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Petitioner: ANANTHA NAGANNA CHETTY VS Respondent: COMMISSIONER OF INCOME-TAX, HYDERABAD
Court Name: Andhra Paradesh High Court Judge(s): P. Ramchandra Raju, Gopalrao Ekbote Title: ANANTHA NAGANNA CHETTY vs COMMISSIONER OF INCOME-TAX, HYDERABAD Case No.: CA.No,62 of 1965 Date of Judgment:1969-09-12 Reported As: 1994 PTD 158 Result: Question answered
JUDGMENT
JUDGMENT ' GOPAL RAO EKBOTE, J.--- This is a reference made under section 66(2) of the Income-tax Act, 1922, and arises in the following circumstances. ' The assessee is an individual. The assessment year is 1949-50. The assessee derived income from property, business and share income from firms in which he was a partner. He, however, failed to disclose his 14/16th share in the firm of Messrs Revana Siddeswara Oil Co. For the assessment year. He contended that he had nothing to do with the firm and that he was a mere financier and that he has received only interest on the amount which he had supplied to the firm. This contention was rejected. He was ultimately assessed on the share of income from that firm also. The department had also initiated penalty proceedings against the assessee for his omission to account for the share income from the said firm. The explanation of the assessee was that he had not concealed any particulars of his income and that he had advanced certain monies to the firm by way of loan charging interest therefor. He also stated that since the firm had been dissolved, no penalty, therefore, was exigible. After this explanation was filed the Income-tax Officer, who had issued the notice under section 28(3), was transferred and was succeeded by a new Income-tax Officer. The succeeding Income-tax Officer without issuing any notice or informing the assessee of his intention to continue the proceedings passed the order levying penalty on the assessee. ' The assessee took up the matter in Appeal to the appellate Assistant Commissioner. He confirmed the order of the Income-tax Officer. On a further appeal to the Appellate Tribunal, it was contended that the order of the succeeding Income-tax Officer levying penalty on the assessee without the issue of a notice was illegal. The Tribunal went into the merits of the case and while considering the abovesaid contention found that although with the change of the Income-tax Officer no intimation
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was sent to the assessee, that does not in any way vitiate the proceedings. If the assessee had elected he could have requested the Income-tax Officer to proceed afresh but he did not do so. The Tribunal further observed that, as the assessee had not taken up the plea before the Appellate Assistant Commissioner, the Tribunal refused to entertain the plea at that late stage, although earlier it expressed its opinion. ' The assessee, thereafter, filed an application before the Tribunal for reference. By its order, dated November 7, 1962, the Tribunal refused to make a reference as in its opinion the case did not involve any legal principle of interpretation of any law. The assessee, thereafter, filed an application under section 66(2) of the Act before this Court, and this Court directed the Tribunal to state the case. The Tribunal has accordingly submitted the statement of the case, dated August 17, 1965. The question which must necessarily be answered in this reference is: "Whether the levy of penalty by the succeeding officer without giving notice to the assessee is valid?" In order to provide a correct answer to this question, it is necessary to read section 28(3) and section 5(7-C) of the Income-tax Act, 1922. Section 28(3): "No order shall be made under subsection (1) or subsection (2), unless the assessee or the partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard." Section 5(7-C): "Wherever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by an other who has and exercises jurisdiction, the Income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor: ' Provided that the assessee concerned may demand that before the proceeding is so continued, the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him he be reheard: ' Provided further that in computing the period of limitation for the purpose of subsection (3) of section 34, the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the preceding proviso shall be excluded." ' Section 28, which specifically relates to imposition of penalty for concealment of income, provides in subsection (3) that no order imposing penalty under subsection (1) or subsection (2) shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. This subsection, therefore, embodies in itself the wholesome principle of audi alteram partem. For the purpose of this enquiry it is not necessary to enunciate as to what a hearing means and includes. It is also unncessary to consider as to when reasonable opportunity would be deemed to have been given for the purpose of the said section. Nor is it necessary to consider as to whether the notice issued under section 28(3) in the penalty proceeding is valid. It is sufficient to say that it is obligatory on the part of the authorities imposing penalty under section 28(3) to hear or give a reasonable opportunity to the assessee before any order imposing penalty is passed. The subsection is peremptory and couched in mandatory language. Its compliance is essential to make the order of penalty valid. ' We are, therefore, more concerned in this case with section 5(7-C). That provision was inserted by the Amending Act, 1953, which amendment came into effect from April 1, 1952. It provides that whenever in respect of any proceeding under the Act, which, it is admitted, will include a proceeding for imposition of penalty under section 28 of the Act, an income-tax authority is succeeded by another authority, the succeeding authority may continue the proceeding from the stage where it was left by his predecessor. In the absence of any such provision, it would have been a matter of controversy as to whether the succeeding officer can act upon the material
