TaxTMI 
TaxTMI 
1964 (3) TMI 16
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....demand under section 29 of the Act were issued in respect of these dues. The assessee filed appeals to the Appellate Assistant Commissioner against the assessment orders but did not pay the tax as demanded by the notices. On such failure to pay, the Income-tax Officer some time in September, 1955, sent certificates to the Deputy Commissioner, Kolar, under section 46(2) of the Act for recovery of the tax as arrears of land revenue and the latter in the course of the same month attached various properties of the assessee under the Revenue Recovery Act. Thereafter, on December 17, 1955, the appeals filed by the assessee which were till then pending were decided by the Appellate Commissioner. He reduced the assessable income of the assessee to Rs. 27,000 for the year 1953-54 and to Rs. 45,000 for the year 1954-55 and directed the Income-tax Officer to recompute the tax on the basis of the reduced income and to refund the excess, if any, collected. It appears that thereafter on February 19, 1956, the Income-tax Officer informed the assessee that his tax liability for 1953-54 had been reduced to Rs. 4,215-9-0 and for 1954-55 to Rs. 13,346-8-0 and called upon him to pay these amounts at o....
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....l be paid within the time, at the place and to the person mentioned in the notice or order, or if a time is not so mentioned, then on or before the first day of the second month following the date of the service of the notice or order, and any assessee failing so to pay shall be deemed to be in default, provided that, when an assessee has presented an appeal under section 30, the Income-tax Officer may in his discretion treat the assessee as not being in default as long as such appeal is undisposed of." It will be noticed that this section is not confined to the effect of a failure to comply with the terms of a notice of demand issued under section 29 but makes the same consequence arise on the failure to carry out the terms of a notice under section 23A(3) and orders under sections 31 and 33. That consequence is that the assessee is to be deemed to be in default. It is after an assessee is so in default that coercive processes for realisation of the amount due start. Provision for this is made in section 46 to which I will immediately come. Before doing so, however, I wish to observe that section 45 gives an Income-tax Officer on an appeal being filed a discretion to treat an ass....
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....pellate Commissioner. If he specifies an amount as payable in his order and mentions the time when, the place where and the person to whom the payment is to be made then non-compliance with that order would create a default. Now this order is made in an appeal from an order made by the Income-tax Officer. Suppose there is already a default as a result of non-compliance with a notice under section 29 given in respect of the Income-tax Officer's order. As clearly there could not be two defaults for there was one liability, the Act must in such a case be taken to have provided by necessary implication that the default incurred as a result of non-compliance with the notice to pay the amount mentioned in the Income-tax Officer's order must be deemed to have been superseded by the appellate order. The contention that the Act does not contemplate a default ceasing to be so except when an assessment order is annulled by the appellate order, is, therefore, unfounded. Take another case. Suppose the appellate order says only that a different amount from that mentioned in the Income-tax Officer's order shall be payable on income for a certain period without specifying the person to....
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.... was effectively exercised. The argument that the acceptance of the assessee's contention would render part of section 45 nugatory and should, therefore, not be accepted, is in my opinion unsound. How then does the matter stand ? It seems to me that the crux of it is the effect of the appellate order on the original order. If the original order has been destroyed or replaced by the appellate order, then the notice of demand and all other steps based upon the original order must be deemed to have become ineffective. In such a case the default earlier incurred must be taken to have disappeared and cannot support further action for recovery of any tax. Now the general proposition is that an original order merges in the appellate order : cf. Madan Gopal Rungta v. Secretary to the Government of Orissa. But in the present case, it is not necessary to rely on that proposition. Section 31(3) of the Act seems to me to make express provision on the subject. It states that in the case of an appeal from an order of assessment, which is the kind of order with which we are now concerned, the Appellate Commissioner may " (a) confirm, reduce, or enhance or annul the assessment, or (b) set asi....
