PETITIONER: COMMISSIONER OF INCOME-TAX,ANDHRA PRADESH Vs. RESPONDENT: MIS. BHIKAJI DADABHAI & CO. DATE OF JUDGMENT: 22/02/1961 BENCH: SHAH, J.C. BENCH: SHAH, J.C. KAPUR, J.L. HIDAYATULLAH, M. CITATION: 1961 AIR 1265 1961 SCR (3) 923 CITATOR INFO : E 1968 SC 162 (11) R 1975 SC1549 (22,55) ACT: Income-tax-Assessment Proceedings pending-Hyderabad Income- tax Act repealed-Penalty, whether an additional tax-If could be imposed-Appellate Assistant Commissioner-jurisdiction-- Assessment, meaning of-Hyderabad Income-tax Act, s. 40- Indian Income-tax Act, 1922 (XI of 1922)-Finance Act, 1950 (XXV of 19,50), s. 13. HEADNOTE: The Income-tax Officer found that the respondents' books of accounts were unreliable and after assessing income for Fasli year 1357, corresponding to the year 1946-47, issued notice to the respondents on December 22, 1949, under s. 40 of the Hyderabad Income-tax Act to show cause why penalty should not be levied in addition to the tax and by an order dated October 31, 1951, directed payment of the said penalty. The State of Hyderabad merged with the Indian Union during the pendency of the proceedings before the Income-tax Officer and by s. 13 of the Finance Act, 1950, the Hyderabad Income-tax Act ceased to have effect from April 1, 1950, but the operation of that Act in respect of levy, assessment and collection of income-tax and super-tax in respect of periods prior thereto for which liability to income-tax could not be imposed under the Indian Income-tax Act, was saved. The question was whether (a) the Income-tax Officer had power on October 31, 1951, to impose a penalty under S. 40(1) of the Hyderabad Income-tax Act and (b) whether the assessee had a right to appeal against the order of the Income-tax Officer imposing penalty and whether the Appellate Assistant Commissioner had jurisdiction to hear appeals or whether his order was a nullity. Held, that the power of the Income-tax Officer to impose a penalty under s. 40(1) of the Hyderabad Income-tax Act in respect of the year preceding the date of the repeal of the Hyderabad Income-tax Act was not lost because by s. 13 of the Finance Act, 1950,,for the operation by the Hyderabad Income-tax Act in respect of levy, assessment and collection of income-tax and super-tax in respect of periods prior to April, 1951, for which liability to income-tax could not be imposed under the Indian Income-tax Act, was saved and so the proceedings for imposing the penalty could be continued after the enactment of s. 13(1) of the Indian Finance Act, 1950. Held, that the appeal against the order of the Income-tax Officer on the ground that he was not competent to pass the order did lie to the Appellate Assistant Commissioner, whose jurisdiction was not made conditional upon the competence of the 924 Income-tax Officer to pass the. orders made appealable; as a court of appeal he had jurisdiction to determine the soundness of the conclusions of the Income-tax Officer both on the question of fact and law and even as to his jurisdiction to pass the order appealed from, and his order was not a nullity. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 434 of 1960.
Appeal by special leave from the judgment and order dated
October 4, 1956, of the Hyderabad High Court in I.T.R. No.
116/5 of 1954-55.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
A, V. Viswanatha Sastri, S.N. Andley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the respondents.
1961. February 22. The Judgment of the Court was delivered
by
SHAH, J.-M/s. Bhikaji Dadabhai & Co.-herein. after called
the assessees-owned an oil mill at Khammamath in the area of
the former State of Hyderabad. For the year of assessment
Fasli 1357 (October 1, 1946, to September 30, 1947), the
assessees returned an income of Rs. 50,384/-. The Income-
tax Officer found that the books of account maintained by
the assessees were unreliable and by his order dated
February 10, 1950, he assessed their total income at Rs.
