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Structured Summary of the Opinion — P. Krishna, J.

Factual and Procedural Background

This reference under section 256(1) of the Income-tax Act, 1961 arises from reassessment proceedings under section 147 for assessment year 1964-65. The assessee was a joint Hindu family trading as M/s. Shital Prasad Kharag Prasad. The family's karta position changed over time: Raja Sir Mori Chand (died 1934), succeeded by Gokul Chand (died 1958), and ultimately Shri J.B. Gupta became karta. A partition dispute resulted in litigation (Suit No. 49 of 1936) and later reached the Supreme Court (MCA No. 1219 of 1969). An arbitrator's award dated 29 April 1973 was confirmed by the Supreme Court on 18 July 1973; the family was treated as disrupted on that date. The Income-tax Officer passed an order under section 143(3)/171 on 27 April 1976 recording the fact of partition.

In relation to capital gains on a property (22 Harding Avenue) the Income-tax Officer concluded that transfer occurred on 20 December 1963, making capital gains chargeable for assessment year 1964-65, although earlier the Officer had treated the relevant date as the award of the Land Acquisition Collector in 1966 and charged gains in 1967-68; that position was set aside by the Tribunal on 20 June 1974. After Board approval, a notice under section 148 was issued on 20 August 1976, addressed to the joint family and served on 27 August 1976 on one Shri B.D. Agrawal, who had a written authority from Shri J.B. Gupta to look after family affairs. Shri J.B. Gupta had died on 13 August 1974. A return pursuant to the notice was filed by Shri Rajkumar on 7 January 1977.

During reassessment, the assessee objected that the section 148 notice had not been validly issued or served as required by section 283(1) (which prescribes mode of service after finding of total partition under section 171). The Income-tax Officer rejected that objection and passed the reassessment order. The Commissioner of Income-tax (Appeals) held that, given the partition recorded on 27 April 1976 and the death of Shri J.B. Gupta on 13 August 1974, notices in respect of the income had to be served on all adults who were members of the family immediately before partition. The Tribunal confirmed that view on appeal by the Revenue, and the Tribunal's order led to the present reference of the specific question of law to this Court.

Legal Issues Presented

  1. “Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that neither a notice under section 148 of the Income-tax Act, 1961, had been issued to the assessee nor had it been validly served?”

Arguments of the Parties

Department's Arguments (as presented in the opinion)

  • The reassessment notice under section 148 was validly issued and validly served on Shri B.D. Agrawal.
  • Reliance was placed upon three authorities to support the contention that the reassessment notice and its service were valid: (a) CIT v. Anand and Co., [1994] 207 ITR 418 (Cal.), (b) CIT v. Rajbir Singh (HUF), [1998] 233 ITR 126 (P&H), and (c) Mulchand Rampuria v. ITO, [2001] 252 ITR 758 (Cal.).

Assessee's Arguments (as presented in the opinion)

