1963 PLP 840 (PTD)

S. 34 Re assessment Notice under S. 34 not properly served Validity of re assessment Valid notice, whether essential Effect of waiver Filing of return, whether amounts to waiver. The jurisdiction of the Income tax Officer under section 34 does not depend upon the issue of a notice though the notice contemplated by section 34 is a condition precedent to the exercise of the jurisdiction vested in the Income tax Officer. Consequently if the assessee chooses to waive the notice, the assessment by the Income tax Officer cannot be considered to be invalid, because of lack of jurisdiction. The principle that by consent of parties jurisdiction cannot be conferred on a Court having no jurisdiction is not applicable to such a case, and an assessment will be valid if there is waiver by the assessee of an infirmity in the notice. Commissioner of Income tax v. Ramsukh Motilal (1955) 27 I T R 54 dissented from. The mere filing of a return in pursuance of the invalid or improper notice is not sufficient to constitute waiver. There must be a conscious and intentional relinquishment of an existing right known by the party relinquishing to exist in his favour. The question of waiver is a mixed question of law and fact. Basheshar Nath v. Commissioner of Income tax (1959) 35 I T R 190 ; Chatturam v. Commissioner of Income tax (1947) 15 I T R 302 and Commissioner of Agricultural Income tax v. Sultan Ali Gharami (1951) 20 I T R 432 ref. STATEMENT OF CASE By this application the Commissioner of Income tax, Kerala and Coimbatore, requires the Appellate Tribunal to refer to the High Court a question of law said to arise out of the order of the Tribunal in 1. T. A. No. 5985 of 1956 57 dated November 6, 1957. Inasmuch as, in our opinion, a question of law arises out of the order of the Tribunal, we hereby draw up a statement of the case agreed to by both the parties and refer it to the High Court of Kerala at Ernakulam, under section 66 (1) of the Indian Income tax Act. 2. The assessee is an individual doing business in Malabar produce, cloth etc., in Calicut. The accounting year was the period ended June 20, 1944, corresponding to the assessment year 1945 46. In respect of this assessment year, the assessee originally returned a loss of Rs. 7,960. The assessment was completed on March 29, 1946, on a total income of Rs. 8,009. On December 4, 1953, the Income tax Officer got information that large deposits were in the name of the assessee in the Abdul Rehman St. branch of the Central Bank of India Ltd. The assessee was requested to produce the bank account and explain the various deposits in the bank account in the previous year. There was no immediate compliance to this request. The Income tax Officer, therefore, came to the conclusion that the deposits might represent profits of the business that had escaped assessment. On March 18, 1954, a notice under section 34 was issued in the name of the assessee. An acknowledgment was obtained. There is no date on this. It is also not known who had signed this as the signature had been scored out. On the back of it is an endorsement by the peon, to the effect that on enquiry he was told the owner (the assessee) was in Bombay and that it would take a week for him to return. The endorsement is dated March 23, 1954. Another notice was issued by the Income tax Officer on March 24, 1954. On the office copy of this notice, two persons have signed. Their addresses are not shown therein. Along with this notice, there is a statement by the peon. This statement is to the effect "At the above address on enquiry the owner (the assessee) was said to be in Bombay or in Ceylon and, as directed by the Income-tax Officer, the notice was pasted at the premises of the company of the owner and that witnesses had also signed on the notice." 3. There is the following endorsement by the Income tax Officer "statement sworn before me, I declare service valid". This is dated March 25, 1954. 4. The return of income in response to this notice was ultimately filed on November 12, 1954. The assessee showed therein a loss of Rs. 7,960, the same amount as was shown in the original return. The reassessment was completed under sections 23(3) and 34 on March 9, 1955, by an addition of Rs. 61,036 to the income originally assessed. The order of the Income tax Officer is Annexure "A" and forms part of the case. 5. On appeal before the Appellate Assistant Commissioner the assessee took the legal objection that the entire proceedings were illegal and invalid inasmuch as the assessee did not receive the notice under section 34 (l) (a) or the return form. He also took objection to the additions made by the Income tax Officer to the income. 