts and in the circumstances of the case, the assessment made on Smt. Rukmini Bai, u/s 143(3) read with Section 147(a) of the Income Tax Act, 1961, for the assessment year 1959-60, was illegal by reason of the fact that the notice u/s 147 although issued prior to 31st March, 1964, was served after the 31st March, 1964?"

In R.C. No. 53/1973, the facts are as follows:

The notice u/s 148 of the Income Tax Act, 1961 (hereinafter called "the Act"), was put up to the Income Tax Officer on March 17, 1964, and it was signed by him on March 18, 1964. In the copy of the order sheet filed by the departmental representative, it is shown that the notice was given to be served on March 18, 1964 but the notice was not served on the assessee. The notice was actually served on the assessee on October 29, 1964. The Tribunal held that the notice issued u/s 148 of the Act did not conform to the requirements of Section 149 read with Section 151(2), that not only the notice should he issued within the period prescribed u/s 149, but it should be served within the period prescribed by the said section, that the proceedings u/s 147 would commence when notice was served on the assessee, that if the notice was merely prepared and signed by the Income Tax Officer and not served on the assessee, it would not amount to commencement of the proceeding, and, therefore, no valid proceedings were initiated by the Income Tax Officer u/s 147 of the Act.

In R.C. No. 54/1973, the notice u/s 148 of the Act was put up on March 21, 1963, but served on the assessee on October 29, 1964. The Tribunal held that the said notice was not valid in law as it did not conform to the requirements of Sections 149 and 151(2) of the Act, and, therefore, no valid proceedings were initiated under 147 147 of the Act.

In these references, Sri P. Rama Rao, learned counsel for the department, sought to challenge the view taken by the Tribunal, relying upon the decision of the Gujarat High Court in Madanlal Mathurdas v. Chunilal, Income Tax Officer In order to appreciate this contention, it is necessary to notice the provisions of Sections 147, 148, 149 and 151 of the Act. These provisions are similar to the provisions of Section 34 of the old Act, except that the provisions of Section 34 have been split up into various sections in the new Act. Section 149 replaces the proviso to Section 34 of the old Act. Construing the provisions of Section 34 of the old Act, it was consistently held that the words "issued" and "served" were interchangeable, that not only the notice should be issued within the period prescribed but it should be served within the same period for assuming jurisdiction u/s 34 for reopening the assessment or taking any other proceedings under the said section. u/s 148, before making the reassessment or recomputation u/s 147, the Income Tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139, The period of limitation is prescribed by Section 149 for issuing the notice u/s 148 of the Act. Reading Sections 148 and 149 together, it is clear, not only a notice u/s 148 should be issued within the period prescribed but it should also be served on the assessee within the same period.

The contention of Sri P. Rama Rao, learned counsel for the department is that once the Income Tax Officer comes to the conclusion that proceedings should be initiated u/s 147, and makes an order to that effect and signs it, it amounts to issuing of notice though it might not be served.

We find it difficult to accede to this submission. Such an interpretation would mean that the officer can merely sign the notice and serve it on the assessee at any time he likes, thus enlarging the period prescribed u/s 149 for an indefinite period. We do not think that it is reasonable to place such an interpretation on the expression "issue". We think the intention of Parliament appears to be that in making an assessment or reassessment or recomputation u/s 147, the same should be done within the period prescribed by Section 149 by issuing the notice u/s 148 as well as serving the same on the assessee within the said period.

In Banarasi Devi Vs. Income Tax Officer, Calcutta, their Lordships of the Supreme Court held as follows :

"The clear intention of the legislature in enacting Section 4 of the Indian Income Tax (Amendment) Act, 1959, is to save the validity of a notice issued u/s 34(1)(a) of the Indian Income Tax Act, 1922, as well as the assessment from an attack on the ground that the notice was given beyond the prescribed period. That intention is effectuated by giving to the expression ''issued'' the wider of its accepted meanings. The expression ''issued'' takes in the entire process of sending the notice as well as the service thereof. Therefore, a notice u/s 34(1)(a) issued within, but served beyond, the prescribed time is saved u/s 4 of the Indian Income Tax (Amendment) Act, 1959. The expression ''issued'' and ''served'' are used as interchangeable terms and in the legislative practice of our country they are sometimes used to convey the same idea."

Similarly, in Induprasad Devshanker Bhatt Vs. J.P. Jani and Another, the Gujarat High Court held that:

"The words ''issue'' and ''serve'' are used in Section 34(1), not as indicating two different stages but as interchangeable terms, the word '' issue'' being used in the same sense as '' serve''."

In another recent judgment of the Gujarat High Court in Shanabhai P. Patel Vs. R.K. Upadhyaya, Income Tax Officer, Ahmedabad, construing Sections 147, 148 and 149 of the Income Tax Act, 1961, after considering the old Act and the new Act, the court held that:

"The division of the provisions of Section 34 of the 1922 Act into Sections 147, 148 and 149 in the Act of 1961 does not in any way indicate that the legislature intended to depart from or materially alter the position as it emerged from the provisions of Section 34 of the old Act regarding notice of reassessment, and that the view taken by their Lordships of the Supreme Court in Banarsi Debi v. Income Tax Officer, and of the Gujarat High Court in Induprasad Devshankar Bhatt v. J.P. Jani, with regard to the meaning to be given to the words ''service of notice'' or ''issuance of notice'' in Section 34 of the old Act, should be given to the words ''issue of notice'' in Section 148 and '' service of notice'' in Section 149 of the new Act."

With great respect, we are in entire agreement with the aforesaid view of the learned judges. Sri Rama Rao relies upon the ruling of the Gujarat High Court in Madanlal Mathurdas v. Chunilal, Income Tax Officer.

But Bhagwati J. (as he then was) held in Induprasad Devshankar Bhatt v. J. P. Jani, Income Tax Officer that the view taken in Madanlal Mathurdas Vs. Chunilal, Income Tax Officer, Ward ''C'', was no longer good law, and that its authority must be deemed to have been impliedly overruled having regard to the subsequent decision of the Supreme Court in Banarsi Debi v. Income Tax Officer.

In the instant case, it is admitted that though notices were issued within four years, they were not served on the assessee within the same period, in which case the proceedings initiated by the Income Tax Officer, u/s 147 of the Act, would be without jurisdiction. In this view, the questions referred in these references are answered in favour of the assessee and against the department. The assessee is entitled to costs. Advocate''s fee Rs. 200 in each.