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Messrs. Haji Mohd. Khalil Mohd. Farooq v. Income-Tax Officer, Azamgarh, And Another.
Factual and Procedural Background
This is a writ petition under Article 226 of the Constitution. The petitioner is a partner in a firm formed by an instrument of partnership dated 19 December 1949. An application for registration under section 26A for the year 1950–51 was made on 9 October 1953, and renewal applications were made for 1951–52, 1952–53 and 1953–54. On 19 August 1954 the Income-tax Officer rejected the applications on the ground that the firm was not genuine. The petitioner appealed to the Appellate Assistant Commissioner, who allowed the appeals by order dated 16 November 1955 but added the proviso that registration was to be granted “provided the application for registration is in order.”
The Income-tax Officer appealed to the Tribunal; that appeal was dismissed by the Tribunal on 5 December 1956. Meanwhile, on 13 January 1956 the Income-tax Officer again rejected the applications, this time on the ground that the 1950–51 application (the initial registration application) had been filed beyond time; renewals for subsequent years were rejected as there was nothing to renew once the first year's registration was refused. The petitioner avers that this later rejection was made without notice or opportunity to show cause with respect to delay.
The petitioner appealed to the Appellate Assistant Commissioner against the 13 January 1956 order, but the appeal was dismissed by order dated 21 January 1957 (communicated to the petitioner on 13 February 1957). The petitioner then filed the present writ petition seeking deletion of the words “provided the application for registration is in order” from the Appellate Assistant Commissioner’s 16 November 1955 order, and seeking certiorari to quash both the Income-tax Officer’s 13 January 1956 order and the Appellate Assistant Commissioner’s 21 January 1957 order refusing registration/renewal for the years listed.
Legal Issues Presented
- Whether the Appellate Assistant Commissioner exceeded his powers under section 31(3)(c) by directing registration only “provided that the application for registration is in order”.
- Whether the Income-tax Officer was entitled to refuse registration on the ground that the initial registration application (1950–51) was filed beyond time, and thereby reject renewal applications for subsequent years, without first giving notice to the petitioner and an opportunity to show cause for condonation of delay under the proviso to rule 2.
- Whether, having once entertained the application and dealt with it on the merits, the Income-tax Officer could thereafter reject the application at a later stage on the fresh ground of delay without giving the petitioner an opportunity to be heard.
Arguments of the Parties
Petitioner's Arguments
- The direction in the Appellate Assistant Commissioner’s order (16 November 1955) that registration is to be granted “provided that the application for registration is in order” was beyond the appellate power conferred by section 31(3)(c), which, when the original order was a refusal of registration under section 26A, is confined to cancelling the refusal and directing the Income-tax Officer to register the firm.
- The Income-tax Officer could not properly refuse registration on the new ground of delay in filing the initial application (1950–51) without giving notice and an opportunity to show cause for condonation of delay under the proviso to rule 2.
- Because the Income-tax Officer had entertained the 1950–51 application on 9 October 1953 and dealt with it on the merits previously, it was unfair and procedurally improper to reject it later on a fresh time-bar ground without affording the petitioner a chance to explain or seek condonation.
Respondent / Department's Arguments
- The department contended that the Appellate Assistant Commissioner’s direction was within permissible bounds and that the rule (proviso to rule 2) does not expressly require that an opportunity be given to show cause before rejecting an application on grounds of delay.
- It was argued that the proviso concerned the “entertainment” of a belated application and does not bar the Income-tax Officer from rejecting an application at the final disposal stage; thus no specific mandatory notice requirement arises from the proviso as worded.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court proceeded in two principal strands of analysis: (A) procedural/prudential objection to the petitioner challenging the Appellate Assistant Commissioner’s 16 November 1955 order at this stage, and (B) the substantive procedural fairness inquiry concerning the Income-tax Officer’s subsequent rejection of the applications on the ground of delay without notice.