1,63,131/-. The Income-tax Officer had, before finalising
the assessment, issued on December 22, 1949, a notice to the
assessees under s. 40 of the Hyderabad Income-tax Act
requiring them to show cause why penalty should not be
imposed upon them and by order dated October 31, 1951,
directed the assessees to pay by way of penalty Rs. 42,000/-
in addition to the tax. This order was confirmed in appeal
by the Appellate Assistant Commissioner. In appeal, the
Income-tax Appellate Tribunal observed that by virtue of the
provisions of s. 13 (1) of the Indian Finance Act, 1950, the
Hyderabad Income-tax Act had ceased to have effect and as
the power to impose penalty under s. 40 of the Hyderabad
Income-tax Act was not saved, the order imposing penalty was
without jurisdiction, The Tribunal observed;
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” The Income-tax Officer may have been in
error in imposing the penalty, but there was
no appeal against the order of the Income-tax
Officer to the Appellate Assistant
Commissioner. Section 42(1) of the Hyderabad
Income-tax Act gives a right to an assessee to
appeal if he objects to an order under s. 40
made by an Income-tax Officer. Section 40
ceased to have effect. There can therefore be
neither an order under s. 40 nor an appeal
against the order if an order.has been wrongly
made. The remedy of the assessee lies
elsewhere, and not by way of an appeal to the
Appellate Assistant Commissioner,”
and on that view dismissed the appeal. At the instance of
the assessees, the following questions were referred by the
Tribunal to the High Court of Judicature at Hyderabad
1. Whether on 31-10-1951, the Income-tax Officer,
Warrangal Circle, had the power to impose a penalty under s.
40(1) of the Hyderabad Income-tax Act in respect of the
assessment for the year 1357 F. ?
2. Whether the assessee had a right to appeal against the
order of the Income-tax Officer imposing the penalty ?
3. If the Appellate Assistant Commissioner did not have
jurisdiction to hear the appeal, whether the order of the
Appellate Assistant Commissioner is a nullity and therefore
the order of the Income-tax Officer erroneous, though it may
stand until it is set aside by a competent authority ?
The High Court answered the first and the third questions in
the negative and the second question in the affirmative.
The High Court observed that the Appellate Assistant
Commissioner had power to entertain the appeal in which the
question of the power of the Income-tax Officer to impose a
penalty was challenged, and the decision of the Appellate
Assistant Commissioner was not without jurisdiction. The
High Court also proceeded in a petition separately filed by
the assessees to direct the Income-tax Appellate Tribunal to
set aside the order of the Income-tax Officer imposing a
penalty as a logical
926
consequence of the view the Tribunal had taken regarding the
absence of power in the Income-tax Officer to levy a
penalty. Against the order passed by the High Court, this
appeal with special leave is preferred.
We are in agreement with the High Court that the appeal to
the Appellate Assistant Commissioner was competent. Even if
the Income-tax Officer committed an error in passing the
order imposing penalty because the conditions necessary for
invoking that jurisdiction were absent, an appeal against
his order on the ground that he was not competent to pass
the order did lie to the Appellate Assistant Commissioner.
The Appellate Assistant Commissioner is under the Act
constituted an appellate authority against certain orders of
the Income-tax Officer, and exercise of that jurisdiction is
not made conditional upon the competence of the Income-tax
Officer to pass the orders made appealable. The Appellate
Assistant Commissioner had as a court of appeal jurisdiction
to determine the soundness of the conclusions of the Income-
tax Officer both on questions of fact and law and even as to
his jurisdiction to pass the order appealed from.
We are, however, unable to agree with the High Court that
because of the repeal of the Hyderabad Income-tax Act by the
Finance Act, 1950, the power to impose a penalty in respect
of the years preceding the date of repeal was lost. The
State of Hyderabad merged with the Indian Union during the
pendency of the proceedings before the Income-tax Officer.
Thereafter the Indian Legislature enacted the Finance Act,
1950, which by sub-section (1) of s. 13 in so far as it is
material provided:
” If immediately before the 1st day of April,
1950, there is in force in any part B
State…. any law relating to income-tax or
super-tax…. that law shall cease to have
effect except for the purposes of the levy,
assessment and collection of income-tax and
super-tax in respect of any period not
included in the previous year for the purposes
of assessment under the Indian Income-tax Act,
1922…”
927
Manifestly, by s. 13, the Hyderabad Income-tax Act ceased to
have effect as from April 1, 1950. But the operation of
that Act in respect of levy, assessment and collection of
income-tax and super-tax in respect of periods prior thereto
for which liability to Income-tax could not be imposed under
the Indian Income-tax Act, 1922, was saved. The Judicial
Committee of the Privy Council in Commissioner of Income-
tax, Bombay Presidency and Aden v. Messrs. Khemchand Ramdas
observed:
” One of the peculiarities of most Income-tax
Acts is that the word ‘assessment’ is used as
meaning sometimes the computation of income,
sometimes the determination of the amount of
tax payable and sometimes the whole procedure
laid down in the Act for imposing liability
upon the tax payer.”
