Mahabir Prasad Poddar v. Income-Tax Officer

1. The facts in this case lie within a short compass. It appears that the income-tax department found large sums of money to have been paid to one Mahabir Prasad Poddar in course of business. The amount involved is about Rs. 35 lakhs. Enquiries revealed that Mahabir Prasad Poddar was never assessed to tax in any capacity. The income-tax department was not aware as to who this Mahabir Prasad Poddar was. In the premises, notices were issued under Section 139(2) of the Income-tax Act, 1961, for the assessment year 1962-63, on the information that the said Mahabir Prasad Poddar had received Rs. 2,33,763.53 from the Indian General Navigation and Railway Co., Calcutta. On January 16, 1963, Mahabir Prasad Poddar was examined under Section 131 of the Income-tax Act, 1961. Thereafter, on February 19, 1963, notices under Section 148 of the Income-tax Act, 1961, were issued in respect of the assessment years 1958-59 to 1961-62 and on March 7, 1963, notices under Section 148 of the Income-tax Act, 1961, were issued for the year 1957-58. All the said notices were addressed to Mahabir Prasad Poddar as such without indicating as to in what capacity the said notices were issued. For one relevant year, however, that is to say, for the assessment year 1957-58, sanction had to be obtained from the Commissioner of Income-tax for reopening of the assessment and it is undisputed that such sanction was obtained for that year for being addressed to Mahabir Prasad Poddar as an individual. In response to the aforesaid notices returns were filed by the said Mahadir Prasad Poddar as individual and income was shown to have been derived from certain businesses. In the said returns no claim was made that the businesses in question belonged to any Hindu undivided family. As mentioned hereinbefore, prior to the issuance of the aforesaid notices, Mahabir Prasad Poddar was examined under Section 131(2) of the Income-tax Act, 1961, and in the said examination also Mahabir Prasad Poddar did not claim that the businesses and the income belonged to any Hindu undivided family and not to him in his individual capacity. Thereafter, there was an application for voluntary disclosure on July 12, 1965, and in that disclosure petition it was stated that there was a Hindu undivided family consisting of his sons and other legal descendants and Mahabir Prasad Poddar claimed to be the karta of the said family. As mentioned hereinbefore until that time Mahabir Prasad Poddar nor any Hindu undivided family of which Mahabir Prasad Poddar was a karta, was ever assessed to any tax. In the said disclosure petition it was claimed that the income belonged to the Hindu undivided family and should be spread over certain years. On August 26, 1966, the Income-tax Officer wrote to Mahabir Prasad Poddar enclosing notice under Section 143(2) of the Income-tax Act, 1961, for the assessment years 1957-58 to 1963-64 and also asking him to file returns for the years 1964-65 and 1965-66. Mahabir Prasad Poddar on September 26, 1966, wrote to the Income-tax Officer stating that the Hindu undivided family had not filed any returns for the years 1957-58 to 1963-64 and/or 1964-65 and 1965-66. The said Hindu undivided family filed returns for the said years 1952-53 to 1965-66 stating that the income might be determined as per the decision of the Commissioner of Income-tax, West Bengal III, in respect of the disclosure petition. Accepting the aforesaid returns the Income-tax Officer on February 21, 1967, completed the assessment for the assessment year 1962-63, determining the status of the assessee as a Hindu undivided family. Similarly, on February 28, 1967, assessments for the assessment years 1959-60, 1960-61 and 1961-62 were completed in the status of the Hindu undivided family. On March 31, 1967, the assessee preferred appeals in respect of the aforesaid assessments before the Appellate Assistant Commissioner and challenged the assessments on the ground that there should have been two assessments in respect of the said years, one in the status of the individual and the other in the status of the Hindu undivided family. It was not contended before the Appellate Assistant Commissioner that the assessments in question on the Hindu undivided family were illegal or irregular in view of the fact that no notice had been given to the said Hindu undivided family under Section. 148 of the Income-tax Act, 1961. On December 27, 1967, the appeals were disposed of by the Appellate Assistant Commissioner, It was held by the said Appellate Assistant Commissioner that the Income-tax Officer was justified in completing the assessment in the status of the Hindu undivided family for all the assessment years in question. It has been stated in paragraph 9 of the petition to this court that no appeal had been preferred from the decision of the Appellate Assistant Commissioner. On March 18, 1969, Mahabir Prasad Poddar made this application in this court under Article 226 of the Constitution describing himself as for self and as karta of the Hindu undivided family. A rule nisi was issued. Thereafter, the application came up for hearing before K. L. Roy J. and by a judgment delivered and order passed on December 4, 1970, Mahabir Prosad Poddar v. Income-lax Officer, the learned judge has dismissed this application and discharged the rule nisi. This appeal has been preferred from the aforesaid judgment and order of K. L. Roy J, dated December 4, 1970 .

