TaxTMI 
TaxTMI 
1942 (9) TMI 1
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.... the Tribunal in its order under Section 33, the assessment is invalid and can be called in question by the assessee on the ground that it was made without appointing an agent under Section 43". Income-tax Reference No. 5 of 1942. The facts of the case appear in the Statement of Case and Judg- ment of the Appellate Tribunal : JUDGMENT OF APPELLATE TRIBUNAL. Under Section 33 of the Indian Income-tax Act (XI of 1922) the Income-tax Appellate Tribunal, M. MUNIR, President, N.R. GUNDIL, Judicial Member, and P.N.S. Aiyar, Accountant Member, delivered the following judgment:- PRESIDENT.-"This is an appeal by His Highness Maharaja Yadevindra Singh Maharajadhiraj Bahadur, Maharaja of Patiala, from the order of the Appellate Assistant Commissioner of Income-tax, 'A' Range, Bombay, passed on appeal from the order of the respondent by which he assessed for the assessment year 1937-38 the income that accrued in Bombay to the appellant's father, His Highness Maharajadhiraj Sir Bhupindra Singh, the late Maharaja of Patiala. 2. The late Maharaja being a Ruling Prince was residing out of British India within the meaning of Section 42 of the Income-tax Act. He had some....
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....s ended the 31st March 1937 and the 31st March 1938. After some correspondence the required returns were filed-signed and verified by Mr. D.K. Sen, Foreign Minister on behalf of "His Highness the Maharaja of Patiala." The respondent in due course made the assessment for the year 1938-39 and the year 1937-38, computing for the former year a net loss of Rs. 1,44,700 and assessing for the latter a taxable income of Rs. 3,43,097 and determining Rs. 50,337 to be the tax payable. On 11th October, 1940, the Foreign Minister wrote to the respondent to say that there had been a miscalculation in assessing the income for 1937-38 and that the correct amount of the tax due was Rs. 40,861-8 and not Rs. 50,337 as required by the notice of demand to be paid. The letter contained a request for a reconsideration of the assessment and revision of the notice of demand. Being doubtful about the respondent's power to revise the assessment the Foreign Minister, simultaneously with the letter of 11th October, 1940, and on the same grounds as were taken in that letter, appealed to the Appellate Assistant Commissioner, 'A' Range, Bombay, claiming as relief the reduction of the tax determined fr....
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....reated valid under Section 42 of the above Act, because of the defective service. According to this ruling the notice about the assessment of tax on His late Highness's income should have been served on an agent of His Highness in British India." 6. On 27th February, 1941, a document purporting to be a "petition of the Foreign Minister, Patiala, on behalf of His Highness the late Maharaja of Patiala" was filed before the Appellate Assistant Commissioner containing two more grounds of appeal and asking for the setting aside of the order of assessment.These grounds were: "3. The income purported to have been assessed was for the accounting year ended the 31st March, 1937, and the proceedings in respect of such income could have been initiated under Section 22(2) of the Indian Income-tax Act, 1922, only during the year ended the 31st March, 1938. The Income-tax Officer, Non-Residents' Refund Circle, however, initiated such proceedings under Section 22(2) of the Act in November 1938. Further he did not issue and serve on the proper party the requisite notice under Section 34 of the said Act." &nbs....
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....isions of Section 24B(2). 9. The case is governed by Section 24B(2) as it was before its amendment by the Amendment Act of 1939. That section is as follows:- "Where a person dies before he is served with a notice under sub- section (2) of Section 22 or Section 34, as the case may be, the Income- tax Officer may serve on his executor, administrator or other legal representative a notice under sub-section (2) of Section 22 or under Section 34, as the case may be and may proceed to assess the total income of the deceased person as if such executor, administrator or other legal representative were the assessee." 10. Just as there cannot be a decree against a dead man, so under the Indian Income-tax Act, a dead man cannot be assessed. If the income of a dead man is to be assessed the procedure laid down by sub- section (2) of Section 24B must be followed. According to that sub- section, where a dead man's income is sought to be assessed, a notice under Section 22(2) or Section 34, as the case may be, must be served on the executor, administrator or other legal representative of the de....
