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Anantha Mallan v. Commissioner Of Agricultural Income-Tax.

Kerala High Court

Jul 3, 1961

Judgment

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Judgment Summary — Ansari, C.J.

Factual and Procedural Background

This judgment was delivered by Ansari, C.J. The two writ petitions were consolidated because they raised a common question: whether the Commissioner of Agricultural Income-tax may, under section 34 of the Agricultural Income-tax Act (XXII of 1950), decide objections which the Commissioner himself had raised against appellate judgments of the Appellate Assistant Commissioner.

Facts of O.P. 1088/59:

For assessment year 1957-58 the Agricultural Income-tax Officer, Alleppey, assessed the writ petitioner's family properties at Rs. 4,135.
The petitioner (the son, recently called to manage properties after his father's death) appealed to the Appellate Assistant Commissioner, Trivandrum, seeking deductions. The Appellate Assistant Commissioner inspected the properties and found taxable income to be Rs. 2,796-8-0, cancelling the assessment (order dated 21 June 1958).
On 20 February 1959 the Commissioner served notice under section 34 expressing the opinion that the appellate order was not based on proper grounds and inviting objections. After hearing, by order dated 4 June 1959 the Commissioner set aside the appellate order and restored the original assessment. The writ petitioner challenged that order as illegal, without jurisdiction, contrary to natural justice, mala fide and an abuse of power. A constitutional challenge was not pressed.

Facts of O.P. 1098/59:

Agricultural income-tax was levied on net incomes of Rs. 5,464 (AY 1954-55) and Rs. 4,078-8-0 (AY 1955-56). The Inspecting Assistant Commissioner had set aside assessments and remanded them; after inquiry the AIT Officer re‑estimated the incomes as earlier found. The Appellate Assistant Commissioner inspected properties and cancelled the assessments.
The Commissioner issued notice under section 34 and, by order dated 14 June 1959, set aside the Appellate Assistant Commissioner's order and restored the AIT Officer's assessments. The Commissioner also set aside a later assessment (1958-59) that had been made on the basis of the appellate orders and remanded the cases for fresh disposal. The writ petition contended that section 34 is subject to other provisions (notably section 32(2)) and that, where appeals are provided, the Commissioner should have directed the Income-tax Officer to appeal to the Appellate Tribunal rather than decide the matter himself under section 34.

Legal Issues Presented

Whether the Commissioner of Agricultural Income-tax may, under section 34 of the Agricultural Income‑tax Act, decide objections which he himself has raised against orders of the Appellate Assistant Commissioner, or whether the procedure under section 32(2) (direction to subordinate to file an appeal to the Appellate Tribunal) must be followed when the Commissioner has such objections.
Whether the petitioners' failure to object to the Commissioner's jurisdiction before the Commissioner precludes relief under Article 226 of the Constitution.

Arguments of the Parties

Writ Petitioners' Arguments

The Commissioner's orders setting aside the Appellate Assistant Commissioner's decisions were illegal and without jurisdiction.
The Commissioner's action violated principles of natural justice and amounted to mala fides and abuse of power.
Where an appeal procedure (section 32(2)) exists, the Commissioner should not decide his own objections under section 34 but should direct an appeal to the Appellate Tribunal.

Respondent / Advocate-General's Arguments (in support of the Commissioner's action)

The powers under section 32(2) (direction to file appeal) and section 34 (revisional power) are vested in the same authority (the Commissioner); the authority must be free to choose which power to exercise.
That choice cannot be interfered with provided the exercise is not mala fide, perverse or arbitrary.
Section 34 authorises the Commissioner to call for the record and to pass orders on his own motion, including orders adverse to the assessee, without requiring the assessee to invoke that jurisdiction.
The Advocate-General relied upon precedent (Kumaraswami Reddiar v. Noordeen) to argue that failure by a party to raise an objection in time precludes relief under Article 226.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Phillip Rice v. Commissioner of Stamp Duties [1954] A.C. 216	Where a statute is ambiguous, courts should avoid a construction that makes an executive officer judge in his own cause (Lord Cohen's observation); lean against construction permitting the executive to act as judge in its own cause.	The court relied on this authority to support the view that an interpretation permitting the Commissioner to decide objections which he himself had formed (i.e., to be judge in his own cause) should be avoided; it reinforced the conclusion that the Commissioner's revisional power under section 34 should not be used where section 32(2) provides for an appeal.
Kumaraswami Reddiar v. Noordeen	Principle that if a party armed with an objection fails to raise it at the appropriate time and allows proceedings to continue, that omission may preclude invoking jurisdiction under Article 226.	The Advocate-General relied on this case to argue that the petitioners' failure to object to the Commissioner's jurisdiction should bar their petitions; the court considered and distinguished this authority in light of circumstances and relaxations.
Arunachalam v. Southern Roadways Ltd., A.I.R. 1958 Mad. 236	Recognised relaxation of the strict rule that failure to object in time always precludes relief; permits consideration of reasons for omission.	The court invoked this decision as justification to excuse the petitioners' omission to object to jurisdiction, finding that the failure was not due to negligence and that prior legal advice was not available.