2. Counsel for the assessee contended before us that in a case of reopening unless the jurisdiction was assumed by serving a proper and valid notice of reopening either under Section 34 of the old Act or Section 148 of the Income-tax Act, 1961, the proceedings thereunder were illegal. It was contended that inasmuch as the assessments in question were not regular assessments but reopened assessments and in view of the fact that notice for reopening had been addressed to Mahabir Prasad Poddar as an indi vidual it was not open, in spite of the fact that returns were filed by the Hindu undivided family beyond the period of four years, to have made the impugned assessments. It was submitted that service of a valid notice under Section 148 of the Income-tax Act, 1961, was a condition precedent for the assumption of jurisdiction by the Income-tax Officer and if the notice was invalid or was not served the proceedings taken for reassessment would also be invalid and without jurisdiction. It was urged that the fact that the Hindu undivided family had filed returns and invited the Income-tax Officer to make the assessments in the status of the Hindu undivided family made no difference. Reliance was placed mainly on the decision of the Supreme Court in the case of Commissioner of Income-tax v.

K. Adinarayana, Murty, and the Division Bench judgment of this court in the case of Sewlal Daga v. Commissioner of Income-tax, [1965] 55 ITR 400 (Cal) and the judgment in the case of Shyam Swular Bajaj v. Income-tax Officer, "A" Ward, Dist. I(I), . Our attention was also drawn to the decision in the case of Commissioner of Income-lax v. Kurban Hussain Ibrahimji Mithiborwala, . Counsel for the asscssee further submitted that the facts of the case upon which the learned judge had relied, namely, the decision of Chooharmal Wadhuram v. Commissioner of Income-tax, [1968] 69 ITR 88 (Guj) were entirely different. In the aforesaid view of the matter it was submitted that the proceedings should be quashed and the assessment order should be held to be invalid. It must be mentioned in this connection that the notices for reopening had not been challenged in these proceedings, Counsel for the assessee submitted that he was not challenging the notices for reopening in so far as these were issued to Mahabir Prasad as an individual. It was submitted that the challenge was to the assessments being made en the Hindu undivided family after giving the notice of reopening on the individual Mahabir Prasad Poddar. Therefore, what had been challenged were not the notices of reopening, but. the assessments in question which were made pursuant to the notices.

