Shanabhai P. Patel v. R.K Upadhyaya, Income-Tax Officer, Ahmedabad

1. In this petition the petitioner has challenged the notice issued by the respondent on March 31, 1970, for purposes of reassessment under section 147 of the Income-tax Act, 1961, for the assessment year 1965-66. The challenged has arisen in the following circumstances :

The petitioner was assessed to income-tax as an individual for the assessment year 1965-66 and his assessment order was made in respect of the said year on February 5, 1966. It appears that on March 31, 1970, the respondent issued a notice under section 148 of the Act for purposes of reassessing the petitioner. The said notice was posted on the same day at Navrangpura post office at Ahmedabad. However, this notice reached the petitioner on April 3, 1970. By this notice under section 148, the petitioner was called upon to make the return, if he so desired, within 30 days of the service of the notice. Being aggrieved by this notice, which, according to the petitioner, was served beyond the prescribed period, under section 148 of the Act, the petitioner has moved this court for appropriate writs, orders and directions to quash and set aside the said notice.

2. The respondent has opposed this petition on the ground, Inter alia that the only obligation on the Income-tax office before assuming jurisdiction under section 147 of the Act was to issue a notice within the prescribed period, namely, four years as it was done here in the facts of the case and it was not necessary that this notice should have been served on the petitioner within that period, and if the notice is issued within the prescribed period, though served beyond the period, the Income-tax Officer would have jurisdiction to proceed with the reassessment proceedings.

3. The next question, therefore, which arises in this petition is whether the respondent has jurisdiction to proceed with the reassessment proceedings in respect of the assessment year 1965-66 of the petitioner as the notice has been served beyond the prescribed period of 4 years. It is an admitted position that this notice was issued on March 31, 1970, but was served on the petitioner on April 3, 1970. It was urged on behalf of the petitioner, relying on the ratio of the decision of the Supreme Court in Banarasi Debi v. Income-tax Office, District IV, Calcutta, that the expressions "issued" and "served" should have the same meaning of purposes of assuming jurisdiction under section 147 of the Act. They are the words which have been judicially interpreted as having the same meaning. On behalf of the revenue it was urged that, having regard to the scheme contained in sections 147 to 153 and more particularly having regard to the different expressions used in section 148 as well as in section 149, namely, "notice served" and "notice issued", the intention of the legislature is that what is required before assuming jurisdiction for reassessment under section 147 is to issue a notice within the prescribed period and irrespective of the period serve it on the assessee concerned.

4. section 147 of the Income-tax Act, 1961, provides for the power of reassessment of the income escaping assessment on account of the omission or failure on the part of an assessee to make a return under section 139 or to disclose fully and truly all material facts necessary for his assessment for the particular assessment year, or in case where the Income-tax Officer has, as a result of the information, reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions contained in sections 148 to 153, reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned. Section 148 and 149, which are pertinent for the decisions of the questions arising in this petition, read as under :

"148. Issue of notice where income has escaped assessment. - (1) Before making the assessment, reassessment or recomputation under section 147, the Income-tax Office shall serve on the assessee a notice contained all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so."

"149. Time limit for notice. - (1) No notice under section 148 shall be issued, -

(a) in cases falling under clause (a) of section 147 -

(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii);

(ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed for the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amounts to rupees fifty thousand or more for that year;

(b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year.

(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.

(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year." Section 151 provides :

"151. Sanction for issue of notice. - (1) No notice shall be issue under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.

(2) No notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Commissioner is satisfied on the reason recorded by the Income-tax Officer that it is a fit case for the issue of such notice."