A. On challenge to the Appellate Assistant Commissioner’s order: The court observed that, irrespective of the merits of the contention that the Appellate Assistant Commissioner exceeded his powers under section 31(3)(c), it was too late for the petitioner to raise that challenge in the present writ. The order dated 16 November 1955 was long prior; the petitioner should have challenged it promptly or in appeal to the Income-tax Appellate Tribunal. Instead, the petitioner acquiesced and proceeded before the Income-tax Officer pursuant to the direction in that order. Thus the court treated the challenge to that order as barred by delay and by the petitioner’s conduct.
B. On the Income-tax Officer’s subsequent rejection (13 January 1956) on time-bar grounds: The court found merit in the petitioner’s contention that the Income-tax Officer, having entertained the 1950–51 application on 9 October 1953 and dealt with it on the merits, ought not to have rejected it later on the fresh ground of delay without giving the petitioner notice and an opportunity to show cause. The court relied on the language and effect of the proviso to rule 2 (which permits the Income-tax Officer, in a suitable case, to entertain an application after the time limit if sufficient cause is shown) to conclude that if the applicant is to be allowed to show cause for condonation of delay, the applicant must be given an opportunity to do so. The judge emphasized principles of natural justice: denying the petitioner notice and opportunity to make representations would deprive him of the very right conferred by the proviso (to show cause and seek condonation).
The court also noted that the department's reliance on the absence of an express mandatory notice provision in the wording of the rule was unpersuasive in the circumstances: where an application has already been entertained and dealt with on the merits, it would be contrary to natural justice to take a wholly new point (delay) against the applicant without notice. The court further observed that no counter-affidavit had been filed to dispute the petitioner’s affidavit statement that no opportunity had been given.
The court declined to make a final, definitive ruling on the narrower theoretical question whether the proviso relates solely to the “entertainment” stage or also affects later rejection at hearing; the judge stated it was unnecessary to decide that point finally for purposes of the present matter.
On the basis of these conclusions the court determined that the Income-tax Officer’s order dated 13 January 1956 rejecting the applications must be quashed because the petitioner had not been given an opportunity to show cause regarding delay. The court ordered the applications to be restored to the Income-tax Officer’s file, directed that the petitioner be given an opportunity to show cause and to put forward facts for condonation of delay (if any), and directed that after such opportunity the applications be dealt with and disposed of according to law. The court also ordered that the orders passed by the Appellate Assistant Commissioner in appeals against refusal of registration (i.e., the Appellate Assistant Commissioner’s order dismissing the petitioner’s subsequent appeal dated 21 January 1957) be quashed. The petitioner was awarded costs of the petition.
Holding and Implications
Holding: The Income-tax Officer's order dated 13 January 1956 rejecting the applications is quashed; the applications are restored to the Income-tax Officer's file; the Income-tax Officer is directed to give the petitioner an opportunity to show cause and to present facts for condonation of delay, and thereafter to deal with and dispose of the applications according to law. The Appellate Assistant Commissioner’s orders in appeals against refusal of registration are quashed. The petitioner is awarded costs.
Implications: The direct effect of the court's decision is to set aside the Income-tax Officer's rejection for lack of notice and opportunity to show cause, to require fresh consideration of the applications after affording the petitioner the opportunity to be heard, and to quash the related appellate orders that refused registration. The opinion emphasizes procedural fairness (notice and opportunity to show cause where delay is relied upon after an application has been entertained) but does not purport to lay down a broad new precedent beyond the circumstances adjudicated. The court expressly refrained from finally deciding the narrower doctrinal question whether the proviso to rule 2 limits itself to the "entertainment" stage or also affects rejection at the final disposal stage.
1. This is a writ petition under article 226 of the Constitution.
2. The prayers contained in this petition are that in the order of the Appellate Assistant Commissioner of Income-tax, dated November 16, 1955, in Appeals Nos. 65/101, 66/103, 69/105 and 60/102, the following words may be deleted “provided the application for registration is in order”. There is a further prayer that a writ of certiorari may be issued quashing the order dated January 13, 1956, passed by the Income-tax Officer, Azamgarh, and the order dated January 21, 1957 passed in appeals by the Appellate Assistant Commissioner of Income-tax, Varanasi, refusing registration and renewal of registration of the firm of which the petitioner is a partner for the years, 1950–51, 1951–52, 1952–53, 1953–54 and 1955–66.