6. The Appellate Assistant Commissioner overruled the assessee's legal objection and held that there was evidence to show that the notice under section 34 had been served on the appellant in accordance with the law. On the addition to the income made by the Income tax Officer, the objections were considered and finally disposed of against the assessee. The order of the Appellate Assistant Commissioner is Annexure "B" and forms part of the case. 7. On a further appeal to the Tribunal by the assessee inter alia it held that there was no proper service of the notice under section 34 and the service by affixture did not, in the circumstances, constitute a proper service. The appeal was allowed and, in this view, it did not consider it necessary to deal with the objection of the assessee in regard to the addition to the income made by the Income tax Officer. The order of the Appellate Tribunal is Annexure "C" and forms part of the case. 8. The question of law is : "Whether, on the facts and in the circumstances of the case, the reassessment for 1945-46 made on March 9, 1955, was valid ?" G. Rama Iyer for the Commissioner. T. L. Viswanatha Iyer for the Assessee. JUDGMENT RAGHAVAN, J. The assessee in this reference is an individual doing business in Malabar produce, cloth, etc., in Kozhikode. For the assessment year 1945 46 he submitted a return showing a loss of Rs. 7,960 ; but the assessment was completed on a total income of Rs. 8,009 on 29th March 1946. More than seven years after this the Income tax Officer, getting information that large deposits were made in the name' of the assessee in the Abdul Rehman Street branch of the Central Bank of India Ltd., in Bombay, requested the assessee to produce his bank accounts and explain the said deposits. The assessee did not comply with this request and, therefore, the Income tax Officer on 18th March, 1954, issued a notice under section 34 of the Indian Income tax Act, which was served on the assessee's son on 22nd March 1954. The Income tax Officer, considering that the said notice was not proper, issued another notice, which was affixed in the business premises of the assessee, as the assessee was said to be in Bombay or in Ceylon. Thereafter the assessee filed a return in pursuance of this notice, on 12th November 1954, wherein he showed a loss of Rs. 7,960. Prior to the filing of the return the assessee seems to have taken several extensions of time for filing the return. Finally the reassessment was completed under sections 23(3) and 34 of the Income tax Act on 9th March 1955, thereby adding a sum of Rs. 61,036 to the income originally assessed. The assessee appealed to the Appellate Assistant Commissioner, before whom one of the objections taken was that the entire proceedings of reassessment were illegal and void, inasmuch as the assessee did not receive a notice under section 34 (1)(a) of the Income tax Act. The other objections we are not concerned with in this reference. The Appellate Assistant Commissioner held that there was proper service of notice on the assessee under section 34 and, therefore, he dismissed the appeal. On further appeal to the Income tax Appellate Tribunal, the Tribunal held that there was no proper service of notice under section 34 as, according to the Tribunal, the service by annexure did not constitute proper service, Therefore, the appeal was allowed by the Tribunal, without any finding being recorded on the other questions raised in the appeal. Thereafter the Commissioner of Income tux applied to the Tribunal for a reference under section 66(1) of the Income tax Act and the Appellate Tribunal has referred the following question of law to the High Court "Whether, on the facts and in the circumstances of the case, the reassessment for the year 1945 46 made on March 9, 1955, was valid ?" Our attention has been drawn to several decisions of some of the High Courts in India and one decision of the Federal Court, but we consider it necessary to refer to only two or three of them. The decision of the Federal Court is Chatturam v. Commissioner of Income tax ((1947) 15 I T R 302). In that case Kania J., delivering the judgment of the Court, discussed the effect of the notices under section 22(1) and (2) of the Income tax Act and observed at page 307 : "The income tax assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the Income tax Officer to make the assessment or of the liability of the assessees to pay the tax. It may be urged that the issue and service of a notice under section 22 (1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under section 22(1), or before he receives a notice under section 22(2) of the Income tax Act, gets a form of return from the Income tax Office and submits his return, it will be futile to contend that the Income tax Officer is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded on sections 3 and 4 of the Income tax Act, which are the charging sections. Section 22 etc., are the machinery sections to determine the amount of tax." The passage extracted above clearly lays down that the jurisdiction of the Income tax Officer to assess and the liability of the assessee to pay the tax are independent of the notices contemplated under section 22(1) and (2). The passage would also appear to indicate, by its wide terms, that the effect of the notice contemplated under section 34 of the Income tax Act is also the same. But, on closer scrutiny, it appears to be clear that the decision did not contemplate such a far reaching consequence to flow from the observation above referred to. In Commissioner of Agricultural Income tax v. Sultan Ali Gharami ((1951) 20 I T R 432) the Calcutta High