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Advocates
  • For the Appellant: P.K.R. Menon
Judges
  • K.S Paripoornan
  • K. Sreedharan, JJ.
Acts
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Equivalent Citations
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Advocates
  • For the Appellant: P.K.R. Menon
Judges
  • K.S Paripoornan
  • K. Sreedharan, JJ.
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Smart Summary

Structured Summary of the Opinion by K.S. Paripoornan, J.

Factual and Procedural Background

These are four income-tax reference cases arising out of assessments for the years 1974-75 to 1977-78 in respect of "Archana Hotel", Kottayam. No returns of income were furnished for Archana Hotel for the four years in question. On 2 September 1977 the Income-tax Officer issued notices under section 148 of the Income-tax Act for the first three assessment years and a notice under section 139(2) read with section 148 for the assessment year 1977-78 addressed to one P. N. Sasikumar at Hotel Archana. The notices did not specify the capacity in which Sasikumar was being addressed (for example, whether as an individual, as a member of an association of persons (AOP), or as principal officer).

Proceeding on the basis that the notices were issued only to Sasikumar in his individual capacity, Sasikumar filed "nil" returns for the first three years and a small income return for 1977-78. The Income-tax Officer completed assessments in the status of an "association of persons" comprising Sasikumar and others, and tax was levied accordingly.

On appeal the Appellate Assistant Commissioner held that since the notices were not addressed to Sasikumar in his capacity as principal officer or member of the AOP, there were no proceedings against the AOP and the assessments on the AOP were invalid; consequently the four assessments were cancelled. The Revenue appealed to the Income-tax Appellate Tribunal (ITAT), which reversed the Appellate Assistant Commissioner: the ITAT held that the omission to specify Sasikumar’s capacity was a curable defect under section 292B of the Income-tax Act and remitted the matter for fresh disposal. The present references to this Court arose from those four cases, and two questions were referred by the Tribunal for the Court's decision.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in coming to the conclusion that the proceedings by notice dated September 2, 1977, were validly initiated?
  2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal had material to come to the conclusion that the notice issued to the individual was only a mistake curable and not one which affects the jurisdiction although the assessment was made in the status of an “association of persons”?

Arguments of the Parties

Appellant's Arguments (Assessee / Appellate Assistant Commissioner)

  • The notices dated 2 September 1977 did not specify that they were issued to Sasikumar in any representative capacity (for example, as principal officer or member of an association). On that basis, there were no proceedings initiated against the "association of persons" that was ultimately assessed; the assessments on the AOP were therefore invalid.
  • The Appellate Assistant Commissioner thus cancelled the four assessments on the ground that the notices were not properly directed to the assessee as assessed (the AOP).

Respondent's Arguments (Revenue)

  • The Revenue contended that the omission to specify Sasikumar's capacity was a mere mistake or defect curable by section 292B of the Income-tax Act. Section 292B, it was argued, removes invalidity arising from mistakes, defects or omissions where the proceeding is in substance and effect in conformity with the intent and purpose of the Act.
  • The Revenue relied on section 292B and sought to place reliance on earlier decisions such as In re Radhey Lal Balmukand, Mohd. Haneef v. Commissioner of Income-Tax and Mahabir Prasad Poddar v. ITO as supporting the curability of such omissions.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Y. Narayana Chetty v. ITO, [1959] 35 ITR 388 (SC) Authority supporting the principle that issue and service of notice under section 148 is a condition precedent to reassessment and must be made to the correct assessee. Relied upon to support the Court's conclusion that notices not addressed to the assessed AOP rendered the assessments illegal and without jurisdiction.
CIT v. K. Adinarayana Murthy, [1967] 65 ITR 607 (SC) Same general principle cited with other Supreme Court authorities concerning validity of notices and jurisdiction. Used with other authorities to affirm that a prescribed notice must be served on the particular assessee before reassessment under section 147 can be validly made.
Rama Devi Agarwalla v. CIT, [1979] 117 ITR 256 (Cal) Case cited among authorities emphasizing the necessity of proper notice for jurisdiction. Cited as part of the body of authority showing that service of notice on the particular assessee is foundational to jurisdiction.
Ravinder Narain v. ITO, [1974] 96 ITR 612 (Delhi) Cited in support of the requirement that notices be served in accordance with law; also used to distinguish earlier All-India decisions relied upon by Revenue. The Court treated Ravinder Narain as factually similar and as authority distinguishing earlier decisions that the Revenue sought to rely upon; it supported the Court's view that the notices in the present case were ineffective to confer jurisdiction.
Sunrolling Mills P. Ltd. v. ITO, [1986] 160 ITR 412 (Cal) Holds that section 292B does not empower the Income-tax Officer to act without jurisdiction or to convert one species of proceeding into another. The Court adopted this reasoning to hold that section 292B cannot cure the fundamental absence of notice to the assessee (AOP) and cannot confer jurisdiction where none exists.
In re Radhey Lal Balmukand, [1942] 10 ITR 131 (All) Older authority relied on by the Revenue in support of curability arguments. The Court noted these earlier decisions were discussed and distinguished in Ravinder Narain and observed they were rendered prior to later Supreme Court authorities; accordingly they were not controlling in the present factual matrix.
Mohd. Haneef v. Commissioner of Income-Tax, [1955] 27 ITR 447 (All) Another older authority relied upon by Revenue. The Court observed it had been discussed and distinguished in Ravinder Narain; the facts and precedence were not determinative in the present case.
Mahabir Prasad Poddar v. ITO, [1976] 102 ITR 478 (Cal) Relied on by the Revenue; concerned assessments following notices where the reopening notices were not challenged in that proceedings. The Court distinguished this decision because, in that case, the reopening notices themselves were not challenged, unlike the present case where validity of notices was central.

