Smt. Mohammadi Begum vs Commissioner of Income Tax

P.A. Choudary, J.—The assessee is a partner of [the firm called Karkhana Zinda Tilismath. The assessee, Hafeezunnissa Begum, had her minor children--Hashimuddin and Asgharunnisa--admitted to the benefits of partnership. In the return filed for the assessment 1964-65, she did not include the chare income of the minors. The ITO completed the assessment u/s 143(1) of the income tax Act, 1961 (''the Act'') and included in her assessment the share income of the minors. He followed the same process for the assessment year 1965-66. But, in no case, he gave notice to the assessee. Hafeezunnissa Begum filed a revision before the Commissioner u/s 264 of the Act contending1 that the ITO should not have completed the assessment u/s 143(1) by including the share income of the minors, without giving any notice to her. The Commissioner agreeing with this contention passed orders u/s 264, setting aside both the assessments and directing the ITO to make fresh assessments in accordance with law. Pursuant to those directions, the ITO issued a notice u/s 143(2) and had completed the assessments on 8-2-1973. The assessments for the years 1964-65 and 1965-66 ought to have been completed by 31-3-1969 and 31-3-1970, respectively. The assesses had, therefore, objected before the ITO that he had no jurisdiction, to assess in the year 1973 because they were barred by time. The ITO did not agree with this contention and completed the reassessments including the share income of the minors u/s 143(2). The ITO did the same in the case of Mohammadi Begum, the second assessee in this case. Having been aggrieved by the orders of the assessments passed by the ITO, the assessees went up in appeals before the AAC and finally to the Tribunal. They, unsuccessfully contended before these authorities that the reassessments made by the ITO in the year 1973 were barred by limitation of four years prescribed by section 153(1) of the Act. This argument has been rejected by the Tribunal and, at the instance of the assessee, the following questions of law have been referred to this Court for its opinion:

Whether, on the facts and in the circumstances of the case, the assessments for the assessment years 1964-65 and 1965-66 are barred by limitation and are, therefore, invalid?

If the answer to question No. 1 is in the negative, whether on the facts and in the circumstances of the case, the ITO was correct in including in the total income of the assessee u/s 64(1)(ii) of the income tax Act, 1961 the share income arising to the assessee''s minor children by reason of their admission to the benefits of partnership?

The facts which have been stated above are just sufficient to answer the questions which have been referred for the opinion of this Court. This is a case where the assessee''s total income should include the income of the minors u/s 64(1)(ii) of the Act. There is no serious dispute about that. What the ITO has done is exactly what section 64 requires him to do. But in doing so, he committed a procedural error. He has failed to give notice to the assessee which is required to him u/s 143(2). It was for that reason that the assessees made complaints to the Commissioner u/s 264. The Commissioner, by his order dated 15-7 1971, had not only set aside the assessments complained against by Hafeezunnissa Begum but also directed the ITO to make fresh assessments as per the provisions of law. It is in pursuance of those directions, the ITO had made the assessments sometime in the year 1973 which is the subject matter of this case.

Shri Ratnakar Rao, the learned counsel for the assessee, argued that the assessments which have been made in the year 1973 were barred by limitation and are not saved by the provisions of section 153(3). It may be noticed that it is sub-sections (1) and (2) of section 153 which raise a bar of limitation against passing any order of assessment u/s 114 or 147 of the Act. Section 153(3) lifts this bar of limitation in certain circumstances. Sub-sections (1) and (2) of section 153 lay down that the provisions of sub-sections (1) and (2) shall not apply to the assessments, reassessment and recomputations which may be completed at any time: (i) where a fresh assessment is made u/s 146 of the Act; (iv) whore the assessment, reassessment, or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order u/s 264 or in an order of any Court in a proceeding otherwise than by way of appeal or reference under the Act.

