Laxmi Industries And... v. Income-Tax Officer, ...

Pathak, J.:— The petitioner is a private limited company carrying on business in cold storage and the manufacture of catechu. For the assessment year 1961–62, the petitioner filed a return of its income of the relevant previous year disclosing a loss of Rs. 1,52,860. The Income-tax Officer took proceedings under section 23(2) of the Indian Income-tax Act, 1922, after serving notice under that provision. While the assessment proceeding was yet pending he issued a notice under section 143(2) of the Income-tax Act, 1961, and after affording the petitioner a hearing he completed the assessment by an order dated March 26, 1966. In the assessment order, which was expressed to be under section 143(3) of the Act of 1961, he held that instead of the loss claimed by the petitioner there was an income of Rs. 1,03,848. Against the assessment order the petitioner preferred an appeal. One of the grounds taken by the petitioner was that the Income-tax Officer had no jurisdiction to proceed under the Act of 1961, and that by virtue of section 297(2)(a) of the Act the proceeding lay under the Act of 1922. It was also urged that the Income-tax Officer had not afforded sufficient opportunity to the petitioner to explain the cash credits by reason of which the Income-tax Officer had found that income had arisen to the petitioner. The Appellate Assistant Commissioner allowed the appeal by his order dated June 19, 1961. He came to the conclusion that, by virtue of section 297(2)(a) of the Act of 1961, the Income-tax Officer should have proceeded under the Act of 1922, and that he had no jurisdiction to proceed under the Act of 1961. But on the finding that the Income-tax Officer had jurisdiction under the Act of 1922, he observed that the assessment order could be treated as one made under that Act. On the merits of the case he held that the Income-tax Officer had not proceeded on any positive material and should provide a proper opportunity to the petitioner to prove that the deposits represented by the cash credits were genuine. Accordingly, while setting aside the assessment, he directed the Income tax Officer to frame a fresh assessment on the basis set out in the appellate order. The petitioner, aggrieved by the order of remand, preferred a second appeal before the Income-tax Appellate Tribunal, and contended that inasmuch as the assessment proceedings taken under the Act of 1961 was a nullity, the Appellate Assistant Commissioner was in error in treating the proceeding as one under the Act of 1922, and remanded the case. It was urged that the assessment proceedings taken under the Act of 1961 being ab initio void there was nothing which could be remanded. The Tribunal, however, rejected the contention of the petitioner and, while holding that the Income tax Officer had deliberately adopted the jurisdiction conferred by the Act of 1961, it observed that the Appellate Assistant Commissioner was right in treating the assessment as one under the Act of 1922. It explained that the assessment order, “which mistakenly purported to be an order under section 143(3) of the new Act was, in fact and in law, an order under section 23(3) of the old Act right from the beginning”.

2. This petition has now been filed under article 226 of the Constitution praying for certiorari and prohibition.

3. There was considerable debate before us on the question whether the petitioner should be heard on the merits of this petition inasmuch as a remedy was open to him by way of reference to this court. Indeed, it was admitted by learned counsel for the petitioner that an application had been moved before the Tribunal praying for a reference to this court and that the application was pending. I was inclined at one stage to refrain from entering upon the merits of the case on the ground that an adequate alternative remedy existed. But learned counsel for the petitioner has contended that this is a case where the existence of an alternative remedy should not act as a bar and has vigorously pressed for a decision on the merits. As, in my judgment, even on the merits of the case, the petitioner is not entitled to relief, I need express no opinion on the objection based on the existence of an alternative remedy. The sole question for consideration is whether the assessment order made by the Income-tax Officer is a nullity and, therefore, there could have been no appeal to, and consequently no remand of the case by, the Appellate Assistant Commissioner.