Court's Reasoning and Analysis

The Court's analysis proceeded in these principal steps, drawn strictly from the opinion:

  1. The Court began by observing the undisputed facts: notices dated 2 September 1977 were issued to Sasikumar but did not specify the capacity in which he was addressed. The Appellate Tribunal treated the notices as directed only to the individual Sasikumar.
  2. The Court stated the settled legal proposition that the issue and service of a notice under section 148 of the Income-tax Act is a condition precedent (a jurisdictional requirement) to the validity of any reassessment under section 147. If the notice is not in accordance with law or not served on the proper person, the assessment is illegal and without jurisdiction.
  3. Under section 2(31) a "person" may be an individual, HUF, company, firm, association of persons or body of individuals — distinct categories of assessee. The Court emphasized that the AOP assessed here is a distinct assessee separate from its individual members.
  4. There was no material to show that the prescribed notices were sent to the AOP or to Sasikumar as representing the AOP. Therefore, the notices under section 148 were not served in accordance with law upon the assessee who was ultimately assessed (the AOP). The Income-tax Officer was incompetent, on the basis of those notices, to assess the AOP.
  5. The Court characterized the proceedings as void and without jurisdiction; the infirmity was fundamental — effectively "no notice" to the assessee as required by law — rather than a mere technical error.
  6. The Court examined section 292B, which saves returns, assessments, notices, summonses or proceedings from invalidity "merely by reason of any mistake, defect or omission" if they are in substance and effect in conformity with the intent and purpose of the Act. The statement of objects and a departmental circular described section 292B as intended to guard against purely technical objections.
  7. Applying the foregoing, the Court concluded that section 292B cannot cure the absence of a jurisdictional notice to the assessee (AOP). The Court relied on the reasoning in Sunrolling Mills P. Ltd. v. ITO that section 292B does not empower an officer to act without jurisdiction and cannot convert one species of proceeding into another.
  8. The Court therefore held that the Appellate Tribunal erred in applying section 292B to cure the fundamental absence of notice to the AOP and in reversing the Appellate Assistant Commissioner's orders. The Court also considered and distinguished the earlier decisions the Revenue relied upon, noting differences in facts or procedural posture (for example, where reopening notices were not challenged).

Holding and Implications

Holding: The Court answered both questions referred by the Appellate Tribunal in the negative. In the Court's words, both questions were answered "in the negative and in favour of the assessee and against the Revenue."

Core Ruling: Section 292B cannot be invoked to cure the fundamental jurisdictional defect arising from the absence of a notice to the assessee (here, the assessed association of persons); where there is effectively "no notice" to the assessee as required by law, the resultant proceedings and assessment are void and without jurisdiction.

Immediate consequences for the parties: The Court sided with the assessee on both referred questions and against the Revenue; the Appellate Tribunal was held to have been in error in applying section 292B to validate the assessments made on the AOP when no proper notice had been served on that AOP. The judgment also directs that a copy be sent to the Income-tax Appellate Tribunal, Cochin Bench.

The opinion explains the legal consequences for the validity of the assessments in these cases; it does not purport merely to dismiss a procedural irregularity as technical where a jurisdictional requirement (service of notice to the correct assessee) is lacking.

Administrative direction: A copy of this judgment is to be sent by the Registrar, under signature and seal, to the Income-tax Appellate Tribunal, Cochin Bench.

Show full summary ...

    P.N Sasikumar And Others v. Commissioner Of Income-Tax.

    The Judgment of the Court was delivered by

    K.S Paripoornan, J.:— These four income-tax reference cases give rise to common questions of law. The Income-tax Appellate Tribunal has referred the following two questions for the decision of this court:

    “1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in coming to the conclusion that the proceedings by notice dated September 2, 1977, were validly initiated?