3. It is necessary to decide two questions in disposing of this appeal: firstly, whether the petitioner is entitled to maintain this application under Article 226 of the Constitution in view of the conduct and facts and circumstances of this case, and, secondly, whether in the i'acts and circumstances of the case the reassessment was without jurisdiction. So far as the first question is concerned it is undisputed that a very large sum of money has escaped assessment. It is not the case of the appellant that either the Hindu undivided family or Mahabir Prasad in his individual capacity ever disclosed or brought to the notice of the revenue department this sum of money. It was also not disputed in this court that tax has escaped assessment on this sum of money. It has to be emphasised that when Mahabir Prasad received the notice and thereafter in his return originally filed and in his examination under Section 131(2) of the Act, he did not state that there was any Hindu undivided family or that the said Hindu undivided family had any interest in the said money. On the contrary, his stand was that the income and the businesses connected therewith were his individual assets. Thereafter, he filed a revised return. It was stated in the petition to this court that there was no revised return, but a voluntary return was filed on behalf of the Hindu undivided family. The learned judge was unable to accept this position and was of the opinion that the statement that there was no revised return, was an incorrect statement. Counsel for the appellant in this appeal before us accepted the position that there was a revised-return. In the said revised return identical amounts or various items of it which were previously claimed to have belonged to Mahabir Prasad in his individual capacity were claimed as moneys belonging to the business of the Hindu undivided family, and in both the cases it was Mahabir Prasad who had filed the return himself either for self as individual or purporting to act as karta of the said Hindu undivided family. As a result of the revised return the assessee invited the Income-tax Officer to make the assessment on the Hindu undivided family. At the time when the return was filed proceedings for reopening had been initiated and were pending and as per proceeding of the said reopening in respect of the notice served on Mahabir Prasad under Section 148 of the Income-tax Act, 1961, the said revised return was filed and the Income-tax Officer was invited to make the assessment on the Hindu undivided family. The assessment in question was passed by the Income-tax Officer on the basis of the case of the assessee on the Hindu undivided family. The said assessments were made in or about February and March, 1967. There was an appeal before the Appellate Assistant Commissioner as mentioned hereinbefore. The appeal was disposed of by the Appellate Assistant Commissioner, Range " T ", and before the appellate authority it was not contended that there could not have been any assessment on the Hindu undivided family. On the other hand, what was urged was that there should have been two assessments, one on the Hindu undivided family and the other on Mahabir Prasad as individual. The illegality or invalidity of assessment, if any, on the Hindu undivided family was not a ground taken or urged in the appeal before the Appellate Assistant Commissioner. The appeal was also as mentioned hereinbefore filed and preferred by the said Mahabir Prasad purporting to act as karta of the Hindu undivided family. The appeal was disposed of on 27th December, 1967. There was no further appeal from the decision of the Appellate Assistant Commissioner to the Tribunal. Nearly a year and a half thereafter, this application was moved in this court under Article 226 of the Constitution and a rule nisi obtained. There is in the petition no explanation whatsoever as to why no action was taken for this long period after the assessment order or after the order of the Appellate Assistant Commissioner, in moving the application under Article 226 of the Constitution. It was in this application under Article 226 of the Constitution for the first time another stand was taken, namely, that there being no notice on the Hindu undivided family under Section 148 of the Income-tax Act, 1961, the assessment on the Hindu-undivided family was wholly without jurisdiction. Such an assessee, who has invited the department to make the assessment and as such cannot be aggrieved by the order of the authorities because the order was passed on the invitation of the petitioner, cannot, in our opinion, take recourse to Article 226 of the Constitution. It has further to be borne in mind that the appellant in this case has an alternative remedy within the Income-tax Act; he has resorted to that alternative remedy and having resorted to that alternative remedy invited a decision of the appellate authority and thereupon did not perfer any further appeal therefrom. It has also to be borne in mind that the appellant was guilty of contrary stand and also of inconsistent stand before the revenue authority, at one point of time contending that the same income belonged to Mahabir Prasad, the individual, and at the other time contending that the said sum of money belonged to Hindu undivided family of which the karta was the said Mahabir Prasad. There is furthermore no explanation as to why a year and three months after the order of the Appellate Assistant Commissioner this application was moved to this court. It has to be borne in mind that Article 226 of the Constitution can only be exercised by the courts where there is miscarriage of justice or abuse of power and there is excess of jurisdiction by the authorities under the Act. Such discretion is used in aid of justice and cannot be taken recourse to for the purpose of defeating justice and nullifying the orders which were passed at the instance of the party alleging to be aggrieved. A person who is guilty of conduct as aforesaid, in our opinion, is not entitled to any relief under Article 226 of the Constitution. For this conclusion reliance may be placed on the decisions in the cases of C. A. Abraham v. Income-tax Officer, Kottayam, , Durga Prosad v. The Chief Controller of Imports and Exports, , Pannalal Binjraj v. Union of India, [1957] 31 ITR 565 (SC) and Vuppala China Sambamurthy v. The Additional Income-tax Officer, Visakhapatnam, [1960] 38 ITR 685 (AP). On this aspect of the matter the learned judge has held that the petitioner was not entitled to any relief in the application. We are in agreement with the learned judge on this point.

4. The next question is whether the impugned assessment on the Hindu undivided family was wholly without jurisdiction. Counsel for the appellant contended before us that this was a reassessment and could have only been made after proper notices had been given of the reopening on the assessee. This proposition is undisputed. Counsel for the appellant further contended that before the assessment was reopened there should be an assumption of jurisdiction by the Income-tax Officer by service of proper and valid notice on the assessee. This proposition cannot, in our opinion, also be disputed. The question is, however, whether in the facts and in the circumstances of the case such notice can be deemed to have been given. On this aspect it is important to remember that this was the first assessment only in the sense that there was no prior assessment of Mahabir Prasad either as an individual or as member or karta of any Hindu undivided family. As mentioned hereinbefore a large sum of money was found and thereafter after investigation notices were given addressed to Mahabir Prasad to come and explain the position. In response to this it was stated by him that the amount represented his personal income and the income of his business spread over for a number of years and pursuant thereto notices under Section 148 had been served addressed to Mahabir Prasad without indicating in what particular capacity such notices were issued. Section 148 stipulates that before making the assessment or reassessment under Section 147 the Income-tax Officer 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. Section 139, Sub-section (2), does not provide that notice should be addressed to an assessee indicating in what capacity such notice is given. Counsel for the appellant, however, contended that the obligation to file return under Section 139 arose not because of the service of notice but by the provisions of the statute. Therefore, it was not obligatory to indicate before the service of the notice under Section 139 as to in what capacity notice was served. But in a case of reopening it was emphasised that the obligation of an assessee would arise on the service of the notice and before service of the notice the revenue authority should fulfil certain conditions precedent and one of the conditions required to be fulfilled is that the Income-tax Officer should have reasons in his possession to believe that the income of the particular assessee had escaped assessment and unless and until the Income-tax Officer was sure as to who the assessee was it was not possible for the Income-tax Officer to serve a notice under Section 148 of the Income-tax Act, 1961. In this background it was stressed that an individual and a Hindu undivided family were two different and separate entities in the scheme of the Income-tax Act and, therefore, it was obligatory on the Income-tax Officer to determine whether an assessee to be served with notice was either an individual or a Hindu undivided family. It is true that where there is an assessee fulfilling the description of either an individual or a Hindu undivided family the Income-tax Officer must determine before issuing the notice as to who is the assessee or in what capacity the assessee is being proceeded against before initiation of the proceeding. It was in that light the Division Bench of this court in the case of Sewlal Daga v. Commissioner of Income-tax, Calcutta, [1965] 55 ITR 406 (Cal) held the reassessment on the legal heirs and representatives of the deceased assessee on the notice being served on a person as the karta of the Hindu undivided family to be invalid. It was also on this basis that in the case of Shyam Sundar Bajaj v. Income-tax Officer, " A " Ward, District I, it was held that where there are two asses-