A bare perusal of the language of sub-sections of section 153 would show that where the assessment was made in order to give effect to any finding or direction made u/s 264, such an order cannot be hit by the provisions of limitation contained in sub-sections (1) and (2) of section 153. It may be mentioned that in principle the law of limitation does not bind the Crown, unless it is imposed by a statute. Barring a statutory provision like sub-sections (1) and (2) of section 153, tax payable to the Crown can be quantified and recovered at any time. It is only a legislative enactment that can prevent the quantification of a tax amount and its collection. Now sub-sections (1) and (2) of section 153 do indicate such limits of time on the right of the State to make an assessment but they are made subject to and are overridden by sub-section (3) of that section. Sub-section (3) of that section clearly provides that an assessment or reassessment made beyond the period of limitation, in order to give effect to a finding or direction contained in an order made u/s 264, is not hit by the provisions of limitation contained in sub-sections (1) and (2) of section 153. However, Shri Ratnakar Rao, the learned counsel for the assessees, argued that sub-section (3) of section 153 will be available to the revenue only where a finding or direction made u/s 264 by the Commissioner can be carried out by the ITO without violating the bar of limitation. He has cited the judgment of Addl. Commissioner of Income Tax Vs. N.V. Ganapathi Rao (by LRs.), Commissioner of Income Tax Vs. Bhudhar Singh and Sons, , Narinder Singh Dhingra Vs. The Commissioner of Income Tax, and SMT. LUCY KOCHUVAREED Vs. COMMISSIONER OF AGRICULTURAL Income Tax, TRIVANDRUM., under the Kerala Agricultural income tax Act, 1950.

Before referring to those cases, we may see that this argument can not be accepted because the express language of sub-section (3) of section 153 attempts to take away the orders of assessment and reassessments made by reason of the findings and directions u/s 264 out of the clutches of the limitation prescribed by sub-sections (1) and (2) of section 153. In our view, the bare language of sub-section (3) of section 153 provides a complete and an effective answer to the contention of the learned counsel. But in view of the fact that the learned counsel has referred to the aforementioned judgments of the various High Courts, we may, as well, consider his submissions in the light of those judgments. Doing so, we find that both the cases-- N. V. Ganapathi Rao''s case (supra) and Bhudhar Singh & Sons'' case (supra)-- are cases which are concerned not with section 153 but with section 275 of the Act. Now, section 275 imposes total prohibition on levying penalty beyond the prescribed period of time mentioned therein. There is no language in section 275 similar to the language to be found in sub-section (3) of section 153, removing the bar of limitation in the way of the revenue imposing penalty. It is, therefore, wholly right to hold on the basis of the prohibition language of section 275 that no penalty under the Act can be imposed beyond the period of time prescribed u/s 275. For that reason, both the judgments in N.V. Ganapathi Rao''s case (supra) and Bhudhar Singh & Sons'' case (supra) should he held to be inapplicable to the construction of section 153. But so much is not seriously disputed even by the learned counsel for the assessees. But what Shri Ratnakara Rao prominently argued is that there were observations made by a Division Bench of this Court in N.V. Ganapathi Rao''s case (supra) to the effect that what construction would apply to section 275 would also apply to section 147. He relied upon the passage which reads as follows:

... The language of section 275 is clear and explicit. It is mandatory. Therefore, the question of pushing the language so as to result in irrational conclusions does not arise in this case. If we are to go by what the Bombay High Court had said, it will result in this: The period of limitation, as contended by the learned counsel for the revenue, will apply not only to the first order of the first authority but also to the second order of the first authority after remand. We are, therefore, unable to agree with the learned Judges of the Bombay High Court that the bar of limitation u/s 33B(2)(b) applies only to the orders passed by the Commissioner in revision suo motu and not to the orders which he may be required to pass in pursuance of the orders of any higher authority.