Court's Reasoning and Analysis

The court proceeded by identifying the statutory scheme and the competing provisions relied upon: section 32(2) (which permits the Commissioner, if he objects to an Assistant Commissioner's order, to direct the Agricultural Income-tax Officer to appeal to the Appellate Tribunal within sixty days), section 34 (which confers revisional power on the Commissioner to call for records and pass orders subject to the Act), and section 60 (procedures for referring questions of law to the High Court arising from section 34 orders).

Key steps in the court's analysis:

Recognition of coexistence of powers: The court accepted that the Commissioner has both (a) a procedural mechanism under section 32(2) to secure independent appellate review through a subordinate filing an appeal to the Appellate Tribunal and (b) revisional jurisdiction under section 34.
Natural justice and departmental bias: The court emphasised the well-settled rule of natural justice that persons should not adjudicate issues where there is a real likelihood of bias. The court referenced the Donoughmore Committee's concern about "departmental bias" and drew a clear distinction between the functions of a decision-maker with a pre-formed departmental objection and that of an independent appellate authority.
Interpretation of the statutes in harmony: The court concluded that section 34 must be read subject to the other provisions of the Act, including section 32(2). It reasoned that the existence of section 32(2) — which expressly provides for the Commissioner to direct an appeal when he has objections to an Assistant Commissioner's order — demonstrates legislative recognition that where the Commissioner has formed objections that favour the department he should not himself adjudicate those objections under section 34.
Use of authoritative guidance: The court invoked Lord Cohen's observation in Phillip Rice v. Commissioner of Stamp Duties to support an interpretive approach that avoids construing the statute so as to permit an executive officer to be judge in his own cause where an alternative independent route is provided by statute.
Application to the facts: Because in both consolidated writ petitions the Commissioner had already formed objections to the Appellate Assistant Commissioner's assessments, the Commissioner should have followed the procedure in section 32(2) (directing an appeal) rather than exercising revisional powers under section 34 to decide those same objections. The court held that the Commissioner's decision to decide his own objections violated the principle that persons with biased minds must not adjudicate; that principle was not excluded by the Act's statutory provisions.
On the procedural objection of waiver: The court addressed the contention that the petitioners' failure to object to the Commissioner's jurisdiction before the Commissioner should bar relief. The court adopted a contextual approach: if the lack of objection was not obviously negligent (for example, where legal advice was not available and there had been no prior decision by that Court on the precise point), the failure would not preclude relief. The court relied on Arunachalam v. Southern Roadways Ltd. as supporting such a relaxation of the strict rule and therefore excused the petitioners' omissions.

Holding and Implications

Holding: The writ petitions were allowed. The court held that where the Commissioner has formed objections to appellate orders of the Appellate Assistant Commissioner, the Commissioner must follow the procedure in section 32(2) (i.e., direct the subordinate to file an appeal to the Appellate Tribunal) rather than decide those objections himself under section 34. The court concluded that the Commissioner's exercise of revisional power under section 34 in these cases violated principles of natural justice. Both impugned assessment orders made by the Commissioner were vacated.

Implications and direct consequences:

The immediate effect is that both of the Commissioner's orders impugned in the two writ petitions were vacated.
The court emphasised that when the Commissioner has pre-formed departmental objections he should not adjudicate them himself but should utilize the appeal mechanism under section 32(2); using section 34 in those circumstances is contrary to the rule against persons adjudicating matters in which there is a real likelihood of bias.
The court ordered that "Parties will bear their costs." (Each party to bear its own costs.)
The opinion does not set out any explicit statement that it is creating a broader precedent beyond the law as applied in these facts; the decision's direct legal effect is the vacatur of the specific assessment orders and the articulation of the court's interpretive conclusion that section 34 must be read subject to section 32(2) in the circumstances described.

Disposition: Petitions allowed.

Show all summary ...

The Judgment of the Court was delivered by

Ansari, C.J:— The common question raised by these two writ petitions is, whether the Commissioner of Agricultural Income-tax can decide, under section 34 of the Agricultural Income-tax Act (XXII of 1950), hereafter referred to as the Act, the objections he himself has raised against the appellate judgments of the Appellate Assistant Commissioner? The two petitioners seek to vacate different orders but the issue raised in each is similar and, therefore, the petitions have been consolidated for the purposes of deciding the issue.

