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Petitioner: COMMISSIONER OF INCOME-TAX VS Respondent: TIWARI JHUMAR LAL
1982 P T D 159
1982 P T D 159
[Rajasthan High Court (India)]
Before Dwarka Prasad and M. L. Shrimal, JJ
COMMISSIONER OF INCOME‑TAX
Versus
TIWARI JHUMAR LAL
D. B. Income Tax Cases Nos. 12, 13, 25 and 31 of 1970, decided on 8th January, 1980.
Income‑tax Act (XI of 1922)‑‑
‑‑ Ss. 26, 34 (1) (a) & 63‑Notice‑Substituted, service of notice‑Notice ,, issued in name of firm‑Refusal by partner to accept notice‑Service of notice by affixture on place of business of firm‑Valid in law‑Re constitution c. firm‑Service of notice on partner of reconstituted firm, valid in law‑Civil Procedure Code (V of 1908), O. V, r. 20.
C.‑I. T. v. Daulat Ram Khanna (1967) 65 I T R 603 (S C); C. I. T. v. Thayaballi MullaJeevaji Kapasi (1967) 66 I T R 147 (S C); C. I. T. v. Tiwari Jhumarlal Saruplal (1981) 130 I T R 449; Gopiram Agarwalla v. I‑T. O. (First Addl.) (1959) 37 I T R 493 and Narayana Chetty (Y.) v. I‑T.O 35 I T R 388 (S C) ref.
S. M. Mehta for the Commissioner.
Dr. M.M. Tiwari for the Assessee.
JUDGMENT
DWARKA PRASAD, J.‑These four references arise out of proceedings for reassessment under section 34 (1) (a) of the Indian I.‑T. Act, 1922 (hereinafter called "the old Act" in respect of Messrs Jhumarlal Swaroop Lal (referred to) hereinafter as "the assessee") and as common questions have been referred to; this Court for decision in these references, it would be proper to dispose of them by a common order.
The assessee is a partnership firm, which enjoyed monopoly rights of stone quarrying in the erstwhile States of Karauli and Bharatpur, and in the Hindaun area of the former State of Jaipur. The assessee was a non‑resident with its head office at Jaipur and carried on the business in the Indian States a also in the taxable territory. The assessee did not file any return nor paid any income‑tax in respect of the assessment year 1940‑41 to 1948‑49. During the course of the proceedings for the assessment of income‑tax for the assessment year 1949‑50, it came to the notice of the I: T‑ O. that a large part of the sale proceeds were realised by the assessee by sending, railway receipts consigned to self through V. P. P. to different parts of the territory, which at that time were comprised in British India. The I.‑T. O. having reason to believe on the basis of the facts which came to his notice that the income of the assessee which accrued, arose or was received in the then taxable territories had escaped assessment in respect of the assessment years 1940‑41 to 1948‑49, gave notices to the assessee under section 34 (1) (a) of the Indian I. T. Act, 1922 (hereinafter referred to as "the old Act"), with the prior approval of the C. B. R The notices for assessment in respect of the escaped income were issued on March 6, 1962. On March 28, 1962, the process‑server, Bhorilal submitted his report which, on translation, reads as under :
"I went to the house of Swaroop Lal Kanhaiya Lal Tiwari and Jhumar lal Swaroop Lal Govind Narain Tiwari with notice under section 34 for the assessment years 1940‑41 to 1948‑49, to the house of Swaroop Lal Kanhaiyalal (sic) and found Praduman Kumar Tiwari and Babu Badha Mohan, but they refused to accept the notice. I have been to the house four times, but whenever I went, the party sent a message through the servant, although the party was in the house."
On receipt of this report, the I. T. O. passed the following order on the margin of the report, of the process‑server dated March 28, 1962, itself : .
"J. N. Please contact parties if they refused to accept notice, you may proceed to effect service by affixation and report.
(Sd). March 28, 1962."
