Industrial Rubber Products vs Commissioner of Income Tax and another

Bakthavatsalam, J.—The petitioner challenges the order of the second respondent passed in revision u/s 264 of the Income Tax Act, 1961,

(hereinafter referred to as ""the Act"").

The petitioner is an assessee before the second respondent. For the assessment year 1986-87, the return had to be filed on or before June 30,

1986. The petitioner requested for extension of time till September 30, 1986, and again till October 31, 1986, and filed a return claiming carry

forward of loss of Rs. 4,39,469 on October 31, 1986. According to the averments in the affidavit, this return has been filed within the extended

time asked for, i.e., October 31, 1986. However, the second respondent informed the petitioner that the return filed is a belated one and it is

lodged u/s 139(10) of the Act. The petitioner invited the attention of the second respondent to section 139(3) as it stood prior to its amendment by

the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, and Circular No. 469 dated September 23, 1986 of the Central Board

of Direct Taxes. No action has been taken by the second respondent and aggrieved by his order, the petitioner filed a revision before the first

respondent u/s 264 of the Act. The revision has been dismissed by the impugned order dated January 9, 1990, u/s 264 of the Act.

The petitioner alleges in the affidavit that he is entitled to the benefit of Circular No. 469 dated September 23, 1986, according to which, the

amended provisions relating to furnishing of returns showing loss came into force and would apply to the assessment year 1987-88 and subsequent

years. Therefore, the action of the second respondent in lodging the return of loss for the assessment year 1986-87, invoking section 139(10) of

the Act is contrary to law and to the instructions of the Central Board of Direct Taxes. It is further alleged that the return is a valid and proper one

u/s 139(3) as it stood prior to the amendment by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. As the petitioner has

filed the return on October 31, 1986, it is well within the extended date viz., October 31, 1986. The first respondent has relied on the Board''s

Instruction No. 1744, dated January 21, 1987 for not allowing the petitioner''s application. It is further alleged that the petitioner has not been put

on notice about the Board''s Instruction No. 1744, dated January 21, 1987, nor has an opportunity been given to the petitioner to put forward his

case and, therefore, the orders of the respondents passed without following Circular No. 469, dated September 23, 1986, are liable to be

quashed.

Notice of motion has been ordered by me on October 5, 1990. Mr. N. V. Balasubramaniam, learned counsel appeared for the respondents

and filed the counter.

In the counter-affidavit filed, it is stated that, after Circular No. 469, dated September 23, 1986, Board''s Instruction No. 1744, dated January

21, 1987, came to be passed as per which the amended provisions should apply to returns which have already been filed on or after April 1,

1986, and section 139(10) is deemed to have been inserted with effect from April 1, 1986. Accordingly, the returns filed on or after April 1,

1986, for the assessment year 1986-87 which are below the taxable limit are to be considered as invalid. It is also stated that the Assessing Officer

has not extended the time for filing the return and hence petitioner cannot presume that time has been extended. According to Explanation 1 to the

provisions of section 264, an order declining to interfere shall, for the purposes of this section, be deemed not to be an order prejudicial to the

assessee. It is further stated that as per Board''s Instruction No. 1744, dated January 21, 1987, the return of income filed by the petitioner for the

assessment year 1986-87 is an invalid one.

Learned counsel for the petitioner contends that the return has been filed within the extended time u/s 139(3) as it stood then, that is, before and

amendment made in 1986, and that the case of the petitioner would not fall u/s 139(10) and, therefore, the orders of the respondents are liable to

be quashed. She also contended that where the petitioner sought for extension of time and no reply has been given by the Assessing Officer, it has

to be presumed that time has been extended. She relied on the decisions in Shanlal Shantilal and Bros. Vs. Union of India, and Commissioner of

Income Tax Vs. Gordhanbhai Jethabhai, .

