- Bookmark
- Share
- CaseIQ
K.N Agrawal v. Commissioner Of Income-Tax.
Structured Summary of the Opinion (B.P. Jeevan Reddy, C.J.)
Factual and Procedural Background
This writ petition (No. 387 of 1980) challenges a show-cause notice issued by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, calling upon the petitioner to show cause why the assessment order dated September 21, 1978 (assessment year 1975-76), should not be revised.
The relevant facts recited in the notice: for assessment year 1975-76 the Income-tax Officer made an assessment on September 21, 1978 on a total income of Rs. 13,08,902. The petitioner was a partner holding a 50% share in the partnership firm Shiv Narain Parmendra Narain, Ranghat, Aligarh. The petitioner contended that only one-third of the income received in respect of that 50% share should be assessed in his hands and the remaining two-thirds of that share income should be distributed equally between his wife and his minor son pursuant to a memo of partial partition dated November 9, 1985. Initially the Income-tax Officer negatived this contention and included the entire income in the petitioner's hands. The petitioner then filed a revised return (disclosing higher figures) and repeated the same contention. The Income-tax Officer accepted the contention in the revised return and assessed only one-third of the share income in the petitioner's hands and the remaining two-thirds equally in the hands of the petitioner's wife and minor son. The Commissioner regarded the Income-tax Officer's assessment as erroneous and prejudicial to the interests of the Revenue and issued the impugned show-cause notice.
Instead of submitting an explanation to the Commissioner, the petitioner filed this writ petition in 1980. The court admitted the petition and stayed further proceedings pursuant to the show-cause notice.
Legal Issues Presented
- Whether the Commissioner can validly invoke the revisional power under section 263 of the Income-tax Act to revise an assessment order where the Assessing Officer has followed a decision of this Court (or another appellate authority) in the same assessee, even though that decision is the subject-matter of a further appeal to a higher court (e.g., the Supreme Court).
- Whether a writ petition challenging a show-cause notice issued under section 263 is maintainable when the petitioner has not first submitted an explanation to the Commissioner and awaited the Commissioner's decision.
- Whether an order of assessment is "erroneous" within the meaning of section 263 where it follows a binding decision of an appellate authority or a High Court in the case of the same assessee.
Arguments of the Parties
Petitioner's Arguments
- A dispute identical to that in the impugned notice had arisen for assessment years 1966-67 to 1974-75 and this court (I.T.R No. 764 of 1978) held that income accruing to the wife and minor son cannot be clubbed with the petitioner's income; only one-third should be assessed to the petitioner and two-thirds to the wife and minor son.
- The Income-tax Officer merely followed that decision in making the assessment under challenge; therefore the assessment could not be said to be erroneous within section 263 and the show-cause notice was without jurisdiction and amounted to harassment.
Respondent's (Revenue) Arguments
- No counter-affidavit was filed, but the Revenue, through learned additional standing counsel, submitted that the earlier decision of this court was the subject-matter of an appeal pending before the Supreme Court and therefore could not be treated as final.