The Hyderabad Income-tax Act also used the expression”
assessment ” in different senses. In certain sections, for
instance ss. 31 and 39 the expression is used as in the
sense of mere computation of income; in other sections it is
used in the sense of determination of liability and in
certain other sections in the sense of machinery for
imposing liability and procedure in that behalf.”By the
Finance Act, 1950, the Hyderabad Income-tax Act was
expressly kept alive in respect of periods which include the
assessment year in question for purposes of levy, assessment
and collection of income-tax. The High Court expressed the
view that the word “assessment” in S. 13 (1) included the
whole procedure for imposing liability upon the taxpayer but
not to the procedure for imposing a penalty. They thought
that the Hyderabad Income-tax Act dealt with liability to
pay income-tax and penalty in distinct provisions, both
relating to imposition and recovery and that if the
Legislature had intended to keep alive the Hyderabad Income-
tax Act for all purposes including the levy of penalty with
respect to any particular year or years of assessment, it
could have said so in terms clear and unambiguous instead of
limiting the operation only to ” levy, assessment and
collection.” In the view of the High Court, imposition of
penalty
(1) (1938) L.R. 65 I.A. 236; [1938] 6 I.T.R. 414.
928
was not a necessary concomitant or incident of the process
of assessment, levy and collection of tax.
The High Court proceeded upon the view that by saving the
Hyderabad Income-tax Act for the purposes. of levy,
assessment and collection of income-tax, the entire
procedure for imposing liability to pay tax and. for
collection of tax was saved, but penalty not being tax,
provisions relating to imposition of and collection of
penalty did not survive the repeal of the Hyderabad Income-
tax Act.
This Court considered in C. A. Abraham v. The Income-tax
Officer, Kottayam(1) the question whether the expression ”
assessment ” as used in s. 44 of the Indian Income-tax Act
included the procedure for imposition of penalty in respect
of a dissolved firm and it was observed:
“The expression ‘assessment’ used in these
sections (provisions of Ch. IV of the Indian
Income-tax Act) is not used merely in the
sense of computation of income and there is in
our judgment no ground for holding that when
by s. 44, it is declared that the partners or
members of the association shall be jointly
and severally liable to assessment, it is only
intended to declare the liability to
computation of income under s. 23 and not to
the application of the procedure for
declaration and imposition of tax liability
and the machinery for enforcement thereof. By
s. 28, the liability to pay additional tax
which is designated penalty is imposed in view
of the dishonest or contumacious conduct of
the assessee.”
This court regarded penalty as an additional tax imposed
upon a person in view of his dishonest or contumacious
conduct. It is true that under the Hyderabad Income-tax
Act, distinct provisions are made for recovery of tax due
and penalty, but that in our judgment does not alter the
true character of penalty imposed under the two Acts. Nor
are we able to agree that because in respect of the Sea,
Customs Act, 1878, the Indian Tariff Act, 1934, the Land
Customs Act, 1924, the Central Excise and Salt Act, 1944,
and the Indian Post Offices Act, 1898, which were extended
(1) [1961] 2 S.C.R. 765.
929
to the whole of India by s. 11 of the Finance Act, 1950, and
the provisions corresponding thereto were repealed by the
proviso, and it was expressly provided that the previous
operation of the corresponding law or any penalty,
forfeiture or punishment ordered in respect of an offence
committed against any such law or any investigation, legal
proceeding or remedy in respect of such penalty, forfeiture
or punishment or any such investigation, legal proceeding or
remedy may be instituted, continued or enforced and any such
penalty, forfeiture or punishment may be imposed as if the
Act had not been passed, that under sub-s. (1) of s. 13 it
was intended to prohibit the authorities otherwise competent
in that behalf fro` commencing or continuing the proceeding
for levying penalty even if the circumstances justify such a
course. The scheme of the statutes specified in s. 11 and
which are repealed by sub-s. (2) of s. 13 are somewhat
different from the scheme of the Indian Income-tax Act.
Because by sub-s. (1) of s. 13 of the Finance Act, 1950, the
Hyderabad Income-tax Act was to cease to operate as on April
1, 1950, except for the purposes of levy, assessment and
collection of income-tax and super-tax, whereas in respect
of other Acts specified in s. 11 substantially provisions
similar to those contained in s. 6 of the General Clauses
Act were enacted, an intention that proceedings for penalty
may be commenced and continued under the Acts specified in
S. 11, whereas no such proceedings may be commenced or
continued under the Hyderabad Income-tax Act is not
indicated. We are of the view that the High Court erred in
holding that the proceedings for imposing the penalty could
not be continued after the enactment of s. 13 (1) of the
Finance Act, 1950.
The appeal will therefore be allowed and the answer to the
first question will be recorded in the affirmative,. On the
view taken by us, it is unnecessary to pass,any orders on
the petition under Art. 226 of the Constitution which was
presented to the High Court. The appellant will be entitled
to his costs of the appeal in this Court and in the High
Court.
Appeal allowed.
930