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Sardar Sewa Singh Gill v. Commissioner Of Income Tax, New Delhi And Anr.

Punjab & Haryana High Court

Mar 14, 1962

Judgment

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Factual and Procedural Background

This petition was filed under Article 226 of the Constitution by Sewa Singh Gill against the Commissioner of Income-tax and an Income-tax Officer. The matter was referred by Grover, J., to a larger Bench. Relevant facts as recorded in the opinion are:

An assessment by the Income-tax Officer, Contractors' Circle, New Delhi, was made on 25 January 1945 for the assessment year 1944-45 on a tentative basis because some income related to unfinished construction; that construction was completed by the time of the assessment for 1945-46.
For assessment year 1945-46 the Income-tax Officer fixed the petitioner's total income at Rs. 55,403/-. On appeal that order was quashed by the Appellate Assistant Commissioner who directed a fresh assessment after giving the petitioner a reasonable opportunity to be heard. Meanwhile tax under the earlier assessment was paid by the petitioner.
The petitioner contends that a fresh assessment was completed in February 1954 finding his profit to be Rs. 5,000/-, entitling him to an income-tax refund of about Rs. 16,000/- (and an excess-profits-tax refund of about Rs. 4,000/-). The Excess Profits Tax Officer refunded Rs. 4,049/- on 16 November 1954.
After correspondence, no income-tax refund of about Rs. 16,000/- was made. Instead, the petitioner received a notice under Section 22(4) of the Income-tax Act calling for production of books on 15 October 1956, and a further notice under Section 22(4) on 20 August 1957. The petitioner filed the present petition in December 1957 challenging the jurisdiction to proceed on those notices on the ground that the assessment had already been completed in February 1954.
The Income-tax Department files were produced to the Bench; respondents denied that a final assessment had been made in February 1954 and contended that any draft or assessment prepared in May 1954 was tentative and required approval of the Inspecting Assistant Commissioner and further investigation.

Legal Issues Presented

Whether the assessment order (described by respondents as a "draft assessment") prepared and submitted by the Income-tax Officer in May 1954 amounted to an assessment made by the Income-tax Officer under Section 23 of the Income-tax Act.
Whether an Income-tax Officer's assessment can be made subject to the prior approval of a superior officer (the Inspecting Assistant Commissioner) and whether a direction to obtain such approval is legally valid.
Whether the absence of the Income-tax Officer's signature on the assessment order or the absence of a subsequent notice of demand (under Section 29) prevents the order from being an effective assessment.

Arguments of the Parties

Petitioner's Arguments

The petitioner alleged that the fresh assessment was completed in February 1954 and, once the Income-tax Officer had made his assessment, it became final and could not be changed by the officer even if a superior's approval had been (wrongly) ordered to be obtained.
Relying on the wording of Section 23(3) (that the Income-tax Officer "shall by an order in writing assess the total income"), the petitioner argued that the absence of an express requirement for the officer's signature meant an unsigned written order could still constitute a valid assessment.
The petitioner relied on precedent (Dossa-bhai Bejanji Motivala v. The Special Officer, ILR 36 Bom 599) to argue that an officer required to decide a statutory matter must be allowed to make that decision according to his judgment and not be subject to the directions of a superior that would nullify his decision.

Respondents' Arguments

The respondents denied that the assessment had been made in February 1954 and said that any payment of refund in respect of excess-profits-tax was a mistake.
They contended that although an assessment order had been prepared by the Income-tax Officer in May 1954 it was only a tentative assessment requiring approval by the Inspecting Assistant Commissioner before becoming final; further investigation was said to be necessary.
Respondents raised a technical point that the draft assessment was not signed by the Income-tax Officer and therefore could not be regarded as a final assessment.
They further argued that under Section 29 an assessment order must be followed by service of a notice of demand; because no such notice of demand (or refund notice) followed, the order could not be treated as an assessment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Dossa-bhai Bejanji Motivala v. The Special Officer, ILR 36 Bom 599	Principle that where a statute makes it the duty of a particular officer to decide a matter, that officer's decision must be allowed to stand as his judgment and cannot be overridden or made subject to executive directions of a superior which would nullify the officer's statutory function.	The court applied the Motivala principle to hold that the Income-tax Officer's considered assessment was his judgment and that the subsequent direction to obtain prior approval of the Inspecting Assistant Commissioner was illegal—thus the so-called "draft" assessment amounted to a final assessment.
Edward Keventer (Successors) Ltd. v. The State of Delhi, C. W. No. 6 of 1953 (decided 20 Oct 1953)	Held (in that earlier proceeding) that an award of a Land Acquisition Collector which had been approved by the Collector and filed in the office became the award of the Collector and that obtaining further approval was unnecessary and unwarranted.	The court noted that it had followed the same principle in that case and used it analogously to support the proposition that an officer's filed/recorded decision should be treated as his decision and should not be set aside by later executive intervention.

