Unauthorised tax notice and firm registration timing: Bombay HC held invalid service could not be cured by waiver or conduct.

Where a valid administrative notification divested the Income-tax Officer of power in the assessee's class of cases, a notice under section 22(2) issued by that officer was unauthorised and illegal, and neither acceptance of the notice nor an application for extension could confer jurisdiction. Because that notice was invalid, it did not validly trigger the due date for the return, so the firm's registration application was held to be within time. The claim for commission and allied payments failed on the factual record, as the asserted service arrangement and business purpose were not established, and the HC did not interfere with that finding.

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Issues: (i) Whether, in view of the notification under the Income-tax Act, the Income-tax Officer had jurisdiction to serve the notice under section 22(2) and whether the notice was valid; (ii) whether the application for registration of the firm was within time; (iii) whether the expenditure claimed in respect of commission and allied payments was allowable.

Issue (i): Whether, in view of the notification under the Income-tax Act, the Income-tax Officer had jurisdiction to serve the notice under section 22(2) and whether the notice was valid.

Analysis: Under the statutory scheme, the Commissioner could direct that the powers of the Income-tax Officer be exercised by the Assistant Commissioner in specified classes of cases. The notification covered the assessee's class of cases, so the notice under section 22(2) had to be treated as one to be issued by the Assistant Commissioner. A notice issued by the Income-tax Officer in such circumstances was not authorised by law, and acceptance of the notice or an application for extension of time could not confer jurisdiction.

Conclusion: The Income-tax Officer had no authority to serve the notice, and the notice was illegal.

Issue (ii): Whether the application for registration of the firm was within time.

Analysis: The rule governing registration required the application to be made on or before the date on which a return was due under section 22(2). Since the notice calling for the return was itself illegal, it did not validly make the return due in the manner contemplated by the Act and the Rules. The period for registration was therefore not barred as alleged.

Conclusion: The application for registration was within time.

Issue (iii): Whether the expenditure claimed in respect of commission and allied payments was allowable.

Analysis: The relevant claims depended on proof of the factual arrangement under which a partner was said to render services to the firm for remuneration and whether the asserted deductions were genuinely incurred for business purposes. The record did not establish that the arrangement actually existed as a matter of fact, and the Court did not interfere with that factual finding.

Conclusion: No interference was warranted on the claims relating to commission and allied payments.

Final Conclusion: The reference was answered mainly in favour of the assessee on the legality of the notice and the timeliness of the registration application, while the deductions claimed in respect of commission and similar payments were not accepted on the factual record.

Ratio Decidendi: Where the competent authority is divested of power by a valid administrative allocation under the Act, a notice issued by an unauthorised officer is illegal and cannot be validated by waiver or by the assessee's conduct.

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