Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • P.K Tare, C.J
  • S.M.N Raina
  • S.S Sharma, JJ.
Acts
  • Section 31, Section 33, Section 33A, Section 33B, Section 66 or Section 66A
  • Section 35(5) of the Indian Income-tax Act, 1922. (ii)
  • Section 23(5)(b) of the Indian Income-tax Act, 1922,
  • Section 35(5) of the Indian Income-tax Act, 1922,
  • Section 35(1) of the Indian Income-tax Act 1922,
  • Section 23(5) of the Indian Income-tax Act, 1922,
  • SECTION 35 INDIAN INCOME TAX ACT
  • SECTION 156 INCOME TAX ACT 1961
  • provisions of Sub-section (1)
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • P.K Tare, C.J
  • S.M.N Raina
  • S.S Sharma, JJ.
Acts
  • Section 31, Section 33, Section 33A, Section 33B, Section 66 or Section 66A
  • Section 35(5) of the Indian Income-tax Act, 1922. (ii)
  • Section 23(5)(b) of the Indian Income-tax Act, 1922,
  • Section 35(5) of the Indian Income-tax Act, 1922,
  • Section 35(1) of the Indian Income-tax Act 1922,
  • Section 23(5) of the Indian Income-tax Act, 1922,
  • SECTION 35 INDIAN INCOME TAX ACT
  • SECTION 156 INCOME TAX ACT 1961
  • provisions of Sub-section (1)
See more information ...
Smart Summary

Analytical Summary of the Opinion — Petition under Article 226 (M/s. Jainarayan Mulchand)

Factual and Procedural Background

The petition under Article 226 was filed by a Hindu undivided family carrying on business as "M/s. Jainarayan Mulchand", through its karta, challenging an order of the Additional Commissioner of Income-tax, Madhya Pradesh, Bhopal dated 27 November 1970. The impugned order rejected objections to three revised and rectified notices of demand (dated 9 March 1964) issued by the Income-tax Officer, "C" Ward, Jabalpur under Section 156 of the Income-tax Act, 1961. Those demands sought payment of Rs. 1,345.98, Rs. 7,384.49 and Rs. 18,388.48 representing the petitioner's two annas share of income from the firm M/s. Rambilas Murlidhar and Balaram Toluram (Tumsar) for assessment years 1956-57, 1957-58 and 1958-59.

Material facts in the record: the petitioner was a partner in the unregistered firm with a two annas share; the firm itself returned and showed the petitioner as a partner; the assessee's share income had previously been assessed in its hands from assessment year 1947-48 onwards (including 1953-54 by way of credit entries). For the years in question, the petitioner filed returns with a statement indicating that the share income should be ascertained from the firm. The firm was assessed by the Income-tax Officer, Special Investigation Circle A, Nagpur, for the relevant years and substantial firm income was attributed and allocated among partners. Upon receipt of the firm's assessment results, the Jabalpur Income-tax Officer proceeded to rectify the petitioner's assessments under Section 35(5) (Indian Income-tax Act, 1922) to include the petitioner's share income and raised demands accordingly.

Procedurally, the petition challenges (1) the legality of issuing notices of demand without orders of rectification under Section 35(5) (as alleged by petitioner), and (2) the absence of notice as required by Section 35 (specifically the proviso to Section 35(1)). The court reviewed the assessment orders, order-sheets and entries showing consultation with the petitioner's counsel and the issuance of rectification orders dated 9 March 1964 (and related order-sheet entries) and ultimately dismissed the petition with costs.

Legal Issues Presented

  1. Whether the Income-tax Officer acted illegally and without jurisdiction in issuing notices of demand under Section 156 of the Income-tax Act, 1961, without having passed orders of rectification under Section 35(5) of the Indian Income-tax Act, 1922.
  2. Whether the notices of demand were invalid because the Income-tax Officer made fresh demands by including the assessee's two annas share income from the firm without giving notice as required by Section 35 of the Indian Income-tax Act, 1922 (specifically the first proviso to Section 35(1)).

Arguments of the Parties

Petitioner's Arguments

  • The Income-tax Officer issued the revised notices of demand under Section 156 without any prior orders of rectification under Section 35(5) of the Indian Income-tax Act, 1922 (i.e., no rectification orders existed when the demands were issued).
  • The notices of demand were invalid because the Income-tax Officer included the petitioner's two annas share income from the firm without giving the statutory notice required by Section 35 (first proviso to Section 35(1)), thereby depriving the petitioner of a reasonable opportunity of being heard.

