KASHIRAM AGARWALA V. UNION OF INDIA
& ORS  INSC 219 (6 October 1964)
06/10/1964 GAJENDRAGADKAR, P.B. (CJ)
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
DAYAL, RAGHUBAR MUDHOLKAR, J.R.
CITATION: 1965 AIR 1028 1965 SCR (1) 671
CITATOR INFO :
D 1976 SC 437 (14)
Income Tax Act, 1961 (43 of 1961), s.
127(1)-Income-tax Proceedings transferred from one Income-tax Officer to
another in the same locality -Recording of reasons, whether mandatory-Proviso
to s. 127(1) effect of.
Income-tax proceedings against the appellant
before two officers in Calcutta were transferred by an order of the Central
Board of Revenue under s. 127(1) of the Indian Income-tax Act, 1961 to another
Income-tax Officer in the same place. The transfer was challenged by the
appellant in writ proceedings before the Circuit Bench of the Punjab High Court
at Delhi as being invalid on the ground, that in not recording the reasons for
the transfer, the order making the transfer did not comply with a mandatory provision
of s. 127(2). The High Court having-turned down the plea, the appellant came to
the Supreme Court by special leave.
It was contended by the appellant that
although the proviso to s. 127(1) made the giving of a hearing to the assessee
unnecessary in cases where the transfer was from one officer to another in the
same city, place, or locality, the provision for recording reasons which was
mandatory under the main clause of s. 127(1) had not been similarly dispensed
with. Therefore even in those cases which were covered by the proviso reasons
had to be recorded.
HELD : The recording of reasons was a
corollary to, and bound up with the provision for a hearing. [674 C-D].
Where the transfer was from an officer in one
locality to an officer in another locality it was provided that a hearing
should, if possible, be given to the assessee. Reasons for the transfer had to
be recorded to show that the objections of the assessee had been taken into
account. Even when a hearing was not actually given on the ground that it was
not possible, recording of reasons remained desirable for the satisfaction of
the assessee.[674 E-F].
However when the transfer was from one
officer to another in the same locality, no question of giving a hearing to the
assessee arose as there was no prejudice to him. Under s. 124(3) of the Act all
the officers in the same locality had concurrent jurisdiction. An order of
transfer within the locality was a purely administrative order, based entirely
on the convenience of the department. On principle in such cases neither can
notice be said to be necessary, nor would it be necessary to record any reasons
for the transfer. [675 A-D].
The provision for hearing and for recording
of reasons was made in s. 127(1) obviously in compliance with the observations
of this Court in Pannalal Binjraj v. Union of India. In that case where the
order of transfer from one locality to another had been challenged as violative
14, the court while holding that it was
unconstitutional, remarked. that it was desirable before transferring a case to
give the assessee a hearing and to record reasons. [676 E-G].
672 Considered in this background and in the
light of the object sought to achieved, the proviso to s. 127(1) only meant
that in cases covered it no opportunity need be given to the assessee, and the
consequential pee for recording reasons was also unnecessary. The impugned
orders there fore remained valid. [677 A-C] Pannalal Binjraj v. Union of India,
 S.C.R. 233, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 22 of 1964 and Civil Appeal No. 261 of 1964.
Appeals by special leave from the judgment
and order date April 10, 1963 of the Punjab High Court (Circuit Bench) at in
Civil Writ Nos. 258-D and 257-D of 1963.
B. N. Kirpal, S. Murty and K. K. Jain, for
the appellant (in both the appeals).
S. Y. Gupte, Solicitor-General, N. D.
Karkhanis and R. Sachthey, for the respondents (in both the appeals).
The Judgment of the Court was delivered by
Gajendragadkar C. J. These two appeals arise out of two writ petitions filed by
the appellant Kashiram Agarwala in the Punjab High Court, Circuit Bench, at
Delhi challenging the validity of two orders passed by the Central Board of
Revenue (hereinafter called 'the Board' under s. 127(1) of the Income-Tax Act,
1961 (No. 43 of 1961) (hereinafter called 'the Act). These two orders have been
passed on the 18th January, 1963, and they have directed that the income- tax
proceedings then pending against the appellant should be transferred from the Income
Tax Officers 'D' Ward District IV(1), and 'F' Ward District IV(2) Calcutta,
respectively to the Income Tax Officer 'F Ward Companies District III,
Calcutta. The petitioner alleged that these two orders were invalid, because
before exercising its power under s.
127(1), the Board had failed to comply with a
mandatory requirement prescribed by the said provision. These petitions were
dismissed summarily by the High Court, and it is against these orders of
summary rejection that the appellant has come to this Court by special leave.
