TaxTMI 
TaxTMI 
1985 (8) TMI 67
X X X X Extracts X X X X
X X X X Extracts X X X X
....d post on March 31, 1970. Though the precise date of its service is not on the record, it is common ground that the said notice was served later in the first week of April, 1970. The assessee raised objection that the notice, though issued within the period of limitation but having not been served within eight years from the end of the assessment year in question, was illegal and without jurisdiction. This was, however, rejected and the Income-tax Officer made a best judgment assessment under section 144 of the Act. The assessee went up in appeal but the Appellate Assistant Commissioner rejected the same. Aggrieved thereby, a further appeal was carried to the Tribunal. Meanwhile, in the course of reassessment proceedings, notice for levy of penalty was also issued to the assessee. Holding the assessee to be in default, the Income-tax Officer imposed a penalty restricted to 50 per cent of the tax payable. The assessee appealed unsuccessfully to the Appellate Assistant Commissioner and thereafter appealed to the Tribunal. Both the appeals aforesaid were consolidated and disposed of by common order dated February 18, 1975, by the Tribunal. Therein, purporting to follow the Supre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Council in CIT v. Mahaliram Ramjidas [1940] 8 ITR 442, with particular reference to section 34 had observed as follows (p. 447): " Section 34 is unhappily and even ungrammatically phrased. It is expressed impersonally, and it fails to state by whom and by what procedure it is to be established that income, profits or gains have escaped assessment or have been assessed at too low a rate. " There, thus, arose a persistent and vociferous demand for drastic changes and simplification of the income-tax law-both substantive and procedural. Consequently, the matter was referred by the Central Government to the Law Commission then presided over by Mr. Setalvad, and it rendered its exhaustive Twelfth Report thereon suggesting radical changes in the statute. With regard to the state of law under the earlier Act, the Commission commented as follows: " There is hardly any Act on the Indian statute book which is so complicated, so illogical in its arrangement, and in some respects so obscure as the Indian Income-tax Act, 1922. Courts and commentators have commented on the illogical arrangement of the provisions of the Act. " It was on the basis of the aforesaid Twelfth Report that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year; (b) in cases falling under clause (b) of section 147, at any time after the expiry of four years from the end of the relevant assessment year. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year. " Apart from the above, sub-section (1A) of section 34 of the old Act had again expressly employed the terminology of " served on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all ". Again, the proviso to sub-section (3) of the old section 34 was in the following terms: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her otiose or meaningless. Indeed, in construing the two Acts, the celebrated rule in Heydon's case [1584] 3 Co Rep 7a; 76 ER 63742 Digest 614, is at once attracted. We must see what was the state of the, existing law before the Act of 1961, what was the mischief or defect for which the law had not provided earlier and what remedies Parliament has provided thereafter. Applying the said rule, it is plain that a change from the old law was actually intended. This seems to, have been fairly and squarely directed to hit at the mischief of the dilatory tactics of avoiding service by manipulating assessees in order to creep out of the limitation provision. To my mind, the evil sought to be remedied was clearly the long-delayed and studied avoidance of service of, notice by assessees, whose income had escaped assessment, which would render the limitation provisions of the old law virtually nugatory and may well have proved to be a paradise for tax-evaders. It would thus follow that the remedy provided by Parliament in this context was to take the service of the notice out of the ambit of limitation and draw a clear and sharp line betwixt the date of the issuance of the notice on the one h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d " in order to save the Indian Income-tax (Amendment) Act, 1959, from being rendered nugatory. It is a sound canon of construction that any interpretation which would frustrate one or all of the provisions of a statute, has to be avoided. Conforming to the said salutary rule, their-Lordships have concluded that since the word " issued " had both a wider and limited meaning, they were compelled to choose the wider connotation to include the service of the notice as well in section 4 aforesaid. Their Lordships did not and, perhaps, could not possibly have said that the word " issued ", whenever and wherever used, means " served ". They did not hold that the two distinct words " issued " and " served " are either synonymous or are identical. It is true that they observed that in certain Indian statutes these words had been employed in interchangeable terms. That solitary observation, in my view, cannot possibly be picked upon to do patent violence to the language by holding that " issued " always means "served " as well. As was rightly pointed out by Lord Halsbury L.C. in Quinn v. Leathem [1901] AC 495, a decision is only an authority for what it actually decides, and the quintessenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the Gujarat High Court earlier in Madanlal Mathurdas v. Chunilal, ITO [1962] 44 ITR 325, Chief justice Desai, speaking for the Bench, on an in depth consideration of the matter, held that in the first proviso to section 34 itself (substituted by the Finance Act of 1956), the word " issue could not mean " serve " with the following pointed observation (p. 330) " Mr. Shah had, therefore, to fall back on the sheer argument that the expression 'issue' in the initial words of the proviso should be equated with the expression 'serve' notwithstanding the amendments in the section and the insertion of the proviso to sub-section (1). The decision so strenuously relied on in support of the petitioner's case cannot advance the argument canvassed before us as the expressions ' issue' and 'serve' there had to be read in a wholly different context. In the context and collocation before s, we must read the words as used correctly and exactly and not loosely and in exactly and in the present context there is nothing to show that we should Prefer the loose and inexact meaning of these words by an impermissible equation. As they now stand after the amendments of 1956, the relevant parts of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had then placed reliance on a short order passed in limine whilst