The decision of the Bombay High Court in Commissioner of Income Tax, Bombay North Vs. Kishoresinh Kalyansinh Solanki, was a case that relates not to imposition of penalty but imposition of tax. The order was made in order to give effect to the findings and directions of the Commissioner passed u/s 33B of the Indian income tax Act, 1922 (''the 1922 Act''). The Bombay High Court relied upon the language of the second proviso to section 34(3) of the 1922 Act corresponding to the language of section 153(3) of tie 1961 Act and held that because assessment was being made to give effect to a finding or a direction of the revisional authority, the bar of limitation would not apply. It is obvious that the Division Bench of our High Court in Ganapathi Rao''s case (supra) had no occasion to deal with the question of assessments and was only concerned with the question of imposition of penalties. In that context, the observations made by our Division Bench disagreeing with the Bombay High Court judgment in Kishoresinh Kalyansinh Solanki''s case (supra) must be considered as mere obiter. The further fact that the Division Bench has not considered, though noticed, is the statutory difference in the language between section 275 and section 153(3). This is also a ground to hold that N.V. Ganapathi Rao''s case (supra) cannot be taken to be a binding decision on the interpretation of section 153(3). There are no similar observations made by the Allahabad High Court in Bhudhar Singh & Sons'' case (supra) which is a judgment applicable only to the interpretation of section 275. The Allahabad High Court decision in Bhudhar Singh & Sons'' case (supra) did not consider section 153(3), Narinder Singh Dhingra''s case (supra) was a case where the Bench concluded that the first assessment made by the ITO itself was void and that the directions given by the Commissioner could not empower the ITO to save the period of limitation which was barred by his default. Then remains the judgment of the Kerala High Court in Smt. Lucy Kochuvareed''s case (supra). In that case, the Full Bench rules that the Agricultural income tax Commissioner''s directions and findings to which the ITO should give effect to, cannot be made beyond the period of limitation. The judgment does not disclose on what basis this conclusion is reached.

Now, the language of section 264 empowers the Commissioner, to dispose of the revisions filed by the assessee and empowers him to pass such orders thereon as he thinks fit not being orders prejudicial to the assessee. There is no limitation of time fixed for the exercise of the revisional powers by the Commissioner. It is not easily conceivable that the law, in normal circumstances, should impose a strict time limit for the disposal of these matters by the Commissioner under a threat of penalty to invalidate the orders made by him after that period. In any case, we do not find any language in section 264 to warrant that submission. Accordingly, we are not in agreement with the contention of the learned counsel that the Commissioner should exercise his powers of revision u/s 264 only within the period of limitation, fixed for the exercise of powers not for the Commissioner u/s 264 but for completing assessments by the ITO. This argument, if accepted, makes the working of the Act difficult if not impossible. Machinery provisions should not be read that way. There is no obligation on the ITO to pass his orders of assessment, sufficiently in advance before the end of four year period of limitation, so that the revisional powers may be worked out within that period of four years'' time. What should happen to the exercise of revisional power setting aside an order of assessment by the ITO one month before the expiry of the four year period and remanding it back to the ITO? Accepting the contention of the learned counsel for the assessees, in those circumstances, would mean that the appellate and the revisional powers and the ample authority which those powers confer on the revisional authority, would all become ineffective and unworkable.

For the above reasons, we are of the opinion that the major argument of the assessees that the revisional powers of the Commissioner u/s 264 should be exercised within the period of limitation fixed by the statute for the ITO to complete his assessment cannot be accepted.

The next contention which has been urged by the learned counsel is that section 153(3)(ii) is applicable only to the cases of assessment, reassessment and recomputation and not to a case of fresh assessment. In support of this argument the learned counsel referred to the inclusive definition of the word ''assessment'' contained in section 2(8) of the Act. This argument of the learned counsel is based upon the premise that the assessment which has been made by the ITO in the present case in order to give effect to the directions of the Commissioner, is neither an assessment nor a reassessment but is only a fresh assessment. The learned counsel sought to derive support for this contention from the language of the order of the Commissioner. We are unable to agree with this contention. It is no doubt true that the Commissioner''s order uses the words ''fresh assessment'' but not in the same meaning in which section 153(3)(i) uses these words. The fresh assessment which is spoken of by the statute is a fresh assessment u/s 146. The fresh assessment which is spoken of u/s 146 deals with reopening of assessment at the instance of the assessees. Obviously, that is not the situation which is contemplated now by the order passed by the Commissioner. The assessment which is now made is not a fresh assessment within the meaning of section 153(3)(i). In truth and in reality it is a case of assessment or reassessment which falls u/s 153(3)(ii). There is nothing in the inclusive language of section 2(8) defining assessment to suggest otherwise. In the circumstances, we reject this argument also.