Section 127(1) of the Act reads thus:
"The Commissioner may, after giving the
assessee a reasonable opportunity of being heard in the matter wherever it is
possible to do so, and after recording his reasons for doing so, transfer any
case from one Income Tax Officer subordinate to him to another also subordi-
673 nate to him, and the Board may similarly transfer any case from one
Income-tax Officer to another:
Provided that nothing in this sub-section
shall be deemed to require any such opportunity to be given where the transfer
is from one Income-tax Officer to another whose offices are situate in the same
city, locality or place." Sub-section (2) lays down that the transfer
which is authorised to be made by sub-section (1), can be made at any stage of
the proceedings, and shall not render necessary the reissue of any notice
already issued by the Income-tax Officer from whom the case is transferred.
There is an explanation to s. 127 which it is unnecessary to mention.
It is common ground that the impugned orders
do not record any reasons why the Board thought it necessary to transfer the
cases pending against the appellant from one Income-tax Officer to the other;
and the argument is that s. 127(1) imposes an obligation on the authority
exercising its power under the said section to record its reasons for directing
the transfer of a case from one Income-tax Officer to another. It will be
noticed that s. 127(1) requires that where the power conferred by it is
intended to be exercised, an opportunity should be given to the assessee
wherever it is possible to do so, and reasons have to be recorded for making
the order of transfer. The requirement that opport- unity should be given,
cannot be said to be obligatory, because it has been left to the discretion of
the authority to consider whether it is possible to give such an opportunity to
the assessee. It is, of course, true that in coming to the conclusion that it
is not possible to give the required opportunity to the assessee, the authority
must act reasonably and bona fide; but if the authority comes to the conclusion
that it is not possible to give a reason. able opportunity to the assessee,
that can be dispensed with.
That, however, is not so with regard to the
requirement that reasons must be recorded for making the transfer. So far as s.
127(1) is concerned, there is no dispute about this position.
The question which calls for our decision in
the present appeals is : what is the effect of the proviso to s. 127 (1) ? The
proviso lays down that nothing in sub-section (1) shall be deemed to require
any such opportunity to be given in a case like the present. It is plain that
the transfer in the present case is from one Income-tax Officer to another
whose offices are situated in the same locality; and so, the point to consider
is, what is the effect of this proviso? It is urged by Mr. Jain that the effect
of the. 674 proviso is that the requirement as to the giving of a reasonable
,opportunity alone is dispensed with in respect of cases falling under the
proviso, but not the requirement as to the recording of reasons. If the words
used in the proviso are literally construed, it may have to be conceded that
there is some force in this contention.
But, on the other hand, the provision that
nothing in sub- section (1) shall be deemed to require any opportunity to be
given, is worded in an emphatic form; and that fact has to be home in mind in
considering the effect of the proviso.
Besides, it would not be unreasonable to
assume that the recording of reasons prescribed by S. 127(1) would be
appropriate where a transfer is being made otherwise than in the manner
prescribed by the proviso. In such a case, normally, the assessee has to be
given a reasonable opportunity to be heard; and the natural corollary of -this
requirement is that his objections to the transfer should be considered and
reasons given why the transfer is made des- pite the objection of the assessee.
In other words, the requirement as to the recording, of reasons flows as a
natural consequence and corollary of the requirement that a reasonable
opportunity should be given to the assessee. If, however, a reasonable
opportunity is not given to the assessee on the ground that it is not possible
to do so, S. 127(1) requires that the transfer being of a category where a
reasonable opportunity should be given to the assessee, the authority should
record its reasons for making the transfer, even though no opportunity was in
fact given to the assessee. If that be the true position, it is not easy to
understand why the proviso should be so construed as to require reasons to be
given for the transfer, even though no opportunity to the assessee is required
to be given. That is one aspect of the matter which has to be borne in mind in
determining the true scope and -effect of the proviso.
There is another consideration which is also
Section 124 of the Act deals with the
jurisdiction of Income-tax Officers. 'S. 124(3) provides that within the limits
of the area assigned to him, the Income-tax Officer shall have jurisdiction-
(a) in respect of any person carrying on a business or profession, if the place
at which he carries on his business of profession is situate within the area,
or where his business or profession is carried on in more places than one, if
the principal place of his business or profession is situate within the area,
and (b) in respect of any other person residing within -the area.