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....derived such information from the appellant and he could hardly have undertaken the responsibility of filing a return without instructions from the appellant. After the assessment, professing to act on behalf of the appellants, he secured in the first instance from the respondent himself a substantial relief under Section 35 and later on from the Appellate Assistant Commissioner on appeal. In the assessment for the year 1938-39 he obtained not only a finding of no liability for the appellant but a finding of net loss amounting to Rs. 1,44,700. Throughout the proceedings he did not give the slightest indication that he had no concern with the matter and that the respondent should deal with the right person. For these reasons, I think, it must be held that not only the contents of the notice under Section 22(2) were communicated by the Foreign Minister to the appellant but that the former throughout the proceedings acted in consultation with, and under the instructions of, the latter. 13. It is true that though the notice required the income of the financial year ended the 31st March, 1937, to be returned, it did not expressly state that the income to be returned was that of the l....
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....pellant's late father was being assessed through the appellant. It is true that in the order of assessment and in the petition of appeal to the Appellate Assistant Commissioner the assessee is described as the appellant's father but this is merely a mis-description showing nothing more than that the income of the appellant's father has been assessed. If the contention that a dead man has been assessed is correct it is equaly correct that there could in that case be no appeal to the Appellate Assistant Commissioner by the Foreign Minister on behalf of the deceased Maharaja and no appeal by the appellant to us. It seems to be clear to me that it was fully understood that the appellant was being assessed in respect of the income of his late father for the year ended the 31st March, 1937, and that being so, it must, I think be held that though there has been some confusion as to the manner in which the income of a dead man has to be reached by the tax-collector, the requirements of the law have in fact been fulfilled and the error or confusion, if any, not only does not vitiate the assessment but has not had the slightest effect on it. Absence of notice under Section 34.....
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....t of an Agent 15. I now come to the last and the most important question in the case. It is contended that the appellant being not a resident in British India within the meaning of Section 42, Income-tax Act, he could, under that section, be only assessed in the name of an agent to be appointed under Section 43. Reliance is placed in support of this contention on a recent decision of the Allahabad High Court in the case of The Maharaja of Benares***, which as already stated, was responsible for the transference of this case from the Income- tax Officer. Central Circle, Lahore, to the respondent. Income-tax Officer, Non-Residents' Refund Circle, Bombay. It has been held in this Allahabad case is unmistakable terms that in the case of a nonresident it is the agent alone and not his non-resident principal that can be treated as the assessee, i.e., the person to whom a notice under Section 22(2) shall issue and by whom the tax is payable. The provisions of Section 42(1), this case proceeds to lay down further, are mandatory and the department is precluded from issuing notices to the principal and from treating him as the assessee except to the limited extent that any arrears of ....
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....atter as has been taken in England and by the Madras and Bombay High Courts in India. If a non-resident assessee wishes to file a return of his income direct and to attend to the assessment proceedings himself, I do not see how the Income-tax Officer could say to him that he cannot assess him direct but must assess some one else for him, however ignorant of the former's various sources of income the latter may be. Yet that would be the precise result if the Allahabad view is correctfor a willing assessee the Income-tax Officer would have to get hold of some one else though he might be completely unaware of the nonresident assessee's means, of income. 16. I must point out that we are not concerned in this case with the question whether an Income-tax Officer in British India is competent to serve notice under the Income-tax Act on a non-resident while he is out of British India and what are the consequences of non-compliance of such notices. We are dealing with a case where a notice in fact has not only been accepted but also gracefully complied with. 17. Before I take leave of this case I must mention that if this case which involves a substantial revenue is being deci....
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.... the Bombay High Court. STATEMENT OF CASE. "This is an assessee's application under Section 66 (1). Income-tax Act, 1922, requiring the Tribunal to state to the High Court of Bombay certain questions, which, it is alleged, are questions of law and arise out of the order of the Tribunal under Section 33 of the Act in R.A.A. No. 29 (Bombay) of 1941-42, 2. The assessee is His Highness Maharaja Yadavindra Singh Maharajadhiraj Bahadur, the present Maharaja of Patiala, who had been assessed for the year of assessment 1937-38 under Section 34 of the Act in respect of the income that accrued in British India to his father His Highness Maharajadhiraj Sri Bhupindra Singh, the late Maharaja of Patiala. 3. The late Maharaja being a Ruling Prince was residing out of British India within the meaning of Section 42 of the Income-tax Act. He had some private property in several places and was deriving income from some other sources in British India, e.g., from dividends, speculation and dealings in shares, and was being assessed in the past by different Income-tax Officers in British India thr....
