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C.I.T. v. M/S Ram Das Deokinaudra Pd - INCOME TAX REFERENCE No. 12 of 1988  RD-AH 1303 (3 November 2004)
Income Tax Reference No.12 of 1988
The Commissioner of Income Tax Vs. M/s. Ram Das Deokinandan Praqsad, HUF Gorakhpur.
Hon'ble R.K. Agrawal, J
Hon'ble P.Krishna, J
(Delivered by Hon.Prakash Krishna, J)
The Income Tax Appellate Tribunal has referred the following two questions of law as per direction of this Court, under section 256 (2) of the Income Tax Act for the opinion to this Court for the assessment years 1965-66 to 1972-73:-
" (1). Whether on the facts and circumstances of the case, the I.T.A.T. could be said to be correct in deciding that the notice u/s.148 of the I.T. Act issued to the assessee H.U.F. was not meant for it, but for the Karta as an individual?
(2). Whether on the facts and in the circumstances of the case the I.T.A.T. is right in annulling the assessment made by issue of notice u/s.148 on the ground that no valid notice u/s. 148 was issued to the assessee HUF?"
The assessee is a Hindu Undivided Family and it derived income for the aforesaid assessment years from property and dealings in silver utensils and yarn. After completion of the assessment for the assessment years 1965-66 to 1972-73 the business premises of the assessee was searched. The Income Tax Officer on the basis of the documents and the articles found during the course of search, was of the view that the income of the assessee has escaped assessment and the business in the name of one Heera lal Burnwal was the benami business of the assessee. After obtaining sanction from the Commissioner of Income Tax notices under section 147 (a) of the Act were issued. The Income Tax Officer sought and was granted the approval to the reopening of the assessment in respect of the assessee in the status of HUF. However, the notices issued to the assessee were addressed as follows:-
Shri Rama Lala Prasad
Pro. Ram Das Deokinandan Prasad,
Hindi Bazar, Gorakhpur.
The notices were served on Shri Ram Lala Prasad. He was also the Karta of the assessee HUF. In compliance to the notices, returns were filed in the status of HUF and the assessments were also completed in that status.
The Income Tax Officer rejected the contention of the assessee that the department had no material to show that the income of the assessee has escaped assessment. He also rejected the contention that the notices were invalid and illegal as the same have been served in the individual capacity of the assessee. The Commissioner of Income Tax (Appeals) heard the matter in appeal for the assessment year 1965-66, and accepted both the contentions of the assessee that the Income Tax Officer had no material to come to conclusion that there was escapement of income. He also accepted the contention that the notice under section 147 (a) of the Act was invalid. Consequently the reassessment order for the assessment year 1965-66 was cancelled. The same view was taken by the Commissioner of Income Tax (Appeals) for the assessment years 1970-71, 1971-72 and 1972-73.
However, the appeals for the assessment years 1966-67, 1967-68, 1968-69 and 1969-70 were considered by another Commissioner of Income Tax (Appeals). For the assessment years 1966-67 and 1967-68, he, by a consolidated order took a different view of the matter and came to the conclusion that the proceedings under section 148 were started with the prior approval of the Commissioner. The proposal for approval was sent in respect of the assessee, in the status of HUF, and the notice issued to the Karta of the HUF Shri Ram Lala Prasad and then the return was filed in the status of HUF, therefore, the notices were valid. For the assessment years 1968-69 and 1969-70 the Commissioner of Income Tax (Appeals) followed its earlier order and dismissed the appeals.
The matter was taken up by the department before the Appellate Tribunal for the assessment years 1965-66, 1970-71, 1971-72 and 1972-73 challenging the findings of the Commissioner of Income Tax (Appeals) that the notices were issued under section 148 were invalid. The assessee also challenged the order of the Commissioner of Income Tax (Appeals) for the assessment years 1966-67, 1967-68, 1968-69 and 1969-70 regarding the validity of the notice issued under section 148 of the Act. The Tribunal came to the conclusion that the notices were issued to Shri Ram lala Prasad in his individual capacity and were not issued to Shri Ram Lala Prasad as Karta of Ram Das Deokinandan Prasad H.U.F. The notices were issued to him as proprietor of Ram Das Deokinandan, who was required to file return for his individual income as a proprietor. It took the view that the notices issued under section 148 of the Act were invalid and the reassessments were unsustainable as proper notices under section 148 were not served on the assessee.
Heard the counsel for the parties and perused the record. The learned standing counsel for the Revenue submitted that approval was sought and was granted by the Commissioner of Income Tax in the status of HUF. The assessee filed a return of HUF and as such the initiation of reassessment proceedings were valid and the Income Tax Officer rightly exercised its jurisdiction to reassess the under assessed income of HUF. The learned standing counsel has placed reliance on the following cases:-
1. (1965) 55 I.T.R 630 C.I.T vs. S.Raman
2. (1964) 51 I.T.R 659 C.I.T vs, Banarsi Lal
3. (1978) 114 I.T.R 155 Sajjan Kumar Sarraf
4. (1976) 102 I.T.R 478 Mahaveer Prasad
Poddar vs. I.T.O.