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which was gathered in an enquiry by his pedecessor. In order to remove any such controversy, the provision has been inserted with effect from April 1, 1952. There are, however, two provisions added to the main enacting provision, Section 5(7-C). The first proviso entitles the assessee to demand that the previous proceeding or any part thereof conducted by the predecessor be reopened before the succeeding officer decides to continue the proceedings from the stage at which it was left by the predecessor, or ask for a rehearing before any order of assessment is passed against him. ' It is well-recognised principle of construction that there is no rule that the enacting part is to he construed without reference to the proviso. The proper course to apply the broad general rule of construction which is that a section or enactment must be construed as a whole, each portion throwing light, if need be on the rest. Thus, the true principle is that the sound tterpretation and meaning of the statute on a view of the enacting clause and provisions taken and construed together should prevail. ' Now, the function of a proviso is well-known. To quote from Statutory Construction by France, J. McFray (1953), paragraph 56, page 115, "either to except something from the enacting clause, or to qualify or restrain its generality or to exclude some possible ground of misinterpretation of it, as enacting to cases not intended by the legislature to be brought within its purview". ' The learned author in the same work in paragraph 91, at page 121, states: "A proviso is a clause added to an enactment, for the purposes of acting as a restraint upon, or as a qualification of the generality of the language which it follows." ' Craies on Statute Law, 6th edition, observes, at page 217, as follows:-- "The effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it." ' It will thus be seen that a proviso to a particular provision embraces the field which is covered by the main provision. It carves out an exception to the main provision and deals with a case which would otherwise fall within the general language of the main enactment. It thus acts as a restraint upon or serves as a qualification of the generality of the language of the main provision. The proviso is often in the nature of a condition precedent to the enforcement of the operative clause See Annie Besant v. Emperor ILR 39 Mad. 1164, AIR 1918 Mad. 1266, 1278 M. & S.M. Railway v. Bezwada Municipality AIR 1944 PC 71, Ram Narain Sons Ltd. v. Assistant Sales-tax Commissioner (1955) 6 STC 627; AIR 1955 SC 765 and Commissioner of Income-tax v. IndoMercantile Bank (1959) 36 ITR 1, (1959) Supp. 2 SCR 256 (SC). ' If the two provisions are carefully read in the light of the foregoing, it will leave no one in doubt that to the power to continue the proceedings conferred upon the succeeding officer from the stage where the predecessor had left is qualified or restrained by the first proviso with the effect that such a power is made subject to the right which the first proviso confers on the assessee. If the assessee demands that the previous proceedings should be reopened before it is decided to be continued or that he should be reheard before an order of assessment is passed, the income-tax authority has no option whatever except to direct the re-opening of the proceeding or rehearing as the case may be. The compliance of the first proviso is condition precedent for the exercise of the power to continue the proceedings by the succeeding officer. It is true that the assessee under the first proviso may demand reopening or rehearing or may not demand or even waive his right of reopening or rehearing of the proceeding but he must have an opportunity to exercise that right. If in spite of such opportunity, he either expressly decides not to exercise it or waives its exercise, then the succeeding Income-tax Officer can continue the proceedings. But as the absence of any opportunity provided for the exercise of his right or without the knowledge that any such
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opportunity exists, the assessee cannot be deemed to have declined to avail of the opportunity by demanding to have rehearing or reopening of the case, nor could he be deemed to have waived it. ' How then the assessee can exercise this right unless he knows that the predecessor of the income-tax authority before whom his case was being heard and was not finally disposed of is succeeded by another Income-tax Officer who intends to continue the proceedings from the stage at which it was left by his predecessor. If the hearing of the case like the trial of a civil suit either goes on from day-to-day or from date to date fixed in the presence of the assessee, then, as the assessee has entered appearance and is aware of the dates of hearing, no intimation of the change of officer of the fact that the succeeding officer proposes to continue the hearing from the stage at which it was left by his predecessor would be necessary or even would be called for. But, whereas, here, the dates of hearing were not fixed in the presence of the assessee or his representatives and, admittedly, the practice is that whenever the officer requires fresh information the assessee is called upon to provide the same by issuing him a notice to that effect, then it becomes necessary to give intimation to him of the fact that the Income-tax Officer before whom his case was going on has ceased to exercise jurisdiction and instead a new officer had come who has the necessary jurisdiction and is proposing to continue the proceedings from the stage where it was left by the predecessor so that the assessee may claim to demand a reopening or rehearing, as the case may be. The contention that when where the dates of hearing are not fixed by the Income-tax Officer even then it is the duty of the assessee to follow the notifications published notifying the transfers of Income-tax Officers with a view to exercise his right to claim reopening of the case is not sound and cannot be accepted. The argument that no duty is cast upon the succeeding officer to communicate his intention to continue the proceedings to the assessee, and therefore, it