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.... Income-tax Officer in due course made the assessment for the year 1938-39 and the year 1937-38, computing for the former year a net loss of Rs. 1,44,700 and assessing for the latter a taxable income of Rs. 3,43.097, and determining Rs. 50,337 to be the tax payable. On 11th October 1940 the Foreign Minister wrote to the Income-tax Officer to say that there had been a miscalculation in assessing the income for 1937-38 and that the correct amount of tax due was Rs. 40,861-8-0 and not Rs. 50,337 as required by the notice of demand to be paid. The letter contained a request for a reconsideration of the assessment and revision of the Notice of Demand. Being doubtful about the Income-tax Officer's power to revise the assessment the Foreign Minister, simultaneously with the letter of 11th October, 1940, and on the same grounds as were taken in that letter, appealed to the Appellate Assistant Commissioner, 'A' Range, Bombay, claiming as relief the reduction of the tax determined from. Rs. 50,337 to Rs. 40.861-8-0. The Income-tax Officer, acting under Section 35 of the Act, reduced the figure of taxable income from Rs. 3,34,097 to Rs. 3,10,461 and made the consequent reduction i....
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....ning two more grounds of appeal and asking for the setting aside of the order of assessment. These grounds were:- "3. The income purported to have been assessed was for the accounting year ended the 31st March, 1937, and the proceedings in respect of such income could have been initiated under Section 22(2) of the Indian Income-tax Act, 1922, only during the year ended 31st March, 1938. The Income-tax Officer, Non-Resident's Refund Circle, however, initiated such proceedings under Section 22(2) of the Act in November, 1938. Further he did not issue and serve on the proper party the requisite notice under Section 34 of the said Act. "4. H.H. the late Maharaja of Patiala died at Patiala on the 23rd March, 1938. The notice under Section 22(2) of the said Act, assuming that it was validly issued (it is not admitted) should have been issued and served upon the executor, administrator or other legal representative of H.H. the Maharaja of Patiala. The notice, however, purported to be issued to 'H.H. the late Maharaja of....
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....it is legal to make an assessment on the appellant, not being a resident in British India, without the appointment of an agent under Section 43 of the Income- tax Act. (d) Whether in the circumstances of the case, the respondent had any jurisdiction to make the assessment on the appellant under the provisions of law. (e) Whether in the circumstances of the case, the assessment is legal. (f) Any other question of law that may arise out of the order of the Income-tax Appellate Tribunal." 12. The Commissioner in his reply filed under Rule 54 of the Appellate Tribunal Rules states that the only questions of law that arise out of the Tribunal's order under Section 33 are as follows:- "(a) Whether the assessment was validly made in accordance with the provisions of Section 24 B of the Act. (b) Whether the assessment was validly made in accordance with the provisions of Section 34 of the Act. (c) Whether in the circumstances of the case it is legal to make an assessment on the assessee not being a resident in British India without appointment of an agent under Section 43 of the Income-tax Act." 13. Question (a) as formulated by the assessee in the application f....
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....r had reasons to believe that the income for the financial year 1936-37 had escaped assessment and after he had applied his mind to the question whether the income for that year could at the time be legally assessed. The correct question, therefore, that arises out of the Tribunal's order under Section 33 on this part of the case and which we refer to the High Court is:- "Whether in the circumstances found by the Tribunal in its order under Section 33, the assessment was validly made under Section 34 of the Act." 15. The assessee and his late father, in respect of whose income the assessee has been assessed, were both residing out of British India within the meaning of Section 42 of the Income-tax Act. The income that has been assessed occurred in British India and the assessment has been made without appointing an agent under Section 43 of the Act. The assessee not only did not object to his direct assessment, but willingly complied with the notice under Section 22(2) and obtained a substantial relief by applying under Section 35 and appealing under Section 30 of the Act. The third question, ther....
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....the late Maharaja of Patiala. The defects suggested are, first, that the terms of Section 24B of the Indian Income-tax Act were not complied with; secondly, that there was no notice under Section 34; and thirdly that no statutory agent had been appointed under Section 43. The material facts are these. The late Maharaja of Patiala died on March 23, 1938, and the papers relating to the assessment on him were sent by the Commissioner of Income-tax of the Punjab to the Commissioner of Income-tax, Bombay, after the date of the Maharaja's death because of the decision of the Allahabad High Court, to which I will refer presently, which suggested that the estate of the late Maharaja could not be assessed unless a statutory agent were appointed under Section 43 of the Indian Income-tax Act. After the papers reached Bombay, some correspondence took place between the Income-tax Officer, Bombay, and a gentleman who is described as the Foreign Minister of the Patiala State, and eventually, in November, 1938, two notices were served on His Highness the Maharaja of Patiala, which in terms were issued under Section 22(2) of the Indian Income-tax Act, one for the year 1937, and the other for....
