Madan Lal Agarwal v. Commissioner Of Income-Tax, Kanpur.

H.N Seth, J.:— Controversy in this reference under s. 256(1) of the I.T Act, 1961, concerns the assessment of Lala Madan Lal Agarwal (Hindu undivided family) for the assessment year 1946-47.

2. After obtaining approval of the Board for initiating proceedings to assess, the escaped income of the assessee for the year 1946-47, the ITO, Aligarh, issued the following notice which was dated 29th September, 1962, to Sri Madan Lal Agarwal:

“Whereas I have reason to believe that your income…………….chargeable to tax for the assessment year in respect of which you are assessable in 1946-47, has escaped assessment within the meaning of section 147. of the Income-tax Act, 1961:

1. therefore, propose to assess/reassess the income……….depreciation allowance for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income…………in respect of which you are assessable for the said assessment year.

2. This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income-tax, U.P, Lucknow/the Central Board of Revenue.

(Sd.) J.S Agarwal,

Income-tax Officer, B-Ward,

Aligarh.”

3. On receipt of the notice, Sri Madan Lal Agarwal, on November 12, 1962, filed a return of his individual income pertaining to the assessment year 1946-47, under protest. The ITO thereupon informed Sri Madan Lal Agarwal that the notice dated 29th September, 1962, related to his HUF and that he should, instead of the return of his individual income, file the return of the income of his HUF. At a later stage the proceedings were, under the orders of the Commissioner of Income-tax, transferred to ITO, Special Survey Circle, Agra, who on 30th March, 1967, framed an assessment order determining the taxable income of the HUF for the assessment year 1946-47 as Rs. 3,87,763. However, as, before framing the assessment, the ITO, Special Survey Circle, Agra, did not give any notice or fresh opportunity to the assessee, the AAC, by his order dated 30th July, 1974, allowed the appeal filed by the assessee, set aside the assessment made by the ITO and remanded the case to him lor making a fresh assessment in accordance with law. As, before the AAC, the assessee had also questioned the validity of the proceedings initiated under s. 147/148 of the I.T Act and had claimed that those proceedings deserved to be quashed, and its plea in that regard had not been accepted, the assessee took the matter up in appeal before the Income-tax Appellate Tribunal, Allahabad, and raised the following five issues before it.

1. That the proceedings initiated against the assessee stood vitiated as no notice under section 148 of the Income-tax Act, 1961, was ever served upon it.

2. That there was no Hindu undivided family styled as Lala Madan Lal Agarwal in existence in the relevant assessment year.

3. That the Revenue having earlier proceeded to assess Sri Madan Lal Agarwal as an individual was precluded from assessing him in the status of a Hindu undivided family.

4. That the requisite belief of the Income-tax Officer enabling him to initiate proceedings under section 147 of the Income-tax Act was no belief in law, and

5. That the Income-tax Officers at Aligarh and Agra had no jurisdiction in the matter.

4. Income-tax Appellate Tribunal repelled all the pleas raised on behalf of the assessee and upheld the order of the AAC remanding the case to the ITO for framing fresh assessment in accordance with law.

5. The assessee then moved the Income-tax Appellate Tribunal under s. 256(1) of the I.T Act, and requested it to state the case, and refer the following questions of law for the opinion of this court:

“1. Whether, on the facts and in the circumstances of the case, the assessment and the proceedings purporting to be under section 147(a) are legally valid and maintainable?

2. Whether the Tribunal was correct in law in holding that the irregularity in the relevant notice issued under section 148 did not vitiate and invalidate the said notice and the relevant reassessment proceedings?

3. Whether, on the facts and in the circumstances of the case and having regard to the Tribunal's own finding that the action under section 148 was based on some information obtained by the Income-tax Officer from the Directorate of Inspection, the Tribunal was correct in law in confirming the legality of the relevant reassessment proceedings initiated under section 147(a) and not under section 147(b)?

4. Whether, on the facts and in the circumstances of the case, the assessment and the proceedings purporting to be under section 147(a) are without jurisdiction?