- It was also contended that filing a writ petition against a show-cause notice without first submitting an explanation to the Commissioner and awaiting his decision is not maintainable; the petitioner should be directed to submit an explanation and, if aggrieved by the Commissioner's order, pursue available remedies.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| I.T.R. No. 764 of 1978 (this court) | The decision that, in the petitioner's earlier assessments, the income of the wife and minor son could not be clubbed with the petitioner's income — only one-third to petitioner and two-thirds to wife and son. | The Court treated this prior decision as binding on the Assessing Officer in the petitioner's subsequent assessment and held that the Assessing Officer had no option but to follow it; therefore the assessment could not be characterised as "erroneous" under section 263. |
| CIT v. Lakshmi Kant Gupta [1978] UPTC 314 | Authority relied upon by the court in earlier decisions concerning the treatment of family members' income for clubbing purposes. | The Court noted it followed its earlier decision in this case when determining that income of the wife and minor son should not be clubbed with the petitioner. |
| Russell Properties v. A. Chowdhury [1977] 109 ITR 229 (Calcutta High Court; S. Mukherji J.) | Where the Income-tax Officer passed assessment orders following the decision of the Appellate Tribunal, the Commissioner cannot revise those assessments under section 263 because the assessment order cannot be said to be erroneous in such circumstances. | The Court cited this case in support of the proposition that an Assessing Officer's adherence to a binding appellate decision in the same assessee prevents the Commissioner from treating the assessment as erroneous under section 263. |
| CIT v. Late Sunderlal [1975] 96 ITR 310 (Division Bench of this Court) | When an Assessing Officer follows a decision of an appellate authority, that Assessing Officer's decision cannot be treated as erroneous merely because the appellate authority's decision is the subject-matter of a further appeal. | The Court relied on this authority to reinforce that following a binding appellate decision does not render an assessment erroneous for purposes of section 263, even if that appellate decision is under further appeal. |
Court's Reasoning and Analysis
The court began by acknowledging that two conditions must be satisfied to invoke section 263: (i) the order proposed to be revised must be erroneous; and (ii) it must be prejudicial to the Revenue. The court observed that while the prejudicial effect might be present, the essential first requirement of erroneousness was not met in this case.
The court emphasized that the Assessing Officer had followed this court's earlier decision in the petitioner's own case concerning the same point, and therefore the assessment could not be characterised as erroneous within the meaning of section 263. The fact that the earlier decision was the subject-matter of an appeal to the Supreme Court did not render the decision non-final for the purposes of administrative action within the State; the High Court's decision remained binding on authorities within its territorial jurisdiction.
The court considered whether the Commissioner could invoke section 263 to keep the dispute alive while awaiting a higher court's decision in the hope that it might ultimately favour the Revenue. The court concluded that such an exercise of the revisional power could not be sustained because it would amount to permitting the Commissioner to treat an assessment as erroneous solely because the Assessing Officer had followed a binding appellate or High Court decision that was under further appeal. The court viewed this as inconsistent with the quasi-judicial discipline required of Assessing Officers and warned that allowing such practice would lead to judicial indiscipline and chaotic administration.
In support of this reasoning the court relied on precedents: Russell Properties v. A. Chowdhury and CIT v. Late Sunderlal, which held that where an Assessing Officer follows the decision of an appellate authority, the assessment cannot be regarded as erroneous merely because that appellate decision is under further appeal.
The court also explained its discretionary approach to the petition: because the writ petition had been admitted and proceedings stayed for more than ten years and because there was no factual dispute, it was inappropriate to dismiss the petition summarily on the ground that it challenged a show-cause notice rather than a final order.
Holding and Implications
Holding:
Writ petition (C.M.W.P. No. 387 of 1980) allowed and the impugned show-cause notice dated August 23, 1980 is quashed. The court ordered no costs.
Implications:
- The direct effect is that the Commissioner could not, in this matter, invoke section 263 to revise an assessment that the Assessing Officer had made by following a binding decision of this Court in the same assessee, even though that decision was under appeal to the Supreme Court.
- The court established and reiterated the principle that an assessment following a binding appellate or High Court decision in the same assessee cannot be treated as "erroneous" under section 263 merely because the appellate decision is subject to further appeal; allowing otherwise would create judicial indiscipline.
- In a related petition (C.M.W.P. No. 388 of 1980) where the Assessing Officer had followed a decision rendered in another matter (not in the case of the same assessee), the court did not quash the notice; instead it directed the petitioner to file an explanation and directed the Commissioner to pass orders according to law keeping in view the observations made in C.M.W.P. No. 387 of 1980. That petition was dismissed with observations and no costs.
- The Court's order addresses administrative practice by clarifying limits on the Commissioner's revisional power under section 263 but does so grounded in authority and existing precedents rather than creating novel legislative policy.
No additional facts, arguments, or precedents beyond those appearing in the provided opinion have been included.
