Rai Bahadur Seth Teomal vs Commissioner of Income Tax

Ray, J.—The question referred to us is as follows : "Had the income tax Officer (Non-companies income tax- cum -Excess Profits Tax, District Calcutta) jurisdiction to make an assessment of the assessee in respect of the years in question ?"

The assessee was at the relevant time a resident of Rangpur. The assessee was a partner in four firms. These four firms had different sets of partners and there were separate deeds of partnership. The assessee was assessed at Rangpur up to the assessment year 1942-43. The present reference relates to the assessment years 1944-45, 1945-46, 1946-47 corresponding to the accounting years, 1943-44, 1944-45 and 1945-46.

Since the income tax Officer, Rangpur, had no jurisdiction for the assessment under the Excess Profits Tax Act, the records were forwarded to the income tax Officer, Central, Calcutta, on January 4, 1947. On March 9, 1948, the assessee''s pleader was served with notices u/s 23(2) of the Indian income tax Act by the income tax Officer for the production of accounts and other relevant evidence by March 20, 1948, for the assessment year 1944-45. The assessment was made u/s 23(4) on March 24, 1948, for the year 1944-45. In respect of the other two years 1945-46 and 1946-47 the assessments were completed u/s 23(4) for default u/s 22(2). The income tax Officer rejected the assessee''s applications u/s 27 of the income tax Act.

The assessee preferred appeals to the Appellate Assistant Commissioner against the assessment and also filed appeals against the order u/s 27 for reopening the assessments. The Appellate Assistant Commissioner gave relief in the quantum but dismissed the appeals that were filed against the order u/s 27. In the appeals the assessee raised contentions in regard to the jurisdiction of the income tax Officer. The assessee lost in its contention and, thereafter, went up to the Appellate Tribunal. The Tribunal dismissed the appeals relating to the orders passed u/s 27 and remanded the appeals relating to the quantum of income. On remand the Appellate Assistant Commissioner directed the income tax Officer to examine the assessee''s books in the light of the observations made by the Tribunal. The Appellate Assistant Commissioner after hearing the assessee confirmed the assessment on the basis of the report of the income tax Officer. The assessee challenged the jurisdiction of the income tax Officer on the ground that the assessee was not aware of the transfer of his file from Rangpur to Calcutta. The Appellate Assistant Commissioner rejected the contention of the assessee.. The assessee, thereafter, went up to the Appellate Tribunal. The Tribunal held that the assessee''s objection to the jurisdiction of the income tax Officer related to the place of assessment and, therefore, did not entertain the objection to jurisdiction.

It should be stated here that before the Tribunal the assessee contended that as to the assessment year 1943-44 the assessee had taken similar objection to the jurisdiction of the income tax Officer but the Tribunal held that it was an objection which related to the place of assessment. After the Appellate Tribunal passed the order on August 4, 1955, the assessee preferred an application u/s 35 where the assessee contended that the objection did not relate to the place of assessment but to the taxable territories. The Tribunal passed an order on January 9, 1956, on the application u/s 35 and held that, in the absence of facts required to decide whether the assessee was a resident in the taxable territories or not, the Tribunal could not determine the assessee''s contentions.

Counsel for the assessee contended that on August 15, 1947, as a result of the Indian Independence Act, British India ceased to exist and from the appointed day, August 15, 1947, the income tax Officers of the Dominion of India as also the Indian income tax Act had jurisdiction only in respect of the area of the Dominion of India. It was, therefore, contended that the income tax Officer within the Dominion of India could deal with either the person of the resident or property of the resident or of a non-resident within the Dominion of India. It was also contended that if a non-resident, that is a person who became a non-resident from August 15, 1947, had no income within the taxable territories he would not be within the jurisdiction of the income tax Officer or authorities. Counsel for the assessee thus contended that before the income tax Officer in India could continue proceedings he would have to be satisfied either that the assessee was a resident in India or that his income was in India.

Counsel for the assessee referred to the Indian Independence (income tax Proceedings) Order, 1947. In the income tax Proceedings Order it is stated u/s 3 that where before the appointed day the jurisdiction of a tax officer under the relevant tax Act (meaning thereby the Indian income tax Act or the Excess Profits Tax Act) has been altered in connection with the setting up of the Dominions of India and Pakistan, or where after the appointed day the case of an assessee is transferred from one Dominion to the other by agreement between the Central Boards of Revenue of the two Dominions, and by reason of such alteration of jurisdiction or transfer the case of an assessee falls to be dealt with on or after the appointed day by the tax authorities of India or as the case may be of Pakistan, all proceedings relating to the case pending before any tax authority of Pakistan, or as the case may be of India, shall be transferred to the corresponding tax authority of India, or as the case may be of Pakistan, and shall be disposed of by the last mentioned tax authority in accordance with law.

The statutory provisions on which counsel for the assessee relied show first that after August 15, 1947, if the case of an assessee is transferred from one Dominion to the other by agreement between the Boards of Revenue of the two Dominions the case shall be disposed of by the tax authority of the Dominion to which the case is transferred. In the present case it is admitted that the case of the assessee was not transferred by any such agreement. Secondly, the income tax Proceedings Order contemplates in section 3 that if before the appointed day the jurisdiction of a tax officer under the relevant tax Act has been altered in connection with the setting up of the dominions of India and Pakistan and by reason of such alteration of jurisdiction the case falls to be dealt with on or after the appointed day by the tax authorities of India or of Pakistan as the case may be, all proceedings relating to the case pending before the tax authority of India or Pakistan, as the case may be, shall be transferred to the corresponding tax authority of India or Pakistan. In the present case, counsel for the assessee did not contend that there was any alteration of jurisdiction of a tax officer before the appointed day, nor was he able to show that the case of the assessee was governed by the first limb of section 3 of the Indian Independence (income tax Proceedings) Order.