sees in the sense that an assessee carried on business in his individual name and prior thereto was a member of the Hindu undivided family which had disrupted within the knowledge of income-tax department, in such a case if a notice was given without indicating in what capacity such an assessee was being served with the notice under Section 148, such a notice was liable to be quashed and was bad. In this case, however, as mentioned herein before, the facts were entirely different. Counsel for the assessee relied very strongly on the decision of the Supreme Court in the case of Commis sioner of Income-tax, Andhra Pradesh v. K. Adinarayana Murthy, . There the assessee was a Hindu undivided family. Subsequent to the original assessment, which was an assessment on the Hindu undivided family, the Income-tax Officer had received information that the assessee had done some procurement business and earned large profits which had escaped assessment for the assessment year 1949-50. Since for the assess ment year 1954-55, the Income-tax Officer had taken the status of the assessee to be that of an " individual", he issued a notice under Section 34 of the Income-tax Act on 22nd March, 1957, to reopen the assessment for the assessment year 1949-50 in the status of an " individual ", having taken the sanction of the Commissioner to make the reassessment in that status.

Pending the proceedings the Appellate Assistant Commissioner in an appeal against the assessment for the year 1954-55 held that the status of the respondent was that of a Hindu undivided family. Thereafter, the Income-

treated as separate units of assessment and if a notice under Section 34 of the Act was wrongly issued to the assessee in the status of an individual and not in the correct status of a Hindu undivided family, the notice was illegal and all proceedings taken under that notice were ultra vires and without jurisdiction. It has to be emphasised that in the instant case before the Supreme Court there was originally the existence of a Hindu undivided family which was the assessee and it is in respect of completed assessment of that Hindu undivided family assessed as Hindu undivided family that the proceedings were taken. It has further to be borne in mind that there is no dispute that subsequent to the original assessment of the said Hindu undivided family the said family had disrupted and the assessee before the Supreme Court became an assessee in his individual capacity. Therefore, there were two different and distinct entities or units of assessment before the Income-tax Officer when the Income-tax Officer first issued the impugned notice of reassessment. Where there are two existing assessees if the Income-tax Officer chooses to issue notice in respect of one or in respect of an assessee in one status then in such a case the Supreme Court has emphasised that, in view of there being two different entities-assessable units, return filed by the one, though notice was given to the other, cannot be a valid return. In this connection it will be important to bear in mind that at page 610 of the judgment the Supreme Court has emphasised that the notice was invalid and ultra vires "in the facts and circumstances of the case" before the Supreme Court. On this aspect of the matter we are, therefore, of the opinion that here in this case where the question is of first assessment and Mahabir Prasad Poddar, the person responsible for filing of the return, on his own showing, had first indicated that it was individual and thereafter indicated that it was a Hindu undivided family and the reassessment was made by the notice served on Mahabir Prasad Poddar which was served on him without indicating in what capacity that notice had been given, it cannot be said that the assessment made in this case was without jurisdiction. There was a notice given to Mahabir Prasad Poddar without indicating the capacity and the status which can be determined in an assessment proceeding. In the aforesaid facts and circumstances of the case, it cannot be said that the notice served suffered from any infirmity. In this connection we may refer to the decision of the Bombay High Court in the case of Chooharmal Wadhuram v. Commissioner of Income-tax, Gujarat II, [1968] 69 ITR 88 (Guj) where one Chooharmal Wadhuram carried on business in partnership with another person in Karachi prior to partition. Subsequent to partition he came to India and the partnership was dissolved. In the books of account of the firm in Petlad certain amounts were found credited to the firm of Chooharmal Wadhuram for the financial years 1945-46 and 1946-47. After the death of Chooharmal in 1952, notice under Section 34(l)(a)of the Indian Income-tax Act, 1922, was served on D as his legal representative. Sanction for reassessment proceeding was obtained describing D as an association of persons. Against the reassessment proceeding the asscssee contended that it could not be taxed in respect of the deposits in the Petlad firm without the amount being assessed in the hands of the firm and further assessment could not be made in the status of an individual as sanction for proceedings had been given in respect of an association of persons and the proceedings had not been validly initiated by notice served on one only of several legal representatives. Rejecting the aforesaid contention the Bombay High Court at page 100 observed as follows [1968] 69 ITR 88 (Guj):

