Laxmi Narain Anand Prakash vs Commissioner of Sales Tax, Lucknow

Prompted with equitable consideration, in proceedings arising out of escaped assessment, a Division Bench of this Court in Kalpanath Singh v. Commr. of Sales Tax (1978 UPTC 1) ruled, ''if an assessee acquires knowledge of the pendency of the proceedings and acting on such knowledge appears and acts in aid of the proceedings before the assessing authority, he cannot be allowed to challenge the proceedings on the ground that no notice was served or that it was not validly served on him under rule 77. As one of us felt difficulty in following it in the abovenoted reference where the question referred was as under this Full Bench was constituted:

"Whether under these circumstances the service of notice u/s 21 of the U. P. Sales Tax Act on a stranger would be deemed to have been properly and validly effected on the petitioner and the learned Sales Tax Officer would acquire jurisdiction to finalise the proceedings u/s 21 under the circumstances of the case?" The question hardly presents any difficulty but the circumstances found by revision authority were:

"It is not disputed that the notice u/s 21 of U. P. Sales Tax Act was served on Om Prakash and he had no concern with the assessee''s firm. The assessee however appeared on the date of hearing in the proceedings u/s 21 of the U. P. Sales Tax Act. Learned Appellate Authority, therefore, held that service of notice on Om Prakash therefore, became immaterial and the proceedings cannot be said to be invalid".

It is the correctness of this view, which finds complete support from Kalapanath Singh''s case, that seeks determination in this case. But before coming to it, it may be worthwhile to examine scope of Section 21 itself which reads as under:

"21. (1) If the assessing authority has reason to believe that the whole or any part of the turnover of a dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under assessed or has been assessed to tax at a rate lower than that at which it is assessable under this Act, or any deductions or exemptions have been wrongly allowed in respect thereof, the assessing authority may, after issuing notice to the dealer and making such inquiry as it may consider necessary assess or re-assess the dealer or tax according to law:

Provided that the tax shall be charged at the rate at which it would have been charged had the turnover not escaped assessment, or full assessment, as the case may be."

(2). No order of assessment under sub-section (1) or under any other provision of this Act shall be made for any assessment year after the expiry of four years from the end of such year:

Provided that where the notice under sub-section (1) has been served within such four years the assessment or reassessment to be made in pursuance of such notice may be made within one year of the date of the service of the notice even if the period of four years is thereby exceeded:

Provided further that nothing contained in this section limiting the time within which any assessment or reassessment may be made shall apply to an assessment or re-assessment made in consequence of, or to give effect to, any finding or direction contained in an order u/s 9, Section 10, Section 11 or Section 30 or any order passed by the Supreme Court under Article 32. Article 132, Article 133, Article 136 or Article 137 or by the High Court under Article 226 or Article 227 of the Constitution. The words, ''after issuing notice to the dealer'', are significant. It has come up for interpretation in numerous decisions. It might be useful to notice a few of them. In Commr. of Sales Tax U. P. v. Sewa Singh Mangal Singh, (1972) UPTC 537 at p. 538) it was held:

"If the department chooses to proceed u/s 21 it is necessary that section should be strictly complied with. The service of the notice u/s 21 is a condition precedent for assumption of jurisdiction under that Section."

Similarly in Kishan Chand v. Commr., Sales Tax, (1971 UPTC 13) it was held:

"A notice u/s 2l of U. P. Sales Tax Act like a notice u/s 147 of Indian Income Tax Act 1961 is a jurisdictional notice so that no notice for assessment or re-assessment in respect of any escapement of turnover can be issued or served on the assessee within the time prescribed in that behalf. Merely because the asses-see had knowledge of the proceedings u/s 21 cannot take the place of the service of a valid notice u/s 21."

In Lakshmi Narain v. Commr. of Sales Tax (1971 UPTC 217) it was held:

"Service of notice is condition precedent for taking proceedings u/s 21. These decisions throw ample light on the controversy that notice u/s 21 is jurisdictional and is a condition precedent before which the assessing authority gets no jurisdiction to proceed."

Similar expression was used in Section 34 of Income Tax Act of 1922 and has been used in Section 147 of 1961 Act, an act with which Sales Tax Act has been held to be in pari materia. (See Ghanshyam Das Vs. Regional Assistant Commissioner of Sales Tax, Nagpur, . While interpreting Section 34 it was held by Supreme Court, in Y. Narayana Chetty and Another Vs. The Income Tax Officer, Nellore and Others, .