Per contra, Mr. N. V. Balasubramaniam, learned counsel for the respondents refers to section 139 as it stood in 1962 and then to the

amendment made by the Taxation Laws (Amendment) Act, 1970, by which sub-section (3) of section 139 has been amended. He points out that

only under this sub-section, the Income Tax Officer has been given power to allow such further time for filing return. Sub-section (10) of section

139 came into effect from April 1, 1986, and, according to learned counsel, this sub-section is enacted with a non-obstante clause. He referred to

the decisions in Keshavji Ravji and Co. v. CIT : [1990]183ITR1(SC) and A.L.A. Firm Vs. Commissioner of Income Tax, , for the proposition

that the circulars issued by the Board cannot override the provisions of the Act and submitted that the orders of the respondents are quite legal and

valid. He also pointed out that extension of time cannot be deemed to have been granted as contended by the petitioner and placed reliance on a

Division Bench decision of the Andhra Pradesh High Court in T. Venkata Krishnaiah and Co. Vs. Commissioner of Income Tax, .

After giving careful consideration to the arguments advanced by either side, and on the facts and circumstances of this case, I do not think it is

necessary for me to enter into a discussion on the merits of the case, or to consider the various decisions cited at the Bar for the simple reason that

the writ petition has to be allowed on the ground that the petitioner has not been given an opportunity to have his say before the passing of the

impugned order. Whether the petitioner has filed the return within the time, whether he has been granted extension of time, whether Circular No.

469, dated September 23, 1986 or the Board''s Instruction No. 1744, dated January 21, 1987, would apply, etc., are all matters which have got

to be considered by the first respondent in exercise of his revisional powers.

Section 264(1) provides revisional powers to the first respondent and it reads as follows :

In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the Commissioner may,

either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such

order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such

order thereon, not being an order prejudicial to the assessee, as he thinks fit.

Explanation 1 to section 264 reads as under :

An order by the Commissioner declining to interfere shall, for the purposes of this section, be deemed not to be an order prejudicial to the

assessee.

On going through section 264 of the Act, I am not able to find anywhere that the first respondent need not give an opportunity before passing

any order against the assessee on a revision filed by him.

In this context, it is worthwhile to refer to an analogous provision in the Tamil Nadu Agricultural Income Tax Act, 1955, viz., section 34, which

gives the power of revision to the Commissioner of Agricultural Income Tax. The first proviso to section 34 reads thus :

Provided that he shall not pass any order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being heard :

While construing this provision, this court, in N.K. Leela Thampatty Vs. Commissioner of Agricultural Income Tax, Madras, , has held that

such revisional power is a quasi-judicial proceeding and that a public duty is imposed on the revisional authority not only to entertain such

application but to deal with the same in accordance with law after giving the aggrieved party a reasonable opportunity of being heard, as the

discretion vested in him is a judicial discretion and has to be exercised judiciously.

The question is whether the same principle would apply when construing section 264 of the Income Tax Act. Learned counsel for the

respondents relies on a decision of the Division Bench of the Allahabad High Court in Babu Lal Kedia Vs. Income Tax Officer and Another, ,

Which construed section 33A(2) of the Indian Income Tax Act, 1922, and held that the Commissioner of Income Tax is not bound to give an oral

hearing to the petitioner, particularly when the Commissioner takes no material into consideration other than those furnished in the revision petition.

With great respect to the learned judges of the Allahabad High Court, I am not able to agree with the proposition laid down therein. On the facts

of the instant case, the Board''s Instruction No. 1744, dated January 21, 1987, is a new material which is not known to the petitioner.

