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Champalal Asharam v. Commissioner Of Income-Tax, Bombay South, Bombay

Bombay High Court
Mar 3, 1953
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Structured Summary of the Opinion (Chagla, C.J.)

Factual and Procedural Background

This Reference concerns whether an order made by the Appellate Assistant Commissioner (AAC) was an order under section 30(2) or under section 31 of the Income-tax Act. The Tribunal had taken the view that the order was under s. 30(2) and therefore refused to entertain an appeal preferred by the assessee from that order, and the Tribunal forwarded the question to the court.

Relevant dates and procedural steps given in the opinion:

  • The assessment order was passed on April 30, 1949.
  • Notice of demand was served on the assessee on February 13, 1950.
  • The last day for preferring the appeal to the Appellate Assistant Commissioner was March 16, 1950.
  • The assessee did not post the memo of appeal from Ahmednagar before March 16, 1950; the petition for appeal was posted on March 18, 1950 and thus reached the Appellate Assistant Commissioner two days out of time.
  • On May 5, 1950, the Appellate Assistant Commissioner issued a notice calling upon the assessee to show cause why the out-of-time appeal should be entertained.
  • The assessee replied on May 11, 1950, showing cause and giving reasons for condonation of the delay.
  • On September 1, 1950, the AAC issued a notice under s. 31 stating that the appeal had been received and registered and fixing September 19, 1950 for hearing and final disposal at Ahmednagar; the notice warned that the appeal would be heard and determined in the assessee's absence if he failed to appear.
  • The appeal was heard on September 19, 1950 on its merits; the AAC ultimately passed an order rejecting the appeal as time-barred (the opinion indicates the AAC expressed inability to condone the delay).

Legal Issues Presented

  1. Whether the order passed by the Appellate Assistant Commissioner (dated in the opinion as the order resulting from the September 19 hearing and referred to in the re-framed question as dated September 20, 1950) was an order under section 31 of the Income-tax Act and therefore appealable.
  2. Whether the AAC's action in issuing a notice under s. 31 and then dismissing the appeal on the ground of delay should be characterised as an order under s. 31 or as an order under s. 30(2) (which would not be appealable).

Arguments of the Parties

Respondent's Arguments (as represented by Sir Nusserwanji)

  • It may have been an error for the Appellate Assistant Commissioner to issue a notice under s. 31; the AAC should not have issued the s. 31 notice.
  • There was no formal order admitting the appeal under s. 30(2), and therefore the AAC could not be taken to have admitted the appeal in the sense contemplated by s. 30(2).
  • Reliance was placed on the East Punjab High Court decision in Dewan Chand v. Commissioner of Income Tax to support the view that issuing a notice under s. 31 does not imply that the appeal had been admitted under s. 30(2).

Appellant's Arguments

The opinion does not contain a detailed account of the appellant's legal arguments beyond the procedural facts that the assessee showed cause on May 11, 1950 and that the appeal was heard on merits on September 19, 1950.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
K.K. Porbunderwalla…Applicant; v. Commissioner Of Income-Tax, Bombay City Explanation of the scheme of ss. 30 and 31: there is an intermediate stage under the last clause of s. 30(2) relating to out-of-time appeals for which condonation is sought; only after that intermediate stage is passed may the AAC issue a notice under s. 31 fixing hearing. The court relied on this description of the statutory scheme to conclude that the September 1 notice was issued under s. 31 and that the ultimate order passed after the hearing was therefore an order under s. 31.
Mohd. Naim. Mohd. Alam v. Commissioner of Income Tax (Allahabad High Court) Held that the AAC is not debarred from reconsidering the question of condonation merely because he had previously admitted the appeal under sub-s. (2) of s. 30; where the AAC admitted the appeal under s. 30(2), a subsequent dismissal after issuance of a s. 31 notice fixing a date for final hearing is an order under s. 31. The court found this authority supportive, accepted the Allahabad High Court's view as the better view, and relied upon it in concluding that the AAC's ultimate dismissal was an order under s. 31.
Dewan Chand v. Commissioner of Income Tax (East Punjab High Court) Took the view that issuing a notice under s. 31 does not imply that the appeal had been admitted in the sense contemplated by sub-s. (2) of s. 30. The court disagreed with the East Punjab High Court on that point and expressly preferred the contrary view taken by the Allahabad High Court.