That takes us to the fourth question which challenges the validity of the assessments made on the assessee on the ground that the assessments were made on the assessee in the status of individual, though the sanction of the Commissioner for initiating the proceedings was given on the basis that the proceedings were going to be initiated against the assessee in the status of an association of persons. This contention of the assessee is also in our opinion futile. The applications made by the Income-tax Officer to the Commissioner for obtaining his sanction for the initiation of proceedings under section 34(1 )(a) clearly show that the assessee against whom the proceedings were sought to be initiated by the Income-tax Officer was 'Shri Chooharmal Wadhuram, legal representatives Daulatram and others'. The reports enclosed with these applications also show that the Income-tax Officer was of the view that the amounts deposited in the name of Messrs. Daulatram Chooharmal with Messrs. Narayandas Purshottamdas represented the undisclosed profits of Chooharmal Wadhuram and the Income-tax Officer sought the sanction of the Commissioner for the purpose of assessing Chooharmal Wadhuram under section 34(1)(a). It can, therefore, hardly be disputed that the sanction of the Commissioner sought by the Income-tax Officer was for initiation of proceedings for reassessment of the profit derived by Chooharmal Wadhuram during his lifetime and the assessment was sought to be made by the Income-tax Officer on Daulatram and others as legal representatives of Chooharmal Wadhuram under Section 24B(1). This assessment could obviously be made only in the status of individual and not in the status of association of persons. But, through some oversight, the applications made by the Income-tax Officer to the Commissioner showed the status of the assessee as association of persons. This was clearly a mistake and the question is whether this mistake had any invalidating consequence on the subsequent proceedings for assessment initiated by the Income-tax Officer after the grant of the sanction by the Commissioner. We do not think that the wrong description, of the status of an assessee can have the effect of invalidating the proceedings for assessment initiated after obtaining the sanction of the Commissioner when the sanction is in terms granted to the initiation of proceedings against the assessee. If the status of the assessee was wrongly described, it can always be corrected by the Income-tax Officer in the course of the assessment proceedings, but that cannot affect the validity of the assessment proceedings. The position would of course be different where the status is so inextricably mixed up with the question as to who is the assessee that the description of the status one way would be referable to one assessee while the description of the status the other way would be referable to another assessee. Where such is the case, the description of the status may be indicative of the fact that a particular assessee is sought to be proceeded against and if sanction of the Commissioner is obtained for proceeding against that assessee, such sanction cannot be availed of for the purpose of initiating proceedings against another assessee who would be indicated by the description of the status the other way.

5. In this connection we may also rely on and refer to the decision, in Gopaldas Parshottamdas v. Commissioner of Income-tax, [1941] 9 ITR 130 (All) and In re Radheylal Balmukund, [1942] 10 ITR 131 (All) which were decisions on assessment made under Section 22 of the Indian Income-tax Act, 1922. Reliance may also be placed on the decisions in the case of Commissioner of Income-tax, Madras v. K. M. N. N. Swaminathan Cheitiar, [1947] 15 ITR 430 (Mad), Balchand v. Income-tax Officer, Sagar, , Commissioner of Wealth-tax v. Ridhkaran, and Commissioner of Income-tax, Calcutta v. Sudhir Kumar Laha, . In the aforesaid view of the matter, it cannot be said that the assessment of the Hindu undivided family in this case was without jurisdiction.

6. In the aforesaid view of the matter we are of the opinion that the learned judge was right in dismissing the application under Article 226 of the Constitution. In the premises, the appeal fails and is dismissed with costs.

Sankar Prasad Mitra, C.J.

7. I agree. .