SAKALCHAND BABULAL Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THIS is a petition under article 226 of the Constitution seeking the issue of a writ of certiorari or other appropriate writ to call for the records of the Income-tax Officer and to quash the certificate issued to the Collector under section 46 of the Income-tax Act. The facts set out in the affidavit accompanying the petition are these. The petitioner was the karta of a Hindu Undivided family, which was carrying on business in Bangalore. In Samvat year 1998, the assessee-petitioner had also business in art silk and cotton yarn with dealers in Bombay and Madras. In respect of the profits arising in British India, an assessment was made in 1943-44. The tax was paid. Subsequently, the business came to an end and the assessee left for his native place. It is also alleged that in 1945 the Hindu undivided family ceased to exist.

(2.) THE petitioner returned to Bangalore in 1947. A notice was received by him from the Amildar on June 26, 1953, demanding certain sums towards income-tax, excess profits tax was excess profits tax deposit. THEn the petitioner became aware that these demands related to the assessment year 1944-45. As he had submitted a return disclosing a nil income for that year, the petitioner corresponded with the income-tax authorities and finally obtained duplicate copies of the assessment orders made by the department. THEse assessment orders were made ex parte, the petitioner contending that no notice under section 22(4) or 23(2) of the Act had been received by him. He subsequently came to understand that such notices were apparently sent to an address, where he had a temporary residence in Marwar for a short time. Contending that he received demand notices and assessment orders only in January 1955, he filed appeals. THEse appeals were dismissed as time-barred.

(3.) BEFORE proceeding to interpret the proviso, it is necessary to consider the main part of the section itself. Obviously, the proviso cannot stand by itself unless there are special feature attendant thereupon and unless the wording of the proviso requires that it should be treated as dealing with a subject-matter which is not covered by the main part of the section. Section 42(1) of the Act is headed : "Income deemed to accrue or arise within the taxable territories." It states that all income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories, or through or from any asset or source of income in the taxable territories, or through or from any money lent at interest and brought into the taxable territories in cash or in kind, or through or from the sale, exchange or transfer of a capital assets in the taxable territories, shall be deemed to be income accruing or arising within the taxable territories. The latter part of the section provides that, in a case where the person is not resident in the taxable territories, such income shall be chargeable to income-tax either in his name or in the name of his agent. The proviso that we have to interpret is the proviso to the above and it specifically mentions, "provided that where the person entitled to the income, profits or gains is not resident in the taxable territories, the income-tax so chargeable may be recovered.........." This proviso therefore deals with income-tax "so chargeable" and arrears of tax of that description. The phrase "so chargeable" in the context must therefore relate to income which is deemed to accrue or arise within the taxable territories being one or other of the several classes mentioned above. It is undisputed that the income in the present case is income which accrued in the taxable territories itself and the fiction embodied in section 42(1) of "deemed accrual" does not apply to the income of the assessee-petitioner. If the income of the assessee which has been brought to tax in the present instance is not to be deemed to be income accruing or arising within the taxable territories, but is income which actually accrued within the taxable territories, we can find no warrant for holding that the proviso will apply to such income or to the tax levied on such income. Learned counsel for the department purports to contend that while, no doubt the main part of the section deals with what is to be deemed to be income accruing or arising within the taxable territories, the proviso applies even in respect of income of a non-resident, which accrued in the taxable territories, so that the recovery of income-tax and arrears of tax may be made in accordance with the terms of the proviso. We are unable to agree. No authority which would support the claim to the extensive amplitude of the proviso is brought to our notice. As we section and can have no independent existence. Unless there are words in the proviso which compel us to give it an area of operation outside the scope of the main section itself, the proviso must necessarily stand limited to that class of cases dealt with in the main section. If, therefore, the main section deals with only income which actually accrued outside the taxable territories, but which, by force of the main section, is deemed to accrue in the taxable territories, the proviso referring to the income-tax so chargeable and any arrears of tax must relate only to income which deemed to accrue, but not to income which actually accrued within the taxable territories. As we have said, it is not the case of the department that the income brought to assessment in the present case was income which arose outside the taxable territories, but, which by operation of section 42(1), was deemed to accrue within the taxable territories. It was income which actually accrued with the taxable territories and section 42(1) will not apply thereto. The proviso that we have referred to will also not apply.