"The notice prescribed by Section 34 of the Income Tax Act for the purpose of initiating re-assessment proceedings is not a mere procedural requirement. The service of a prescribed notice on the assessee is a condition precedent to the validity of any reassessment made u/s 34. If no notice is issued or if the notice issued is shown to be invalid then the proceedings taken by Income Tax Officer without a notice or in pursuance of an invalid notice could be illegal and void."

In view of these authorities it cannot be disputed that no proceedings could be initiated without issue and service of notice. Service of a notice for purpose of initiating proceedings u/s 21 is not a mere procedural requirement but is a condition precedent. If no notice is issued or the notice issued is shown to be invalid or no notice has been served on the dealer the proceedings and the consequential order u/s 2l will be illegal and void irrespective of the fact that the dealer gets knowledge of the proceedings u/s 21. The words ''after issuing'' also do not make any difference as it has been held to mean entire process of sending the notice and serving it. In Banarasi Devi Vs. Income Tax Officer, Calcutta, it was observed by Supreme Court.

"To summarise: The clear intention of the legislature is to save the validity of the notice as well as the assessment from an attack on the ground that the notice was given beyond the prescribed period. That intention would be effectuated if the wider meaning is given to the expression "issued". The dictionary meaning of the expression ''issued'' takes in the entire process of sending the notice as well as the service thereof. The said word used in Section 34 (1) of the Act itself was interpreted by Courts to mean ''served''. The limited meaning, namely, ''sent'' will exclude from the operation of the provision a class of cases and introduce anomalies. In the circumstances, by interpretation, we accept the wider meaning the word ''issued'' bears."

It cannot therefore, be said that mere issue of notice was sufficient. The jurisdiction to proceed u/s 21 could be exercised only if condition precedent was satisfied and notice for assessment or re-assessment u/s 21 was not only issued but validly served on the assessee. To this extent there appears to be no difficulty and even the Division Bench held that if a notice is not served properly then such service is invalid and contrary to law. It, however digressed from more or less settled view and attempted to carve out a new approach by invoking principle of estoppel in taxation proceedings. The question therefore, that boils down for consideration is whether by participation of assessee the invalidity of notice was cured and assessing authority was clothed with jurisdiction to proceed u/s 21.

Jurisdiction is understood as the authority or power of a court or tribunal to entertain and decide in any judicial or quasi-judicial proceeding. It may be territorial, pecuniary, personal, local etc. Whatever form it may assume but it is firmly established that where a Court or tribunal has no jurisdiction, no amount of consent, acquiescence or waiver can create it. It was held as far back as 1887 by Privy Council of Ledgard v. Bull, ILR (1886) All 191 (203),

"When the Judge has no inherent jurisdiction over the subject matter of issue the parties cannot by their mutual consent convert it into a proper judicial process although they may constitute the Judge their Arbiter and be bound by his decisions on the merits when these are submitted to him."

In Mahabir Singh Vs. Narain Tewari and Others a Full Bench of this Court held:

"By estoppel a jurisdiction cannot be conferred on a court where it has none."

Reliance was placed by learned Standing Counsel on Section 6 of the Act, which is analogous to Section 21 of CPC and debars an assessee from raising question of jurisdiction in appeal or revision. From this it was argued that once an assessee participates he cannot turn round and challenge the jurisdiction. This according to learned counsel was legislative recognition of principles of estoppel even in taxation proceedings. The argument is correct but partially. The bar created by Section 6 (f) is in respect of territorial and pecuniary jurisdiction only. The jurisdiction exercised under Sec, 21 without service of notice is neither territorial nor pecuniary. It is a jurisdiction which partains to subject-matter and if no proceedings could be taken without issue and service of notice then assessing authority could not assume jurisdiction only because assessee consented or participated in proceedings. In Commissioner of Income Tax, Kerala Vs. Thayaballi Mulla Jeevaji Kapasi (Decd.) (by his Legal representatives), it was held by Supreme Court "Service of notice u/s 34 within the period of limitation being a condition precedent to the exercise of jurisdiction if the Income Tax Officer was unable to prove that the notice was duly served upon assessee within the prescribed period any return filed by the assessee after the expiry of the period of eight years will not invest the Income- Officer with authority to reassess the income of the assessee pursuant to such return."

In Commr. of Sales Tax v. Mam Chand (1978 UPTC 399 : 42 STC 432) it was held:

"Service of notice u/s 21 of U. P. Sales Tax Act is a condition precedent to valid exercise of power under that provision and it goes to the very jurisdiction of the officer. The point which goes to the root of the matter or affects the very existence of jurisdiction of authority can be raised at any time be it in appeal of revision." In SEWLAL DAGA Vs. COMMISSIONER OF Income Tax, CALCUTTA., Sewa Lal Daga v. Commr. of Sales Tax, the Calcutta High Court while considering the question whether proceedings for assessment were valid due to participation of assessee although notice issued was invalid held:

"Notice which was issued and served in the instant case was obviously invalid and the proceedings before the Income Tax Officer were consequently illegal and void. The service of notice on the assessee was a condition precedent to the assumption of jurisdiction of the Income Tax Officer u/s 34 Consent cannot confer jurisdiction and the assessment proceedings were in-valid.