In the present case the assessments related to the period before the appointed day. The income is derived from territories which were within British India as it stood prior to the appointed day. The jurisdiction of the revenue authority was there admittedly up to August 15, 1947. The question is whether by reason of the partition of India the jurisdiction of the revenue authorities of the Dominion of India ceased in respect of an assessee who was resident at the relevant time of the accounting period in British India as it then was and also derived income from British India as it then was. Counsel for the assessee contended that after August 15, 1947, the assessee became the resident of Lalmonirhat which on and from the appointed day became part of the Dominion of Pakistan and therefore the taxing authorities of the Dominion of India ceased to have any jurisdiction on such non-resident person. In my view counsel for the revenue authorities was right in his contention that it was a question of fact as to whether the assessee was a non-resident after August 15, 1947, and the order of the Appellate Tribunal on the application u/s 35 made by the assessee states that the assessee placed no facts before the Tribunal from which the Tribunal could hold that the assessee was not a non-resident and, therefore, the finding of the Tribunal is that it has not been proved that the assessee was a non-resident. Furthermore, the mere fact of non-residence or withdrawal of residence after the accounting period would not in my view take away the jurisdiction of the revenue authorities to assess a person in respect of an assessee''s income during the accounting period when he was within the jurisdiction of the taxing authorities. Suppose a person''s residence is in India during the accounting period and after the accounting period expires, he goes outside India and contends that because he is residing outside India at that time he is not assessable. In my opinion, the answer to the contention is in the negative for the obvious reason that his assessability during the accounting period had been already attracted by his residence and his income during the period of residence within the territories of the jurisdiction of the taxing officer. In the case of Whitney v. Inland Revenue Commissioners [1926] AC 37 (HL), Lord Dunedin said at page 52 of the report that there are three stages in the imposition of a tax. There is first "the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesis, has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay."

Counsel for the revenue authorities contended that the assessments were made on March 24, 1948, and March 15, 1948, and the assessee filed a return on October 27, 1944, in respect of the assessment year 1944-45 and described himself as resident and ordinarily resident. In respect of the assessment years 1945-46 and 1946-47 no return was filed and the assessment was made u/s 23(4) of the income tax Act. The Appellate Assistant Commissioner found, as appears at page 35 of the paper-book, that the assessee''s advocate submitted that the assessee''s income was derived from certain bills submitted to the railway authorities and payments were made by cheque at 3, Kailaghata Street, Calcutta. The Appellate Tribunal in the order appearing at page 78 following of the paper-book found that these receipts from the railway were in the name of the karta of a Hindu undivided family and dealt with the contention of the assessee that there should be allocation of profits on the basis of partnership between the assessee and the other persons. The Tribunal held that the income belonged to the Hindu undivided family and not to the firm as alleged by the assessee. Counsel for the revenue authorities was therefore right in his contention that the finding of the Tribunal was, firstly, that the income belonged to the Hindu undivided family and not to the alleged firms, secondly, that the income was derived within British India as it then was and, thirdly, that some of the places of business of the assessee were Jalpaiguri and Siliguri which since the appointed date were within the Dominion of India. Counsel for the revenue authorities referred to the agreement for avoidance of double taxation of India and Pakistan which came into effect in the year 1947 in exercise of the powers conferred by section 49AA of the Indian income tax Act, section 11A of the Excess Profits Tax Act, 1940, and section 18A of the Business Profits Tax Act, 1947. The taxes which are the subject of that agreement are the taxes imposed in the Dominions of India and Pakistan by the Indian income tax Act, the Excess Profits Tax Act and the Business Profits Tax Act as adopted in the respective Dominions. Under article 2 of that agreement it is contemplated that the agreement shall continue in force so long as the basis of residence and the scope of the charging provisions remain unaltered in both the Dominions and was applied to the assessments under the said Act in both the Dominions in the assessments made on or after 15th August, 1947, for the assessment year 1947-48 and all other assessments on or after April 1, 1948, excepting Excess Profits Tax Act assessments for chargeable accounting periods for which provisional assessments have been made before April 1, 1948. The agreement, therefore, applies to assessments for 1947-48 and subsequent years made after August 15, 1947, and assessments for 1946-47 and earlier years made after March 31, 1948. The basis of the agreement is not relief against double taxation but avoidance of double taxation. Taking into consideration these facts and circumstances I am of opinion that the records and materials in the present case establish, firstly, that the assessee was admittedly a resident in India during the accounting years, secondly, that it has not been established that the assessee was not a non-resident subsequent to the accounting periods, thirdly, that the income was derived from India as the expression meant at the relevant time of assessment and, finally, that the taxing authorities had jurisdiction to deal with the assessee because his liability to be taxed had accrued prior to August 15, 1947. The agreement between the two Dominions also preserves the jurisdiction of the respective Dominions to assess in accordance with the provisions thereof. The question is, therefore, answered in the affirmative. The assessee is to pay the costs. Certificate for two counsel.

G.K. Mitter, J.

I agree.