  • The section 148 notice could not be validly served on Shri B.D. Agrawal on 27 August 1976 because Shri J.B. Gupta, on whose authority Agrawal acted, had died on 13 August 1974; Agrawal’s authority therefore ceased ipso facto on the death of Shri J.B. Gupta.
  • The section 148 notice was not served on all adult members of the family who existed immediately before the partition, as required by section 283(1) after a partition recorded under section 171.
  • Filing a return in consequence of an allegedly illegal service of notice (i.e., service on Agrawal) does not validate the reassessment proceedings.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Anand and Co., [1994] 207 ITR 418 (Cal.) Authority relied upon by Department to support validity of reassessment notice. The Court found the facts materially different: that case concerned an allegation about the signature on the notice, and the validity of the mode of issuance was not the subject-matter there. The Court concluded the ruling did not support the Department's position in this case.
CIT v. Rajbir Singh (HUF), [1998] 233 ITR 126 (P&H) Authority relied upon by Department; the cited judgment concerned a High Court directing a Tribunal to refer a question of law. The Court observed the Department's counsel cited it without reading; the judgment was procedural (direction to refer a question) and not applicable to the facts or question here.
Mulchand Rampuria v. ITO, [2001] 252 ITR 758 (Cal.) Authority relied upon by Department to support the assessing authority's competence to issue a section 148 notice (on sufficiency of material). The Court held it was inapplicable: that case involved a challenge to the sufficiency of material to form belief; no such question arises here. The case does not address service requirements after partition under section 283(1).
Laxmi Narain Anand Prakash v. CST, [1980] 46 STC 71 (All) [FB]; [1980] UPTC 125 Full Bench decision under section 21 of U.P. Sales Tax Act (in pari materia with section 147 of the Income-tax Act) addressing requirement of valid service for reassessment-type proceedings. The Court relied on this Full Bench decision to support the proposition that service of a valid notice is foundational and that absence of valid notice renders proceedings without jurisdiction; consent by assessee cannot confer jurisdiction.
Bhagwan Devi Saraogi v. ITO, [1979] 118 ITR 906 Principle that absence of valid notice means the authority does not acquire jurisdiction; proceedings are void despite assent by assessee. The Court quoted this authority to reinforce that valid service is jurisdictional and essential; used to support the conclusion that filing a return or consent does not cure absence of jurisdiction.
P.N. Sasi Kumar v. CIT, [1988] 170 ITR 80 (Kerala) Held that issuance of a notice under section 148 is a condition precedent to validity of assessment under section 147; notices must specify correct assessment year and be addressed to the proper person/capacity; fundamental infirmities cannot be cured by section 292B. The Court relied on these principles to show that fundamental defects in notice or service (including addressing the wrong person/capacity) invalidate the assessment and are not cured by condonation provisions.
Madan Lal Agarwal v. Commissioner Of Income-Tax, Kanpur, [1983] 144 ITR 745 Held that a notice under section 148 is jurisdictional; defects in such notice cannot be cured subsequently; vague notices are invalid and cannot be clarified by reference to other documents. The Court cited this Division Bench authority to support the proposition that the invalidity of a jurisdictional notice cannot be cured and that vagueness or improper service renders the notice invalid.

Court's Reasoning and Analysis

The Court examined (a) the factual record concerning issuance and service of the section 148 notice; (b) the Department's authorities; and (c) established principles on jurisdictional effect of a section 148 notice.

Step-by-step analysis, as set out in the opinion:

  1. Factual finding: Shri J.B. Gupta died on 13 August 1974. The section 148 notice in question was issued on 20 August 1976 and served on 27 August 1976 on Shri B.D. Agrawal, who had earlier held written authority from the deceased Shri J.B. Gupta to look after family affairs.
  2. Legal consequence of death: The Court held that the authority of Shri B.D. Agrawal, which derived from Shri J.B. Gupta, ipso facto ceased on 13 August 1974 by reason of Shri J.B. Gupta's death. Therefore service on Agrawal in 1976 could not be treated as valid service on behalf of the family or on the person who had originally given authority.
  3. Partition/service requirement: After the Income-tax Officer recorded a finding of partition under section 171 on 27 April 1976, section 283(1) required service on the adult members of the family who existed immediately before the partition. The Court accepted the Commissioner of Income-tax (Appeals) and the Tribunal's conclusion that notices had to be served on all such adult members and that this had not been done.
  4. Jurisdictional nature of section 148 notice: The Court reiterated the settled legal position (citing Full Bench and High Court authorities) that issuance and proper service of a jurisdictional notice under section 148 is a condition precedent to the validity of reassessment proceedings under section 147. Absence of valid service means the assessing authority does not acquire jurisdiction and the entire proceeding is void.
  5. Rejection of Department's authorities: The Court reviewed the three cases relied upon by the Department and concluded none were applicable to the present facts — either because they addressed different issues (e.g., signature or sufficiency of material) or were procedural in nature — and therefore did not support validating the service on Agrawal.
  6. Section 292B inapplicable: The Court held that section 292B (which condones certain mistakes, defects or omissions in notices if in substance they conform with the Act's intent) could not cure this defect because the mistake here (service on a person whose authority had ceased and failure to serve adult members post-partition) went to the root of jurisdiction. It was not a mere formal defect.
  7. Effect of the assessee's filing of a return: The Court held that filing a return in consequence of an allegedly illegal service of notice cannot validate the reassessment proceedings or confer jurisdiction on the assessing authority where valid service was absent.

The Court observed that no other point was pressed by the Department's counsel and therefore confined its analysis to the legality of issuance/service of the section 148 notice.