2. The facts in O.P 1088/59, are that the writ petitioner had been assessed to tax on income from properties belonging to his family, which the Agricultural Income-tax Officer, Alleppey, had found for the assessment year 1957-58, to be Rs. 4,135. The petitioner claiming to be the son, who had been recently called upon due to his father's death in December, 1955, to manage the properties, appealed to the Appellate Assistant Commissioner of Agricultural Income-tax, Trivandrum, objected to the amount of the tax assessed by the officer, and sought further deductions that were available to a member of a Hindu joint family. The Appellate Assistant Commissioner, after having inspected the properties, found the taxable income to be Rs. 2,796-8-0; and accordingly cancelled the assessment, because the income was found below the assessable minimum. The order is dated June 21, 1958, but the writ petitioner was served with notice of February 20, 1959, intimating the Commissioner's opinion of the aforesaid appellate order being not based on proper grounds, the case being fit for revision, and asking the writ petitioner to file his objection. The aforesaid notice was under section 34 of the Act; and the Commissioner, after hearing the petitioner's advocate, set aside the appellate order, restoring the assessment by the Agricultural Income-tax Officer. The Commissioner's order is dated June 4, 1959, and is attacked on several grounds. Apart from the challenge to the constitutionality of the Act, which has not been pressed before us, one ground is that the order is illegal, without jurisdiction, opposed to the principles of natural justice, mala fide and in abuse Of power vested in the Commissioner.

3. The facts in O.P 1098/59, can also be briefly narrated. The agricultural income-taxes have been levied in this case on the net income of Rs. 5,464 in the assessment year 1954-55 and on Rs. 4,078-8-0 in the assessment year 1955-56. The Inspecting Assistant Commissioner, Trivandrum, had set aside the assessments and remanded the cases for fresh disposal and inquiry. After detailed inquiry and scrutiny, the Agricultural Income-tax Officer again estimated the incomes to be what he had found earlier, and the cases came on appeal before the Appellate Assistant Commissioner, who cancelled the assessments and allowed the appeals after having inspected the properties. In these cases as well, the Commissioner of Agricultural Income-tax thought it necessary, to issue notice under section 34 of the Act; and by order of June 14, 1959, set aside the Appellate Assistant Commissioner's order, having restored those of the Agricultural Income-tax Officer. The ground is that the inspection having been made four years after the initial assessments could not, due to influx of time, afford any material for judging, what had been the income at the time of the initial order. The Commissioner has further directed that, as the Agricultural Income-tax Officer had made assessment for 1958-59, on the basis of the appellate orders for 1954-55 and 1955-56, which orders have been set aside, that assessment is also set aside, and the cases be remanded for fresh disposal according to law. In this writ petition, the complaint is that section. 34 of the Act is subject to the other provisions of the Act, and appeals having been provided against orders by the Appellate Assistant Commissioner, should the Commissioner be aggrieved by the appellate orders, he ought to have directed the Income-tax Officer to file appeals before.the Appellate Tribunal instead of deciding such grievances by exercise of his revisory powers under the aforesaid section 34.

4. It is common ground that neither of the petitioners had raised objections to the Commissioner's jurisdiction to revise the orders; and the first question inviting adjudication in these petitions is, how far such failures would preclude the petitioners being given reliefs, under article 226. We feel that the answer to the question depends upon whether the objection to the jurisdiction was so obvious that the petitioners ought to have known and were negligent in not raising it before the authority; for, should the absence of jurisdiction be not obvious the writ petitioners' failure would not be due to their negligence, and the failures would not be fatal to their petitions being entertained. In these circumstances, it should be first determined what are the Commissioner's powers under the Act,.where he feels the judgment by the Appellate. Assistant Commissioner not to be satisfactory; and in case we.find the jurisdiction to be circumscribed, whether the limit be clear that the petitioners ought to have, objected to the Commissioner calling them to show cause against the orders being vacated. To facilitate our decisions on the aforesaid questions, we would extract the parts of the sections of the Act, which are relevant:

“32. (2) The Commissioner may, if he objects to any order passed by an Assistant Commissioner under section 31, direct the Agricultural Income-tax Officer to appeal to the Appellate Tribunal against such order, and such appeal may be made within sixty days of the date on which the order is communicated to the Commissioner by the Assistant Commissioner.”

“34.(1) The Commissioner may, of his own motion or on application by an assessee, call for the record of any proceeding under this Act, which has been taken by any authority subordinate to him and may make such enquiry or cause such enquiry to be made and, subject to the provisions of this Act, may pass such orders thereon as he thinks fit:

Provided that he shall not pass any order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being heard;

Provided further that an order passed declining to interfere shall not be deemed to be an order prejudicial to the assessee.

(2) Any order passed under sub-section (1) shall be final subject to any reference that may be made to the High Court under section 60.”

“60. (1)……….