4. At the outset, I may note the circumstance, of which the petitioner seeks to make a point, that the Income-tax Officer in proceeding to make the assessment under the Act of 1961, did so deliberately and not inadvertently. It makes no difference, I think, to the problem before us whether the Income-tax Officer preferred to proceed under the Act of 1961 by inadvertent error or upon careful deliberation. And I say so because of considerations to which I shall now advert. The Income-tax Officer was invested with jurisdiction to proceed in an appropriate case under the Act of 1922. He was also empowered to proceed in an appropriate case under the Act of 1961. The same Income-tax Officer had jurisdiction to take an assessment proceeding, either under the Act of 1922 or under the Act of 1961, depending on the particular case before him. Whether the case attracted the provisions of the one Act or the other fell to be determined by reference to section 297 of the Act of 1961. Whether he should proceed under the Act of 1922 or under the Act of 1961 was not to be decided at his option. It was the case before him which determined which Act applied. The position is not one where an alternative jurisdiction is available to the Income-tax Officer, it is one where only the right jurisdiction can be exercised; it is not a question of which Act he should apply, it is a question of which Act he could apply. Clearly, inasmuch as the return related to the assessment year 1961–62 and was filed before the Act of 1961 came into force, the Income-tax Officer was obliged to apply the Act of 1922, as if the Act of 1961 did not exist. In other words, if he could exercise any jurisdiction at all it was only the jurisdiction conferred under the Act of 1922.

5. The petitioner contends that the Income-tax Officer having exercised the jurisdiction conferred by the Act of 1961, the validity of the proceeding cannot be saved by referring it to the Act of 1922. It is urged that the assessment proceeding cannot be considered as one under the Act of 1922. I am of opinion that it can. The principle on which such cases fall to be decided was considered and applied by the Supreme Court in L. Hazari Mal Kuthiala v. Income-tax Officer, Special Circle, Ambala Cantt [1961] 41 I.T.R 12. It was contended there by the assessee that the order of the Commissioner of Income-tax transferring his case from one Income-tax Officer to another was incompetent inasmuch as in doing so he purported to act under sub-sections (5) and (7A) of section 5 of the Indian Income-tax Act when properly his jurisdiction lay under the corresponding provisions of the Patiala Income-tax Act. The contention was repelled by the Supreme Court with the following observation:

“This argument, however, loses point, because the exercise of a power will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory. This principle is well-settled: see Pitambar Vajirshet v. Dhondu Navlapa [1888] I.L.R 12 Bom. 486, 489..”

6. To appreciate the decision in Pitambar Vajirshet, it is necessary to set out a few facts of that case. The suit was tried by a subordinate judge who was also invested with the jurisdiction of a judge of a small cause court. Although the suit was of the nature of a small cause, it was tried according to the Code of Civil Procedure. An appeal against the decision of the subordinate judge was allowed by the district judge. Upon a revision application before the Bombay High Court it was urged that the appeal before the district judge was not maintainable because the subordinate judge must be considered to have employed his jurisdiction as a judge of a small cause court. West J., who spoke for the court, pointed out:

“The suit was filed in a court having a double jurisdiction. But the jurisdiction under which cognizance could be taken of the claim was one and one only, not a double or an alternative jurisdiction. Having the small cause court jurisdiction the subordinate judge must have dealt with this case under that jurisdiction, even if he was not quite alive to it at the time— Dr. Groenvelt v. Dr. Burwell. We must ascribe his acts to an actual existing authority under which they would have validity rather than to one under which they would be void.”

7. The decision in this case is instructive even as it is apposite to the facts before us. Like the subordinate judge, the Income-tax Officer also enjoyed a double jurisdiction, jurisdiction in respect of proceedings under the Indian Income-tax Act, 1922, and jurisdiction in respect of proceedings under the Income-tax Act, 1961. Like the subordinate judge, who tried the suit under the Code of Civil Procedure in the exercise of his normal civil jurisdiction when he should have tried it as a judge of a small cause court, the Income-tax Officer completed the assessment under the Act of 1961, when properly he should have done so under the Act of 1922. Inasmuch as he did enjoy jurisdiction to proceed under the Act of 1922 he must be considered to have dealt with the case under that jurisdiction and “even if he was not quite alive to it at the time” the proceedings must be ascribed to the jurisdiction existing in him which would give them validity rather than to the jurisdiction under which they would be void.