Then it appears that the process‑server went to the house of the assessed' along with Inspector, J. N. Sharma, and the notices were affixed on the premises of the partner of the assessee in the presence of two independent witnesses on the same day. The affidavit of J. N. Sharma, Inspector of the Income‑tax‑ Department, which is on record is as under:
"I, J. N. Sharma, Inspector, solemnly affirm and state that under order of the Income‑tax Officer, `A' Ward, Jaipur notices under section 34 for the assessment years 1940‑41 to 1948‑49, addressed to the above‑men tioned assessee have been affixed by the process‑server, Shri Bhori Lal, in my presence on the last known aforesaid address of the assessee, as it could not be served upon him personally.
Signatures of the two independent witnesses of the locality, Shri Bharrwar Lal and Shri Deen Dayal, in whose presence the notices mentioned above have been affixed, have been taken on the acknowledgment slips.
Dated 28‑3‑1962
(Sd.) J. N. Sharma Inspector."
The I.-T. O. considered the service so effected as sufficient and as the assessee failed to appear and file returns in pursuance of the said notices, the I: T. O. proceeded to pass ex parte orders of assessment on November 14, 1962, in respect of the assessment years 1940‑41 to 1948‑49 under section'34 (1) (a) read with section 23 (4) of the old Act. The assessee filed appeals, which were dismissed by the A. A. C. Thereafter, the assessee filed further appeals before the Income‑tax Appellate Tribunal, Delhi Bench A (hereinafter referred to as "the Tribunal"). The appeals relating to Karauli‑Hindaun section in respect of assessment years 1940‑41 to 1948‑49 were decided by the Tribunal by a consolidated order dated April 10, 1968, while the appeals relating to the Bharatpur section, in respect of the assessment years 1944‑45 to 1948‑49 were disposed of by the Tribunal by a common order dated April 17, 1968.
While filing the appeals against the ex parte assessment orders, the asses see also filed applications under section 27 of the old Act, but those applica tions were also rejected and the appeals filed by the assessee against the orders passed by the I.‑T. O. on the application under section 27 of the old Act were also likewise dismissed. The assessee filed further appeals before the Tribunal and these appeals, both relating to the Hindaun‑Karauli section and Bharatpur section, were disposed of by the Tribunal by its order dated April 10, 1968. The Tribunal in these orders held that the notices under section 34 (1) (a) of the old Act were not served upon the assessee as provided in Order V of the C. P. C. and that, in the absence of proper service of notices, the ex parte assessment orders were null and void. In the appeals arising out of applications under section 27 of the old Act, the Tribunal held that since there was no valid service of notice upon the assessee under section 34 (1) (a) read with section 22 (2) of the old Act, the assessee had sufficient cause for not submitting the returns in compliance with ‑ such notices and the Tribunal, accordingly, cancelled the assessments relating to the assessment years 1940‑41 to 1948‑49, in the case of Hindaun‑Karauli section and 1944‑45 to 1948‑49, in the case of Bharatpur section and directed the I.‑T. O. to make fresh assessments in accordance with law.
Reference No. 13 of 1970 arises out of the order of the Tribunal in res pect of ex parte assessments made relating to the assessment years 1940‑41 to 1948‑49 regarding Karauli‑Hindaun section, while Reference No. 12 of 1970 arises out of the decision on applications under section 27 of the old Act for reopening the ex parte assessments referred to above. The Reference No. 25 of 1970 similarly arises out of the order of the Tribunal relating to ex-parte assessments for the years 1944‑45 to 1948‑49, regarding the Bharatpur section and Reference No. 31 of 1970 arises, out of the order passed on application under section 27 of the old Act in respect of such ex parte assessment orders.
The following questions have been referred by the Tribunal in Reference No. 13 of 1970 :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that there was no valid service of notice under section 34 (1) (a) of the Indian Income‑tax Act, 1922, on the assessee and that the proceedings taken by the Income‑tax Officer were illegal and void thus canceling the assessment made under section 23 (4) of the Indian Income tax Act, 1922 ?