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....aults in respect of it. But it was said that the notice has to be issued in respect of the enhanced amount only. Indeed in some of the cases cited at the bar it has been so said. I have very grave doubts about the correctness of this view. The notice of demand can only issue in respect of the amount due in consequence of an order. Unless, therefore, the appellate order specifies only the enhanced amount as due I do not see how a notice in respect of that amount can be issued under section 29. The appellate order has to specify an amount due. If it specifies the entire amount due including the enhancement, then it cannot be said that under it the amount of the enhancement only is due and no notice demanding such an amount only under section 29 can be issued. If the appellate order specifies only the amount of the enhancement, it will be making an additional or supplementary assessment. Apart from section 34 of the Act with which we are not now concerned, I am not aware of any other provision which permits such an assessment. In any case section 31(3)(a) does not seem to me to contemplate it. Therefore, in my view when an order of enhancement of assessment is made under section 31 th....
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....setting aside the original order as a whole. It does not simply strike out a few of the figures appearing in the original order. That would really be a case of rectification for which provision is made in section 35 of the Act. What an appellate order does in a case of reduction is, as in the present case, to go into all the figures and arrive afresh at the assessable income which replaces the amount of the income arrived at by the Income-tax Officer. Therefore it seems to me that in all cases of an appellate order reducing the assessment the original order goes and if it goes, of course, the notice of demand also falls to the ground and the default based thereupon also ceases to be default any more. Suppose the appellate order itself stated that a smaller amount of tax was payable after it had reduced the figure of the assessable income at which the Income-tax Officer had arrived. Indeed I cannot imagine how else it can be expressed. After such an order the original order must go for the debt being one the two cannot exist together. If that order goes, all default arising out of it must also go. Therefore, I think that on the Income-tax Officer's order being revised in appeal....
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....educing the assessment as in the present case did not wipe out the original order, a most anomalous situation would, in my view, arise. Under section 46(1) of the Act after a default has been committed in terms of section 45(1) the Income-tax Officer may impose a penalty not exceeding the amount of the tax due in respect of which the default has occurred. This penalty may be recovered in the same way as the tax due, that is to say, by a notice under Section 29 and thereafter by a certificate issued under section 46(2). Now suppose the penalty for the full amount of the tax found due by the Income-tax Officer has been imposed and thereafter the appellate order reduces the amount of the tax. What happens to the order of penalty then ? Obviously, it does not automatically stand reduced to the reduced amount of the tax. It would again be absurd if the penalty could be recovered for the full original amount. The only sensible view to take in such a case would be that the order of penalty falls to the ground and the only logical way to support that conclusion would be to say that the original default has disappeared. For these reasons I have come to the conclusion that the decision of t....
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....Officer on the ground that as no fresh notices of demand were issued against him in respect of the reduced tax, he was not in default. The High Court accepted this contention and the necessary writs quashing the proceedings were issued. After the decision of the High Court, fresh notices of demand for the reduced tax were issued to the assessee on May 8, 1959, and those proceedings were also pending. The preliminary objection which is based on the pendency of the other proceedings and particularly the last fact is really of great force, because these appeals do not now appear to serve any tangible purpose. However, the appeals were heard at length and I must express my decision on the point mooted before us. In these appeals the department contends that the original notices of demand issued in September, 1955, had not become inoperative after the order of the Appellate Assistant Commissioner. The reason advanced is that there is nothing in the Income-tax Act which requires that a fresh notice of demand must issue every time the amount of tax is reduced in appeal. It is pointed out that if a previous notice of demand is not complied with, the assessee becomes a defaulter and it is ....
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....h notice of demand in such circumstances is beyond argument." [Italics supplied.] The learned Chief justice gave illustrations of those cases in which the earlier notice becomes "inappropriate". Addressing himself to the necessity of a new notice, the learned Chief justice observed : " In my view the answer to that question can only be in the affirmative." [Italics supplied.] The difference between the words "in consequence of any order" used in the Act and "in consequence of any assessment order in pursuance of this Act, " which, he pointed out, could have easily been used, was next stressed and he held that the orders of the Appellate Assistant Commissioner and the Tribunal answered the former description. He expressed in conclusion thus : "If so, when there is some tax due in consequence of an order passed by the Appellate Assistant Commissioner or in consequence of an order passed by the Appellate Tribunal, a clear occasion arises under the words of the section to serve a notice of demand upon the assessee. That such fresh notice should be issued when the assessment is altered is but common sense and I see no reason to construe the section against reason and against the act....