5. Whether the Tribunal's decision regarding the validity of the proceedings under section 147(a) in the present case is vitiated by irrelevant and inadmissible material and failure to consider the relevant material?

6. Whether there is material for the Tribunal's conclusions that, (a) the alleged ‘HUF existed in the relevant assessment year and had a joint nucleus’, and (b) there existed an honest belief and material for the belief that the alleged income assessable in the hands of the HUF had escaped assessment in the present case?

7. Whether, on the facts and in the circumstances of the case, the present assessment and the relevant proceedings are illegal and void on ground of double assessment of the same income and/or the option to assess the same income in the hands of individual having been already exercised by the Department?

8. Whether the Tribunal has acted contrary to law and principles of natural justice in proceeding to decide the case on the basis of an alleged report by the ITO, Special Circle, Amritsar, even though the assessee was neither confronted with it nor given any opportunity to have its say against the same?

9. Whether, on the facts and in the circumstances of the case and having regard to the Tribunal's own directions that the basis and material relied upon by the Department for initiating the present reassessment proceeding against the alleged HUF should first be disclosed to the assessee, the Tribunal has acted contrary to law and principles of natural justice in adversely deciding the question of the validity of the relevant proceedings and not restoring that question to the lower authorities?”

6. The Tribunal thought that the questions framed by the assessee were questions of law which arose out of its appellate order but then it opined that the purpose would be served by referring only one question, namely:

“Whether, on the facts and in the circumstances of the case, the proceedings initiated under section 147(a) against the Hindu undivided family styled as Lala Madan Lal Agarwal, was in accordance with law?”

7. It accordingly drew up a statement of the case and referred the aforementioned comprehensive question for the opinion of the court.

8. Learned counsel appearing for the assessee questioned the validity of the proceedings under section 147(a) of the I.T Act, 1961, against it, inter alia, on the ground that the notice under s. 148 of the I.T Act, 1961, issued to the assessee is invalid.

9. It is now well settled, and we do not consider it necessary to advert to numerous authorities in this regard cited at the Bar, that issuing of a valid notice to the assessee under s. 148 of the I.T Act within the period specified under s. 149 of the Act is a condition precedent to the validity of any assessment to be made against such assessee under s. 147 of the Act. Accordingly, where no such notice has been issued or if the notice issued is not valid or the same has not been served on the assessee in accordance with law, it will not be possible to sustain the eventual assessment made under s. 147 on the basis of such notice. We may also take it that where the notice issued to an assessee is vague, it would not be possible to rely upon it to sustain an assessment made under s. 147 of the I.T Act. In this regard two questions that arise for our consideration are: (1) whether the notice dated 29th September, 1962, issued under section 148 suffers from the vice of vagueness; and (2) whether the said notice can, after subsequently removing the vagueness, be relied upon for sustaining an assessment under s. 147 of the I.T Act.

10. Revenue's case is that the notice dated 29th September, 1962, was intended to be issued to Sri Madan Lal Agarwal in the status of an HUF. A perusal of the notice which has already been quoted above does not give any indication that it was addressed to Madan Lal Agarwal in his capacity as representing an HUF, which for purposes of the I.T Act is an entity different from Madan Lal Agarwal—individual. On the face of it the notice purports to inform Madan Lal Agarwal that the ITO had reasons to believe that his income for the assessment year 1946-47 had escaped assessment and that he should file a return of his income for that year for which he was assessable. Prima facie the said notice could be interpreted by Sri Madan Lal Agarwal as having been issued to him as an individual. As it is the Revenue's own case that the notice was intended to be issued to Madan Lal Agarwal in the status of HUF, the said notice either was not addressed to the assessee which was an HUF, an entity different from Madan Lal Agarwal—individual, or, in any case, it suffered from the vice of vagueness and unless the subsequent action of the ITO in informing the assessee that he was required to file the return in his status as an HUF, could, under the law, have the effect of rendering the notice valid, it will not be possible to sustain the assessment made against the HUF on its basis.