(2) Whether the Tribunal was not justified in considering that the assessment made under the provisions of section 34 (1) (a) of the Indian Income‑tax Act, 1922, are ab initio null and void because the statutory notices issued under section 34 (1) (a) of the Act for initiating assessment proceedings, which is a condition precedent to the validity of the proceedings, is invalid ?"
Identical questions have been referred to this Court in Reference No. 25 of 1970. In Reference No. 12 of 1970, the two questions, which have been referred, are as under :
"(1) Whether, on the fact and in the circumstances of the case, the Tribunal was correct in law in holding that there was no valid service of notice under section 34 (1) (a) of the Indian Income‑tax Act, 1922, on the assessee and that the proceedings taken by the Income‑tax Officer were illegal and void thus canceling the assessments made under section 23 (4) of the Indian Income‑tax Act, 1922?
(2) Whether the Tribunal was not justified ire considering that the assessments made under the provisions of section 34 (l) (a) of the Indian Income‑tax Act, 1922, are ab initio null and void because the statutory notices issued under section 34 (1) (a) of the Act for initiating assessment proceedings, which is a condition precedent to the validity of the proceedings is invalid?"
We may observe that they are substantially the same as have been referred to in the earlier two references. In Reference No. 31 of 1970, three questions have been referred, one at the instance of the assessee and two at the instance of the revenue, which are as under :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessment made under section 23 (3)/34 (1) (a) of the Indian Income‑tax Act, 1922, is valid and in accordance with law, though notices under sections 22, 23 and 34 were not served on all the partners or their legal representatives, when the assessee‑firm stood dissolved on June 9, 1957 ?
(2) Whether, on the facts and in the circumstances of. the case, the Tribunal was correct in law in holding that there was no valid service of notice under section 34 (1) (a) of the Indian Income‑tax Act, 1922, on the assessee and the proceedings taken by the Income‑tax Officer were illegal and void, thus canceling the assess ment ?
(3) Whether the finding of the Tribunal that on the facts and circum stances of the case, the service of notice under section 34(1)(a) of the Act by affixture was bad in law, is legally correct ?"
It may be observed that the question which has been referred at the instance of the assessee in Reference No. 31 of 1970 does not appear to us to arise out of the order of the Tribunal, as the question of dissolution of the firm or the necessity of service of notices on all the partners of the dissolved firm does not appear to have been raised or decided by the Tribunal. Thus the principal question which is required to be determined in all these reference cases is as to whether the finding of the Tribunal that there was no valid service of notices under section 34(1)(a) of the Act on the assessee or that the service by affixation is bad in law is legally correct or not and were the proceedings for assessment taken by the I‑T.O. illegal and void, as held by the Tribunal. .
Before proceeding to decide the question about the validity of service, it would be proper to dispose of a preliminary submission made by the learned counsel for the assessee. It was argued by him that the provisions of sections 282 and 283 of the new Act should be complied with, while learned counsel for the revenue argued that the proceedings in these cases were governed by the provisions of the old Act. Section 297 of the new Act provides for the repeal of the old Act. Clause (d) thereof has saved the provisions of the old Act so far as such proceedings are concerned in respect of which notices under section 34 of the old Act had been issued before the commencement of the new Act. Clause (d) of subsection (2) of section 297 of the new Act runs as under
"(2) Notwithstanding the repeal of the Indian Income‑tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),‑‑ ......
(d) where in respect of any assessment year after the year ending on the 31st day of March, 1940‑‑‑
(i) a notice under section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed ;
(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly."
