Debidutta Agarwalla vs Commissioner of Income Tax, Assam, Tripura and Manipur, Shillong and others

G. Mehrotra, C.J.—The petitioner Debidutta Agarwalla has by means of this petition under Art 226 of the Constitution challenged the validity of the order passed by the Commissioner of income tax, Assam, Shillong, dated the 9th August, 1961.

The facts relevant for disposal of the petition are that the firm of M/s. Gangbisan Motilal of Hojai was dissolved on 2442-1956. For the assessment years 1953-54 and 1954-55 the income tax Officer allowed certain refund to the firm of M/s Gangbisan Motilal of Hojal. After the refund was allowed, the amount was withdrawn by three of the partners of the firm, it should be, pointed out that after the dissolution of the old firm, which had four partners, a new firm was constituted with three of the old partners. Debidutta Agarwalla was not a partner in the new firm. The amount was refunded to the three partners of the new firm. Debidutta Agarwalla then applied to the income tax Officer for the correction of the order of refund on the ground that under the agreement between the partners of the dissolved firm, he was entitled to his share in the refunded amount, but the amount was by mistake paid to the three partners of the old dissolved firm.

The income tax Officer, after issuing notices to the partners of the new firm, held that the refund was made available to the firm as a result of effect given to the order of the Appellate Assistant Commissioner, but through oversight allocation of the refund due was not made according to the shares of the partners and the entire sum was paid to the partners of the new firm. He then proceeded to allocate the refund amount to each of the partners of the old firm and held that Debidutta Agarwalla was entitled to a certain share in the total amount ordered to be refunded. He further directed the new firm to refund the said amount and held Debidutta Agarwalla to be entitled to receive that amount. Thereafter, the Department informed Debidutta Agarwalla that as against his income tax dues for the year 1949-50, this amount was adjusted. The new firm then made an application before the income tax Commissioner under Sec. 33-A for setting aside the order of the income tax Officer by which he corrected his previous order In the exercise of his powers under Sec. 35 of the income tax Act The income tax Commissioner held that as the firm was not a registered firm, no allocation could be made and thus the income tax Officer was not right in correcting his previous order and making allocation of the refund amount between the partners of the old firm. By this petition the order of the Commissioner has been challenged.

It is also urged that consequent upon the order of the Commissioner in revision, the income tax Officer informed the petitioner that the adjustment order previously passed was cancelled, and he was asked to pay the balance of the taxes due from him for the year 1949-50. In fact, notice has been issued to him to show cause why penalty should not be imposed for his failure to pay the taxes due for the year 1949-50. This order has also been challenged by the petitioner.

The validity of all these orders depends upon the validity of the order passed by the Commissioner. Preliminary objections have been raised both by Opposite Party No. 3 and the Department''s counsel. On behalf of Opposite Party No. 3 it is contended that as the order related to two assessment years, one petition could rot be filed. On behalf of the Department it is contended that as the order passed by the Commissioner in revision was an administrative order, this Court under Art 226 of the Constitution will not interfere with that order.

As we propose to deal the case on merits, it is not necessary to deal with preliminary objections raised) by Opposite Party No. 3. The validity of the order of the Commissioner has been challenged on two grounds. Firstly, it is contended that the Commissioner violated the principles of natural justice in passing the order behind the back of the petitioner and without giving him any notice. Secondly, it is contended that on merits also, the order of the Commissioner is wrong. In view of the fact that the firm was a dissolved firm, the date when the order of refund was passed, no order of refund could) be made in favour of a dissolved firm, and the income tax Officer was thus bound to allocate the share of the refund amount to the various partners of the dissolved firm. As the income tax Officer had not done so, he was entitled under Sec. 35 of the income tax Act to correct his previous order. The Commissioner was not justified in interfering with the order of the income tax Officer. We do not think that there is any substance in the first contention raised by the petitioner.

An order of an administrative officer need not necessarily be an administrative order. If the administrative officer has to act judicially, then the order will be amenable to a writ of certiorari of this Court, and if in passing such an order, the tribunal or the officer violates any principles of natural justice, the order is liable to be set aside. And, if the order is purely an administrative order, in the sense that the tribunal or the officer passing the order has not under the Act to act judicially, the order can be set aside by this Court if it is without jurisdiction, mala fide or arbitrary. But, merely because no hearing has been given to a party, the order will not be set aside on that ground. Under Sec. 33-A of the income tax Act the Commissioner exercises an administrative jurisdiction. Their Lordships of the Privy Council held in the case of AIR 1948 102 (Privy Council) , that the power of the Commissioner conferred under Sec. 33, as its language clearly indicates, is intended to provide administrative machinery by which a higher executive officer could correct the mistake committed by the subordinate officer. The matter was again considered by the Calcutta high Court In the case of Sitalpore Colliery Concern Ltd. Vs. Union of India (UOI) and Others, , and it was held that even under the first clause of Sec. 33-A , the Commissioner could act suo motu to correct the mistake committed by the income tax Officer and his order is an administrative order.

Apart from this, even on merits, we do not think that the Commissioner has committed any mistake. In the case of an unregistered firm under Sec. 23(5), the income tax Officer is not bound to allocate the share of tax to partners. Such an allocation is only optional and the same principle will apply to the case of a refund order in favour of an unregistered firm. The income tax Officer is not bound to allocate the amount which each partner is entitled to get, for which refund order is made, in the case of an unregistered firm. From the order of the income tax Officer under Sec. 35, it is clear that the order of refund was in favour of a dissolved firm as assessee, and thus it cannot be said that the failure of the income tax Officer to make allocation was erroneous and against any provisions of the income tax Act. There is nothing in the income tax Act to show that if the firm has been dissolved, the refund order cannot be made in favour of such a firm as an assessee. In the case of an unregistered firm the liability undoubtedly is joint and several of all the partners, but the refund order has to be made in favour of the assessee, that is the dissolved firm.

If under the terms of the agreement between the partners, the petitioner was entitled to get an amount which had been wrongly withdrawn by the three other partners, the remedy of the petitioner is to go to the Civil Court, but the income tax Officer was not justified to correct his previous order. It is also to be pointed out that even if the first order was wrong to the effect that it did not specify the shares of each partners, the income tax Officer had no jurisdiction to direct the new firm to refund the amount under Sec. 35 of the Indian income tax Act. Although we do not think, as we have already held, that the previous order was a valid order to decide this matter, still the income tax Officer had no jurisdiction to order the refund of the amount and direct that the amount be paid to the petitioner. Further, unless the amount was actually received by the Department, the question of adjustment will not arise.

There is, therefore, no force in this petition, and it is rejected with costs which we assess at Rs. 100/-. The Department will be entitled to half of the amount of cost and the other half will go to Opposite Party No. 3.