11. Submission of learned counsel for the assessee is that a notice contemplated by s. 148 of the I.T Act is a jurisdictional notice for initiating proceedings for making assessment under s. 147 of the Act and that any defect in that notice cannot be cured by anything done by the I.T authorities subsequently. In the instant case, the notice was invalid and it continued to be so despite the fact that certain information was subsequently given to the assessee.

12. Learned counsel appearing for the Revenue, however, contended that even if it be that a notice under s. 148 for initiating proceedings under s. 147 of the I.T Act is a jurisdictional notice, but then the section nowhere says that notice under, s. 148 has to be in any particular form or that all the requirements which are includible in a notice under sub-s. (2) of s. 139 of the Act are to be communicated to the assessee at one and the same time. According to him there should be no objection to the removal of vagueness in the notice subsequently.

13. In the case of Rama Devi Agarwalla v. CIT, [1979] 117 ITR 256, a Divisional Bench of the Calcutta High Court found that the notice issued by the ITO in that case was vague inasmuch as the capacity or the status in which it had been issued was not clear from it. The contention of the learned counsel for the Revenue was that if the notice is read in the background of earlier correspondence and various proceedings which had gone on between the Revenue and the concerned persons, there would be no vagueness in the notice and the notice would be perfectly intelligible. Learned counsel also contended that in construing a statutory notice extraneous evidence may also be looked into to fill up any lacuna or cure the defect, if any, in such a notice and for that purpose he placed reliance on the case of Balchand v. ITO, [1969] 72 ITR 197 (SC). Learned judges pointed out that what the Supreme Court had observed in Balchand's case, [1969] 72 ITR 197, was that the facts of that case revealed that even though there was some negligence in drafting the preamble of the notice it did not affect its validity because the notice itself clearly informed the assessee that he had to file a return of income assessable for the year ending 31st March, 1946. The learned judges further opined that the said Supreme Court decision could not be treated as an authority for the proposition that if a statutory notice under s. 34 of the Indian I.T Act, 1922 and/or under s. 148 of the I.T Act, 1961, is ambiguous or defective or is otherwise invalid, the same can be cured by taking into account other documents whereby such defects can be rectified and/or the omissions can be filled in. Eventually the learned judges impelled the plea of the Revenue and held the vague notice to be invalid and did not permit the vagueness therein to be removed with reference to other documents on the record.

14. Again in the case of Bhagwan Devi Saraogi v. ITO, [1979] 118 ITR 906, a single judge of the Calcutta High Court following the dictum laid down in Rama Devi Agarwalla's case, [1979] 117 ITR 256 (Cal), observed that if the notice itself is otherwise bad in law, the invalidity or illegality thereof cannot be cured by any act of the assessee to whom the said notice is issued.