8. We may refer to the decision of this court in Ram Chand and Sons v. Commissioner of Income-tax, where the Income-tax Officer had erroneously considered that the assessment could be made on the assessee-firm under section 23(3) read with section 44 of the Act. The court held that an erroneous reference to section 44 did not invalidate the assessment.

9. Reference may also be made to P.M Bharucha and Co. v. G.S Venkatesan, Income-tax Officer, Bhavnagar [1969] 74 I.T.R 513, 520 Guj... In that case the Income-tax Officer pursued a rectification proceeding believing it to lie under section 154 of the Income-tax Act, 1961. The assessee contended that the order of rectification was null and void, there being no jurisdiction in the Income-tax Officer under section 154 of the Act of 1961, although there was jurisdiction under section 35 of the Act of 1922. The contention that the rectification order was null and void on that ground was repelled by the Gujarat High Court which, after holding that the proceedings would be governed by section 35 of the Act of 1922, observed:

“But that does not necessarily lead to the conclusion that the order of rectification made by the respondent was without jurisdiction. It is now well-settled that a wrong reference to the power under which an order is made does not per se vitiate the order, if there is some other power under which the order could lawfully be made. The validity of the order has to be tested by reference to the question whether the Income-tax Officer had any power at all to make the order. If the power is otherwise established, the fact that the source of the power has been incorrectly described would not make the order invalid: the order cannot fail merely because it purports to be made under a wrong provision if it can be shown to be within the power of the Income-tax Officer under some other provision of law.”

10. The petitioner relied upon the observations of the Supreme Court in Ram Narain v. State of U.P In our opinion, the principle laid down in that case is not attracted here. The question before the Supreme Court was whether the assessing authority, having levied a tax under section 14(1)(f) of the U.P Town Areas Act, 1914, could say that the tax was legally valid under a different clause, namely, section 14(1)(d). The Supreme Court held that it could not. The court observed:

“……. so far as the present appellant is concerned, the list prepared under section 15 must have shown him as assessed to a certain amount of tax under clause (f) of sub-section (1) of section 14 and the assessment must have been confirmed on that basis by the District Magistrate. Therefore, the legality of the tax imposed on the appellant must be considered with reference to the clause under which the assessment was actually made, and a different clause under which the assessment might have fallen cannot be called in aid of the assessment.”

11. It seems to me that the decision proceeded on the view that, while the tax contemplated under section 14(1)(d) is a tax on trades, callings, or professions, the tax mentioned in section 14(1)(f) is a tax on persons assessed according to their circumstances and property. The two provisions refer to two different taxes, taxes different in nature and respecting which different considerations came into play. The considerations called into play when the District Magistrate proceeds to confirm the assessment of circumstances and property tax cannot be substituted by considerations which arise in the levy of a tax on trades, callings or professions. It is not a case where, as here, the tax imposed under the Act of 1922 and under the Act of 1961 is of the same nature, namely, a tax on income.

12. There was considerable argument on behalf of the petitioner that the assessment order, having been made by the Income-tax Officer under the Act of 1961 when he had no jurisdiction to do so, must be held to be a nullity, and, consequently, so the argument goes, the appeal against that order must also be treated as a null and void proceedings and on that ground the remand order made in the appeal must be treated as a nullity. A number of cases have been cited, and they include Minakshi Naidu v. Subramanya Sastri and Ram Swarup v. Shikar Chand. As I am of opinion that the asssessment order should be attributed to the jurisdiction of the Income-tax Officer under the Act of 1922, this contention on behalf of the petitioner cannot survive. Taking the case further from that point, namely, that it is an assessment order under the Act of 1922, the appeal entertained and decided by the Appellate Assistant Commissioner must be considered as a valid proceeding and the remand order as an order within the jurisdiction of the Appellate Assistant Commissioner.