The learned counsel for the assessee submitted that the Income Tax Officer illegally assumed the jurisdiction to reassess the escapement of income. Notice under section 148 of the Act was not issued to assessee H.U.F., but was issued to ShriRam Lala Prasad in his individual capacity. A person may have different capacities or legal status under the Act. In the present case, no notice to reassess the income of assessee in the status of HUF was issued and as such the entire reassessment proceedings are illegal and without jurisdiction. The reassessment notice under section 148 of the Act was directed against the assessee in his individual status and as such filing of return of HUF will not validate the reassessment order. Reliance has been placed by him on the following cases:-
1. (1967) 65 I.T.R. 607 C.I.T vs. K. Adi
2. (1971) 82 I.T.R 821 C.I.T. vs. Kurban Husain
Ibrahimji Mithi Borwala.
`3. (1981) 131 I.T.R. 480 C.I.T. vs. ishwar Singh &
4. (1987) 165 I.T.R. 107 C.I.T. vs. Vibhuti
We have given careful consideration to the respective submissions of the counsel for the parties. It is fairly settled that a notice for reassessment of escaped income under section 148 of the Act is jurisdictional notice. The Assessing Officer gets jurisdiction to reassess the escaped income only after issuance and service of a valid notice under section 148 of the Act. In the case of C.I.T. vs. S.Raman Chettiar (supra) the question involved therein was a different one. The court in that case has posed the question involved in the case, in the following manner:-
"The short question which arises in this case is whether the return dated September 4, 1948, can be treated as the valid return under section 22 (3) of the Act"
The controversy in that case was under the Old Income Tax Act and was with reference to the section 22 (3) of that Act. For the assessment years 1944-45 and 1945-46 the assessee did not file any return of the income. The Income Tax Officer issued registered notices for both the assessment years under section 34 of the Old Act. The assessee filed return for the assessment year 1944-45 and 1945-46. The Income Tax Officer dropped the proceedings for the year 1944-45 as infructuous. But for the assessment year 1945-46 tax was levied, which was challenged in appeal. The matter travelled upto the tribunal. The appeal was allowed in part. Thereafter, after obtaining sanction of the Commissioner, the Income Tax Officer issued a notice purporting to be under section 34 of the Act in respect of the assessment year 1944-45. The court was considering the validity of this notice. In that connection it was held by the Supreme Court in the above case that notice is not valid for the assessment year 1944-45. The observations made by the Supreme Court in the aforesaid judgment was with reference to the different context of facts. The said ruling has no application to the issue involved in the present reference. The Supreme Court interpreted section 22 (3) of the Old Income Tax Act.
The next case relied upon by the learned counsel for the Revenue is C.I.T. vs. Banarsi Lal Raj Gariha (supra). In that case the notice states that the income of the assessee for the year ending 31st March 1948 had escaped assessment and called upon him to submit a return. This notice was understood by the assessee as relatilng to the assessment year 1948-49. It was held by the Patna High Court that there was no violation of any condition precedent for assumption of jurisdiction under section 34( Old Income Tax Act). The obvious clerical mistake in the notice in mentioning the year of assessment did not invalidate the notice or the reassessment proceedings taken in the pursuance thereof or the order of reassessment. The point in issue in the said case was as to whether there was a clerical mistake in mentioning a wrong assessment year in the reassessment notice. It was treated to be a clerical mistake by the High Court and was held that the reassessment notice is valid. The court was of the view that the obvious clerical error or misdescription in the notice could not invalidate notice, and consequently, the reassessment proceeding or the order. The High Court proceeded to decide the controversy on the assumption that it was a case of clerical error. But the Supreme Court in the case of Commissioner of Income Tax vs. Kurban Husain Ibrahimji Mithi Borwala (supra) has held that the Income Tax Officer has jurisdiction to reopen an assessment under section 34 (Old Act) depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by him would become void for want of jurisdiction. It was held that reassessment notice was invalid as the Income Tax Officer sought to reopen the assessment of the assessee for the assessment year 1948-49 but in fact, he reopened the assessment of the year 1949-50.
