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R.B Seth Gujar Mal Modi And Others v. Cit, Punjab And Another
Factual and Procedural Background
Appellants are the legal representatives of Seth Multani Mal Modi, a shareholder of Modi Spinning & Weaving Mills Co. Ltd. The company declared an interim dividend on March 5, 1956; dividend warrants were despatched on June 21, 1956 and the declaration was confirmed on January 17, 1957. Seth Multani Mal Modi died on October 22, 1957.
During assessments for Assessment Years (A.Y.) 1956-57 and 1957-58, the Income-tax Officer (ITO) treated the dividend as income of A.Y. 1956-57. On appeal, the Assistant Appellate Commissioner (A.A.C.) and subsequently the Tribunal ruled that it was chargeable in A.Y. 1957-58. Consequently, the income was excluded from A.Y. 1956-57 but not assessed in A.Y. 1957-58.
The ITO thereafter issued a notice dated November 7, 1958 under Section 34(1)(b) of the Indian Income-tax Act, 1922 seeking to reopen A.Y. 1957-58. When no return was filed, assessment was completed ex parte on October 29, 1960 under Section 23(4). The A.A.C. set aside that assessment on June 15, 1963, holding that proper notice had not been served on all legal representatives and directing the ITO to proceed in accordance with law.
The Income-tax Act, 1961 came into force on April 1, 1962. On January 7, 1964 the ITO issued fresh notices to the appellants under Section 148 of the 1961 Act. The appellants challenged these notices by a writ petition under Article 226 of the Constitution. A Division Bench of the Punjab High Court dismissed the petition on the ground that an adequate alternative remedy existed under the Income-tax law. The present appeal was filed in the Supreme Court by special leave.
Legal Issues Presented
- Whether, when reassessment proceedings initiated under Section 34(1)(b) of the Income-tax Act, 1922 were still pending, the Income-tax Officer was competent to issue fresh reassessment notices under Section 148 of the Income-tax Act, 1961.
- Whether Section 150(1) of the 1961 Act or proviso (iii) to Section 34 of the 1922 Act validated the impugned notices.
- Whether the existence of an alternative statutory remedy barred the writ petition in the circumstances of the case.
Arguments of the Parties
Appellants' Arguments
- The ITO lacked jurisdiction to issue notices under Section 148 of the 1961 Act because proceedings under Section 34(1)(b) of the 1922 Act were already pending.
- The impugned notices were therefore void and liable to be quashed by the High Court in exercise of its writ jurisdiction.
Respondent (Department)'s Arguments
- Section 150(1) of the 1961 Act authorised the ITO to issue the notices “at any time” to give effect to findings or directions of appellate authorities.
- In the alternative, proviso (iii) to Section 34 of the 1922 Act supported the issue of fresh notices.
- The writ petition was not maintainable as the appellants had an adequate alternative remedy under the Income-tax Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Civil Appeal No. 1981 of 1968 (decided the same day) | Where reassessment proceedings under Section 34 of the 1922 Act are pending on 1-4-1962, notices cannot be issued under Section 148 of the 1961 Act in relation to the same assessment year. | The Court relied on its earlier decision to hold that the ITO had no authority to invoke Section 148 while prior proceedings were still alive. |
Court's Reasoning and Analysis
1. The Supreme Court noted that proceedings initiated under Section 34(1)(b) of the 1922 Act were undisputedly pending when the 1961 Act commenced. By virtue of its decision in Civil Appeal No. 1981 of 1968, such pending proceedings must continue under the 1922 Act framework; the ITO could not bypass them by resorting to Section 148 of the 1961 Act.
2. Section 150(1) of the 1961 Act did not assist the department because that provision permits reopening “in consequence of or to give effect to any finding or direction contained in an order passed … under this Act.” The A.A.C.’s order setting aside the earlier assessment was rendered under the 1922 Act, not the 1961 Act; therefore Section 150(1) was inapplicable.
3. The department’s reliance on proviso (iii) to Section 34 of the 1922 Act was equally misplaced. The Supreme Court observed that no proceedings had in fact been initiated under that proviso, and the validity of such hypothetical proceedings was not in issue in this appeal.
4. Given the patent lack of jurisdiction under Section 148, the High Court’s refusal to exercise writ jurisdiction on the ground of alternative remedy was erroneous. A writ will lie where the impugned action is taken without authority of law.
Holding and Implications
HELD: The appeal is allowed; the order of the High Court is set aside; the writ petition is allowed and the notices issued under Section 148 of the Income-tax Act, 1961 are quashed.