would not be proper to expect from him any notice to the assessee is also devoid of any substance. To accept such a contention would only mean that while conferring on the assessee a right to demand reopening of the case and making the right of the succeeding officer to continue the proceedings subject to such a right the notice has been deliberately dispensed with. We do not think that such a construction is valid. The more appropriate approach to such 'a case would be to hold that the question of notice merely escaped the observation of the legislature. But from such an omission, no inference can properly be drawn against the necessity of notice before the proceedings are decided to be continued as any such interpretation will defeat the real object of the provisions. ' It is not disputed that in very many cases the penalty proceedings are kept in abeyance awaiting the final result of the assessm ent proceedings and although notice under section 28(3) is served upon the assessee and he filed a written explanation, for months and sometimes years together the penalty proceedings are kept in abeyance and the assessee has no knowledge as to what has happened or is happening except when he gets the final order made in the proceedings served upon him. In such a case, if the assessee, due to a long lapse of time, assumes that his explanation perhaps was found to be satisfactory and proceedings were dropped, he cannot be said to be altogether wrong in such assumption. If officer after order succeed when proceedings are thus pending and the assessee does not even know about such transfers then how is he to exercise his right to demand reopening or rehearing if he has no notice that the succeeding officer proposes to continue the proceedings. The assessee must therefore, be aware about the intention of the succeeding officer to continue the proceedings and who can tell him so, except the succeeding officer who proposes to continue the proceedings.And who also knows that he cannot continue the proceedings if he is told by the assessee that he wants him to reopen the case or give him a rehearing. It is thus inherent in the situation that the succeeding officer should give notice to the assessee not under section 28(3) but under section 5(7-C) itself intimating him that the succeeding officer proposes to continue the
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proceedings. This intimation alone would provide the assessee with an opportunity to exercise or decline to exercise the right given to him by the first proviso to section 5(7-C). The second proviso lends considerable support to such a construction. The notice is thus necessarily implied in the provisions of section 6(7-C) as the right to continue the proceedings is made dependent upon the assessee's right of demanding reopening or rehearing of the case. It cannot be assumed that legislature has given with one hand right to the assessee to demand reopening or rehearing and has taken away that right with the other by not intending to inform him about the opportunity to exercise such a right by not expecting any notice to be given to the assessee by the succeeding officer of his intention to continue the proceedings. Any such interpretation would mean that the enactment has conferred on the assessee a mere illusory right. ' In this connection, it is well to remember that the proceedings under the Act, which can be said to fall within the purview of section 5(7-C), are of quasi-judicial character. The penalty proceedings in any case are of a quasi-criminal nature. It can therefore, safely be presumed that the legislature while conferring the power on the succeeding officer to continue the proceeding from the stage where it was left by his predecessor thought it proper to. Provide an opportunity to the assessee to demand the reopening or rehearing of the case and that is why the power to continue the proceedings is made subject to such a right. The notice, therefore, for the exercise of such right becomes necessary. ' That such a notice is implicit under section 5(7-C) becomes very clear when we remind ourselves of the principles of construction of statutes in such cases:-- "It is cardinal principle of construction that in giving quasi-judicial powers to affect prejudicially the rights of person or property, a statute is understood as silently implying, when it does not expressly provide, the condition or qualification that the power is to be exercised in accordance with the fundamental rules of judicial procedure, such, for instance, as that which requires that, before its exercise, the person sought to be prejudicially affected shall have an opportunity of defending himself." [See Maxwell on the Interpretation of Statutes, page 358]. ' That this is so, is well-supported by an oft-quoted decision in Cooper Wandsworth District Board of Works ((1863) 32 U CP 185). In that case the Metropolis Management Act, 1855, Section 176, which required that before laying foundations of a building 7 days notice should be given to the district board and authorised that board to order the demolition of any building erected without such notice, was construed impliedly as imposing on the board the condition of giving the presumed defaulter either a hearing before making the order or notice that the order has been made, so that he might remonstrate or appeal, before proceeding of the demolition of his building, and a district board which had confined itself to the letter of the Act and had demolished a building respecting which it had received no notice without first calling on the owner to show cause against its order for doing so was held liable in an action as a wrong-doer. Justice Byles laid down that "although there may be no positive words in a statute requiring that a party shall be heard, yet a long course of decisions, beginning with Dr. Bentley's case (Str. 557) established that the justice of the common law will supply the omission of the legislature". ' To use the words of North, J., although " 'it is a very lamented way of legislating that one should be driven to get at the meaning of these Acts by removing difficulties (as far as can be done) by construction rather than that the intention of the legislature should be clearly expressed upon the face of the Act'. Yet the Courts have quite often to give meaning and effect to the expressed intention of the legislature by supplying the omission by adopting the well-recognised tools of interpretation of statutes. And it is fairly held that if a statute is passed for the purpose of enabling something to be done, but omits to mention in terms some detail which is of great importance, if not actually essential, to the proper and effectual performance of the work which the statute has in