3. The facts giving rise to the petition are not in controversy because no counter-affidavit has been filed on behalf of the respondents. The facts are that under an instrument of partnership dated December 19, 1949, the firm came into existence and on October 9, 1953, an application for registration under section 26A for the year 1950–51 was made and applications were also made for renewal of registration for the years, 1951–52, 1952–53 and 1953–54. On August 19, 1954, the applications were rejected by the Income-tax Officer on the ground that the firm was not genuine. It may only be noted that the applications were duly entertained and the Income-tax Officer made no attempt to go into any other question and disposed of the applications only on the ground whether the firm was genuine or not. The petitioner filed appeals before the Appellate Assistant Commissioner and the appeals were allowed by order dated November 16, 1955. In the appeals it was held by the Appellate Assistant Commissioner that the finding of the Income-tax Officer that the firm was not genuine was not correct and registration was to be granted to the firm “provided that the application for registration is in order”. The last portion of the order which has been mentioned by me above within inverted commas has been objected to in this petition on the ground that under section 31(3)(c) the power of the Appellate Assistant Commissioner in appeal against an order under section 26A, where the order was one of refusal of registration, was confined to “cancel it and direct the Income-tax Officer to register the firm” and did not extend beyond cancelling the order of rejection and giving a direction to the Income-tax Officer to register the firm, to require him further to examine the applications and to find if they were in order.
4. Against this order of the Appellate Assistant Commissioner, the Income-tax Officer went up in appeal to the Tribunal but theappeal was dismissed by the Tribunal on December 5, 1956. Meanwhile, the Income-tax Officer again rejected the applications under section 26A on January 13, 1956, this time on the ground that the application for 1950–51 which was the application for registration had been made beyond time. The applications for the other years which were applications for renewal of registration were rejected on the ground that, as the registration had been refused for 1950–51, there was nothing of which renewal could be granted in the subsequent years. In paragraph 13 of the petitioner's affidavit, it has been stated that the order dated January 13, 1956, was passed by the Income-tax Officer without issuing a notice to the assessee of his intention to refuse registration on the entirely new ground of delay in filing the application or affording the assessee an opportunity of showing cause against such delay. Aggrieved by this order the petitioner filed appeals before the Appellate Assistant Commissioner but the appeals were dismissed by that officer on January 21, 1957. Information of the order of the Appellate Assistant Commissioner rejecting the petitioner's appeal was received by the petitioner on February 13, 1957. Thereafter, this writ petition was filed for the reliefs which have already been stated in the beginning of this judgment.
5. Learned counsel for the petitioner has raised the following points before me: first, that the direction contained in the order of the Appellate Assistant Commissioner, dated November 16, 1955, that registration was to be granted if the applications were in order was beyond his powers under section 31(3)(c) of the Income-tax Act.
6. So far as this point is concerned, it appears to me that quite apart from the merits of the point it is much too late in the day for the petitioner to challenge the order of the Appellate Assistant Commissioner before me in this writ petition. That order was passed as long ago as November 16, 1955. If the petitioner was aggrieved by that order he should have approached this court soon after that order was communicated to him. It was also open to the petitioner to challenge that order in appeal before the Income-tax Appellate Tribunal, but the petitioner did nothing of the kind. Instead, the petitioner acquiesced in that order and appeared before the Income-tax Officer in proceedings for registration and renewal of registration consequent upon the direction of the Appellate Assistant Commissioner.