Court had occasion to consider some of the provisions of the Bengal Agricultural Income tax Act, the provisions being mutatis mutandis the provisions of the Indian Income tax Act. Their Lordships of the Calcutta High Court, considering section 38 (1) of the Bengal Act, which corresponded to section 34 (1) of the Indian Income tax Act, discussed the aforesaid Federal Court decision in Chatturam's case and held that the Federal Court decision did not cover an omission of a step which the statute regarded as a condition precedent to the commencement of proceedings in exercise of jurisdiction. The same view was expressed by the Bombay High Court in Commissioner of Income tax v. Ramsukh Motilal ((1955) 27 I T R 54). Their Lordships observed in that case that the decision of the Federal Court was given in respect of section 22(2) and the said decision must be confined to the incidents of notices under that section. We are also of the same opinion as expressed by the aforesaid bench decisions of the Calcutta and Bombay High Courts. The observations of the Federal Court, according to us, do not apply to y notices under section 34 in that wide form as would apply to notices under section 22.??????? Now we would consider the position of a notice under section 34. The Calcutta High Court in Sultan Ali Gharami's case observed that the notice under section 34 was a condition precedent to the commencement of the proceedings under that section and, therefore, the absence of such a notice could not be brushed aside as inconsequential. Their Lordships then considered whether there was waiver of the illegality in the notice in the; case before them and on the facts of the case they came to the conclusion that there was no waiver. In the other case, we mean, Ramsukh Motilal's case, the Bombay High Court held that in the case of section 34 the failure to give notice or a defect in the notice was not a procedural defect, but was a failure to comply with a condition precedent to the assumption of jurisdiction. The learned Judges of the Bombay High Court held that, since the notice under section 34 was a condition precedent to the assumption of jurisdiction and the Income tax Officer could have jurisdiction only provided he complied with the conditions laid down in section 34 and since no consent by the assessee or no waiver on his part could confer jurisdiction upon the Income tax Officer, the absence of a notice or the defect in a notice was fatal to the assessment. With all respect to the learned Judges of the Bombay High Court, we find it difficult to agree with the view expressed in Ramsukh Motilal's case. The position, according to us, is that the jurisdiction of the Income tax Officer under section 34 does not depend upon the issue of a notice. The notice is not a condition precedent in that sense to the jurisdiction of the officer. But the notice contemplated by section 34 is, we agree, a condition precedent to the exercise of the jurisdiction vested in the Income tax Officer. The result is that, if the assessee chooses to waive the notice, the assessment by the Income tax Officer cannot be considered to be invalid, because of lack of jurisdiction. The principle that by consent of parties jurisdiction cannot be conferred on a Court having no jurisdiction is not applicable to such a case, since the notice is only a condition precedent to the excercise of the jurisdiction already vested in the Income-tax Officer and, therefore, the assessment will be valid if there is waiver by the assessee of the infirmity in the notice. This leads us on to the consequential question as to what will amount to waiver. We would make it clear that the mere filing of a return in pursuance of the invalid or improper notice is not sufficient to constitute waiver. There must be a conscious and intentional relinquishment of an existing right known, by the party relinquishing, to exist in his favour, as observed by the Supreme Court in Basheshar Nath v. Commissioner of Income tax ((1959) 35 I T R 190, 234) : "The generally accepted connotation is that to constitute `waiver', there must be an intentional relinquishment of a known right or the voluntary relinquishment or abandonment of a known existing legal right, or conduct such as warrants an inference of the relinquishment of a known right or privilege. Waiver differs from estoppel in the sense that it is contractual and is an agreement to release or not to assert a right ; estoppel is a rule of evidence." Therefore waiver must be a waiver in the aforesaid sense. The question of waiver is a mixed question of law and fact and there must be a finding regarding that before we could answer the question referred to us. The question as it stands cannot be answered on the facts that have been placed before us. Therefore, we would refer the case back to the Tribunal under section 66(4) of the Income tax Act and direct the Tribunal to submit an additional statement of facts regarding the question as to whether there was a waiver of the notice by the assessee in the circumstances of the case. The Tribunal will submit the additional statement within three months of the receipt of the records by them. Case remanded.