B.P Jeevan Reddy, C.J:— This writ petition (No. 387 of 1980) is directed against a show cause notice issued by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, calling upon the petitioner to show cause as to why the assessment order dated September 21, 1978, relating to the assessment year 1975-76 be not revised.
2. The impugned show-cause notice recites the following facts:
For the assessment year 1975-76, the assessment in the case of the petitioner herein was made by the Income-tax Officer on September 21, 1978, on a total income of Rs. 13,08,902. From the records maintained in the office of the Inspecting Assistant Commissioner (Assessment), Agra, the Commissioner found that the petitioner was a partner in the partnership firm, Shiv Narain Parmendra Narain, Ranghat, Aligarh, with a share of 50%. The petitioner's contention, however, was that ⅓rd of the income received towards the said share alone must be assessed in his hands and the remaining ⅔rds of the said share income should be distributed equally between his wife and his minor son by virtue of an overriding charge created by a memo of partial partition dated November 9, 1985. The Income-tax Officer negatived the said contention of the petitioner and included the entire income pertaining to the said 50% share in the income of the individual. The petitioner filed a revised return in which he disclosed higher figures, and again with the same contention relating to the share income received from the aforesaid partnership-firm. This contention was accepted by the Income-tax Officer and only ⅓rd of the share income was assessed in the hands of the petitioner and the remaining ⅔rd was held assessable equally in the hands of the petitioner's wife and his minor son. The Commissioner is of the opinion that the entire share income is assessable in the hands of the petitioner alone and the assessment made by the Income-tax Officer to the contrary is erroneous in law and prejudicial to the interests of the Revenue. The petitioner is accordingly called upon to show cause against the same.
3. Without, however, submitting any explanation, the petitioner straightaway approached this court against the show-cause notice by way of this writ petition, which was entertained and admitted as far back as in 1980 and all further proceedings stayed. The petitioner's case, as set out in the writ petition, is to the following effect:
A dispute identical to the one mentioned in the impugned show-cause notice had arisen in respect of the assessment years 1966-67 to 1974-75. The matter was finally brought to this court by way of a reference and it was decided by this court that the income accruing to the wife and the minor son of the petitioner cannot be clubbed with or included in the income of the petitioner (vide I.T.R No. 764 of 1978). This decision was rendered by this court following its earlier decision in CIT v. Lakshmi Kant Gupta [1978] UPTC 314). The Income-tax Officer has merely followed the decision of this court. If so, it cannot be held that the order of assessment made by him is erroneous within the meaning of section 263. The impugned show-cause notice is, therefore, without jurisdiction and amounts to harassment of the petitioner.
4. Though no counter-affidavit has been filed by the respondent, the writ petition has been opposed by Sri Markandey Katju, learned additional standing counsel for the Revenue, on the material before the court. It is submitted that the decision of this court relating to previous years is the subject-matter of an appeal before the Supreme Court and, therefore, it cannot be said that it is final. It is also argued that the writ petition filed against a show cause notice, without even submitting an explanation and without waiting for a decision by the Commissioner, is not maintainable in law. The petitioner must be directed, it-is argued, to submit his explanation before the Commissioner and take a decision from him and then, if aggrieved, adopt such remedies as are open to him in law.
5. Having regard to the fact that the writ petition was admitted more than ten years ago and proceedings were stayed in pursuance of the impugned show cause notice, we do not think it would be a proper exercise of discretion to dismiss the writ petition summarily on the ground that it is directed against a mere show-cause notice, more particularly when there is no factual dispute involved herein. It is evident from the record that in the case of this very petitioner-assessee, this court has held earlier with respect to the preceding assessment years that the entire share income received from the aforesaid partnership firm is not liable to be included or assessed in the hands of the petitioner. It was held that only ⅓rd of the said share income received should be included in the petitioner's income and the rest ⅔rd in the respective incomes of the petitioner's wife and minor son. True, it is submitted that the said decision is the subject-matter of an appeal pending before the Supreme Court, but can it be said on that account that the assessment order made by the Income-tax Officer following the decision of this court is erroneous within the meaning of section 263. It is well-settled that for invoking the power under section 263, two grounds must exist, namely, (i) the order proposed to be revised must be erroneous and (ii) it must be prejudicial to the Revenue. The second ground may be said to have been satisfied in this case, but not the first one. Just because an appeal is pending, the decision of this court cannot be treated as not final, nor can it be ignored. It is binding upon the authorities within the territories of this State. The Income-tax Officer had no option but to follow this decision of this court in the case of this assessee.