If proceedings under section 34 of the old Act had not commenced by the giving of notice, then sub‑clause (ii) of clause (d) of section 297 (2) would have been attracted. But in the present case, as we have already mentioned above, notices under section 34 read with section 22 of the old Act were issued on March 26, 1972, before the commencement of the new Act. The proceedings in pursuance of such notices were continued and dis posed of in accordance with the provisions of the old Act and as if the new Act bad not been passed. Therefore, the procedure for service of such notices would be governed by the provisions of section 63 of the old Act and not by the provisions of sections 282 and 283 of the new Act. Section 63 of the old Act, read with section 26 (1) of the old Act, provided that a notice under that Act could be served on the person named therein, either by post or as if the notice or summons issued by a Court, under the Code of Civil Procedure, 1908. Subsection (2) of section 63 further pro vided that any such notice, in the case of a firm, may be addressed to any member of the firm or to the manager thereof. Section 26 of the old Act is applicable to the case of a dissolved firm, which has not discontinued its business. Section 26, which deals with the change in the constitution of a firm, runs as under :
"26. (1) Where, at the time of making an assessment under section 23, it is found that a change has occurred in the constitution of a firm or that a firm has been newly constituted, the assessment shall be made on the firm as constituted at the time of making the assessment Provided that the income, profits and gains of the previous year, shall for the purpose of inclusion in the total incomes of part ners, be apportioned between the partners who in such previous year were entitled to receive the same
Provided further that when the tax assessed upon a partner cannot be recovered from him it shall be recovered from the firm as constituted at the time of making the assessment.
(2) Where a person carrying on any business, profession or vocation has been succeeded in such capacity by another person, such person and such other person shall, subject to the provisions of subsection (4) of section 25, each be assessed in respect of his actual share, if any, of the income, profits and gains of the previous year :
Provided that, when the person succeeded in the business, profession or vocation cannot be found, the assessment of the profits of the year in which the succession took place up to the date of succession, and for the year preceding that year shall be made on the person succeeding him in like manner and to the same amount as it would have been made on the person succeeded or when the tax in respect of the assessment made for either of such years, assessed on the person succeeded cannot be recovered from him, it shall be payable by and recoverable from the person succeeding, and such person shall be entitled to recover from the person succeeded the amount of any tax so paid."
Thus, where a firm has undergone a change in its constitution, the assessment shall be made on the firm as constituted at the time of making the assessment and notice in respect of assessment could be served on any partner of the firm, as provided :n section 63(2) of the old Act, as if it was a summons issued by a Court under the Code of Civil Procedure. Order V, r. 17, C. P. C., provides the procedure relating to the service of summons, if the defendant or his agent refuses to sign the acknowledgment or where the serving officer, after using all due and reasonable diligence, cannot find the defendant and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service could be effected is available, the serving officer is authorised to affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain. Then, r. 20 of O. V of the C. P. C. further authorises the Court, if it is satisfied that there was reason to believe that the defendant was keeping out of the way for any purpose of avoiding service or if for any other reason the summons could not be served in the ordinary way, then the Court shall order the summons to be served by affixing a copy thereof in some conspicuous place in the court‑house, and also upon some conspicuous part of the house, if any, in which the defendant is known to have last resided or carried on business or personally worked for gain or "in such other manner as the Court thinks fit".
The facts narrated above go to show that the process‑server made repeated attempts to serve the notices on the partner of the firm, at the place of business of the firm at least four times, but Praduman Kumar, partner of the firm, refused to accept the notices. In these circumstances the process‑server submitted a report to the assessing authority, who as a matter of further precaution directed the Inspector of the Department to accompany the process‑server with the direction that if the service of the notice is not possible in the ordinary manner, the same may be effected by affixation. The process‑server alongwith Inspector, J. N. Sharma, then again went to the place of business of the firm, which was the house of Swaruplal Kanhaiyalal Tiwari and according to the affidavit of the Inspec tor, Shri J. N. Sharma, it was not possible to serve the notice personally. As such, the notices were served by affixation. We may recall that the process‑server had earlier made four attempts and had reported that, every time when he went, the partner of the firm sent a message through the servant and did not accept the notice, although he was present inside the house. The service of notices by affixation in such circumstances cannot be said to be unreasonable or even defective in any manner. The Tribunal held that the service was defective on the ground that the I‑T.O. did not expressly suite in his order that he was satisfied that the partners of the assessee‑firm were keeping out of the way for the purpose of avoiding service. and that for any other reason the service could not be effected in the ordinary way. It may be pointed out in this connection that the I.