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.... and 23 contain provisions for calling for returns and making assessments which apply to income falling within Section 4(1), whether of a resident or non-resident. Then we come to section 42, which provides: "In the case of any person residing out of British India, all profits or gains accruing or arising to such person, whether directly or indirectly, through or from any business connection or property in British India, shall be deemed to be income accruing or arising within British India, and shall be chargeable to income-tax in the name of the agent of any such person, and such agent shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income-tax." Then Section 43 enables the Income-tax Officer to appoint an agent for the purposes of Section 42. The first part of Section 42 appears to be a charging section, when read in connection with Section 4, because Section 4 makes taxable income which is deemed to accrue or arise, or to be received in British India, and Section 42 provides that certain income of a foreign resident shall be deemed to arise ....
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....anding that, the English Judges whilst admitting as I have admitted, that at first sight there is a good deal in support of the view that only the agent can be assessed, held that regard must be had to the object of the section, and that in authorising the assessment in the name of an agent the Legislature was giving a particular and additional powerdesigned to meet an anticipated difficulty. The Legislature was enabling a foreign resident to be charged to income-tax, and the obvious difficulty, which was likely to arise, was that there would be no means of making the assessment, or of enforcing payment, because the foreign resident could not be got at. To get over that difficulty the Legislature provided that an agent within the jurisdiction might be assessed and charged to the tax. In the same way the machinery provided by Section 42 of the Indian Act, in my opinion, provides a special and additional power to meet a particular difficulty, and is not intended, and in the absence of clear words of prohibition, should not be construed, to take away existing powers. If the anticipated difficulty of assessing a non-resident does not arise, there seems no reason for insisting that the ....
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....hat, even if there were sufficient data to enable an assessment to be made under Section 4(1), there was other income which could be assessed under Section 42, and that in respect of that income there was no sufficient data. This Court accepted that argument, and held that there was income of the foreign resident assessable under Section 42 in respect of which no sufficient data were supplied, and that was an essential part of our decision, because we thought that in respect of the income assessable under Section 4(1) the data were sufficient. It was argued then that no assessment could be made under Section 42, because no agent had been appointed under Section 43, and on that question we followed the decision of the Madras High Court, and held that an assessment could be made under Section 42 without the interposition of an agent. I myself in my judgement merely noted the decision and followed it without expressing agreement or disagreement, and it is my practice in construing an all-India statute to follow a decision of another High Court, which has not been dissented from. Mr. Justice Rangnekar expressed agreement with the decision. I may mention that that case subsequently went....
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....tion 34, partly because the year had not expired in that case, and partly because in the year 1938-39 there was a loss, and therefore, there was no question that income had escaped assessment in that year. Now, I agree with the Tribunal that it is not necessary that a notice under-Section 34 should assume any particular form, but it must give notice to the assessee that in the opinion of the Income-tax Officer some income has escaped assessment, and, as was held by the Privy Council in a recent case, Commissioner of Income-tax, Bengal v. Mahaliram Ramjidas [1940] 8 I.T.R. 442; 42 Bom. L.R. 997 in order to justify a notice under Section 34, the Income-tax Officer must be bona fide of opinion that some income has escaped assessment. It is perfectly plain from the covering letter which accompanied the notices under Section 22(2), that in point of fact the Income-tax Officer knew nothing whatever about the matter, and did not consider the question whether any income had escaped assessment, and he had no more reason to believe that income had escaped assessment for 1937-38 than for 1938-39. For aught he knew both years might have resulted in a loss. Mr. Setalvad argues on behalf of t....
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....rovisions of Section 24B. Now, Section 24B deals with the assessment of a deceased person. In this case the person to be assessed was the late Maharaja, who had died before he was served with any notice under Section 22, and, therefore, the provisions of Section 24B (2) apply, and the Income-tax Officer was entitled to serve on the executor, administrator or other legal representative of the deceased Maharaja a notice under Section 22(2) or under Section 34 as the case might be, and then proceed to assess the total income of the deceased Maharaja as if such executor, administrator or other legal representative were the assessee. As observed by the president of the Tribunal in his judgement, the Income-tax Officer made no attempt to observe the provisions of that sub-section. He served the notice on the present Maharaja, without showing in what capacity. But the Tribunal have found, as a fact, that the present Maharaja is the legal representative of the deceased Maharaja, and although it would obviously have been better so to describe him in the notice, I am not prepared to say that the notice was bad, if it was served on the legal representative, merely because it omitted to state ....
