NAWAN ESTATES P LTD Vs. TAX RECOVERY OFFICER

JUDGEMENT

(1.) IN this case the petitioner challenges two orders of the Tax Recovery officer both dated 22nd July 1972. In order to appreciate the controversy in this case it would be necessary to refer to certain facts briefly. The assessee is a private limited company which owns several house property and holds shares in the companies. For the assessee year 1967-68 the Income-tax officer by an order dated 20th July, 1968 assessed the total income at Rs. 3,41,809 taking into account income from property and income from other sources. In the said assessment the income-tax Officer charged interest under section 215 of the Income-tax act, 1961 for the sum of Rs. 11,955/-In the said assessment, the Income-tax officer disallowed, interalia, the claim of interest of Rs. 85,466/- paid to the shareholders. Upon this assessment being made, the Income-tax Officer, collection, issued notice of demand under section 156 of the Act demanding rs. 1,84,131/ -. The assessee thereafter preferred an appeal before the Appellate assistant Commissioner. In the meantime, the Income-tax Officer levied penalty of Rs. 10,000/- under section 221 (1) of the Income-tax Act on the ground that the assessee had failed to pay the demand as per notice issued by him. Thereafter, the assessee preferred an appeal against the order of penalty. The aforesaid two orders came up in appeal along with other appeals for other assessment years before the appellate Assistant Commissioner and the appellate Assistant Commissioner confirmed both the order of assessment as well as the order of penalty. The assessee thereafter preferred appeals before the Income-tax Appellate Tribunal both against assessment of tax and the levy of penalty for the assessment year 1967-68. The Appellate Tribunal by its consolidated order dated 23rd November, 1971, following the earlier decisions directed on the question of disallowance, inter alia, as follows :-

(2.) SO far as the question of imposition of penalty is concerned, the tribunal by another consolidated order overruled the legal objection against imposition of penalty but reduced the quantum from Rs. 6,000/- to 5,000/-relating to the assessment year 1967-68. In the meantime, the Income tax Officer, Collection, on or about 21st March, 1970 forwarded a certificate under section 222 (1) of the Income-tax Act, 1961, to the Tax Recovery Officer to recover from the petitioner the sum of Rs. 2,08,989/- which sum comprised of income-tax of Rs. 1,72,176/- penal interest of Rs. 11,955/- under section 215 of the Act and interest of Rs. 24,858/-under section 220 (2) of the Act for the assessment year 1967-68. The Income-tax Officer then forwarded another certificate to the Tax Recovery Officer to recover from tax petitioner a sum of Rs. 10, 798/- which sum comprised of penalty of Rs. 10,000/- levied under section 221 (1) of the Act and interest of Rs. 798/- under section 220 (2) of the Act for the aforesaid assessment year. The Tax Recovery Officer by two separate, notices of demand dated 14th December, 1971 demanded the aforesaid sums from the assessee in default, of which the petitioner was warned that the Tax Recovery Officer would take steps to realise the sums in accordance with the provisions of the second schedule of the Income-tax Act. 1961. Thereafter, the Tax Recovery officer on the 26th June, 1972, issued an order of attachment. On the 22nd july, 1972, the assessee through his advocate presented a petition to the tax Recovery Officer denying the liability to pay the sum under the a fore said two certificates, interalia, contending that the Income-tax Officer had no jurisdiction to forward the certificate as the tribunal in its appellate order had set aside the disallowance of interest claimed by the assessee. By the order passed on 22nd July, 1972 the tax Recovery Officer rejected the said petition. Against the propriety of the said two decisions passed by the Tax recovery Officer the petitioner has moved this Court under Article 226 of the constitution and obtained this rule,

(3.) IN this connection, counsel on behalf of the petitioner contended before me that as a result of the tribunal's appellate order setting aside the Appellate Assistant Commissioner's orders which had confirmed the disallowance of the sum Rs. 85,000/- claimed by the petitioner to have been paid as interest to the shareholder, the assessment became incomplete and inchoate and the demand was void. It was further, submitted that the Income-tax Officer's order having merged. in the order of the Appellate Assistant commissioner and the said having merged further in the order of tribunal, there was no enforceable order at this stage. It was submitted that section 225 (4) had no application because it was not a case of reduction but a case where there was no assessment. Counsel further submitted that in a case of reduction fresh notice under the Income-tax 1961 was obligatory. He drew my attention to section 156 of the Act and the provisions of section 225 and contended that for harmonious construction of section 225 (4) read with section 156 of the Act, I should construe the provisions to mean that in case of reduction fresh notice off demand was obligatory before certificate could be enforced against the assessee. It was, further, contended that section 225 of the Income-tax Act had no application because this was not a case of reduction but of setting aside the assessment. In other words, counsel for the petitioner, contended that there was no enforceable demand after the tribunal had set aside the order of title Appellate Assistant Commissioner on disallowance. It was urged that when the order of lower authority had been taken in appeal and appellate order was passed, the order of lower authority merged in the order of the appellate authority. In support of this proposition reliance was placed on several decisions namely, in the case of Metropolitan Structural Works Ltd. vs. Union of India, 28 I. T. R. 432, Commissioner of Income-tax vs. Amritlal bhogilal and Co. , 34 I. T. R. 135. , Madan gopal Rungta vs. Secretary to the Government of Orissa, A. I. R. 1962 S. C. 1513. In the case of Income-tax-Officer vs. Seghu Buchiah Setty, 52 I. T. R. 538, the majority judges of the Supreme court held that on the amount of tax assessed being reduced as a result of the orders of the Appellate Assistant commissioner, fresh demand notices had to be served on the assessee before he could be treated as a defaulter and recovery proceedings initiated against him. It was contended in the a fore said case before the Supreme Court that in view of orders of the Appellate Assistant Commissioner in that case the earlier orders, notices of demand and the certificates should be deemed to have been superseded and the attachments therefore, ceased to be effective from the date of the earlier orders and could no longer be proceeded with Sarkar, J. as the learned Judge then was, at page 544 of the report observed, "it may be that when an appellate order confirms the original order, the default earlier incurred and all steps taken pursuant thereto remain unaffected, for such an order may maintain in tact the original order. Now it is not in dispute that when the appellate order annuls the earlier order, the default disappears. It is said that that is because the debt ceased to exist. I do not quite follow this. It has never been questioned that the debt becomes due when demand is made under section 29 and section 29 and section 45 of the Act: (see) Doorga Prosad chamaria vs. Secretary of State. Therefore, if a debt is to cease to exist it must be because the source from which it spring, namely, the original order, has been annihilated by the appellate order annulling it".