13. An attempt was made on behalf of the petitioner to show that the assessment procedure under the Act of 1922 is different from that under the Act of 1961, and that, therefore, it is not possible to attribute the assessment proceeding contemplated by the Income-tax Officer under the Act of 1961 to his jurisdiction under the Act of 1922. I have carefully considered the matter and I do not find any material difference between the two jurisdictions in this regard. It is then urged that the measure of penalty which may be imposed under the Act of 1961 in cases falling under section 276 of that Act is much heavier than that attracted in corresponding cases under the Act of 1922. In my opinion, that is a consideration which does not arise in this case. When the jurisdiction under the Act of 1961 cannot be invoked at all, no question can arise of applying the penalty provisions of that Act. If penalty is attracted at all, it must be under the Act of 1922.

14. Finally, it is urged on behalf of the petitioner that the case falls to be disposed of on the rule enunciated by the Supreme Court in P. Balakotaiah v. Union of India. But even in that case the Supreme Court accepted the principle that:

“……when an authority passed an order which is within its competence, it cannot fail merely because it purports to be made under a wrong provision if it can be shown to be within its powers under any other rule, and that the validity of an order should be judged on a consideration of its substance and not its form.”

15. It is true that ultimately the Supreme Court did not decide the case on the basis of that principle, but that was because its application was precluded by certain distinguishing considerations, which included rule 3 of the Railway Services (Safeguarding of National Security) Rules, and also because the respondent was content to have the validity of the impugned orders determined on the footing that they were passed under rule 3 without reference to the alternative provision under rule 148 of the Railway Establishment Code. No such distinguishing feature exists in the case before us.

16. In my judgment, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were plainly right in holding that, although the assessment was completed under the Income-tax Act, 1961, it must be attributed to the jurisdiction vested in the Income-tax Officer under the Indian Income-tax Act, 1922. Upon that, the contention that the order of remand is without jurisdiction must be rejected and this petition must fail.

17. The petition is dismissed with costs.

T.P Mukherjee, J.:— This is a petition under article 226 of the Constitution for the issue of an appropriate writ to quash the order of assessment dated March 26, 1966, made by the Income-tax Officer under section 143(3) of the Income-tax Act, 1961. Briefly stated, the material facts are that the petitioner is a company limited by shares. For the assessment year 1961–62, a return of income was filed on its behalf on August 26, 1961, showing a loss of Rs. 1,74,585. The Income-tax Officer, in the first instance, issued a notice under section 23(2) of the Indian Income-tax Act, 1922, asking the petitioner to produce evidence in support of the loss claimed by it and the Income-tax Officer gave two hearings to the petitioner's representative. Subsequently, however, the Income-tax Officer, changed his mind and issued a fresh notice under section 143(2) of the Income-tax Act, 1961, and gave further hearing to the assessee's representative in pursuance of such notice. Eventually, the Income-tax Officer completed the assessment under section 143(3) on March 26, 1966. The net assessable income of the petitioner was computed at Rs. 1,03,848. In making the assessment the Income-tax Officer rejected the explanation put forward on behalf of the petitioner in regard to cash credits and deposits appearing in its account to the extent of Rs. 1,16,540 and assessed the amount as the income of the petitioner from undisclosed sources. The Income-tax Officer also directed the issue of notice under section 274, read with section 271(1)(c), for the purpose of levy of penalty.

18. The petitioner appealed to the Appellate Assistant Commissioner. The main contention put forward on its behalf was that the Income-tax Officer had no jurisdiction to make the assessment under the provisions of the Income-tax Act of 1961, when the return had been filed by the petitioner before April 1, 1962. The Appellate Assistant Commissioner, however, rejected the contention. The Appellate Assistant Commissioner held that the Income-tax Officer should have ordinarily assessed the income of the petitioner for the assessment year 1961–62, under section 23(2) of the Indian Income-tax Act of 1922, but he purported to make the assessment under section 143(3) of the Income-tax Act of 1961. This was, in the opinion of the Appellate Assistant Commissioner, a case of reference to a wrong section which did not vitiate the assessment. The Appellate Assistant Commissioner, however, found that the Income-tax Officer had not given adequate opportunity to the petitioner to explain the credits and deposits appearing in the names of various persons in the books of account. The Appellate Assistant Commissioner, therefore, set aside the assessment and remitted the case to the Income-tax Officer to scrutinise the materials regarding the cash credits and to make a fresh assessment according to law.