Holding and Implications

Holding: The Court answered the referred question in the affirmative, i.e., against the Revenue and in favour of the assessee. The Tribunal's order that the notice under section 148 was not validly issued/served (and hence the reassessment invalid) was held to be legally sound. There was no order as to costs.

Implications:

  • Direct effect on the parties: The reassessment proceedings based on the section 148 notice served on Shri B.D. Agrawal are invalid for want of valid service; the Tribunal's decision in favour of the assessee is upheld.
  • Jurisdictional principle reinforced: The decision reiterates that a valid notice under section 148 is jurisdictional and that fundamental defects in issuance or service (including failure to serve proper persons after partition or serving a person whose authority has ceased) render reassessment proceedings void and are not cured by the assessee's subsequent actions or by section 292B.
  • Broader precedent: The opinion relies on and applies existing High Court and Full Bench authorities to the facts; it does not purport to lay down a novel principle beyond the established line that valid service is essential for jurisdiction. The opinion does not state that it establishes a new precedent beyond affirming the applicability of established authorities to the present facts.

No order as to costs.

    Commissioner Of Income-Tax v. Shital Prasad Kharag Prasad

    P. Krishna, J.:— The Income-tax Appellate Tribunal, Allahabad, at the instance of the Income-tax Department has referred the following question of law under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for opinion to this court:

    “Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that neither a notice under section 148 of the Income-tax Act, 1961, had been issued to the assessee nor had it been validly served?”

    2. The assessment year 1964-65 is involved in the present reference. The brief facts of the case are as follows: The proceedings giving rise to the present reference arose out of reassessment proceedings under section 147 of the Act. There was a joint Hindu family known as M/s. Shital Prasad Kharag Prasad. This family consisted of Raja Sir Mori Chand, his younger brother, Gokul Chand, the sons of the latter and the sons of the pre-deceased brother, Shri Mangal Prasad. Raja Sir Mori Chand who was originally the karta of the family died in 1934 leaving no male issue and was succeeded by Shri Gokul Chand as karta, who also died in 1958. Ultimately, Shri J.B Gupta became the karta of the family. The family was enjoying income from business, house property and Zamindari properties spread over at different places including Varanasi, Delhi and Calcutta. After the death of Sir Moti Chand in 1934, the business of the family virtually came to a close and a separation took place between the two branches; one consisting of Shri Gokul Chand and his sons and the other consisting of Shri J.B Gupta and sons. A dispute had arisen among the family members which led to the filing of Suit No. 49 of 1936 by Shri J.B Gupta against his uncle, Shri Gokul Chand, in 1936. A preliminary decree for partition was passed. Ultimately, the matter went before the Supreme Court in appeal being MCA No. 1219 of 1969. One of the points involved was the date of separation. The matter was referred to the arbitrator by the Supreme Court. On April 29, 1973, the arbitrator gave the award which was confirmed by the Supreme Court on July 18, 1973. The effect of this award was that the family was disrupted on the above date. The Income-tax Officer on April 27, 1976, passed an order under section 143(3)/171 of the Act regarding the fact of partition of July 18, 1973.

    3. In the assessment proceedings for the assessment year 1967-68, a question arose with regard to the amount of capital gains in respect of property No. 22, Harding Avenue, let out to Union of India on requisition since 1942, for the purposes of establishing a Women's Polytechnic. The said property was acquired by the Land Acquisition Officer under the provisions of the Land Acquisition Act, by the award dated October 26, 1966, which was confirmed by the Collector on December 5, 1966. The Income-tax Officer charged the capital gains on the said property in the assessment year 1967-68 as he was of the opinion that the date of award of the Land Acquisition Collector is the relevant date for charging the capital gains. However, this part of the order of the Income-tax Officer was set aside by the Tribunal by the order dated June 20, 1974. The Income-tax Officer found that the capital gain is chargeable with reference to the date when possession of the property was transferred, in view of section 45 of the Act. The transfer of property in the present case took place on December 20, 1963, and, therefore, the Income-tax Officer felt that the capital gains were taxable in the assessment year 1964-65. In the original assessment proceedings for the assessment year 1964-65, no capital gain was charged on such profit. After obtaining the Board's approval, a notice under section 148 of the Act was issued on August 20, 1976. The said notice was addressed to M/s. Shital Prasad Kharag Prasad, Azmatgarh Palace, Vara-nasi, and was served on August 27, 1976, on one Shri B.D Agrawal who had been looking to the affairs of the family from time-to-time and has a written authority in his favour from Shri J.B Gupta. It may be noticed here that Shri J.B Gupta had died on August 13, 1974, consequently a plea was raised that after the death of Shri J.B Gupta, no notice on his behalf could be received or served by Shri B.D Agrawal whose authority had come to an end on account of the death of Shri J.B Gupta. However, the return was filed in pursuance of the notice by Shri Rajkumar on January 7, 1977.