declining to grant special leave to appeal by their Lordships of the Supreme Court in CWT v. Kundan Lal Behari Lal [1975] 99 ITR 581. Assuming entirely for argument's sake in the first instance, that the said order is a judgment, it may be pointedly noticed that this was rendered basically under section 17 of the Wealth-tax Act, 1957. Now, there is no manner of doubt that from its very enforcement, clause (b) of sub-section (1) of section 17, in express terms, required the service of a notice within the prescribed period on the assessee. Clearly enough, in the said section, both the issue of the notice and its service, by express mandate, have to be within the prescribed time of four years or eight years, as the case may be. Section 18 of the Wealth-tax Act and, in particular, sub-section (2A) thereof (which stands omitted with effect from April 1, 1976) is plainly subsidiary to section 17. Equally it deserves notice that sub-section (2) of section 14 of the Wealth-tax Act, which has been referred to in clause (b) of section 17(1), required the service of a notice upon the person and not the mere issuance of such a n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re is a deep countrywide controversy, would, in my view, be uncalled for and, with the greatest respect, would amount to some distortion of the hallowed rule of binding precedents. Though reference to commentaries is uncalled for, Mr. Jain attempted to adopt the cryptic reasoning in Kanga and Palkhivala's Law and Practice of Income-tax in supplement to seventh edition at page 180 of Volume I. Therein, in the form of a footnote, it is very simplistically said that jai Hanuman Trading Co. Ltd. v. CIT [1977] 110 ITR 36 (P & H) [FB] is incorrectly decided on this point and has overruled Tikka Khushwant Singh V. CIT [1975] 101 ITR 106 (P & H) because the court's attention was not drawn to CIT v. Kundan Lal Behari Lal [1975] 99 ITR 581 (SC). I have already in detail above distinguished the said case and have also respectfully opined that the same cannot be a binding authority on the point. Consequently, a mere comment even though from a standard work is of little significance. Once the maze of precedents is out of the way, one might as well examine the issue refreshingly on principle. To my mind, the fallacy that seems to have crept in this context is to suggest that (barring some ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r identical. A very peculiar situation in a statute and the compulsion of sound canon of construction may sometimes require the enlargement or extension of a word to save the legislation from being rendered nugatory. That, indeed, was the situation in Banarsi Debi's case [1964] 53 ITR 100. However, this cannot possibly be any warrant or authority for saying that the distinct and separate words of the English language, namely, " issue " and " serve " are in any way synonymous. Again we are called upon to construe the word " issue " not in isolation but in the context of section 149 of the Act. Plainly enough, it is an express limitation provision creating a precise bar with regard to the reopening of assessments. As its heading in term says, it provides a timelimit for notice. Now, barring exceptions, the hallmark of a limitation provision is that the same must have clear cut and fixed termini at both ends. It has been rightly said that a limitation provision would lose its effect unless it has a terminus a quo and a terminus ad quem. Now, admittedly, section 149 fixes the terminus a quo from the end of the relevant assessment year, i.e., on the 31st March of the said year. On th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es the notice under this section. If the word " issuing " in this section is to be read as " serving ", it would lead to patent absurdity. This would imply that the officer may record his reasons after issuing the notice but before serving it on the assessee. It is not easy to imagine that the Legislature intended any such strange result. Reference may then be made to sub-section (3) of section 149 itself. There, in the first line itself, the word employed is " served " whilst in the penultimate line the word employed is "issued ". Thus, in the same short subsection, the Legislature itself is using these words as distinct and separate. If, as is sought to be canvassed on behalf of the respondent, these words are synonymous or identical, the Legislature would not land itself in the anomaly of using different words if it was intended to mean the same thing. Yet, again, the word " issued " has been employed in both sub-sections (1) and (2) of section 151, which read as under: "151. Sanction for issue of notice.-(1) No notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....black money directly causing inflation. Then there is 'the large hidden loss' to the community (as pointed out by Master Sheatcroft in 18 Modern law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on the one side and the tax-gatherer and his perhaps not so skilful advisers on the other side. Then again, there is the ' sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it'. Last, but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless, good citizens from those of the 'artful dodgers'. It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr. Justice Holmes, who said, 'Taxes are what we pay for a civilised society. I like to pay taxes. With them I buy civilization '. But, surely, it is high time for the judiciary in India too to part its ways from the principle of Westminster and the alluring logic of tax avoidance. We now live in a welfare State whose financial needs, if b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nds of the Department. It is usually easy for a manipulating and tax-evading assessee to delay or avoid service when it is on the brink of limitation which, if crossed, would absolve him from further proceeding. Therefore, to fix the terminus ad quem under section 149 on valid service on an assessee whose case is to be reopened for escaped assessment may well be placing a premium on tax evasion. It was rightly and forcefully argued on behalf of the Revenue that the recording of reason and issuance of notice within the time prescribed is in the hands of the Department. The Legislature mandates that the Income-tax Officer must apply his mind and direct the issue of notice within the time fixed from the last date of the relevant assessment year and the Revenue must comply therewith. However, service on an evasive assessee is not and cannot inevitably be in the hands of the Department. It was with this object in view that the Legislature designedly abandoned the word " served " employed in the old section 34 and pointedly used the word " issued " alone in section 149 of the Act. Even now, to read section 149 is requiring service would, therefore, be running against the intent and the m....