19. Before the Tribunal the contention of the petitioner was that the Appellate Assistant Commissioner was not justified in making the order of remand for a fresh assessment. It was urged that the Income-tax Commissioner had no jurisdiction to make the assessment under the Act of 1961 and, therefore, the Appellate Assistant Commissioner should have annulled the assessment altogether. The Tribunal, however, rejected the contention and upheld the order of the Appellate Assistant Commissioner.

20. At the hearing before us, Sri Ashok Gupta appearing for the petitioner raised the same contention, namely, the order of the Income-tax Officer being without jurisdiction, it should be quashed and the order of remand passed by the Appellate Assistant Commissioner should be vacated. On the other hand, Dr. Misra appearing for the revenue argued that the petition for a writ under article 226 of the Constitution was not maintainable because there was an alternative remedy by way of reference to the High Court under section 66(1) of the Act of 1922, or under section 256(1) of the Act of 1961. Dr. Misra submitted that the petitioner has actually availed itself of the alternative remedy by filing appeals and an application for reference. Dr. Misra further contended that the petitioner had no case on the merits also inasmuch as the assessment made by the Income-tax Officer should be referred to the jurisdiction possessed by him. He submitted that mere reference to the various sections of the Income-tax Act of 1961 did not vitiate the order of assessment.

21. I have had the opportunity of going through the order prepared by my learned brother, Pathak J. Brother Pathak had disposed of the case on the merits. He held that the Income-tax Officer could have acted only under the Indian Income-tax Act, 1922, and not under the Income-tax Act of 1961. My learned brother has referred to a number of authorities, including the decision of the Supreme Court in Hazari Mal Kuthiala v. Income-tax Officer, and held that the assessment, which purports to have been made under the Income-tax Act of 1961, must be attributed to the jurisdiction vested in the Income-tax Officer under the Indian Income-tax Act, 1922. That being so, Pathak J. held that the order of remand made by the Appellate Assistant Commissioner was intra vires of his powers as the appellate authority.

22. I think the present case can be disposed of without entering into the merits. In this case, the petitioner has already availed itself of the remedies provided in the taxing statute; it has filed an appeal against the assessment to the Appellate Assistant Commissioner and also a second appeal to the Appellate Tribunal. Having lost both the appeals, the petitioner has filed an application for reference to the High Court of the question of law arising from the order of the Tribunal and the application is awaiting decision. It is abundantly clear that the petitioner has already resorted to an alternative, and equally efficacious, legal remedy. The petitioner should, therefore, be required to pursue that remedy and it should not be allowed to invoke the special jurisdiction of the High Court under article 226 of the Constitution. It is true, no doubt, as laid nown by the Supreme Court in State Of U.P v. Mohammad Nooh ., the existence of an alternative legal remedy does not necessarily oust or affect the jurisdiction of the High Court to issue a writ, but it is well settled that, where a party has resorted to an alternative proceeding for relief, it would be a sound exercise of discretion to refuse to interfere in a petition under article 226 of the Constitution unless there are very good grounds for it. I am unable to hold that this is an appropriate case in which the court should exercise its extraordinary jurisdiction. The position might have been different if the petitioner had filed an application under article 226 for quashing the impugned order of assessment directly after it had been passed by the Income-tax Officer. I would dismiss the petition on this graund alone with costs.

By the Court

23. For the reasons contained in our respective judgments, the writ petition is dismissed with costs.

24. Petition dismissed.