Court's Reasoning and Analysis

The court examined documentary and factual material and proceeded step by step:

Factual finding: The petitioner appeared before the Income-tax Officer in February 1954 and had an understanding of the lines on which the Officer proposed to make the assessment. Because of delay, the Commissioner wrote on 8 May 1954 requesting a report on whether the assessment had been completed and directing that the draft assessment order "may however, be got approved by the I.A.C. before finalising the said assessment." The Inspecting Assistant Commissioner on 26 May 1954 requested submission of the draft assessment for his approval. The Income-tax Officer on 26 May 1954 submitted the draft assessment to the Inspecting Assistant Commissioner for approval. The accompanying draft assessment was not signed or dated by the Income-tax Officer.
Legal characterisation of the assessment: The court focused on whether the document in question constituted an assessment under Section 23 of the Income-tax Act. It observed that Section 23(3) requires the Income-tax Officer to "by an order in writing assess the total income" and that nowhere in that provision is an express signed-formality specified.
On the question of superior approval: The court treated the later direction to obtain the Inspecting Assistant Commissioner's approval as an illegitimate interference with the statutory function of the Income-tax Officer. Applying the principle from Motivala's case, the court held that where a statute vests the duty to decide in a particular officer, the officer's judgment on the matters before him must be allowed to stand and cannot be nullified or made ineffective by executive directions of a superior.
On technical objections: The respondents' technical objections—lack of signature and absence of a subsequent notice of demand under Section 29—were addressed. The court considered the requirement of an "order in writing" under Section 23(3) and found that absence of the officer's signature did not necessarily prevent the document from being his assessment. Regarding the Section 29 point, the court found that whether the resulting notice would be for a demand or for a refund was immaterial; the only thing that had prevented the Income-tax Officer from giving effect to the terms of his assessment was the direction to obtain prior approval of the Inspecting Assistant Commissioner, which the court held to be illegal.
Conclusion of analysis: On the facts, the court concluded that the document described by respondents as a "draft" was in substance the Income-tax Officer's assessment order — his considered judgment on the matters — and that the intervening requirement of superior approval could not lawfully be imposed to nullify that judgment.

Holding and Implications

Holding: The court accepted the petition to the extent that it held the so-called draft assessment to be an assessment of the Income-tax Officer and held that the issuing of fresh notices under Section 22(4) of the Income-tax Act to the petitioner was illegal. The court ordered that further proceedings based on those Section 22(4) notices be quashed. The petitioner was allowed his costs from the respondents and counsel's fee of Rs. 250/- was awarded.

Implications for the parties: The direct effect of the decision is that the respondent Income-tax Officer's assessment (described in the record as a draft) was treated as a final assessment for the purposes of this dispute and that subsequent notices under Section 22(4) issued after that assessment were invalid as a matter of law in the circumstances of this case. The opinion applies established principles (as in Motivala and the court's earlier Edward Keventer decision) regarding the autonomy of a statutory decision-maker; the judgment does not introduce a newly stated legal doctrine beyond applying those principles to the facts before the court.

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JUDGMENT D. Falshaw, C.J.

1. This petition filed under Article 226 of the Constitution by Sewa Singh Gill against the Commissioner of Income-tax and an Income-tax Officer has been referred by Grover, J., to a larger Bench.