Court's Reasoning and Analysis

The court's analysis proceeded by reference to the statutory scheme of ss. 30 and 31 and earlier authority (including its own prior decision). The court identified an "intermediate stage" created by s. 30(2) that deals with out-of-time appeals for which condonation may be sought; the AAC must decide whether to condone delay at that intermediate stage before it is competent to issue a s. 31 notice fixing the hearing of the appeal.

Applying those principles to the facts before it:

  1. The AAC issued a notice to show cause on May 5, 1950 directed to the condonation question; the assessee replied on May 11, 1950.
  2. The AAC did not at that time (in May) accept or reject the condonation application by a final recorded order; instead, on September 1, 1950, the AAC issued a notice under s. 31 stating the appeal had been received and registered and fixing September 19, 1950 for hearing.
  3. Because the s. 31 notice was issued after the show-cause notice and reply, the court treated the issuance of the s. 31 notice and the subsequent hearing as signifying that the appeal had, in law, been admitted (the court observed that s. 30(2) does not contemplate the necessity of passing a formal, separate order admitting the appeal).
  4. When the appeal was heard on September 19, 1950, the AAC dismissed the appeal as time-barred. The court reasoned that even if the AAC's dismissal amounted to a reconsideration of an earlier position on condonation, once the s. 31 notice had been validly issued and the appeal heard under s. 31, the ultimate order dismissing the appeal must be characterised as an order under s. 31 rather than under s. 30(2).
  5. The court rejected the respondent's contention that the AAC could now contend the s. 31 notice was invalid; it held that the AAC could not repudiate the legal effect of the notice by asserting error after having proceeded to hear and determine the appeal pursuant to that notice.
  6. The court preferred the Allahabad High Court's decision (Mohd. Naim. Mohd. Alam) — which allowed the AAC to reconsider and held that dismissal after a s. 31 notice is an order under s. 31 — over the East Punjab High Court decision in Dewan Chand, and it emphasised that ss. 30 and 31 should be liberally construed in favour of the assessee so as not to deprive him of the right of appeal to the Appellate Tribunal.

Holding and Implications

Holding:
The court answered the re-framed question in the affirmative: the order of the Appellate Assistant Commissioner dated (referred to in the opinion) September 20, 1950, was an order under section 31 and therefore was appealable. The court directed that the Commissioner pay the costs.

Core Ruling: The ultimate order dismissing the appeal as time-barred, made after issuance of a notice under s. 31 and after hearing the appeal on the merits, is an order under s. 31 (and is appealable).

Implications:

  • Direct effect on the parties: The AAC's dismissal of the appeal in these circumstances is to be treated as an order under s. 31 and therefore the assessee has a right to appeal; the Commissioner was ordered to pay the costs of the motion.
  • Interpretive stance: The court expressly preferred the Allahabad High Court's interpretation to that of the East Punjab High Court and stated that ss. 30 and 31 should be liberally construed in favour of the assessee so as not to deprive him of the right of appeal to the Appellate Tribunal.

If the opinion discusses no broader procedural changes or other consequences beyond those stated above, the direct effect described is the primary practical outcome.


Source: Opinion of Chagla, C.J., as provided in the text supplied for this summary.

Show all summary ...

Chagla, C.J:—

The question that arises in this Reference is whether a certain order passed by the Appellate Assistant Commissioner was an order under s. 30(2) or an order under s. 31. If the order was under s. 31 it was appealable, if it was one under s. 30(2) no appeal could lie under that order. The Tribunal has taken the view that the order was under s. 30(2) and therefore refused to entertain the appeal preferred by the assessee from that order, and the question submitted to us by the Tribunal in substance raises this question.