Similarly in BENARSI SILK PALACE Vs. COMMISSIONER OF Income Tax, U.P., , it was held :--

"Jurisdiction could be conferred only by statute and not by consent and acquiescence a: Since jurisdiction is conferred upon Income Tax Officer to proceed u/s 34 (1) only if he issues a notice an assessee cannot confer jurisdiction upon him by waiving the requirement of a notice because jurisdiction cannot be conferred by consent or acquiescence."

In Commissioner of Income Tax, Bombay City I Vs. Ramsukh Motilal, Bombay, , R.K. Das and Co. Vs. Commissioner of Income Tax, West Bengal, , Chidambaram Chettiar and Others Vs. Commissioner of Income Tax, Madras, and Commissioner of Income Tax Vs. Maharaja Pratap Singh Bahadur, the following principle has been reiterated;

"Issue of a notice is a condition precedent to the exercise of jurisdiction u/s 34 and there can be no waiver of it."

In Mangalore Ganesh Beedi Works Vs. Commissioner of Income Tax, in Mysore, Bangalore, , it has been held by this Court:

"Even though an assessee filed the return in pursuance of a notice yet he can challenge the validity."

In Bhagwan Devi Saraogi and Others Vs. Income Tax Officer, ''E'' Ward and Others, it has been held that:

"If the authority concerned does not acquire jurisdiction in the absence of a valid notice being served the entire proceedings will be without jurisdiction and void and even consent on the part of the assessee would confer no jurisdiction on the Income Tax Officer." These decisions under Income Tax Act and Sales Tax Act hardly leave any scope for argument that proceedings for escaped assessment being invalid for want of notice do not become valid by participation of assessee.

It has vehemently been argued by learned Standing Counsel that proceedings may not have been validated but assessee is debarred on principle of estoppel from raising such question. The argument is devoid of any substance. Estoppel is a principle of equity but it does not apply to taxation, proceedings. In Commissioner of Income Tax, Madras Vs. V. Mr. P. Firm, Muar, it was held by Supreme Court:

"If a particular income is not taxable, it cannot be taxed on basis of estoppel or any other equitable doctrine. Equity is out of place in tax law, a particular income is either eligible to tax under the taxing statute or it is not. If it is not the Income Tax Officer has no power to impose tax on the said income."

In COMMISSIONER OF Income Tax Vs. ASIT KUMAR GHOSH., it was held:

"I do not, however, see how if the Act does not authorise the assessment of the assessee for the income which had neither been received by him nor received by the executors on his behalf, there could be an estoppel against the Statute. Estoppel is only a rule of evidence and not a cause of action. In any event, estoppel is not a basis of liability to assessment under the Indian Income Tax Act, and, therefore, the assessment of a person for an amount of income to which he is a stranger cannot be based on the ground that he himself wanted to be assessed on it."

If the law says that no jurisdiction can be assumed without issue of notice and serving it on the assessee it cannot be circumvented by invoking equitable principle of estoppel and participation of assessee. It is not an error in exercise of jurisdiction but an error which debars assessing authority from proceeding in the matter. In Commr. of Sales Tax v. Haji Allah (Reference No. 538 of 1966 decided on 2-1-1969) it was held by this Court:

"There is no waiver of estoppel of notice u/s 21."

In Sikri Brothers & Co. v. Commr. of Sales Tax (S. T. Case No. 35 of 1977 decided on 2nd May, 1979 Lucknow Bench) it was held:

"Invalidity of notice goes to the very root of matter and when once it is found that the notice instead of being addressed to the dealer who was to be made liable for the escaped turnover was addressed to an entity which did not exist the whole proceedings stand vitiated in law. The defect in notice was fatal to assumption of jurisdiction by a Sales Tax Officer."

In view of the settled principle which is culled out from these various decisions given under Income Tax Act and Sales Tax Act the principle enunciated in Kalapa Nath''s case cannot be held to be good law.

In the result this revision succeeds and is allowed. The question of law raised by the assessee is decided by saying that notice u/s 21 having been improperly served the initiation of proceedings was without jurisdiction and it could not be validated by participation of the assessee in the proceedings. The assessee shall be entitled to its costs which are assessed at Rs. 300/-. The fee of Standing Counsel is specially fixed in this case at Rs. 300/-.