It is then argued by the learned counsel that there is no positive finding or direction within the meaning of section 153(3)(iii) for making the assessment. His argument is that the language of section 264 read with section 153(3) contemplates that the ITO can give effect to overriding the period of limitation only when the Commissioner makes a positive direction. The learned counsel argues that in this case the Commissioner did not make any positive direction It is not possible to appreciate this argument. The direction issued by the Commissioner runs as follows:

The ITO is directed to make the fresh assessment as per provisions of law.

Now, this direction can only mean that the ITO is bound to make fresh assessment. In the matter of making fresh assessment, the direction does not leave any discretion to the ITO and it does not mean that the ITO has been left with any discretion to decide whether he may or may not make a fresh assessment as per the provisions of law. The ITO has no choice left with. His duty is to do or die as the Commissioner told him without asking how or why. What the ITO should do was decided by the Commissioner and an appropriate direction was issued to the ITO to that effect. We, therefore, hold that it is a positive direction and falls within the language of section 153(3) and saves limitation. CIT v. Ram Baran Ram Nath [1976] 101 ITR 691 (All.), which is cited by Shri Ratnakar Rao, is a case where the Tribunal directed the IAC to make a fresh order imposing penalty if he could make it in law. That was a case where the imposition of penalty was barred by the period of limitation and no fresh order could be made by the IAC. The Tribunal directed the IAC without deciding the question of limitation to pass a fresh order ''as he thinks expedient in accordance with law if need be''. It is that order which the learned Judges construed as not being positive because the question of limitation which was starting in the face of the revenue was not decided by the Commissioner. Similarly, in Joginder Singh Vs. Commissioner of Income Tax and Another, which is cited by the learned counsel, the direction issued was that the ITO was free to take action to assess the assets in the hands of the co-owner.

But that direction was described by the Supreme Court as no direction falling within the scope of section 153(3). Their Lordships said such a finding was not necessary for the disposal of the particular case. In this case, the direction issued by the Commissioner is clearly warranted by the facts and the contentions therein. We are, therefore, of the opinion that this contention should also fail.

The next argument of the learned counsel is that the direction to make a fresh assessment is not a direction which is necessary for the disposal of the revision petition and that, therefore, issuing of such a direction is not within the jurisdiction of the Commissioner. This contention is even more difficult to appreciate. The assessee made an application to the Commissioner u/s 264 to revise the orders of the assessment passed by the ITO on the ground that the incomes of her minor children were clubbed with her income u/s 64 without giving notice. Having accepted that contention, the Commissioner can only direct the ITO to reassess the income of the assessee, according to law, which means giving of notice to them. To say that the giving of such a notice is not necessary for the purpose of the disposal of assessee''s revision or that it is prejudicial to the assessee interests, is no less than claiming tax immunity from the provisions of the Act. This argument cannot, therefore, be accepted. A Division Bench of the Calcutta High Court in Chachar Plywood Ltd. v. ITO [1977] Tax LR 900, observed that section 153(3) confers powers on the appropriate authority to pass appropriate directions in regard to assessment, reassessment or recomputation which can be made and completed at any time in consequence of any finding of the Court or to give effect to its direction as may be made. Apart from that statutory power, the Division Bench noted that the Courts on their own have jurisdiction to extend the period of limitation in absence of any express provision in that regard. If the learned counsel''s argument is to be accepted, the result would be that the revision which has been filed u/s 264 can only end with the orders passed by the Commissioner under that section without any further proceedings being taken by the ITO. In our opinion, this would be a denial of the very basis of judicial administration based on hierarchy of Tribunals. In any system where there is a hierarchy of Tribunals set up. an appellate or revisional authority should necessarily have the power to give directions to the original authority to deal with the matter in accordance with the judgment of the higher authority. We must note that section 264 is not a provision of law dealing with the question of imposition of liability on the assessee. It is only a part of a machinery section. Such a remedial provision cannot be stultified by putting such a narrow construction, which is opposed in our view to the basic canons of judicial administration. We are, therefore, not in a position to agree with this contention of the learned counsel. The decision of the Calcutta High Court in Goombira Tea Co. P. Ltd. Vs. Income Tax Officer, A-Ward and Others, is distinguishable on the ground that an amendment to section 153(3) made in the year 1964 was not brought to their Lordships'' notice. For all these reasons, we are unable to agree with this contention of the learned counsel for the petitioner.