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....n the Punjab and in respect of the income from the same the Income-tax Officer, Central Circle, Lahore, was making assessment orders. By virtue of a decision of the Allahabad High Court in Maharaja of Benares v. Commissioner of Income-tax [1938] 6 I.T.R. 217; 1938 All. 432, the Income-tax Officer, Central Circle, Lahore, thought that it was improper for him to make the assessment order as according to that judgment he had no jurisdiction to do so. He, therefore, referred the matter to his superior officer, the Commissioner of Income-tax, Punjab and N.W.F. and Delhi Provinces. He pointed out that difficulties had arisen because of the decision of the Allahabad Court and requested that as it appeared that the late Maharaja had some income in Bombay, the papers may be sent to Bombay so that an agent may be appointed and the assessment proceedings adopted in Bombay. On that the Commissioner of Income-tax, Delhi, sent over the papers to the Commissioner of Income-tax, Bombay Presidency, Sind and Baluchistan, and they were evidently received here on or about November 14, 1938. The Commissioner of Income-tax, Bombay, sent the file to the senior Income-tax Officer, Bombay, who, on November....
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....eign Minister sent the grounds of appeal in the prescribed form in which he raised in effect the three questions which are now before the Court. The matter was first considered by the Tribunal, and in the course of their judgement the Tribunal held that there was gross irregularity in the matter of this assessment, but as in fact substantial justice was done, they recorded their findings against the assessee. The first question is in respect of application of Section 24B. That section gives rise to two considerations: (1) whether the notice required to be served was served on the legal representative of the deceased assesses; and (2) whether the assessment was made on the total income of the Maharaja as such legal representative of the assessee. On the first question on looking at the notice it is clear that it is addressed only to His Highness the Maharaja of Patiala. It does not on its face disclose whether it was intended for the late Maharaja or for the ruling Maharaja. It does not refer at all to any legal representative of any party. On behalf of the Commissioner it was argued that the section requires that a notice should be served on the legal representative and it was n....
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....ument is that simply because the notice in respect of the assessment year 1937-38 was sent after the expiry of one year the Court must hold that it was a notice under Section 34. I am not prepared to accept that argument. There is no justification for assuming that a notice which on the top of it states that it was under Sections 22(2) and 38 should, because it is served after a year, be treated by the assessee as a notice under Section 34, when the officer issuing the notice had given no indication that it was a notice under Section 34. If the Income-tax Officer proposes to act under Section 34, when the notice is served on him the assessee is entitled to know that the Income-tax Officer is taking steps under that section. That can certainly not be conveyed by a service of a printed notice only headed under Sections 22(2) and 38. In my opinion, therefore, on a construction of the words of this printed notice read if necessary along with the covering letter, the Commissioner's argument that a notice under Section 34 was served is unsound. Mr. Setalvad relied on certain observations in Jawala Prasad v. Commissioner of Income-tax [1935] 3 I.T.R. 295. In that case the question ....
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....as jurisdiction to appoint an agent. At first sight there appears to be considerable force in this contention, but a closer scruitiny shows that the contention is not correct. We have to construe the section before its amendment in 1939. The first part of Section 42 is a charging section, according to the decisions of all Courts. If one reads that section as an independent section, to put at its highest according to the assessee's contention, only for that income the agent would be exclusively taxable. The result therefore would be that in respect of a nonresident's income liable to be taxed under Section 4 he himself can be taxed, while in respect of the income covered by the first part of Section 42 the agent alone will be liable to tax. In the normal course such an interpretation should be avoided. If a person is himself available for taxation, it will require a very clear provision of law to hold that although he is present and willing to be taxed, his agent alone should be taxed. In fact that will be taking away from the principal his elementary right, when he is the party who is liable to pay, and compelling him to appoint an agent when he may be unwilling to do so al....
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....ment advanced on behalf of the assessee on the distinction between the English Act and the Indian Act, and it was pointed out that the schemes of the two Acts were different, and that there were no words in the section of the English Act corresponding to the concluding words in Section 42, it seems to me that far stronger words are required to deprive the taxing authorities of their rights to resort to the ordinary machinery of taxing which is permissible to be adopted in respect of the income under Section 4. As pointed out in the cases referred to by the learned Chief Justice, the English Courts for over forty years had affirmed that the corresponding section in the English Act was a machinery section. It is also held that it is an enabling section and gives an additional power to the Crown to collect the assessment. It is not a disability as contended by the assessee in this case. That principle of construction, irrespective of the actual words used, appears to be sound and I do not think that by the use of words differently placed in this section that principle is given a go-by by the Indian Legislature in framing Section 42. I, therefore respectfully differ from the view of th....