2. The relevant facts, some of which have emerged from files of the Income-tax Department regarding which privilege was originally claimed but which have now been placed at our disposal, are as follows. An assessment was made by the Income-tax Officer, Contractors' Circle', New Delhi, on the 25th of January, 1945, for the assessment year 1944-45, but as some of the income related to a construction work which was not completed the assessment was made on a tentative basis subject to adjustment in the year when the construction was completed. This had been done by the time the assessment was made for the assessment year 1945-46 in respect of which the Income-tax Officer made an assessment fixing the petitioner's total income at Rs. 55,403/-.

3. On the petitioner's appeal this order was quashed by the Appellate Assistant Commissioner who directed that the Income-tax Officer should make a fresh assessment after giving the petitioner a reasonable opportunity to meet the Department's case and explain his own case. In the meantime the tax found due under the assessment had been paid.

4. The petitioner's case is that the fresh assessment was completed in February, 1954, when his profit was found to be Rs. 5,000/- which meant that he became entitled to a total refund of about Rs. 20,000/- on the sum which he had paid regarding the disputed assessment, comprising about Rs. 4,000/- on account of excess profit tax and Rs. 16,000/- as ordinary income-tax. After the assessment the petitioner moved the Department to make the refund and on the 16th of November, 1954, he was actually given a refund of Rs. 4,049/- by the Excess Profits Tax Officer. However, after some correspondence between the petitioner and the Department, instead of the refund of Rs. 16,000/- as income-tax being made, the petitioner finally received a notice under Section 22(4) of the Income-tax Act from the Income-tax Officer, who is the respondent in the petition, in September, 1956, calling on him to produce his account books for the assessment year on the 15th of October, 1956. Further correspondence followed without any relief to the petitioner and again in August, 1957, he received a second notice under Section 22(4) calling on him to produce his books on the 20th of August, 1957. Finally, he filed the present petition in this Court in December, 1957, challenging the jurisdiction of the Income-tax Officer to take any further proceedings on the notice under Section 22(4) on the ground that the assessment had been completed in February, 1954.

5. On behalf of the respondents it was denied altogether that the assessment had been made in February 1954. It was admitted that on the basis of such an order the refund had been made in respect of the Excess Profits Tax, but it was contended that this was done by mistake. It was contended that although an assessment order had been prepared by the Income-tax Officer in May, 1954, this was only a tentative assessment which had to be approved by the Inspecting Assistant Commissioner before it could be regarded as final, but in fact it was never approved and it was decided that further investigation was necessary before the assessment could be finalised.

6. On the facts the position appears to be that in fact the petitioner appeared before the Income-tax Officer who was deputed to carry out the assessment in February, 1954, as he alleged, and although the assessment order may not have been drafted at that time it is clear that the petitioner had some idea of the lines on which the Income-tax Officer was proposing to make the assessment. It seems clear that because he thought the matter was being unduly delayed the petitioner began writing letters to the Commissioner of Income-tax as the result of which a letter dated the 8th of May, 1954, was addressed by the Commissioner of Income-tax to the Income-tax Officer which reads-

"Reference correspondence resting with the I. T. O's letter No. 1335, dated the 23rd of March, 1954. Will the I. T. O. please report immediately whether the pending assessment for the year 1945-46 in the above case has already been completed? If not, he should complete the same without further delay under intimation to this office. The draft assessment order may. however, be got approved by the I. A. C. before finalising the said assessment."

This was followed by a further letter dated the 26th of May, 1954, from the Inspecting Assistant Commissioner to the Income-tax Officer which reads -

"The draft assessment order in the case noted above has not so far been received in this office for my approval. The I. T. O. is therefore requested to submit the same without further delay."

It was then that the assessment order was sent to the Inspecting Assistant Commissioner by the Income-tax Officer with a covering letter also dated the 26th of May, 1954, which, reads -

I have the honour to submit herewith the draft assessment order for 1945-46 in the case of Sardar Sewa Singh Gill for favour of approval. The order is to be approved by you as directed to the undersigned in C. I. T.'s No. K-185 (45)/ 52-53/2070 dated the 8th of May, 1954.

The accompanying assessment order is neither signed nor dated by the Income-tax Officer, though nowhere in the order itself is, it described as merely a draft order.