    2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal had material to come to the conclusion that the notice issued to the individual was only a mistake curable and not one which affects the jurisdiction although the assessment was made in the status of an ‘association of persons’?”

    2. The respondent is the Revenue.

    3. The matter relates to the assessment years 1974-75 to 1977-78. For these four years, no return of income was furnished in respect of “Archana Hotel”, Kottayam. On September 2, 1977, the Income-tax Officer issued notices under section 148 of the Income-tax Act for the first three years and issed a notice under section 139(2) read with section 148 of the Act for the assessment year 1977-78 to one Sasikumar with address at Hotel Archana, T.B Road, Kottayam. As to whether the notice was issued against the individual, Sasikumar, or in any other capacity like the principal officer or the member of an association or body of individuals, was not specifically stated in the notice. Under the circumstances, the Appellate Tribunal proceeded on the basis that the notices were issued only to the individual, P.N Sasikumar. He filed “nil” returns in his individual status for the first three years and returned an income of a few thousand rupees for the assessment year 1977-78. The Income-tax Officer completed the assessments in the status of an “association of persons” consisting of Sasikumar and certain others. Tax was also levied as per the assessments. In the appeals, the Appellate Assistant Commissioner took the view that notices under section 148 (and section 139) of the Income-tax Act were not specifically issued against Sasikumar in his capacity as “principal officer” or member thereof and were issued only in his capacity as “individual”. It was held that there were no proceedings against the “association of persons” and the assessments made on the “association of persons” are invalid. The four assessments were cancelled. The Revenue filed appeals before the Appellate Tribunal. Reliance was placed on section 292B of the Income-tax Act and it was contended that the omission to specify “Sasikumar”, to whom notice was sent as a member of an “association of persons” or “principal officer thereof”, is only a mistake, defector omission in the notices. It was argued that the notice was sent or proceedings were initiated to reopen or call for the return of income which is in substance and effect in conformity with or according to the intent and purpose of the Income-tax Act. The Appellate Tribunal held that the object of issuing the notice to Sasikumar was to assess the income of the business of Hotel Archana whoever may be the person in control and management of the business and the omission to specify the status as an “association of persons” is only an irregularity which will not invalidate the assessments. It was held that the Income-tax Officer was competent to go into the question whether the assessment is to be made on the individual or “association of persons” and that section 292B cures such, defects or omissions. The orders passed by the Appellate Assistant Commissioner were set aside and the matter was remitted for fresh disposal. The assessee has come up by way of references in these four cases.

    4. We heard counsel for the petitioners, Mr. Balachandran, as also the counsel for the Revenue, Mr. Menon. Innumerable decisions were brought to our notice by counsel appearing on both sides. We are referring only to the few authorities which are necessary for resolving the controversy in these cases. It is evident that no return of income was furnished in respect of Archana Hotel for these four years. The Income-tax Officer issued notices on September 2, 1977, under section 148 of the Act for the first three assessment years and under section 139(2) read with section 148 of the Act for the assessment year 1977-78 to one Sasikumar. It is agreed that the notices did not specify the capacity in which it was issued to Sasikumar. The Appellate Tribunal proceeded only on the basis that the notices were issued only to the individual. It is settled law that the issue of a notice under section 148 of the Income-tax Act is a condition precedent or a matter of jurisdiction to the validity of any reassessment 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 issued is invalid or not in accordance with the 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 the particular assessee. Under section 2(31), “person” includes an individual or a Hindu undivided family or company, firm, an association of persons or body of individuals, whether incorporated or not, etc. They are distinct and different assessees. The service of a prescribed notice, on a particular assessee, who is to be assessed, is a condition precedent to the validity of any assessment to be made under section 147 of the Act. It is the very foundation of the jurisdiction of the Income-tax Officer. The above aspect of the matter is succinctly stated in Kanga and Palkhivala's Law and Practice of Income Tax, Vol. 1, page 910. In the present case, the assessments were made on an “association of persons”. It is an entity which is distinct and different from the various persons who are members of the unit, “association of persons”. There is no material to show that the prescribed notices were sent to any “association of persons” or to Sasikumar as representing the “association of persons”. In this view of the matter, it is clear that the notices under section 148 of the Act were not served in accordance with law and the said assessee, who was assessed, was not called upon to file the returns. The notice was addressed only to an individual, Sasikumar. The Income-tax Officer did not make it clear or plain that the proposal was to assess the “association of persons” consisting of Sasikumar and others. So, on the basis of the notices sent, the Income-tax Officer was incompetent to assess the “association of persons” consisting of Sasikumar and others. The entire proceedings are illegal and without jurisdiction. The proceedings are patently or ex facie illegal and so loudly obtrusive that it leaves an indelible stamp of infirmity or vice. The decisions reported in Y. Nara-yana Chetty v. ITO, [1959] 35 ITR 388 at p. 392 (SC), CIT v. K. Adinarayana Murthy, [1967] 65 ITR 607 (SC), Rama Devi Agarwalla v. CIT, [1979] 117 ITR 256 (Cal) and Ravinder Narain v. ITO, [1974] 96 ITR 612 (Delhi), and the relevant passages at page 910 of Kanga and Palkhivala's Law and Practice of Income Tax, Vol. I. (1976 edition), make the position clear.