Now, a few facts might be stated. The assessment order was passed on April 30, 1949, and the notice of demand was served upon the assessee on February 13, 1950. The last day for preferring the appeal to the Appellate Assistant Commissioner was March 16, 1950. For certain reasons which it is not necessary to go into at the present stage, the assessee did not post the memo of appeal from Ahmednagar where he was living up to March 16, 1950, and the petition for appeal reached the Appellate Assistant Commissioner in Poona to whom it was posted on March, 18, 1950. Therefore, when the petition for appeal reached him it was clearly out of time by two days. On May 5, 1950, a notice was issued by the Appellate Assistant Commissioner calling upon the assessee to show cause why his appeal should be entertained although out of time and on May 11, 1950, the assessee showed cause giving reasons why the delay should be condoned. Then on September 1, 1950, a notice was issued by the Appellate Assistant Commissioner under s. 31 to the effect that the appeal preferred by the assessee had been received and registered by the office of the Appellate Assistant Commissioner and September 19, 1950, was fixed for hearing and final disposal of the appeal at Ahmednagar and the assessee was informed that he should appear in that office in person or by an authorised agent or by a pleader duly instructed who would be able to answer all material questions arising in the appeal. He was further informed that in default of his appearance on the day mentioned the appeal will be heard and determined in his absence. Pursuant to this notice the appeal was heard on September 19, 1950, and it is not disputed that the appeal was heard on merits by the Appellate Assistant Commissioner Ultimately on that day he passed an order to the effect that he saw no reason why the assessee could not submit the appeal petition within the period of limitation. The Appellate Assistant Commissioner, therefore, expressed the opinion that he was unable to condone the delay and the order he passed was that the appeal was rejected as time-barred, and the question arises whether on these facts the order of the Appellate Assistant Commissioner falls under s. 31 or under s. 30(2).

Now, in our decision in K.K Porbunderwalla…Applicant; v. Commissioner Of Income-Tax, Bombay City….*, Bombay City we considered the scheme of s. 30 and 31 and we pointed out that there was an intermediate stage between the presentation of the appeal and the hearing of the appeal as provided by the last clause of s. 30(2) and that intermediate stage relates to those appeals which were out of time, but for which the appellant asked for condonation of delay from the Appellate Assistant Commissioner and it was left to the decision of the Appellate Assistant Commissioner whether to condone or not to condone the delay. It is clear that it is only after that intermediate stage is passed that it is competent to the Appellate Assistant Commissioner to issue a notice fixing a day and place for the hearing of the appeal under s. 31. Now, in this case, as already pointed, out, in order to decide whether the delay should be condoned or not, the Appellate Assistant Commissioner actually issued a notice to show cause upon the assessee on May 5, 1950. The assessee showed cause on May 11, 1950. It was open to the Appellate Assistant Commissioner to decide that no sufficient cause had been shown by the assessee for condonation of the delay. But instead of coming to that conclusion the Appellate Assistant Commissioner on the September 1, 1950, issued a notice under s. 31 and fixed the hearing of the appeal for September 19, 1950. Now, it is clear that the notice was issued under s. 31 and the hearing of the appeal was also fixed under s. 31. Therefore the ultimate order that the Appellate Assistant Commissioner passed was also under s. 31.

Reliance is placed on the fact that the only order that the Appellate Assistant Commissioner passed was refusing condonation and dismissing the appeal on the ground that it was time-barred. But it is open to the Appellate Assistant Commissioner, having taken the view at the intermediate stage under s. 30(2) that delay should be condoned, and having admitted the appeal, to revise his decision and when the appeal comes on for hearing under s. 31 to take a different view and dismiss the appeal on the ground that no sufficient cause was shown for condoning the delay. If he does so, even though his order is merely refusing to condone the delay, the order would be under s. 31 and not under s. 30(2). It is clear that no notice for the hearing and final disposal of the appeal can be issued and no hearing of the appeal can be fixed except under s. 31.