Respondent's Position (as reflected in the record and order-sheets)

  • The record and order-sheets demonstrate that rectification orders were in fact made: for assessment years 1956-57 and 1957-58 rectification was made with the consent of the petitioner's counsel (noted on 30-3-63) and the Income-tax Officer recorded actions to prepare revised forms and issue demand notices on 9-3-64.
  • For assessment year 1958-59, a notice for rectification was issued on 17-2-64; the petitioner applied to keep the demand in abeyance pending appeal but the request was refused; the Income-tax Officer then passed the rectification order on 9-3-64. Thus the respondent's position, as shown by the record, is that rectification was validly carried out and that the petitioner had notice of the proceedings (either express or constructive) and opportunity to be heard.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Maharana Mills Pvt. Ltd. v. Income-tax Officer [1959] 36 ITR 350 (SC) Holds that where rectification proceedings have been discussed with the assessee and the assessee thereby has knowledge and opportunity to be heard, the requirement of the proviso (notice before an order that enhances assessment) is satisfied and the rectification is not invalid merely for lack of a formal written notice. The court applied this principle to conclude that the petitioner's knowledge of the rectification proceedings (and discussion with counsel) satisfied the proviso's requirement; therefore the absence of a formal notice did not invalidate the rectification and ensuing demand.

Court's Reasoning and Analysis

The court addressed each of the petitioner's two contentions in turn and based its analysis strictly on the record (assessment orders, order-sheets, returns and communications between tax officers and the petitioner's counsel).

  1. On the first contention (absence of rectification orders under Section 35(5)):
    • The court noted the statutory provision Section 35(5) (Indian Income-tax Act, 1922) which deems the inclusion or correction of a partner's share following firm assessment or reassessment to be a rectification of a mistake apparent from the record; the provisions of subsection (1) apply with the four-year computation rule from the date of the final order in the firm's case.
    • The court examined the order-sheets and the assessment record and found that the Income-tax Officer had indeed passed the necessary orders for rectification to include the petitioner's two annas share income for the relevant assessment years.
    • Specifically, for 1956-57 and 1957-58, order-sheet entries show receipt of share income information, presence of the petitioner's counsel Shri A. S. Purohit who "has no objection to rectify the assessment u/s", and the Income-tax Officer's subsequent instruction (9-3-64) to prepare revised IT forms and issue demand notices. For 1958-59, a rectification notice was issued on 17-2-64, the petitioner replied requesting abeyance, which was rejected, and rectification was ordered on 9-3-64. These entries satisfied the requirements of Section 35(5).
    • Consequently, the court found the first contention to be without substance — rectification orders were present and properly recorded.
  2. On the second contention (want of notice under the first proviso to Section 35(1)):
    • The court quoted the first proviso to Section 35(1), which requires that no rectification that has the effect of enhancing an assessment or reducing a refund shall be made unless the officer has given notice to the assessee of his intention and allowed a reasonable opportunity of being heard.
    • The court explained the object of the proviso: to prevent rectifications detrimental to the assessee without a reasonable opportunity of hearing. However, the court also emphasized that the rule is not rigidly limited to formal written notice — if the assessee in fact has knowledge of the proceedings and the matter has been discussed with him, an adverse order is not invalid merely because no formal notice was served.
    • The court found that the petitioner had such notice (either express or constructive). It relied on the record showing the petitioner's counsel's presence and lack of objection to rectification in March 1963, and the order-sheet entries reflecting discussion and subsequent rectification. The court expressly invoked Maharana Mills Pvt. Ltd. v. Income-tax Officer to support the proposition that discussion with and knowledge by the assessee satisfy the proviso's purpose.
    • Applying that precedent to the facts, the court concluded the proviso's requirements were met and the absence of formal written notice in the circumstances did not invalidate the rectification or demand.

Holding and Implications

Holding: Petition dismissed.

The direct consequence of the decision is that the three revised and rectified notices of demand (dated 9 March 1964) issued by the Income-tax Officer, "C" Ward, Jabalpur under Section 156, which included the petitioner's two annas share income for assessment years 1956-57, 1957-58 and 1958-59 after rectification under Section 35(5), are upheld as valid. The petition was dismissed with costs; hearing fee of Rs. 100 is noted "if certified."

The opinion does not purport to lay down any novel legal principle beyond applying Section 35(5) and the established authority in Maharana Mills regarding constructive notice; the court applied those provisions to the facts and found the rectifications and demands valid.

Show full summary ...

    Smt. Shantabai v. Chokhelal .

    1. This petition under Article 226 of the Constitution filed by a Hindu undivided family styled "M/s. Jainarayan Mulchand", Nainpur, through its karta, is directed against the order of the Additional Commissioner of Income-tax, Madhya Pradesh, Bhopal, dated November 27, 1970, rejecting its objections to the three revised and rectified notices of demand dated March 9, 1964, issued by the Income-tax Officer, "C" Ward, Jabalpur, under Section 156 of the Income-tax Act, 1961, by which he raised a demand on the petitioner for payment of Rs. 1,345.98, Rs. 7,384.49 and Rs. 18,388-48 towards its two annas share income from the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar, for the assessment years 1956-57, 1957-58 and 1958-59.