    5. But, the Appellate Tribunal held that section 292B cures the defects or omissions in the instant case. Section 292B is as follows:

    “No return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

    6. In the statement of objects and reasons, published in the Gazette dated May 9, 1973, for Bill No. 34 of 1973 ([1973] 89 ITR (St.) 33), it is stated, at clause 80, referring to section 292B, that it seeks to provide against purely “technical objections” without substance coming in the way of the validity of assessment proceedings, etc. So also, in the Departmental Circular No. 179 dated September 30, 1975 ([1976] 102 ITR (St.) 28), explaining the scope of section 292B, as could be seen from Chaturvedi and Pithisaria's Income Tax Law, Third edition, Vol. VI, page 5283, it is stated that the provision has been made to provide against purely “technical objections” without substance coming in the way of the validity of assessment proceedings, etc. The sole question that arises for consideration is whether section 292B will cure the defect or irregularity in the instant cases as stated by the Tribunal.

    7. We have already held that the issue and service of a notice under section 148 is a condition precedent or a matter of jurisdiction. In that view, before assessing an “association of persons”, as enjoined by section 282(2)(c) of the Income-tax Act, the notice should be addressed to the principal officer or a member thereof. Admittedly, it has not been done in this case. That means, there was no notice to the “association of persons” which was assessed to tax. We are of the view that it is a case where “no notice” was sent to “the assessee”, the “association of persons” as enjoined by law. The entire proceedings are, in the circumstances, void and illegal and totally without jurisdiction. Such a fundamental infirmity cannot be called a “technical objection” or a mere “irregularity” and such vital infirmity cannot be cured or obliterated by relying on section 292B of the Income-tax Act. It is not a case of a notice issued or served, but which is beset with any mistake, defect or omission. This is a case of “no notice” to “the assessee”. As stated by the Calcutta Court in Sunrolling Mills P. Ltd. v. ITO, [1986] 160 ITR 412 (at p. 416), section 292B does not empower the Income-tax Officer to act without jurisdiction. In that case, the Calcutta High Court held that section 292B does not authorise the Income-tax Officer to convert a proceeding under section 147(b) of the Act into a proceeding under section 147(a) and that action cannot be justified by taking recourse to section 292B of the Act. It was not a mere technicality and it is a question of jurisdiction. We are of the view that the said reasoning will apply in this case also. On this basis, we hold that the Appellate Tribunal was in error in holding that section 292B is applicable in the instant case and in reversing the orders of the Appellate Assistant Commissioner for these four assessment years.

    8. Counsel for the Revenue placed heavy reliance on the decisions in In re Radhey Lal Balmukand, [1942] 10 ITR 131 (All), Mohd. Haneef v. Commissioner Of Income-Tax, [1955] 27 ITR 447 (All) and Mahabir Prasad Poddar v. ITO, [1976] 102 ITR 478 (Cal). The decisions in In re Radhey Lal Balmukand, [1942] 10 ITR 131 (All) and Mohd. Haneef v. Commissioner Of Income-Tax, [1955] 27 ITR 447 (All) were discussed by the court in Ravinder Narain v. ITO, [1974] 96 ITR 612 (Delhi) and were distinguished on facts. The facts of the present case are somewhat similar to the facts in Ravinder Narain v. ITO, [1974] 96 ITR 612 (Delhi). We should state that the decision in Mahabir Prasad Poddar v. ITO, [1975] 102 ITR 478 (Cal) also is distinguishable. It is evident from page 483 of 102 ITR that the notices for reopening were not challenged in the proceedings in that case. The assessments which were made pursuant to the notices alone were challenged. That makes all the difference. It should also be noticed that the decisions in In re Radhey Lal Balmukand, [1942] 10 ITR 131 (All) and Mohd. Haneef v. Commissioner Of Income-Tax, [1955] 27 ITR 447 (All) were rendered long before the Supreme Court decisions, mentioned in page 84 (infra) above.

    9. In the result, we answer question No. 1 referred to us in the negative and in favour of the assessee and against the Revenue and we answer question No. 2 referred to us also in the negative, against the Revenue and in favour of the assessee.

    10. A copy of this judgment shall be sent by the Registrar of this court, under his signature and seal, to the Income-tax Appellate Tribunal, Cochin Bench.

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    Comments

    P.N Sasikumar And Others v. Commissioner Of Income-Tax.
    (Jul 3, 1987)