In Km. Nelima Misra Vs. Dr. Harinder Kaur Paintal and others, , the Supreme Court held as follows (at p. 1408) :

We find it difficult to accept the reasoning underlying the aforesaid view. Before we consider the correctness of the proposition laid down by

the High Court, we must, at the expense of some space, analyse the distinction between quasi-judicial and administrative functions. An

administrative function is called quasi-judicial when there is an obligation to adopt the judicial approach and to comply with the basic requirements

of justice. Where there is no such obligation, the decision is called ''purely administrative'' and there no third category. This is what was meant by

Lord Reid in Ridge v. Baldwin [1963] 2 All ER 66:

''In cases of the kind with which I have been dealing the Board of Works.... was dealing with a single isolated case. It was not deciding, like a

judge in a law suit, what were the rights of the person before it. But it was deciding how he should be treated-something analogous to a judge''s

duty in imposing a penalty.... So it was easy to say that such a body is performing a quasi-judicial task in considering and deciding such a matter

and to require it to observe the essentials of all proceedings of a judicial character - the principles of natural justice. Sometimes the functions of a

minister or Department may also be of that character and then the rules of natural justice can apply in much the same way......''

Subba Rao J., as he then was, speaking for this court in Gullapalli Nageswara Rao and Others Vs. Andhra Pradesh State Road Transport

Corporation and Another, , put on it a different emphasis (at p. 353 of SCR) (at p. 326 of AIR) :

''The concept of a quasi-judicial act implies that the Act is not wholly judicial, it describes only a duty cast on the executive body or authority to

conform to norms of judicial procedure in performing some acts in exercise of its executive power.....''

Prof. Wade says,''A judicial decision is made according to law. An administrative decision is made according to administrative policy. A quasi-

judicial function is an administrative function which the law requires to be exercised in some respects as if it were judicial. A quas-judicial decision

is, therefore, an administrative decision which is subject to some measure of judicial procedure, such as the principles of natural justice.''

(Administrative Law by H. W. R. Wade, 6th Edn., pp. 46-47)

An administrative order which involves civil consequences must be made consistently with the rule expressed in the Latin maxim audi alteram

partem. It means that the decision maker should afford to any party to a dispute an opportunity to present his case. A large number of authorities

are on this point and we will not travel over the field of authorities. What is now not in dispute is that the person concerned must be informed of the

case against him and the evidence in support thereof and must be given a fair opportunity to meet the case before an adverse decision is taken.

Ridge v. Baldwin [1963] 2 All Er 66 (supra) : State of Orissa Vs. Dr. (Miss) Binapani Dei and Others, .

The shift now is to a broader notion of ''fairness'' or ''fair procedure'' in the administrative action. The administrative officers are concerned, the

duty is not so much to act judicially as to act fairly (See : The Keshav Mills Co. Ltd. and Another Vs. Union of India (UOI) and Others, );

Mohinder Singh Gill and Another Vs. The Chief Election Commissioner, New Delhi and Others, ; Swadeshi Cotton Mills Vs. Union of India

(UOI), and Management of Messrs. M S Nally Bharat Engineering Co. Ltd v. The State of Bihar (Civil Appeal No. 1102 of 1990 decided on

February 9, 1990). For this concept of fairness, adjudicative setting are not necessary, nor is it necessary to have list inter parties. There need not

be resolution of list inter parties. The duty to act judicially or to act fairly may arise in widely different circumstances. It may arise expressly or

impliedly depending upon the context and considerations. All these types of non-adjudicative administrative decision making are now covered

under the general rubric of fairness in the administration. But when even such an administrative decision unless it affects one''s personal rights or

one''s property rights, or the loss of or prejudicially affects something which would juridically be called at least a privilege, does not involve the duty

to act fairly consistent with the rules of natural justice. We cannot discover any principle contrary to this concept.

16.In the instant case, it is not disputed that the power exercised by the first respondent is quasi-judicial in nature. Applying the above principles

laid down by the Supreme Court, I am of the view that the impugned order has got to be set aside on the simple ground that the petitioner was not

given a personal hearing before his application was dismissed. Without entering into the merits of the case, the impugned order is set aside and the

matter is remitted to the first respondent for fresh disposal on merits and according to law, after giving an opportunity to the petitioner to have his

say. The writ petition is, accordingly, allowed. No costs.