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....der section 35 of the Income-tax Act, calculation of limitation from the date of service of that notice was not allowed because the clauses relating to right of appeal, period of limitation, etc., were pencilled through. The reason given was that section 35(4) makes it compulsory to serve a notice of demand only when there is enhancement and as no fresh notice is made compulsory when the tax is reduced, none need be issued. An assessee might, on such construction, lose his limitation for appeal in a case under section 27 of the Income-tax Act even before the order under section 27 determining the amount of tax is passed. It is contended that there is no provision that a second or third notice of demand must issue. There is no need that the Act must expressly authorise the issue of fresh notices of demand. Even if such a power is not expressly included, it flows from section 14 of the General Clauses Act under which a power can be exercised as often as the occasion demands. I am, however, of the opinion, that (except in cases of de minimis) the Act does contemplate that a fresh notice of demand shall issue. There are two reasons for it. The first is the language of section 29 and t....
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....notice of demand may be included in these orders and the order then serves the purpose of a notice of demand as well. In both cases, if time is not mentioned, the assessee must pay the tax on or before the first day of the second month following the date of the service of the notice or order. Once a default is incurred, it continues and the filing of an appeal does not save the assessee from the default. The income-tax Officer can start and continue the proceedings for recovery of the tax notwithstanding the filing of the appeal. It is however to be seen that he has been given the power to treat the assessee as not in default as long as the appeal is undisposed of. This power is conferred, because section 46(1) provides : " When an assessee is in default in making a payment of income-tax, the Income-tax Officer may in his discretion direct that, . . . a sum not exceeding that amount shall be recovered from the assessee by way of penalty. " To save an assessee from penalty, the Income-tax Officer may treat him as not in default but if he does not, he is within his rights. Now take a case in which an assessee is considered to be in default after a notice of demand is served. Assum....
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....ction is quite clear. The Income-tax Officer shall serve a notice of demand upon the assessee are emphatic words and the earlier part shows that he has to do it when tax is due in consequence of "any order". Any order means not only an order passed by himself, but also an order passed by reason of the success of an appeal which the assessee may file and in which the old assessment is set aside. In view of the consequences that ensue, it is clear to me that when an assessment is gone through a second time and the amount of tax is reduced, the Income-tax Officer must intimate to the assessee the reduced amount of tax and make a demand and give him an opportunity to pay before treating him as a defaulter. This is incumbent because the assessment resulting in the tax is itself set aside or modified and an assessee is entitled to a proper assessment and ascertainment of tax before a demand can be made on him. It is said that the Income-tax Officer can send a letter but the law says that he "shall serve upon the assessee a notice of demand in the prescribed form." When the law requires that a notice of demand should issue, the mode of compliance by a letter is excluded. It may be that t....
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....h Setty---respondent in this appeal---to income-tax under section 23(4) of the Indian Income-tax Act, 1922, for the year 1953-54 on an estimated income of Rs. 61,000 and for the year 1954-55 on an estimated income of Rs. 1,21,000 and served notices of demand under section 29 of the Act for the tax due under the two orders of assessment. On the respondent failing to comply with the notices of demand within the period specified, the Income-tax Officer treated the respondent as in default and sent certificates under section 46(2) of the Act to the Deputy Commissioner, Kolar, for recovery of the tax determined by the orders of assessment. The Deputy Commissioner attached certain properties belonging to the respondent. In appeals filed by the respondent against the orders of assessment the Appellate Assistant Commissioner reduced the income assessed for the year 1953-54 to Rs. 28,000 and for the year 1954-55 to Rs. 46,000. The Income-tax Officer did not issue fresh notices, of demand pursuant to the modification in the orders of assessment made by the Appellate Assistant Commissioner, but by his letter dated February 14, 1956, informed the respondent that he had to pay tax as reduced by....
