Commissioner of Income-Tax, Andhra
Pradesh Vs. Mis. Bhikaji Dadabhai & Co  INSC 62 (22 February 1961)
CITATION: 1961 AIR 1265 1961 SCR (3) 923
CITATOR INFO :
E 1968 SC 162 (11) R 1975 SC1549 (22,55)
pending-Hyderabad Income- tax Act repealed-Penalty, whether an additional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.
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.
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
K. N. Rajagopal Sastri and D. Gupta, for the
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;
925 " 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
Thereafter the Indian Legislature enacted the
Finance Act, 1950, which by sub-section (1) of s. 13 in so far as it is
" 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;  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
"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)  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