The last and the final contention of the assessee is that the first order made by the ITO assessing the assessee including the income of her minor children but without giving notice to her is a void order and that, therefore, there was no order in the eye of law made by the ITO within the period of limitation fixed by the statute. For that reason, the learned counsel argued that the directions which had been issued by the Commissioner u/s 264 would not enable the ITO to start the assessment proceedings for the first time after the period of limitation. In support of this contention, the learned counsel has relied upon a judgment of the Kerala High Court in PONKUNNAM TRADERS Vs. ADDITIONAL Income Tax OFFICER, KOTTAYAM, AND ANOTHER., . It is a generally accepted proposition of law that any administrative action taken in violation of the principles of natural justice is a nullity. It is an equally accepted proposition of law that such an order can create no legal obligations nor alter any legal relations. The argument is that the order passed by the ITO in this case without giving notice to the assessee being non est and the period of limitation fixed by the statute having overtaken his powers to reassess meanwhile, the process of reassessment cannot now be restarted by the ITO. The question is whether this administrative law principle of judgment made law is acceptable to the Act. The decisions of the Supreme Court in Estate of Late Rangalal Jajodia Vs. The Commissioner of Income Tax, Madras, and The Director of Inspection of Income Tax (Investigation), New Delhi and Another Vs. Pooran Mal and Sons and Another, furnish a complete answer to this contention. In the case of Estate of Late Rangalal Jajodia (supra), it was laid down:

... The lack of notice to her only made the assessment defective....

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An assessment proceeding does not cease to be a proceeding under the Act merely by reason of want of notice. It will be a proceeding liable to be challenged and corrected....

In Pooran Mall & Sons'' case (supra), the Supreme Court, dealing with the question of seizure, observed:

... But, in the circumstances of a case, the Court might take the view that another authority has the jurisdiction to deal with the matter and may direct that authority to deal with it or where the order of the authority which has the jurisdiction is vitiated by circumstances like failure to observe the principles of natural justice, the Court may quash the order and direct the authority to dispose of the matter afresh after giving the aggrieved party a reasonable opportunity of putting forward its case. Otherwise, it would mean that where a Court quashes an order because the principles of natural justice have not been complied with, it should not while passing that order permit the Tribunal or the authority to deal with it again irrespective of the merits of the case....

The effect of these two decisions of the Supreme Court is to hold that an order passed by the ITO in violation of the principles of natural justice is still an order under the Act though liable to be corrected for the reason of its having been passed in violation of the principles of natural justice. The Supreme Court did not agree with the contention that it is a void order. The contention of the petitioner should fail for that reason.

In addition, the learned counsel also argued that the Commissioner''s direction to the ITO to make a fresh assessment is prejudicial to the assessee and that he has no powers to make such a direction. We do not think that this argument merits any consideration. We are, therefore, of the opinion that the first question referred to us should be answered in favour of the revenue and against the assessee.

In view of our answer to the first question, the second question, viz., whether, on the facts and in the circumstances of the case, the ITO was correct in including in the total income of the assessee u/s 64(1)(ii), the share income arising to the assessee''s minor children by reason of their admission to the benefits of partnership is answered in favour of the revenue and against the assessee.

The two questions referred to us are, accordingly, answered against the assessee and in favour of the revenue. No costs. The learned counsel for the assessee asked for a certificate u/s 261 of the Act that we may certify that this is a fit case for appeal to the Supreme Court. In view of the fact that we have merely followed the plain language of the statute and the authoritative pronouncements of the Supreme Court, we cannot certify that this is a fit case to be heard and decided by the Supreme Court. The oral application is accordingly rejected.