7. The question which arises is whether this assessment order or draft order as it is described by the respondents amounts to an assessment made by the Income-tax Officer under Section 23 of the Act or whether, as was contended on behalf of the respondents, there was no assessment. The contention of the petitioner in this respect may be summed up as being that there is no legal warrant whatever in the Income-tax Act or any other Act for an assessment to be made subject to the approval of a superior officer of the officer who is to make the assessment, and that therefore, once the Income-tax Officer had made his assessment, it at once became final and could not be changed by him even if the approval of the superior officer which was wrongly ordered in this case was withheld.

8. On this point reliance was placed on the decision of Batchelor and Heaton, JJ., in Dossa-bhai Bejanji Motivala v. The Special Officer, ILR 36 Bom 599. That case referred to the award of a Collector under the Land Acquisition Act. An area of over 1300 acres was acquired by the Government of Bombay under the Land Acquisition Act and the officer appointed to make the award regarding compensation for the land came to the conclusion that compensation should be awarded at the rate of Rs. 50/- per acre for the so-called khajan land, but he concluded his order with the words.

"These papers will be submitted to the Collector as directed by him and in accordance with the Government Resolution No. 8397. R. D. of the soth of August, 1906, as the compensation I propose to award exceeds Rs. 10,000/-."

The resolution referred to was apparently one by the Revenue and Agricultural Department of the Government of India, the direction in the letter of the Government of India being that:

If the officer making the award is not the Collector of the District, he might be required, before making the award, to refer to the Collector any case in which he proposes to award more than 10% in excess of the original estimate, or more than Rs. 10,000/- or some similar limit. The Collector should have the power of requiring all cases to be referred to him before the award is given; and the acquiring officer Should make his final order according to the instructions received from the Collector."

In that case the Collector received a direction from the Government that he should award only Rs. 4/- per acre in respect of Khajan land and, following this direction he concluded his final order with the words 'Government in their memorandum No. 10578 of the 17th of October, 1908, have directed me to award compensation at the rate of Rs. 4/- per acre for khajan, and I therefore make my award accordingly.' A reference to the District Judge followed as a result of which the rate of compensation was raised to Rs. 14/- per acre and in the appeal ill the High Court the validity of the proceedings which led to the reduction of the Collector's estimate from Rs. 50/- to 4/- per acre was challenged. The matter is dealt with in the judgment of Batchelor, J., at page 602 as follows:

"It has been contended by Mr. Baikes for the appellant that although the appointment of a Collector under the Act rests wholly with the local Government, yet when they have once appointed that officer, he must be allowed to prosecute his enquiries under the Act up to their end without interference from the Government in their executive capacity. It appears to me that that argument must prevail. It is I think clear on the facts which I have set out that if the view presented to us by Government is to prevail, the result is simply this: that after the enquiry laid down by the Act has been made and concluded it is open to the Government to interpose, to set those enquiries at nought, and to substitute for the Special Collector's opinion their own opinion as to what is the fair compensation for the land-acquired. It appears to me that under the Act no such power as this is vested in the local Government. Reference may be made to Section 11 of the Act which provides that on the day fixed for enquiry the Collector shall proceed to enquire into any objection received and into the value of the land and the respective interests of the various claimants, and then 'shall make an award, under his hand, of the compensation which, in his opinion, should be allowed for the land.' "Section 15 lays down that the Collector in determining the amount of compensation shall he guided by the provisions of Sections 23 and 24. And they in turn describe the matters which are, and which are not, to be considered in determining the compensation.

Then in Section 25 we have the provision that when the applicant has made a claim to the compensation, the amount awarded to him by the Civil Court shall not be less than the amount awarded by the Collector under Section 11.

I can only say for my own part that these provisions of the Act seem to me to be too clear to admit of any doubt. In my opinion when once the Special Collector under the Act has been appointed by the local Government the Act casts upon that Collector the duty not only of initiating the enquiries, but of conducting those enquiries to their lawful end in the award of a particular sum for compensation. If the contrary view were accepted it would follow that the Government would be empowered to do what they claim in this case to have validly done, and that is to set aside, not only the Collector's opinion, but the whole antecedent procedure and enquiry, and to substitute for them an investigation of their own which was made behind the back of the interested claimant, and which was otherwise inconsistent with the provisions of the statute.

.....