    2. The validity of the impugned notices of demand is challenged before us on two grounds, namely :

    (i) The Income-tax Officer acted illegally and without jurisdiction in issuing the notices of demand under Section 156 of the Income-tax Act, 1961, without any orders of rectification under Section 35(5) of the Indian Income-tax Act, 1922.

    (ii) The notices of demand were also invalid inasmuch as the Income-tax Officer could not have made any fresh demands by including the assessee's two annas share income from the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar, without notice as enjoined by Section 35 of the Indian Income-tax Act, 1922.

    3. There is, in our opinion, no substance in either of these contentions.

    4. The facts giving rise to the points raised in the petition, briefly, are these. The petitioner, i.e., the Hindu undivided family under the name and style of "M/s. Jainarayan Mulchand", Nainpur, was admittedly a partner of the unregistered firm styled "M/s. Rambilas Murlidhar and Balaram Toluram" of Tumsar, having a two annas share therein, and its share income throughout has been assessed in the hands of the assessee, i.e., from the assessment year 1947-48. The firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar also all along showed the assessee as one of the partners. Two annas share income from the firm for the assessment year 1953-54 was included in the assessment of the petitioner as per credit entries in the account books of the assessee.

    5. For the assessment years 1956-57, 1957-58 and 1958-59, the corresponding accounting years of which were Diwali 1955, Diwali 1956, Diwali 1957, the assessee filed a statement accompanying its returns to the effect:

    "Assessee has two annas share in the firm, Rambilas Murlidhar and Balaram Toluram of Tumsar, in Manganese Mines. Share income should be ascertained from that firm."

    6. During the assessment years in question, the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar, also filed returns, claiming the status of a firm and showing the assessee to be a partner having a two annas share.

    7. The Income-tax Officer, "A" Ward, Jabalpur, vide assessment orders dated January 19, 1957, and January 21, 1958, for the assessment years 1956-57 and 1957-58, and the Income-tax Officer, "C" Ward, Jabalpur, vide assessment order dated February 23, 1959, for the assessment year 1958-59, consequently assessed the assessee, i.e., the Hindu undivided family styled M/s. Jainarayan Mulchand, Nainpur, under Section 23(5) of the Indian Income-tax Act, 1922, with the following note added: "The assessee has not accounted for any profit or loss in his share in the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar. Nothing is, therefore, included for the present, and action under Section 35 of the Act shall be taken on receipt of the exact share income from the Income-tax Officer, Special Circle I, Nagpur."

    8. The Income-tax Officer, Special Investigation Circle A, Nagpur, vide orders of assessment dated February 22, 1961, March 24, 1962, and February 13, 1963, assessed the firm, M/s. Rambilas Murlidhar and Balaram Toluram of Tumsar for the assessment years 1956-57, 1957-58 and 1958-59 in the status of an unregistered firm treating it as a registered firm under Section 23(5)(b) of the Indian Income-tax Act, 1922, on a total income of Rs. 26,166, Rs. 1,07,816 and Rs. 3,08,193, respectively. The total income of the firm was allocated amongst the partners under Section 23(5) for the rate and tax purposes. The assessee's two annas share income was as follows :

    Rs.

    Assessment year 1956-57 3,271 Assessment year 1957-58 13,477 Assessment year 1958-59 38,525

    9. On receipt of information from the Income-tax Officer, Special Investigation Circle A, Nagpur, as to the extent of the assessee's two annas share income in the firm, the Income-tax Officer, " C" Ward, Jabalpur, accordingly, proceeded to rectify the assessment orders of the assessee under Section 35(5) of the Indian Income-tax Act, 1922, by the inclusion of Rs. 3,271, Rs. 13,477 and Rs. 38,525 which were liable to be assessed in its hands for the assessment years in question and these sums were, therefore, added to the income of the petitioner as detailed below :

    Assessment year 1956-57 Income as per ITO's original order u/s 23(3) dated 19-1-57 As per AAC's order dated 18-6-57 given effect on 24-7-57 As per ITO's order u/s 35 dated 9-3-64 Total income assessed Rs. 25,020 Rs. 23.949 Rs.

    27,220 Share income from the firm, M/s. Rambilas Murlidhar and Balaram Toluram, Tumsar, included in the total income Nil. Note given for addition u/s 35 Nil Rs.

    3,271 Demand raised Rs. 3,434 Rs. 3,090 Rs.

    4,436 Assessment year 1957-58 As per ITO's order u/s 23(3) dated 21-1-58 As per ITO's order u/s. 35 dated 9-3-64 As per ITO's order u/s. 35 dated 16-7-57 (share income considered for rate purpose being from U.R.F.) Rs.

    Rs.

    Rs.