675 This provision clearly indicates that
where a transfer is made under the proviso to s. 127(1) from one Income-tax
Officer to another in the same locality, it merely means that instead of one
Income-tax Officer who is competent to deal with the case, another Income-tax
Officer has been asked to deal with it. Such an order is purely in the nature
of an administrative order passed for considerations of convenience of the
department and no possible prejudice can be involved in such a transfer. Where,
as in the present proceedings, assessment cases pending against the appellant
before an officer in one ward are transferred to an officer in another ward in
the same place, there is hardly any occasion for mentioning any reasons as
such, because such transfers are invariably made on grounds of administrative
convenience, and that shows that on principle in such cases neither can the
notice be said to be necessary, nor would it be necessary to record any reasons
for the transfer. The provisions contained' in s. 124(3) of the Act deal with
the same topic which was the subject- matter of s. 64(1) and (2) of the earlier
Income-tax Act, 1922 (No. 11 of 1922). There is, however, this difference
between these two provisions that whereas s. 124 fixes jurisdiction,
territorial or otherwise, of the Income-tax Officers, s. 64 fixed the place
where an assessee was to be assessed.
In this connection, it is also necessary to
take into account the background of the provision contained in s. 127.
In Pannalal Binjraj v. Union of India(1) the
validity of s. 5(7A) of the earlier Act of 1922 was challenged before this
Court. The said section had provided that the Commissioner of Income-tax may
transfer any case from one Income-tax Officer subordinate to him to another,
and the Central Board of Revenue may transfer any case from any one Income-tax
Officer to another. Such transfer may be made at any stage of the proceedings,
and shall not render necessary the are- issue of any notice already issued by
the Income-tax Officer from whom the case is transferred. The argument which
was urged before this Court in challenging the validity of this provision was
that it infringed the citizens' fundamental rights conferred by Articles 14 and
19(1)(g) of the Con- stitution. In support of this argument, reliance was
placed on the fact that s. 64(1) and (2) conferred a right on the assessee to
have his tax matter adjudicated upon by the respective officers mentioned in
the said provisions; and since s. 5(7A) authorised the transfer of the
assessee's case from one Income-tax Officer to another, that involved
infringement of his fundamental rights (1)  S.C.R. 233.
676 guaranteed by Articles 14 and 19(1)(g)
read with s. 64(1) & (2). It is necessary to emphasise that s. 5(7A)
authorised transfer of income-tax cases from one officer to another not
necessarily within the same place. In other words, the transfer authorised by
s. 5(7A) would take the case from the jurisdiction of an officer entitled to
try it under s. 64(1) & (2) to another officer who may not have
jurisdiction to try the case under the said provision. That, indeed, was the
basis on which the validity of S. 5 (7A) was challenged.
This Court, however, repelled the plea raised
against the validity of the said section on the ground that the right conferred
on the assssee by s. 64(1) & (2) was not an absolute right and must be
subject to the primary object of the Act itself, namely, the assessment and
collection of the income-tax; and it was also held that where the exigencies of
tax collection ,so required, the Commissioner of Income- tax or the Central
Board of Revenue had the power to transfer his case under S. 5 (7A) to some
other officer outside the area where the assessee resided or carried on
business. That is how s. 5(7A) was sustained.
Even so, this Court observed in the case of
Pannalal Binjraj(1) that it would be better if an opportunity is given to the
assessee in cases where the powers conferred by s. 5(7A) were intended to be
exercised, because he would then be able to mention his objections to the
intended transfer. It is in that connection that this Court further expressed
its opinion that if the reasons for making the transfer "are reduced,
however briefly, to writing, it will help the assessee in appreciating the
circumstances which make it necessary or desirable to order such a
transfer." It is obviously in pursuance of these observations that the
Legislature has made the relevant provisions in s. 127(1) of the Act. If this
background is home in mind, it would be clear that the propriety of giving an
opportunity to an assessee and the desirability of recording reasons which this
Court emphasised, had reference to cases where transfers were intended to be
made from an Income-tax Officer in one place to the Income-tax Officer in
another place; and they obviously had no reference to transfers like the present
where instead of one officer dealing with the case, another officer in the same
place is asked to deal with it.
It is in the light of these considerations
that we have to construe the proviso to S. 127(1). As we have already
indicated, the construction for which Mr. Jain contends is a reasonably
possible construction. In fact, if the words used in the proviso are literally
read, Mr. Jain would be justified in contending that (1)  S.C.R. 233.
67 7 requirement that reasons must be
recorded applies even to falling under it. On the other hand, if the obvious
object proviso is taken into account and the relevant previous ound is borne in
mind, it would also seem reasonable to that in regard to cases falling under
the proviso, an opport need not be given to the assessee, and the consequential
to record reasons for the transfer is also unnecessary, and view is plainly
consistent with the scheme of the provision and true intent of its
requirements. We would accordingly hold the impugned orders cannot be challenged
on the ground that Board has not recorded reasons in directing the transfer of
the pending against the assessee from one Income-tax Officer other in the same
The result is, the appeals fail and are
dismissed. There be no order as to costs.