5. The controversy between the petitioner and the revenue, therefore, turns on what meaning should be ascribed to the term "issued" used is section 149. An attempt was made on behalf of the revenue that under section 148 an obligation has been cast upon the Income-tax Officer before he proceeds with the work of assessment or reassessment or recomputation under section 147 that he shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139. It was, therefore, urged that the legislature is aware of the meaning of different expressions which it has employed sections 148 and 149, otherwise it would not have expressed it differently in the said two sections. On behalf of the petitioner, it has been urged that before the Income-tax Officer can assume jurisdictions to proceed with the work of reassessment, there must be some overt act and that overt act is this service of notice. It is the service of the notice on the assessee concerned about the intention of the taxing authority to proceed with the work of reassessment that will give jurisdiction to the authority and, therefore, in order to effectuate this intention of the legislature, the court must give the same meaning to both these terms, though prima facie they may appear to convey different meanings. In Banarsi Debi's case, the Supreme Court was concerned with the question of the meaning of the term, "issued" contained in section 4 of the Indian Income-tax (Amendment) Act, 1959, whereby in the case of a notice issued under clause (a) of sub-section (1) of section 34 of the Indian Income-tax Act, 1922, before the commencement of the amending Act the assessment, reassessment and settlement made and proceedings taken in consequence of such notice were put beyond challenged on the ground that the notice were issued or assessment, etc., was made beyond the prescribed period of limitation as required under section 34(1) of the Act. In that context, Mr. Justice Subba Rao (as he then was), after referring to the well-known rule of construction of fiscal statutes, approved the decisions of the Bombay High Court and the Allahabad High Court in Commissioner of Income-tax v. D. V. Ghurye and in Sri Niwas v. Income-tax Officer, respectively. Mr. Justice Subba Rao, speaking for the court, observed as under :

"section 4 of the Amending Act was enacted for saving the validity of notices issued under section 34(1) of the Act. When that section used a word interpreted by court is the context of such notices it would be reasonable to assume that the expression was designedly used in the same sense. That apart, the expressions 'issued' and 'served' are used as interchargeable terms both in dictionaries and in other statutes. The dictionary meaning of the word 'issue' is "the act of sending out, put into circulation, delivery with authority or delivery'..."

6. After referring to section 27, the court proceeded to observe :

"In the legislative practice of our country the said two expressions are sometimes used to convey the same idea. In other words, the expressions 'issued' is used in a limited as well as in a wider sense. We must, therefore, give the expressions 'issued' in section 4 of the Amending Act that meaning which carries out the intention of the legislature in preference to that which defeats it. By doing so we will not be departing from the accepted meaning of the expression, but only giving it one of its meaning accepted, which fits into the context or setting in which it appears."

7. Mr. Kaji, the learned advocate, appearing on behalf of the revenue sought to distinguish this observation of the Supreme Court by contending that the court was concerned in Banarsi Debi's case with the interpretation of section 34 of the Indian Income-tax Act, 1922. According to Mr. Kaji, section 34(1), as it then stood, enjoined that the notice should be served within the prescribed period. The word "issued" in the proviso to sub-section (3) called for the interpretation by the court, namely, whether the served "issued" and "served" are used in the same sense or not. According to Mr. Kaji, in that context, the decision of the Bombay High Court as well as the Allahabad High Court were approved by the Supreme Court in Banarsi Debi's case and it was held that two different meanings could not be given to these two words, namely, "served" and "issued". According to Mr. Kaji, the scheme of the power of reassessment contained in section 147 onwards of the Income-tax Act, 1961, has, therefore, divided the provisions contained in section 34 of the 1922 Act. Section 147 gives power to the Income-tax Officer to reassess and the grounds on which such power should be exercised. Section 148 required that before such power could be exercised, a notice should be served, while section 149 enjoins the Income-tax Officer that before he could assume the jurisdiction, a notice should be issued within the prescribed period. In the submission, a of Mr. Kaji, therefore, all the three decisions are of no assistance to the petitioner.

8. We are not inclined to accept this submission of Mr. Kaji for the simple reason that on reading section 147, 148 and 149 we do not think that there are any compelling reason which may induce us to depart from the accepted meaning given to these words "served" and "issued" the Act of 1922. It is no doubt true that the Bombay High Court in D. V. Ghurye's case and the Allahabad High Court in Sri Niwas's case were dealing with the provisions contained in section 34 of the Indian Income-tax Act, 1922. It is equally true that sub-section (1) of section 34 empowered the Income-tax Officer, if he had reasons to believe that income had been concealed or had escaped assessment for any other reasons, he may, after service of notice within the prescribed period, reassess the assess concerned. But that, in our opinion, does not make any difference to the determination of the question, which has been posed before us, in respect of the assumption of the jurisdiction under section 147 and onward of the 1961 Act. The relevant portion of section 147 of the 1961 act provides as under :

"147. Income escaping assessment. - If -

(a) the Income-tax Officer has reason to believe that... he may, subject to the provisions of section 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned....."