15. The matter, in our opinion, stands concluded by a decision of the Supreme Court in the case of CIT v. Kurban Hussain Ibrahimji Mithiborwala, [1971] 82 ITR 821. In that case a notice was issued to the assessee under s. 34 of the Indian I.T Act, 1922, calling upon him to file his return for the assessment year 1948-49. Along with it a notice under s. 22(2) was also issued wherein the assessment year had been indicated as 1949-50. The assessee submitted a return for the year 1949-50 under protest and eventually the ITO completed the reassessment of the assessee for the year 1949-50. The assessee claimed that the notice under s. 34 was invalid as it did not relate to the year 1949-50. The AAC accepted the plea of the assessee and allowed the appeal on the ground that s. 34-notice was invalid. In appeal by the Commissioner, the Tribunal reversed the decision of the AAC. It held that the irregularity in the notice did not in any manner prejudice the assessee. The matter then came up before the High Court which reversed the decision of the Income-tax Appellate Tribunal and held that the proceedings in the case stood vitiated. Notwithstanding the fact that the assessee had been afforded an opportunity and he had in fact filed the return for the year 1949-50, for which the I.T Department intended to proceed under s. 34 of the Indian I.T Act, 1922, the Supreme Court observed that it was well settled that the ITO's jurisdiction to reopen an assessment under s. 34 depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason, the entire proceedings taken by him would become void for want of jurisdiction. By means of the notice under s. 34 of the Indian I.T Act, 1922, issued by the ITO in that case, he purported to reopen the assessment of the assessee for the assessment year 1948-49, but he had in fact reopened it for the year 1949-50. In the result, the learned judges opined that the High Court was right in holding that the notice in question was invalid and as such the ITO had no jurisdiction to revise the assessment of the assessee for the year 1949-50. In this case their Lordships of the Supreme Court clearly did not permit the defect in the notice issued under s. 34 of the. Indian I.T Act, 1922. to be cured by something that was contained in collateral document, namely, the notice under s. 22 of the 1922 Act, as also by taking into account the fact that the assessee had in fact not been prejudiced as he had filed the return of his income for the year for which he was actually sought to be assessed. In this view of the matter, it will not be possible, as claimed by the Revenue, to hold that the defect in the notice dated September 29, 1962, stood rectified merely because subsequently the ITO required the assessee to file the return in his capacity of an HUF instead of that of an individual. The entire proceedings, therefore, initiated on the basis of such a notice stood vitiated.

16. Learned counsel for the Revenue placed reliance on three decisions of this court in the cases of Gopaldas Parshottamdas v. Commissioner Of Income-Tax, C.P & U.P, [1941] 9 ITR 130 (All), Radhey Lal Balmukand, In re, [1942] 10 ITR 131 (All) and Mohd. Haneef v. CIT, [1955] 27 ITR 447 (All). So far as the cases of Gopaldas Parshottamdas v. Commissioner Of Income-Tax, C.P & U.P and Radhey Lal Bahnukand, In re, are concerned, they pertain to the notice for original assessment issued by the I.T authorities under s. 22 of the Indian I.T Act, 1922. In these cases it has been held that merely because while issuing a notice under s. 22 calling upon an assessee to file a return under s. 22 of the Indian I.T Act, 1922, the ITO does not indicate the capacity in which the assessee is to file the return, the notice and the proceedings following thereupon do not stand vitiated. It was pointed out in these cases that when the ITO calls upon a person to file a return under s. 22 of the Indian I.T Act, 1922, he may not be in a position to know the capacity in which he may be receiving the income. In the circumstances, it is for the assessee himself to inform the ITO as to what income and in which capacity he had received the same. In our opinion, these reasons will not apply to a case where the escaped income of an assessee is sought to be brought to tax. So far as the case of Mohd. Haneef v. CIT, [1955] 27 ITR 447 (All) is concerned, the notice issued under s. 34 of the Indian I.T Act, 1922, did not specify the status in which it had been issued to the assessee. However, this court construed the notice as clearly indicating the capacity in which it had been issued to the assessee, and held that in these circumstances it could not be said that the notice was vitiated merely because it did not specify the status in which it had been issued to the assessee. This decision, in our opinion, is clearly distinguishable inasmuch as in the instant case even if the notice is read as a whole it does not indicate that it has been issued to Madan Lal Agarwal in the status of an HUF. Mohd. Haneef's case, [1955] 27 ITR 447 (All), certainly is not an authority for the proposition that any vagueness in the notice can be got cured with reference to any subsequent communication made by the ITO. We are, therefore, of opinion that the notice under s. 34 issued to Sri Madan Lal Agarwal on 29th September, 1962, was vague and as such invalid. The vagueness of the said notice did not stand cured because the ITO at a later stage informed the assessee that he was to file his return in the status of HUF. The proceedings following such a vague and invalid notice also stand vitiated. In this view of the matter, it is not necessary for us to go into the various other grounds raised by the learned counsel for the assessee for questioning the validity of the proceedings under s. 147(a) of the I.T Act, 1961.

17. In the result, we answer the question referred to us in the negative and in favour of the assessee. The assessee shall be entitled to costs which are assessed at Rs. 250.