The next case relied upon by the learned standing counsel is Mahaveer Poddar vs. Income Tax Officer (supra). In that case the argument that in the reassessment notice it was not stated whether it was issued to the individual or Karta of HUF, therefore, the notice is invalid was repelled by the Calcutta High Court. The High Court took the view that this was first year of the assessment and the assessee himself was taking a shifting stand. As a proposition of law it accepted that reassessment could only be made after proper notice had been given of the reopening of the assessment to the assessee. But on the facts of that case the High Court did not entertain the writ petition for the reason that the assessee himself was taking contradictory stand. In the facts of that case earlier the assessee filed a return in his individual capacity and thereafter filed a return that it was a Hindu Undivided Family. Indisputably this was the first year of the assessment. On the facts of that case it was held by the Calcutta High Court that service of notice for reassessment without indicating the capacity could not invalidate proceedings as the status can be determined in the assessment proceedings. On a close reading of the judgment, it helps, on the facts to the assessee in the present case rather the department. The legal proposition which is in favour of the assessee was accepted by the High Court but on account of special facts, indicated above, the writ petition was dismissed.
Then the learned counsel for the Revenue placed reliance upon (1978) 114 ITR 115 Sajjan Kumar Sarraf (supra). The said case has no bearing to the controversy involved in the present reference. It was not the case of reassessment proceedings. A notice was issued to a dead person and the return was filed within the specified time by a legal representative. It was held that where a return is filed by a legal representative in response to a invalid notice issued to the deceased, return would not be invalid. It was a case of regular assessment notice and was not with respect to the reassessment proceedings. Therefore, it has hardly any application to the facts of the present case.
The Supreme Court in the case of CIT vs. K. Adi Narayana Murty (supra) has considered a parallel controversy and has observed as follows:-
" Under the scheme of income tax the "individual" and the "Hindu Undivided Family" are treated a separate units of assessment and if a notice under section 34 of the Act is wrongly issued to the assessee in the status of an "individual" and not in the correct status of "Hindu Undivided Family", the notice is illegal and all the proceedings taken under that notice are ultra vires and without jurisdiction."
A similar controversy arose before a Division bench of this Court in the case of Gokul Chand vs. Income Tax Officer (1995) 211 ITR 738. It has been held that where a reassessment notice has been issued to a person in his individual capacity, the notice is invalid as it does not mention that it was being issued to the person in his capacity as the Karta of "Hindu Undivided Family".
In Commissioner of Income Tax vs. Ishwar Singh and Sons, it was held by this Court that a notice under section 148 was issued to an entity which was as a matter of fact, nonexistent and was at any rate different from the entity which filed return in response to that notice. The notice was issued to Sardar Arjun Singh, an individual, and the return was filed by Sardar Sampuran Singh, Karta of HUF. The two are distinct entities in law, as also, as a matter of fact, and thus a valid reassessment could not be made on the assessee, HUF, as no notice had been issued to it under section 148 of the Act.
In the case in hand the tribunal, on fact has found that notice was issued to the assessee in his individual capacity and the income sought to be reassessed is that of HUF of which the assessee is a Karta. Therefore, the case of Ishwar Singh (supra) is fully applicable to the present case and the notice to reassess the income of assessee H.U.F. is invalid. Consequently, the Income Tax officer had no jurisdiction to pass the reassessment order against the assessee.
Similar controversy came up for consideration before a Division Bench of this Court in the case of Madan Lal Agrawal vs. C.I.T( ) 144 ITR 745. In this case the notice was issued to a person to file return with respect to his individual income pertaining to the assessment year 1946-47. Subsequently, the Income Tax Officer informed him that the notice dated 29th September 1962, related to his HUF and he should in stead of return of his individual income, file the return of the income of his HUF. A question arose whether the proceedings initiated under section 147 (a) against the HUF was in accordance with law. The Court answered it in negative. It took the view that notice issued under section 34 of the Act to the HUF on 29th September, 1962 was vague and as such invalid. The vagueness of the said notice did not stand cured because Income Tax Officer at a later stage informed the assessee that he was to file his return in the status of HUF.
The learned counsel for the Revenue has not advanced any argument that the finding of the Tribunal that notice under section 148 of the Act was meant for the Karta of the HUF and not in his individual capacity. The only point urged by the learned counsel for the Revenue was that since the assessee has filed a return of HUF and the income sought to be reassessed was of HUF, the proceedings are valid, not withstanding the fact that the notice was issued to the assessee in his individual capacity. Moreover, the finding of the Tribunal that the notice under section 148 of the Act did not disclose that it was issued to reassess the escaped income of the HUF, is a finding of fact. In the statement of the case, the Tribunal has mentioned that it is annexing the copies of the notices issued under section 148 of the Act. But the copies of those notices have not been annexed along with the statement of the case, sent by the Tribunal. Nor they have been included in the paper book filed by the department. In this state of affairs, this Court proceeded to adjudicate the referred two question in the light of the findings of fact recorded by the Tribunal, taking them to be correct. Both the counsel advanced the arguments only on the question as to whether the notice issued to an assessee in his individual capacity can be treated to be a valid notice to reassess the income of HUF of which he is a Karta.
In view of the above discussion we answer both the questions in affirmative i.e. Against the Revenue and in favour of the assessee.
However, no order as to costs.
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