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....ore submits that an order of the Appellate Assistant Commissioner in appeal not only supersedes the order of assessment against which the appeal is carried, but also the notice of demand issued by the Income-tax Officer and all proceedings taken for recovery of tax in pursuance of the notice of demand and, therefore, default which has resulted from the failure to comply with the notice of demand becomes inoperative when the Appellate Assistant Commissioner passes his order in appeal against the order of assessment, whether such order is of confirmation or variance. The Income-tax Officer may, submits the respondent, issue a certificate under section 46 if there be a fresh default resulting from non-compliance of the order of the appellate authority. If this submission is true, the demand notices must be issued and all steps pursuant to an order of assessment for recovery must be completed before the appeal against the order of assessment is disposed of. If the proceedings are not completed, they will be superseded by the order passed by the appellate authority. We may examine the correctness of the plea raised by the respondent in the light of the scheme for recovery of tax, penal....
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.... receipt of such certificate has to proceed to recover from such assessee the amount specified therein as if it were an arrear of land revenue. Sub-sections (3) to (6) deal with other modes of recovery : But resort to the modes of recovery is subject to sub-section (7) which provides that save in accordance with the provisions of sub-section (1) of section 42, or of the proviso to section 45, (which are for the purposes of this case not material) no proceedings for recovery of any sum payable under the Act shall be commenced after the expiration of one year from the last day of the financial year in which a demand is made under the Act. The Act therefore provides that if an assessee makes default in complying with the notice of demand or order under section 31 or 33, proceedings may be taken in the manner provided in section 46 for recovery of the tax due but such proceedings shall not be commenced after the expiration of the period specified in sub-section (7). By the determination of tax under section 23, or imposition of penalty in circumstances mentioned in section 28, or liability for payment of interest in circumstances mentioned in section 18A(4), (6), (7) or (8) obligation....
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....r for recovery of tax must be abandoned and fresh proceedings commenced for recovery of tax pursuant to the order of the appellate authority. If on the passing of an order by the appellate authority, the notice of demand previously issued is deemed to be cancelled or superseded, an assessee must be treated as absolved from the consequences of his default even if the appellate authority confirms the order of the Income-tax Officer because the earlier default by the tax-payer will in every case go by the board, and the proceedings must be commenced again after service of a fresh notice of demand, the discretion vested in the Income-tax Officer to treat or not to treat an assessee pending appeal in default will, in all cases be valueless. The provisions of the Act do not indicate any such legislative intent and express enactment conferring upon the Income-tax Officer, in his exercise of discretion, power not to treat a person who has preferred an appeal as a defaulter, contains strong indication to the contrary. Therefore, in my view, a person who has failed to comply with a notice of demand would continue to be a defaulter notwithstanding the reduction of liability by order of the ap....
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....the respondent urged that it is open to the Appellate Assistant Commissioner to specify by his order the time and place at which the tax determined by him is to be paid and the person to whom it is to be paid. If the Appellate Assistant Commissioner does so specify the amount, the person to whom and the place at which the payment is to be made, the order of the Income-tax Officer would be deemed to be superseded and it would be the duty of the assessee then to pay the tax determined pursuant to the order of the appellate authority after a fresh notice is served upon him and he cannot be deemed to be in default unless he has failed to comply with the directions of the Appellate Assistant Commissioner within the period prescribed by that order. Section 45 does undoubtedly refer to the amount specified in an order passed under section 31 which deals with the procedure and the power of the Appellate Assistant Commissioner hearing an appeal from the order of the Income-tax Officer---and to the amount specified in an order under section 33 dealing with the procedure and the power of the Income-tax Appellate Tribunal in appeal against the order of the Appellate Assistant Commissioner and ....
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.... by sections 31 and 33 of the Act and where the Appellate Assistant Commissioner imposes penalty he may specify the amount thereof. Similarly the Tribunal imposing penalty may specify the amount of penalty. To such cases the provision relating to default arising on failure to comply with the directions to pay may apply if the person to whom, and the place at which it is to be paid are specified. The assumption that section 45 of the Income-tax Act requires the appellate authority to specify the amount payable in the order therefore, seems to be unwarranted and the fact that under certain circumstances, having regard to the nature of the order appealed from, the appellate authority may specify in the order such particulars, does not justify the interpretation either that the Income-tax Officer has the power to issue the notice of demand only in those cases where by inadvertence the Appellate Assistant Commissioner or the Tribunal have failed to specify the amount payable or that the passing of orders by the Appellate Assistant Commissioner or the Tribunal deciding the appeal has the effect of superseding the notices of demand issued by the Income-tax Officer. In the absence of any ....