6. During the course of hearing, a doubt arose in our minds whether the Commissioner can invoke his revising power under section 263 with a view to keep the dispute alive, awaiting the decision of the Supreme Court. In short, the issue was whether it is open to invoke this power with a view to protect the interest of the Revenue awaiting the decision of a higher court or Tribunal as the case may be. It may very often happen that a decision of an appellate authority or tribunal pertaining to an earlier assessment year on a particular point is in favour of the assessee and that is followed in the assessment relating to subsequent assessment years. It may also happen that the Commissioner may consider that such decision of the appellate authority or Tribunal is not in accordance with law and he may also find that such decision is the subject-matter of further appeal or revision, as the case may be. He may expect that the higher court or authority may ultimately decide in favour of the Revenue, but that may take a number of years. He may be of the further view that, by the time the decision of the higher court or authority arrives, a number of years may elapse, by which time the exercise of power under section 263 may become barred. It is true again that the judgment of a High Court or the Supreme Court can be treated as information within the meaning of section 147 but even that may be barred in many cases. Can the Commissioner say in such cases that he would invoke his power of revision and keep it pending awaiting the decision of a higher court or authority? To put it in the language of section 263, can he, in such a case, act on the footing that the order of the assessing authority is erroneous? After giving our earnest consideration to the matter, we are of the view that it is difficult to sustain the exercise of reviewing power in such a situation for the simple reason that the order of the assessing authority cannot be said to be erroneous if he merely follows a decision of a higher authority or court on the same point in the case of the same assessee. Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing Officer and since he acts in a quasi-judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore it merely on the ground that the Tribunal's order is the subject-matter of revision in the High Court or that the High Court's decision is under appeal before the Supreme Court. Permitting him to take such a view would introduce judicial indiscipline, which is not called for even in such cases. It would lead to a chaotic situation. True it is that the dilemma of the Revenue is also real and substantial in such cases, but such a situation cannot be provided for by judicial interpretation by courts, but only by an appropriate agency.
7. We find that a similar view has been taken by Sabyasachi Mukherji J. (as he then was) as a judge of the Calcutta High Court in Russell Properties v. A. Chowdhury [1977] 109 ITR 229. In that case, the Income-tax Officer passed assessment orders following the decision of the Appellate Tribunal which was sought to be revised by the Commissioner. The learned judge held that it cannot be done because the order of assessment cannot be said to be erroneous in the circumstances. We may also refer to a Division Bench decision of this court in CIT v. Late Sunderlal [1975] 96 ITR 310, where too it was held that where the Assessing Officer follows the decision of an appellate authority, it cannot be said that his decision is erroneous merely because the decision of the appellate authority is the subject-matter of a further appeal.
8. For the above reasons, the writ petition is allowed and the impugned show-cause notice dated August 23, 1980, is quashed. No costs.
9. C.M.W.P No. 388 of 1980: Though the facts in this case are said to be similar to those in C.M.W.P No. 387 of 1980, Mr. Upadhyaya, learned counsel for the petitioner, fairly stated that the decision, which the Income-tax Officer followed in making the assessment in this case is not in the case of this very assessee, but a decision rendered in similar circumstances. Since the decision followed is not in the case of the assessee himself, but in some other matter, and since it is a matter of further verification, we do not think it proper to quash the notice in this writ petition. Let the petitioner file his explanation and the Commissioner shall pass orders thereon according to law keeping in view the observations made by us in C.M.W.P No. 387 of 1980.
10. This writ petition is accordingly dismissed with the above observations. No costs.
Alert