    4. During the course of reassessment proceeding, before the Income-tax Officer, one of the objections raised was that the notice under section 148 of the Act was neither validly issued nor served, as required in terms of section 283(1) of the Act. The said section prescribes mode of service after finding of total partition has been recorded by the Income-tax Officer under section 171 in respect of the joint Hindu family. The Income-tax Officer did not accept the aforesaid contention of the assessee and passed the reassessment order which was challenged before the Commissioner of Income-tax (Appeals), by the assessee.

    5. In appeal, the Commissioner of Income-tax (Appeals) found that in view of the undisputed facts that a partition has taken place in the joint Hindu family of the assessee, on April 27, 1976, by passing an order under section 171 of the Act and that Shri J.B Gupta had died on August 13, 1974, notices under the Income-tax Act in respect of the income of the assessee were compulsorily to be served on all the adults, who were members of the family, immediately before the partition. This order has been confirmed by the Tribunal in appeal filed by the Revenue.

    6. Heard Shri Dhananjay Awasthi, learned standing counsel for the Department. Challenging the order passed by the Tribunal he has placed reliance upon the following three rulings in support of his submission that the reassessment notice was validly issued and was validly served on Shri B.D Agrawal:

    CIT v. Anand and Co., [1994]207 ITR 418 (Cal).

    7. Briefly the facts of this case are that a notice under section 148 of the Act for reassessment was issued. In the said notice the validity of the mode of issuance of notice under section 148 of the Act was not at all the subject-matter of the case. The allegation of the assessee was that the notice did not contain the distinct signature of the Income-tax Officer. On this contention no finding was given by the Commissioner of Income-tax (Appeals). But the assessment itself was set aside by him on the grounds of want of initial jurisdiction. In the second appeal preferred by the Revenue, the Tribunal initially passed an order in favour of the assessee upholding the findings of the Commissioner of Income-tax (Appeals) as to the non-maintainability of the provisions of section 147(b) and the invalidity of the initiation of the proceedings. Subsequently the Tribunal, on a miscellaneous petition filed by the assessee pleading as regards the illegality of the notice itself by reason of the manner of signature of the issuing officer appearing on the notice, came to the conclusion that the said notice does not bear the authentic signature of the issuing officer. The case was decided in this factual background. To say the least there is no similarity between the facts of the case relied upon by learned counsel for the Revenue and the facts of the case in hand. In the case in hand there is no dispute with regard to the question that the reassessment notice was not signed by the officer concerned. Moreover, as noticed by the Calcutta High Court in that judgment there was no question of the validity of the mode of the issue of notice in that case. Therefore, the aforesaid ruling does not defend the case of the Department.

    8. The next case relied upon is CIT v. Rajbir Singh (HUF), [1998]233 ITR 126 (P&H). It appears that learned standing counsel has cited the above case even without caring to read it. The said judgment of the High Court is on the income-tax application directing the Tribunal to refer the question framed therein for the opinion of the court as the High Court was of the opinion that a question of law arises from the order of the Tribunal.

    9. The next case relied upon is Mulchand Rampuria v. ITO, [2001]252 ITR 758 (Cal). The said case is also not applicable. The assessee in that case had challenged the validity of the reassessment notice by filing a writ petition in the High Court on the ground that there was no material before the assessing authority to form a belief that the income of the assessee has escaped assessment. The High Court on the facts of that case held that the assessing authority had the authority to issue such notice. Since no such question is involved in the present case, the said case has hardly any application to the facts of the present case. It was held that the sufficiency of the correctness of the material is not a thing to be gone into by the court hearing the question of validity of issuance of fresh assessment notice under section 148 of the Act.

    10. In view of the above discussion none of the authorities relied upon by learned standing counsel have any application to the facts of the present case. Learned standing counsel cited the above rulings little realising that these rulings have no application to the facts of the present case or to the question of law involved therein.