    Total income assessed 29,410 42,887 42,887 Share income from the firm, M/s. Rambilas Murlidhar and Balaram Toluram, Tumsar, included in the total income Nil. Note given for addition u/s 35 13,477 13,477 Demand raised 5,342 12,725 6,494 Assessment year 1958-59 As per ITO's original order u/s 23(3) dated 28-2-59 As per ITO'S order u/s 35 dated 9-3-64 Rs.

    Rs.

    Total income assessed 13,839 52,364 Share income from the firm, M/s. Rambilas Murlidhar and Balaram Toluram, Tumsar, included in the total income Nil. Note given for addition u/s 35 38,625 Demand raised 17,631

    10. The contention that the Income-tax Officer issued the impugned notices of demand without any prior orders of rectification passed by him under Section 35(5) of the Indian Income-tax Act, 1922, is wholly unfounded. The share income was included in the assessment of the petitioner with due consent and with proper notice to the petitioner. For the assessment years 1956-57 and 1957-58, the rectification was made with the consent of the petitioner's counsel, Shri A. S. Purohit, on March 30, 1963. On March 9, 1964, the Income-tax Officer passed the requisite orders of rectification under Section 35(5) of the Indian Income-tax Act, 1922. This is evident from the relevant order sheets for these two years which are as follows :

    Assessment year 1956-57 18-2-63 :

    Communication of share income received Sd. ITO 30-3-63 :

    Shri A. S. Purohit, counsel for the ' A ', is present and he has no objection to rectify the assessment u/s Sd. A. S. Purohit 30-3-63 Sd. ITO 9-3-64 :

    Prepare revised I.T. 30 u/s 154 and issue D.N. and chalan for fresh demand Sd. ITO Assessment year 1957-58 18-2-63 :

    Share income received Sd. ITO 30-3-63 :

    Shri A. S. Purohit, counsel for the ' A ' is present and be has no objection for rectification u/s 35 Sd. A. S. Purohit 30-3-63 Sd. ITO 9-3-64:

    Prepare revised I.T. 30 u/s 154 and issue D.N. and chalan for revised demand Sd. ITO

    11. For the assessment year 1958-59, a notice for rectification was issued to the petitioner on February 17, 1964. In response to the notice, the petitioner made an application dated February 24, 1964, praying that the demand be kept in abeyance till the decision of his appeal, but the Income-tax Officer declined to accede to its request, and on March 9, 1964, he passed an order of rectification under Section 35(5), as is clear from the order sheet which reads 17-2-64 :

    Issue notice u/s 154, for rectification of assessment u/s 154 as the share income received from I.T.O., S.I.C., Nagpur, Case for 24-2-64.

    The ' A ' has filed his written reply in compliance of the notice u/s 154 and states that he had preferred an appeal before I.T.A.T., Bombay, and the demand may be kept in abeyance till the decision of appeal in the case of the firm. The contention of the ' A ' is rejected.

    12. Section 35(5) of the Indian Income-tax Act, 1922, provides :

    "35. (5) Where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under Section 31, Section 33, Section 33A, Section 33B, Section 66 or Section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of this section, and the provisions of Sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm."

    13. The requirements of the section were clearly fulfilled in the present case. On a perusal of the relevant order sheets, it is amply clear that the Income-tax Officer had passed the necessary orders for rectification, for inclusion of the petitioner's two annas share income in its assessment for the assessment years in question. The first point, therefore, fails.

    14. The second point regarding want of notice is based on the first proviso to Section 35(1) of the Indian Income-tax Act 1922, which reads :

    "Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard."

    15. The object of the provision as to notice in the first proviso is that no order for rectification should be passed to the detriment of an assessee without affording him a reasonable opportunity of a hearing, but the rule is not so rigid that if, as a matter of fact, the assessee has knowledge of the proceedings and the matter has been discussed with him, even then an adverse order would be invalid merely because no notice was given.

    16. In the present case, the petitioner had undoubtedly such notice of being heard. The notice to the assessee may be express or constructive. It is not always necessary to serve the assessee with a written notice if he is aware of the rectification proceedings and the matter is discussed with him and he is given a reasonable opportunity of being heard. The matter is directly covered by the decision of their Lordships in Maharana Mills Pvt. Ltd. v. Income-tax Officer [1959] 36 ITR 350 (SC). There the Income-tax Officer recomputed the written down value which resulted in reduction of the unabsorbed depreciation to be carried forward. There was an enhancement of assessment and this was done, as here, after the matter was discussed with the assessee. In those circumstances, their Lordships held that the requirements of the proviso were amply met, and the order of rectification could not be held to be invalid. That precisely is the case here. The second point must, therefore, also fail.

    17. The petition, therefore, fails and is dismissed with costs. Hearing fee Rs. 100, if certified.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Smt. Shantabai v. Chokhelal .
    (Oct 6, 1975)