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contemplation, the Courts are at liberty to infer that the statute by implication empowers the detail to be carried out". [See Craies, page 111]. ' We are, therefore, satisfied that even though section 5(7-C) does not in terms or expressly provide for any notice by the succeeding officer to the assessee informing him of his intention to continue the proceedings from the stage at which his predecessor has left, by necessary implication it provides for such an intimation. We must, we think, infer from the power given to the succeeding officer that such a notice was intended by the legislature. When the legislature has directed something to be done, it must be considered to have empowered something ancillary to be done which is necessary in order to accomplish the ultimate object of section 5(7-C). What must follow is that the succeeding officer must give notice to the assessee before he decides to continue the proceedings from the stage where it was left by his predecessor. ' The assessee may or may not exercise the right conferred on him by the first proviso to section 5(7-C). In the light of what the assessee demands or does not demand the succeeding officer has to decide as to whether he has to reopen or rehear the case or continue the proceedings from the stage where it was left. ' It must in this connection, be borne in mind that the notice issued by the predecessor under section 28(3) in the penalty proceedings ought not to be confused with the notice, the issue of which is necessarily implied, under section (7-C). It is no doubt true that once a notice under section 28(3) is served upon the assessee and he puts in his appearance, it is then not necessary to issue a fresh notice for the completion of the proceedings if the same officer continues to exercise the jurisdiction in the case. If the assessee had filed a written explanation and had not asked for anything else for the purpose of completing, hearing the officer who had given the notice might well-conclude the proceedings without any further reference to the assessee. But the situation is altogether different when the income-tax authority, who had issued the notice under section 28(3) and had received the written explanation from the assessee, ceases to exercise jurisdiction and is succeeded by another income-tax authority who has and exercises jurisdiction in the given case. Such a succeeding officer is empowered only by section 5(7-C) to continue the proceedings from the stage at which the proceeding was left by his predecessor. This power to continue the proceedings is made expressly subject to the right of the assessee to reopen or rehear the case as is mentioned in the first proviso to section 5(7-C). By necessary implication therefore, a notice to the assessee becomes necessary to give meaning and effect to those competing rights conferred on the succeeding officer on the one hand and the assessee on the other. Sections 28(3) and 5(7-C) should not therefore be confused in so far as the question of notice under section 5(7-C) is concerned. It is true that section 5(7-C) empowers the succeeding officer to continue the proceedings initiated under section 28 but in so far as the succeeding officer's jurisdiction to continue the proceedings is concerned, it is expressly controlled by the first proviso to section 5(7-C). It would not be correct to characterise the demand of reopening or rehearing of the matter under the first proviso to section 5(7-C) as a further or additional opportunity which the assessee is demanding under section 28. It is a right which the assessee can assert in a given situation referred to in the main provision, that is, section 5(7-C), which has nothing to do with the additional or further opportunity asked for in the main case if the outgoing income-tax authority has continued to exercise the jurisdiction in the case. ' It must be borne in mind that the stage at which the predecessor left the case may vary from case to case. In some cases it may be that the predecessor merely gave notice under section 28(3) and then he ceased to exercise the jurisdiction. In other cases he may have received the written explanation in response to his notice. Yet there may be cases where he may addressed to his predecessor and not to him, because one who decides ought to hear the case.
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' In Murlidhar Tejpal v. Commissioner of Income-tax (1961) 42 ITR 129 (Pat.) the facts were that a notice under section 28(3) was issued by Sri K.P. Kumar, Income-tax Officer, on 30th November, 1948. The assessee submitted a written explanation before the same officer on the 10th January, 1949. The final order, however, was passed by his successor, Sri V. Jha. It was contended before the Patna High Court that it was necessary for Sri V. Jha to issue another show-cause notice under section 28(3) before the penalty was actually imposed. Rejecting that contention it was observed at pages 134 and 135: "Reading, therefore, section 28(3) of the Act, in the context and background of section 5(7-C) of the Act, it is manifest that Sri V. Jha, successor in office of Sri K.P. Kumar, had authority to continue the proceeding started against the assessee under section 28(1) of the Act and to impose proper penalty under that section. It was urged on behalf of the assessee that section 28(3) requires oral hearing by the Income-tax Officer before the order imposing penalty is passed against the assessee. We do not think that this argument…
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