    11. We have independently examined the findings of the Tribunal on the question of issuance of a valid notice under section 148 of the Act and its service on Shri B.D Agarwal, who represented Shri J.B Gupta. It is not in dispute that Shri J.B Gupta had died on August 13, 1974. Therefore, notice under section 148 of the Act could not be validly served on Shri B.D Agrawal on August 27, 1976. The authority of Shri B.D Agrawal came to an end ipso facto on August 13, 1974, on account of death of Shri J.B Gupta. It is settled law that the service of a valid notice under section 148 is the foundation for the initiation of reassessment proceedings and a condition precedent for the validity of the notice. The further fact is that the notice under section 148 was not served on the adult members of the family who were in existence at the time of the partition of the joint Hindu family. Filing of the return in consequence of illegal service of notice on Shri B.D Agrawal will not validate the reassessment proceedings. A Full Bench decision of this court rendered under section 21 of the U.P Sales Tax Act which is in pari materia with section 147 of the Act says so. This has been so held in Laxmi Narain Anand Prakash v. CST, [1980] 46 STC 71 (All) [FB]; [1980] UPTC 125. In this case the High Court has relied upon a number of cases relating to service of reassessment notice under the Income-tax Act including Bhagwan Devi Saraogi v. ITO, [1979]118 ITR 906 and quoted the following passage from it (page 77):

    “If the authority concerned does not acquire jurisdiction in the absence of a valid notice being served, the entire proceeding will be without jurisdiction and void and even consent on the part of the assessee would confer no jurisdiction on the ‘Income-tax Officer’.”

    12. The Kerala High Court in P.N Sasi Kumar v. CIT, [1988]170 ITR 80 has held that the issue of a notice under section 148 of the Income-tax Act, 1961, is a condition precedent to the validity of any assessment order to be passed under section 147 of the Act. It is also settled law that if no such notice is issued or if the notice is invalid or is not in accordance with law or is not served on the proper person in accordance with law, the assessment would be illegal and without jurisdiction. The notice should specify the correct assessment year and should be issued to a particular assessee. The notice issued to the assessee in that case did not specify the capacity in which it was issued to one S, whether as individual or as “principal officer” or as a member of an association or body of individuals. The assessment was completed by the Income-tax Officer in the status of an association of persons consisting of S and some others. It was held that before assessing an association of persons, the notice should be addressed to the “principal officer” or a “member” thereof as required by section 282(2)(c), which was not done. Such a fundamental infirmity, it was held, could not be called a “technical objection” or a mere irregularity, such a vital infirmity could not be cured or obliterated by placing reliance on section 292B.

    13. A Division Bench of this court in the case of Madan Lal Agarwal v. Commissioner Of Income-Tax, Kanpur., [1983]144 ITR 745 has held that a notice contemplated by section 148 is a jurisdictional notice for initiating proceedings for making an assessment under section 147 and any defect in that notice cannot be cured by any thing done by the Income-tax Officer subsequently. A vague notice is an invalid notice and in such a case vagueness cannot be removed by reference to other documents on the record. If a notice itself is otherwise bad in law, the invalidity thereof cannot be cured by any act of the assessee to whom the said notice is issued.

    14. In view of the above, the Tribunal has rightly held that section 292B of the Act will have no application to the facts of the present case. The said section condones the invalidity which arises merely by reason of any mistake, defect or omission in a notice, if in substance and effect it is in conformity with or according to the intent and purpose of the Act. The notice in question was not served on all the adult members of the family, as required under section 283(1) of the Act. This mistake goes to the very root of the matter. It is fairly settled that an assessing authority gets jurisdiction to reopen a concluded assessment only after serving a valid notice on the assessee. A notice contemplated under section 148 of the Act is a jurisdictional notice and is not curable under section 292B of the Act, if it was not served in accordance with the provisions of the Act. No other point was pressed or raised by learned counsel for the Department.

    15. In view of the foregoing discussion, we find that the order of the Tribunal is legally sound. We, therefore, answer the question in the affirmative, i.e, against the Revenue and in favour of the assessee. However, there shall be no order as to costs.

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    Commissioner Of Income-Tax v. Shital Prasad Kharag Prasad
    (Dec 6, 2004)