Implications: The decision reaffirms that where reassessment proceedings under the 1922 Act are already pending on the commencement of the 1961 Act, the revenue cannot invoke Section 148 of the 1961 Act for the same assessment year. It underscores that statutory alternative remedies do not bar writ jurisdiction where the impugned action is ultra vires. No new precedent beyond this clarification was set, but the ruling provides authoritative guidance on the transition from the 1922 to the 1961 Income-tax regime.
K.S Hegde, J.— This is an appeal by special leave from the decision of the High Court of Punjab. The High Court dismissed the writ petition filed by the appellants primarily on the ground that they had adequate alternative remedy under the income tax law.
2. The father of the appellants Seth Multani Mal Modi was a shareholder in the Modi Spinning & Weaving Mills Co. Ltd. On March 5, 1956 that company declared interim dividends to its shareholders. Under that declaration Seth Multani Mal Modi was entitled to Rs 60,265 as interim dividends. The dividend warrants were despatched on June 21, 1956 and the interim dividends declared were confirmed by the General Meeting of the company on January 17, 1957. Seth Multani Mal Modi died on October 22, 1957. Thereafter the assessment of Seth Multani Mal Modi for Assessment Years 1956-57 and 1957-58 was taken up. There it was contended that the dividends referred to earlier must be considered as the income of Multani Mal Modi during Assessment Year 1957-58. The Income Tax Officer rejected that contention and considered that income as having been received during Assessment Year 1956-57. The assessments orders for the years 1956-57 and 1957-58 were passed by the Income Tax Officer on February 10, 1958. In appeal the Assistant Appellate Commissioner held that income was not taxable in Assessment Year 1956-57, but it was taxable in Assessment Year 1957-58. The Tribunal upheld that decision. The resulting position was that dividend income stood excluded from the income for assessment for the year 1956-57 but at the same time it had not been taken into consideration in the assessment for the year 1957-58. On November 7, 1958 the Income Tax Officer issued a notice under Section 34(1)(b) of the Income Tax Act, 1922 to Appellant 2 seeking to re-assess the said dividend income in the year 1957-58. He also issued a notice under Section 22(2) of the 1922 Act calling for a fresh return within the time stipulated in the notice. No return was filed in response to that notice. On October 28, 1960 Appellant 2 sent a telegram requesting for an adjournment. The adjournment asked for was refused and assessment was completed under Section 23(4) of the 1922 Act on October 29, 1960. Thereafter Appellant 2 made an application under Section 27 of the Act of 1922 on December 5, 1960 for setting aside that order but that was rejected. On appeal the A.A.C set aside the assessment made, by his order dated June 15, 1963 on the ground that the notice issued under Section 34(1)(b) had not been served on Appellant 2 and that it was necessary to issue notices to all the legal representatives of Multani Mal Modi. He directed that the Income Tax Officer may proceed to assess the assessees in accordance with law.
3. On April 1, 1962 the Income Tax Act, 1961 came into force. On January 7, 1964 the Income Tax Officer issued notices to the appellants under Section 148 of that Act. Aggrieved by those notices the appellants moved the High Court under Article 226 of the Constitution praying that those notices be quashed, as according to them the Income Tax Officer was not competent to issue those notices. That petition came up for consideration before a Single Judge of the High Court. The learned Judge feeling that an important question of law arose for decision, referred writ petition to a Division Bench. The Division Bench dismissed the writ petition mainly on the ground that the assessee had other adequate alternative remedy. Thereafter this appeal was brought after obtaining special leave from this Court.
4. There is no dispute that when the 1961 Act came into force, the proceedings initiated under Section 34(1)(b) of 1922 Act were pending. That being so, it was not open to the Income Tax Officer to issue notices under Section 148 of the 1961 Act (See our decision in Civil Appeal No. 1981 of 1968 delivered today).
5. Mr B. Sen, learned Counsel for the department contended that in view of Section 150(1) of the 1961 Act it was open to the Income Tax Officer to issue the impugned notices. That section reads:
“Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or re-assessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under this Act by way of appeal, reference or revision.” (Emphasis supplied).
Quite clearly Mr Sen's contention is unsustainable because the A.A.C's order was not passed under the 1961 Act. Therefore the department cannot take any support from Section 150(1) of the Act of 1961.
6. Mr Sen next relied on Proviso (iii) of Section 34 of the 1922 Act. That provision cannot lend any support for the notices under Section 148 of the 1961 Act. It is unnecessary for us to decide in this appeal whether the department could have initiated proceedings under the proviso, as no such proceedings had been initiated. All that we have to consider in this appeal is whether the impugned notices issued under the 1961 Act are valid notices. We have no hesitation that those notices are invalid for the reasons already mentioned.
7. In the result this appeal is allowed. The order of the High Court is set aside. The writ petition is allowed and the impugned notices quashed. The appellants are entitled to their costs of this appeal from the respondents.
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