Sir Nusserwanji says that it may be that the Appellate Assistant Commissioner was in error in issuing a notice under s. 31 and he should not have issued the notice under that section. We do not think it is open to the Appellate Assistant Commissioner to contend that the notice which he issued in pursuance of which he heard the appeal and passed the final order was not a valid notice. In our opinion, the proper practice for the Appellate Assistant Commissioner to follow, which in this case he did follow, was first to issue a notice limited to the question of condonation of delay. That is exactly what he did on May 5. After the assessee had shown cause by his letter of May 11, the Appellate Assistant Commissioner should have decided at that stage whether he should condone the delay or he should dismiss the appeal. Not having dismissed the appeal, in law he must be deemed to have admitted the appeal and to have condoned the delay. Having done so, he then proceed to issue notice under s. 31, and once he issued notice under s. 31 and passed an order, even though the order was in effect a reconsideration of his earlier decision, it was still an order under s. 31 and not an order under s. 30(2).

Support for this view can be found in a recent decision of the Allahabad High Court in Mohd. Naim. Mohd. Alam v. Commissioner of Income Tax. There the facts were practically identical. The Allahabad High Court held that the Appellate Assistant Commissioner of Income Tax was not debarred from reconsidering the question where an appeal was time-barred merely because he has passed an order under sub-s. (2) of s. 30 of the Income Tax Act, 1922, admitting it, and that High Court further held that where the Appellate Assistant Commissioner of Income Tax had admitted the appeal under s. 30(2) of the Act a subsequent order of dismissal on the ground that the appeal was time-barred after the issue of the notice to the assessee fixing a date and place for the final hearing and final disposal was an order under s. 31 of the Act.

Sir Nusserwanji says that there is no order here admitting the appeal. As we have already pointed out that in law the Appellate Assistant Commissioner must be deemed to have admitted the appeal and s. 30(2) does not contemplate the necessity of passing a formal order. As a matter of fact in the notice which he issued under s. 31 he states that the appeal was received and registered by the office and this was done after the notice to show cause with regard to the condonation of the delay had been issued against the assessee. Therefore it is clear that when this notice was issued on September 1, 1950, the appeal had not only been received but that the appeal was admitted; and when this notice was issued it was issued for the purpose of enabling the assessee to be heard on merits and in fact, as already pointed out, the assessee was heard on merits in this case. Sir Nusserwanji has relied on a recent judgment of the East Punjab High Court reported in Dewan Chand v. Commissioner of Income Tax. In the judgment Mr. Justice Khosla at page 623 points out that:

“There is in reality only one question requiring our decision, viz., whether the order of the Appellate Assistant Commissioner of Income Tax declining to extend the time of limitation and dismissing the appeals as barred by time is appealable or not.”

As far as that question is concerned the East Punjab High Court takes the same view as we took in K.K Porbunderwalla…Applicant; v. Commissioner Of Income-Tax, Bombay City….*, Bombay City, but then they go on to consider the other question, and the discussion of that question will be found at page 625 and the view taken by the East Punjab High Court is that issuing of a notice under s. 31 does not imply that the appeal had been admitted in the sense contemplated by sub-s. (2) of s. 30. With respect, we are unable to agree with the view of the East Punjab High Court. In our view the view taken by the Allahabad High Court is the better view and, with respect, we prefer to accept the view taken by the Allahabad High Court to the view taken by the East Punjab High Court. It must be borne in mind that a dismissal of the appeal by the Appellate Assistant Commissioner deprives the assessee of a right to challenge the assessment made by the Income-tax Officer and if anything, ss. 30 and 31 should be liberally construed in favour of the assessee rather than against him so as to deprive him of the right to appeal to the Appellate Tribunal. Therefore, we are rather inclined in favour of the more liberal interpretation put by the Allahabad High Court than the construction put by the East Punjab High Court on these two sections. The question submitted to us does not really bring out, the controversy between the department and the assessee. We would, therefore, re-frame the question and the re-framed question will be:

“Whether the order of the Appellate Assistant Commissioner dated September 20, 1950, is an order under s. 31 and appealable?”

and we answer that question in the affirmative. The Commissioner to pay the costs.

No order on the notice of motion except that the Commissioner should pay the costs of the motion.

Attorneys for applicant: Rustomji & Ginwala.

Attorneys for respondent: N.K Petigara.

Answer accordingly.
P.M.P