GANASHYAMDAS JATIA Vs. INCOME TAX OFFICER CENTRAL

JUDGEMENT

(1.) One Kanailall Jatia, since deceased, was assessed on a total income of Rs. 87,269 in respect of the assessment year 1945-46 under Section 23(3) of the Indian Income-tax Act, 1922. On the 29th March, 1956, notice under Section 34(1A) of the Indian Income-tax Act, 1922, was served on the said Kanailall Jatia for reopening the said assessment. The said service of the notice was effected by affixation. On the 12th July, 1956, notice under Section 22(4) of the Indian Income-tax Act, 192^ was served on Kanailall Jatia, since deceased. On the 19th January, 1958, Kanailall Jatia died leaving the petitioners, his heirs and legal representatives. On the 4th October, 1958, an ex parte order of assessment was made on Kanailall Jatia, since deceased, under Section 34(1A) read with Section 23(4) of the Indian Income-tax Act, 1922, on a total income of Rs. 22,00,135-46. On the 7th November, 1958, notice of demand under Section 29 of the Indian Income-tax Act, 1922, in the name of the said Kanailall Jatia was served on the petitioners as heirs and legal representatives. Thereafter, an appeal was preferred before the Appellate Assistant Commissioner against the said assessment order under Section 34(1A) of the Indian Income-tax Act, 1922. On 11th July, 1961, the said assessment under Section 34(1A) was set aside on the ground, that the ex parte assessment had been made on a dead person. On the 28th July, 1962, notice under Section 22(4) of the Indian Income-tax Act was served on the petitioners who were the heirs and legal representatives of Kanailall" Jatia, since deceased. In August, 1962, a fresh order of assessment under Section 34(1A) and Section 23(4) read with Sections 31(3) and 24B(2) of the. Indian Income-tax Act, 1922, was made on a total income of Rs. 22,46,546 and a sum of Rs. 19,92,358-34 was determined as tax payable. The said assessment was made on the basis that notice under Section 22(4) of the Indian Income-tax Act,. 1922, had not been complied with. Thereafter, the petitioners made an application under Section 27 of the 1922 Act for setting aside the ex parte assessment. On the 11th October, 1962, the petitioners also preferred an appeal against the said assessment before the Appellate Assistant Commissioner of Income-tax. On 7th July, 1963, respondent No. 1, the Income-tax Officer, rejected the application of the petitioners under Section 27 of the Indian Income-tax Act, 1922. The Appellate Assistant Commissioner, Range II, Central, Calcutta, rejected the quantum appeal against the said ex parte assessment on a technical ground, but allowed the appeal preferred against the order under Section 27 rejecting the application of the petitioner. The Appellate Assistant Commissioner set aside the said order under Section 27 of the Indian Income-tax Act, 1922, and cancelled the assessment and directed the respondent No. 1 to make a fresh assessment. The petitioners thereafter preferred an appeal before the Appellate Tribunal against the order of the Appellate Assistant Commissioner rejecting the quantum appeal against the order of the Income-tax Officer. On the 30th March, 1969, the Income-tax Appellate Tribunal allowed the appeal of the petitioners and restored the quantum appeal and directed the Appellate Assistant Commissioner to hear the said appeal on merits. The said appeal is still pending. The department also preferred an appeal before the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner cancelling the said assessment and allowing the appeal against the order passed by the respondent No. 1 under Section 27 of the Indian Income-tax Act, 1922. The said appeal is also still pending. It appears further that proceedings were taken for recovery by means of certificate of the dues from the petitioners as a result of the said assessment order. It was stated in the petition that the Certificate Officer was threatening to proceed with the said certificate. In this application under article 226 of the Constitution the petitioners challenge the assessment order and the demand notice as well as the proceedings for the recovery by the certificate proceedings in Certificate Case No. 820-ITC/64-65.

(2.) Mr. Dutta, appearing for the petitioners, urged, firstly, that the certificate proceedings in any event were liable to be quashed and could not proceed any further. From the facts stated hereinbefore it is clear that the assessment order had been set aside and the Income-tax Officer had been directed, as a result of the order, to proceed afresh and make a fresh assessment. In this context it is apparent, therefore, that the certificate proceedings cannot proceed against the petitioner. The question is, whether the certificate proceedings should be quashed or whether the income-tax department and the Certificate Officer should be restrained from further proceeding until an assessment order is passed again by virtue of the order made under Section 27 of the Indian Income-tax Act, 1922. Mr. Sen, learned counsel for the revenue, contended that under Sub-section (3) of Section 225 of the Income-tax Act, 1961, a certificate could be kept in abeyance and after an appropriate order of assessment was again passed the certificate could be amended or modified accordingly. I am, however, unable to accept that position. Under Section 220 of the Indian Income-tax Act, an assessee can only tie in default when he fails to pay the sum due from him after an appropriate notice of demand was given pursuant to a valid order of assessment. It is upon an assessee becoming an assessee in default that proceedings for certificate can be taken. If the proceedings had been taken and any sum was due, Sub-section (3) of Section 220 points out that in case of modification if the demand was reduced then the certificate could be modified. The provisions of Sub-section (3) and Sub-section (4) of Section 225 deal with a case where there is an order of assessment and some money is due but the same has been reduced in appeal. These provisions do not and cannot contemplate, in my opinion, a situation where the entire assessment has been set aside. Reference may be made in this connection to the decision of the Supreme Court in the case of Income-tax Officer v. Seghu Buchiah Setty. In my opinion, it must be the position that, when the entire assessment has been set aside, the petitioners cannot be treated as assessee in default and as such cannot be proceeded again by certificate proceedings. In case an assessment is made and the petitioners made default in paying up the demand then and then only can a certificate be properly initiated. In that view of the matter the certificate proceedings under Certificate Case No. 20-ITC/64-65 and the recovery proceedings thereunder are liable to be quashed.

(3.) Mr. Dutta further urged that the assessment in this case could not be made against the petitioners without serving a fresh notice on the petitioners under Section 34(1A) of the Indian Income-tax Act, 1927, Mr. Dutta drew my attention to the provisions of Section 24B of the Indian Income-tax Act, 1922. It will be necessary to set out the said section.