‑T.O. had passed his order on March 28, 1962, directing the Inspector to contact the parties and to effect service by affixation, In case they refused to accept the notices. We have quoted in extenso above a verbatim translation of the report of the process‑server and it must be held that the assessing authority had passed the order on the margin of the report of the process server only after taking into consideration the facts and circumstances mentioned therein. It was apparent from the record that repeated attempts were made to serve the notices upon the partners of the firm, as the process‑server visited the premises of the firm at least four times and every time the process‑server was unable to effect service on account of the non co‑operative attitude adopted by the partners of the firm, inasmuch as they sent messages through the servant that they would not accept service, while the partners or at best one of them was present on the premises. In such circumstances, it is obvious that it was not possible for the process server to effect service upon the partners of the firm personally and it is also equally clear that they were avoiding the service of notice upon them. It was for this reason that the I‑T.O. directed that service be effected by affix ation after making one more attempt to serve the notices personally. We are, therefore of the view that the satisfaction of the I: T.O. about the fact that the partners of the firm were keeping out of the way for the purpose of avoiding the service of notice and further that it was not possible to serve the notices upon them in the ordinary manner, is apparent from the record and merely the circumstance that the assessing authority did not express his satisfaction by writing the words that he was satisfied that the partners of the firm were keeping out of the way for the purpose of avoid ing service of the notices and that the notice could not be served upon them in the ordinary manner, could not construed as absence of satisfaction on the part of the assessing authority.
The Tribunal also observed that there were no clear‑cut instructions from the I: T.O. for serving the notices by affixation and that such service, without due sanction of authority, could not be considered as valid service. The order passed by the I‑T.O. on the margin of the report of the process server on March 28, 1962, is clearly, in our view, an authorisation on his part, within the meaning of O. V, r. 20, C. P. C., directing the process‑server to effect service by affixation. If the assessing authority was cautious enough in directing the service by affixation should be resorted to after making one more attempt to serve the notices personally, it cannot lead to the inference that there were no clear‑cut instructions from the assessing authority regarding the course to be adopted in case personal service was not feasible in the circumstances of the case. The affidavit of the Inspector, Shri J. N. Sharma, who accompanied the process‑server on the last occasion, goes to show that it was not possible to serve the notices personally and as such. the procedure of affixation was resorted to. We may observe that under O. V, r. 20, C. P. C., it is the discretion of the Court or the assessing authority to choose the method by which substituted service is to be effect ed, once he comes to the conclusion that summon cannot be served in the ordinary manner or that the defendant is avoiding the service of summons. The Court or the assessing authority in such a case may proceed in the manner described in O. V, r. 20, C. P., C. or in such other manner as "it may think fit". The last clause of r. 20 of O. V. C. P. C., gives a wide discretion to the Court in this matter and the Court may justifiably direct service to be effected by publication in a newspaper or by affixation or in such other manner as the Court may think proper. In C. I. T. v. Daulat Ram Khanna ((1967) 65 I T R 603 (S C) their Lordships of the Supreme Court observed as under in this context (p.606.) :
"It seems to us that last ten words in sub‑rule (1) of rule 20 do confer a discretion on the Court adopt any other manner of service. The sub‑rule prescribes one manner which the Court may follow and this manner consists of two acts : (1) affixing a copy of the summons in the Court‑house, and (2) affixing it in some conspicuous part of the residential house or the business premises of the defendant. If the High Court were right we would expect that the word 'also' would be repeated and inserted between the word 'or' and 'in' in the last ten words. The alternative manner which the Court decides to adopt for serving must of course be such as gives notice to the person to be served."
The Legislature in its wisdom has given wide discretion to the Court under O. V, r. 20, C. P. C., to decide the manner in which substituted service is to be effected, in order to ensure that unnecessary steps and time is not wasted and service is effected in the most expeditious and reasonable manner and at the same time information may be properly conveyed to the person desired to be served regarding the proceedings in which his presence is required to be secured. If a person has gone abroad to the knowledge of the Court, then no useful purpose would be served by affixing the notices at the residence of such person or by publishing the same in a local newspaper. In that case, the best method would be to send the summons by registered post at the…
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