Then it was suggested that the order of Mr. Waterfield's proposing to award Rs. 50/- per acre was not an award, but was a mere proposal for an award. It seems to me that this argument comes with a certain want of grace from the representative of the Government, since if the order fell short of being an award, it fell short only by reason of those very executive orders of the Government whose validity is now in dispute. And if I am right in thinking that those orders are of no effect, then it follows that the award is that which Mr. Waterfield would have made had he not been restrained by these orders."

This principle was followed by me in C. W. No. 6 of 1953. Edward Keventer (Successors) Ltd. v. The State of Delhi, decided on the 20th of October, 1953, in which the award o£ a Land Acquisition Collector which had actually been approved by the Collector of Delhi and filed in the office had been withdrawn at the instance of the Chief Commissioner and an award by which the compensation was very heavily reduced was substituted. I held in that case that the award became the award of the Collector as soon as it was filed in the office and that although the approval of the Collector had in fact been obtained, this was unnecessary and unwarranted.

9. Apart from this there is no dearth of authorities to the effect that where under a statute it is the duty of a particular officer to decide a certain matter the matter must be decided according to the judgment of that officer and not under the directions of a superior.

10. in the present case the question of the submission of the assessment order of the Income-tax Officer for the approval of the Inspecting Assistant Commissioner appears to have only crept in at a late stage. In fact it does not seem to have been contemplated until about three months after the petitioner had appeared before the Income-tax officer and, because of complaints from the petitioner regarding the delay, the Commissioner thought fit by his letter of the 8th of May, 1954, to direct the obtaining of the approval of the Inspecting Assistant Commissioner before the award was finalised. In my opinion this direction must be held to be illegal and unwarranted.

11. The question which remains is whether the so-called draft assessment can in the circumstances be regarded as an assessment. The technical point has been raised on behalf of the respondents that it could not be so if only by reason of the fact that it was not signed by the Income-tax Officer. In reply to this it is pointed out on behalf of the petitioner that all that is required by the provisions of Section 23(3) is that the Income-tax Officer

"shall by an order in writing assess the total income of the assesses and determine the sum payable by him on the basis of such assessment,"

from which it is argued that the absence of the signature of the Income-tax Officer will not necessarily prevent the assessment from being a proper order of assessment. Many other statutes have been referred to by the learned Counsel for the petitioner in which where it has been provided that an order shall be in writing there is also a provision that the order shall be signed by the officer making it, and it is contended that since this provision is so frequently added in such cases, its omission in this case is not merely a result of an oversight.

12. Technically this argument appears to me to be correct, but the case appears to depend mainly on the fact that quite evidently the order of assessment in this case is the best judgment of the Income-tax Officer on the matters before him and that this was intended to be his final decision in the matter unless he was ordered to revise it by, the Inspecting Assistant Commissioner and in my opinion once the Income-tax Officer had given his considered judgment on the matters which he was called on to decide, the process of submitting his order for the approval of his superior or, as the case may be, for revision carried out under his directions, was something which simply could not be done, and in my opinion the principle laid down in Motivala's case, ILR 36 Bom 599 applies to the present case.

13. One argument advanced on behalf of the respondents was that under the provisions of Section 29 of the Act any assessment order made by an Income-tax Officer must be followed by the service on the assessee of a notice of demand, and it is contended that the assessment order in this case could not be regarded as an assessment because it was not followed by such a notice of demand. Actually in the present case the notice which would follow from the terms of the assessment would be one intimating a refund, but whether the notice was to be for a demand or a refund is immaterial. The same argument applies as in Motivala's case, ILR 36 Bom 599 that the only thing which prevented the Income-tax Officer from giving effect to the terms of his assessment order without delay was the order for the obtaining of the prior approval of the Inspecting Assistant Commissioner, which is the main bone of contention in the petition and which I have already held to be illegal.

14. I am therefore of the opinion that on the facts of this case the assessment order of the Income-tax Officer called a draft assessment by the respondents was in fact his assessment order and that therefore the issuing of fresh notices under Section 22(4) of the Act to the petitioner was illegal and further proceedings on the basis of those notices must be quashed and I would accept the present petition to the extent of ordering accordingly. I would also allow the petitioner his costs from the respondents. Counsel's fee Rs. 250/-.

15. I agree.

Harbans Singh, J.