(2) Within sixty days of the date on which he is served with a notice of an order under section 34 enhancing an assessment or otherwise prejudicial to him, the assessee in respect of whom the order was passed may, by application, accompanied by a fee of fifty rupees, require the Commissioner to refer to the High Court any question of law arising out of such order, and the Commissioner shall, within ninety days of the receipt of such application, draw up a statement of the case and refer it with his opinion thereon, to the High Court.

(3) If on any application being made under sub-section (1) or subsection (2) the Appellate Tribunal or the Commissioner refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, in the case of an application under sub-section (1) or the assessee in the case of an application under sub-section (2) may, within six months from the date on which he is served with notice of the refusal, apply to the High Court, and the High Court may, if it is not satisfied of the correctness of the decision, require the Appellate Tribunal or the Commissioner, as the case may be, to state the case and to refer it, and on receipt of any such requisition the Appellate Tribunal or the Commissioner, as the case may be, shall state the case and refer it accordingly……

(6) The High Court upon the hearing of any such case shall decide the questions of law raised thereby and shall deliver its judgment thereon containing the grounds on which such decision is founded and shall send a copy of such judgment under the seal of the court, and the signature of the Registrar, to the Appellate Tribunal or the Commissioner, as the case may be, for passing such orders as are necessary to dispose of the case conformably to such judgment.”

5. It is clear that the Commissioner has been given the right of appeal, through his subordinate officers, to the Appellate Tribunal, which is similar to what an ordinary assessee has been given. It is equally clear that the Commissioner has been also vested with revisory jurisdiction as well, which power can be exercised against the assessee; and, in such cases, a reference can be asked or compelled under section 60. The learned Advocate-General has argued that the powers under section 32(2) and under section 34 of the Act having been vested in the same authority, the choice is conferred on the authority of which he would exercise; and his choice cannot be interfered with where the exercise is neither mala fide nor perverse nor arbitrary. He has further urged that the power under section 34 to call for the record, on his own motion, clearly authorises decision adversely to the assessee without the assessee's invoking the jurisdiction, which has been done in these cases, with the result of there being no error of jurisdiction. With respect we think such interpretation pays inadequate attention to the well-settled rule of natural justice that persons should not adjudicate the issue on which there be a real likelihood of their minds being biased. The Donoughmore Committee on Minister's powers had said that bias from strong and sincere conviction as to public policy might operate as a more serious disqualification than pecuniary interest and the legislature must guard against “departmental bias”. In our opinion, section 32(2) had been framed in partial recognition of the rule that minds biased must not decide; for, had the legislature not thought the objections of the Commissioner against the orders of the Appellate Assistant Commissioner being properly justiciable by an independent authority, the direction to file the appeal would not have been provided for. In that context, the jurisdiction under section 34 becomes exercisable only where the Commissioner be having no already formed objection in favour of the department, which he be desirous of adjudicating. We are fortified in the view by the power under section 34 being subject to the other provisions of the Act, which includes section 32(2) and further by the observation of Lord Cohen in Phillip Rice v. Commissioner of Stamp Duties [1954] A.C 216. that:

“An executive officer can no doubt be made a judge in his own cause, but if there is an ambiguity in the statute their Lordships inust lean against a construction which would have this effect.”

6. It follows that, because the Commissioner in both the cases had objections to the Appellate Assistant Commissioner's assessments, he ought to have followed the procedure indicated in section 32(2) and not exercised his revisory powers. To decide your own objections to assessment orders is violative of the principles of natural justice, that persons with biased mind must not adjudicate, which principle is not excluded by the statutory provisions in the Act. We, therefore, allow the writ petitions and vacate both the orders of assessment.

7. The learned Advocate-General has argued that as the petitioners had not objected to the exercise of the jurisdiction by the Commissioner, these petitions should be dismissed, and in support he has relied on Kumaraswami Reddiar v. Noordeen, wherein one of us had held that, if a party armed with an objection fails to raise it at the appropriate time and allows the proceeding to continue, that would preclude the person from invoking the jurisdiction under article 226. The rule, however, is subject to relaxations, and one such relaxation is to be found in Arunachalam v. Southern Roadways Ltd. A.I.R 1958 Mad. 236. Therefore, should the failure be attributed not to negligence, it would not be fatal. As there has been no prior decision nor any pronouncement by this court oh this point and as legal advice, which is now available to the writ petitioners, was not forthcoming before the Commissioner, the omissions to object to the jurisdiction are not difficult to explain. In these circumstances, we feel there had not been such negligence in these cases, as would justify the writ petitioners becoming disentitled to relief under article 226. The cases before us, we feel, are similar to Arunachalam's case and we respectfully agree with the principle laid down therein. Accordingly both the writ petitions are allowed and the assessment orders are vacated. Parties will bear their costs. This order will cover both the writ petitions.

8. Petitions allowed.