9. In our opinion, therefore, the assumption of jurisdiction by the Income-tax Officer of reassessing an assessee is subject to the provisions contained in section 148 to 153 of the Act. Section 148 and 149, which we have reproduced above, clearly show that such jurisdiction cannot be assumed without issuance of notice within the prescribed period and service thereof on the assessee concerned. Mr. Kaji, however, attempted to persuade us that the very fact that the legislature has divided these different provisions contained in the old section 34 of the 1922 Act by suitably enacting sections 147, 148 and 149, where the Income-tax Officer has been given power to reassess after service of notice on the assessee issued within the prescribed period, clearly indicates that the legislature intended to depart from the positions as it emerged from the provisions contained in section 34 of the old Act of 1922. We do not think that this submissions of Mr. Kaji is justified. The scheme for the power of reassessment has been now suitably divided in section 147 onwards of the 1961 act. This scheme of power was originally comprehended within the provisions contained in section 34 of the 1922 Act. This division of the provisions contained in the old section 34 into section 147 onwards, do not in any way materially alter the positions which could justify the court in accepting the interpretation canvassed by Mr. Kaji that the different stages have been prescribed before the assumption of jurisdiction. These stages, according to Mr. Kaji, are the issuance of notice within the prescribed period and service of the notice on the assessee. On the plain reading of sections 147, 148 and 149, we do not think that this contention of Mr. Kaji can be sustained. Though the marginal notes of the sections are not decisive, they give us an idea about the intention of the legislature, that it did not contemplate two stages as contended by Mr. Kaji. Section 148 provides for the service of notice before the jurisdiction for reassessment can be assumed. The marginal note of this section reads, "Issue of notice where income has escaped assessment". Section 149 provides for issuance of notice before the expiry of the prescribed period and the marginal note of this section reads : "Time limit for notice". In our opinion, therefore, these words, "served of notice" or "issuance of notice", have no fixed connotation but are interchangeable, as held by the Supreme Court in Banners Debi's case. The Division Bench of this court in Induprasad Devshanker Bhatt v. J. P. Jani, Income-tax Officer, Circle IV, Ward-O, Ahmedabad, was dealing with a similar contention that the words "issue" and "service" as used in section 34 cannot be equated with each other and that the stage of issue of notice is a distinct and different stage from the stage of service of notice. Mr. Justice Bhagwati (as he then was) observed as under :

"Now, it is undoubtedly true that, according to the decision of Desai C.J., as he them was, and Miabhoy J. in Madanlal Mathurdas v. Chunilal, Income-tax Officer the words 'issue' and 'serve' as used in section 34 cannot be equated with each other and that the stage of issue of notice is a distinct and different stage from the stage of service of notice and ordinarily this decision being a decision of a Divisions Bench of this court would be binding upon us, but having regard to the subsequent decision of the Supreme Court in Banarasi Debi v. Income-tax Officer, this decisions can no impliedly overruled, though we may point out that even if the view taken by the Bombay High court in this decisions were correct, we should still have found considerable difficulty in accepting the contention that the proceedings under section 34 commence on the issue of the notice. The Supreme Court in the decision to which we have just referred pointed out that the words 'issued' and 'served' are used as interchangeable terms in the context of notice issued under section 34 and that where the legislature has used the word 'issued' in the context of such notices, that word is used in the same sense as the word 'served'. This decision of the Supreme Court made it clear that, so far as notices under section 34 are concerned, there are no two distinct and separate stages such as the stage of issue of notice and the stage of service of notice; the notice is issued to the assessee when it is served upon him. If that be the position the entire foundation on which the superstructure of the argument urged on behalf of the petitioner is based must disappear. There being only one stage, whether it be described as issue of notice or as service of notice, proceedings under section 34 would commence when the step envisaged in that stage is taken and that would be when the notice is served on the assessee."

10. Mr. Kaji, however, urged before us that in this decision the Division Bench was again concerned with the interpretation of section 34(1) of the 1922 Act which contained altogether different provision from what we find in the 1961 Act. As stated above, for the reason given, we are not inclined to accept this contention of Mr. Kaji.

11. The result, therefore, is that, in our opinion, the same meaning should be given to the words "issued" and "served" used in sections 148 and 149 of the 1961 act. That being the state of law, we are of the opinion that the impugned notice which is admittedly served on the petitioner on April 3, 1970, was clearly beyond the prescribed period under section 149 and, therefore, without jurisdiction, void and ineffective.

12. The result is that this petition is allowed and the rule made absolute. We issue a writ accordingly, quashing and setting aside the notice, annexure "A" to the petition. The revenue shall pay the costs to the petitioner.