7. The next point raised by learned counsel is that it was not open to the Income-tax Officer to have refused registration on the ground that the application for the first one of those years had not been made within time and that the applications for subsequent years were bound to fail by reason of the failure of the application in respect of the first of those years. The petitioner further argued that, under the proviso to rule 2, it is open to the Income-tax Officer in a suitable case to entertain an application for registration after the expiry of the time limit specified therein. If notice had been given to the petitioner by the Income-tax Officer of his intention to reject the application on the ground of the bar of time he would have shown cause for condonation of delay in making the application. Learned counsel further argued that the Income-tax Officer having entertained the application which was made as long ago as October 9, 1953, and having disposed of it on the merits, it was not open to the Income-tax Officer, after the matter came back to that officer by reason of the order of the Appellate Assistant Commissioner, to reject the application on the ground of the bar of time. I see force in these submissions. Learned counsel has drawn my attention to the language of the proviso in which the words which occur are “entertain an application”. It is true that there is no specific provision in the rule for the issue of a notice to show cause against the entertainment of a belated application but it appears to me that in the events which had happened, the Income-tax Officer was bound to give notice to the petitioner of his intention td reject the application on the ground of the bar of time. Having entertained the application at a late stage and having dealt with it on the merits, the petitioner could have no inkling as to the intention of the Income-tax Officer to reject the application as being barred by limitation. On the other hand, he could entertain not merely a reasonable belief but he would almost be certain that so far as any question of limitation was concerned his application was perfectly within time and if at all it could be rejected in consequence of the direction of the Appellate Assistant Commissioner, it could be rejected only for some other defect as, for example, want of signatures of the other partners or misstatement of any details required to be filled in the form. It has been stated that no counter-affidavit has been filed to dispute the fact that no opportunity was given to the petitioner.
8. There is the further fact that under the proviso to rule 2 it is open to an applicant to show cause and if possible to satisfy the Income-tax Officer that there was sufficient cause for the delay, if any, and in case he succeeds in so satisfying that officer the delay is liable to be condoned. If the petitioner is not given an opportunity, no occasion can possibly arise for him to represent before the Income-tax Officer the facts and circumstances which may entitle him to the condonation of delay. Thus the right given to a petitioner to satisfy the Income-tax Officer would be taken away from him if an opportunity is not given to him.
9. Learned counsel for the department has taken his stand upon the point that the rule does not say in so many words that an opportunity shall be given to the petitioner to show cause why the application should not be dismissed on the ground of delay. He has also argued that the proviso does not bar the dismissal of an application at the time of its final disposal. The opportunity to show cause of which the proviso speaks is merely for satisfying the Income-tax Officer in regard to the entertainment of the application. I am not satisfied that there is force in any of these submissions. As already stated above, it seems to me that in a matter like this it would be contrary to the principles of natural justice if an opportunity is denied to a petitioner. As regards the point that there is no bar to the Income-tax Officer rejecting the application at the stage of hearing and the bar is only regarding the entertainment of the application, it seems to me that the argument really goes against the department. If the opportunity mentioned in the proviso is only with regard to the entertainment of the application, it follows that where an application has already been entertained, there is not subsequently any right left in the Income-tax Officer to reject the application at the stage of hearing. However, it is not necessary for me to decide that point one way or the other finally.
10. There is further the fact that the petitioner went up in appeal to the Appellate Assistant Commissioner and the petitioner's appeal was dismissed by that officer by order dated January 21, 1957.
11. In paragraph 3 of his order, the Appellate Assistant Commissioner has stated as follows:
“The Income-tax Officer has refused to renew registration on the ground that the application has been filed very late. No sufficient cause has been shown for the late filing of the application and the rules have not been complied with. In these circumstances the Income-tax Officer was justified in refusing to register the firm.”
12. The point which appears to have been missed is that if the petitioner did not get an opportunity to show cause and if the petitioner did not know that the point of delay was going to be taken against him, how could he be able to show cause, much less any sufficient cause, against the late filing of the application, assuming that the application was filed late. As already stated above, it has not been denied by means of a counter-affidavit that the petitioner was given no opportunity. It follows that the order of the Appellate Assistant Commissioner cannot be allowed to stand. The order which I propose to make is that the order of the Income-tax Officer dated January 13, 1956, rejecting the applications shall be quashed and the applications shall be deemed to stand restored to the file of the Income-tax Officer. The Income-tax Officer shall be directed to give the petitioner an opportunity to show cause and to put forward the circumstances for the condonation of delay, if any. After such opportunity has been given, the applications shall be dealt with and disposed of according to law and the orders passed by the Appellate Assistant Commissioner in appeals against refusal of registration shall be quashed. I order accordingly. The petitioner shall have his costs of this petition.
13. Order accordingly.
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