P L D 1959 Supreme Court (Pak (PLP)

S. M. Suhail, Senior Advocate, Supreme Court (Hidayat Ali Taib, Advocate, Supreme Court with him) instructed by Siddique & Co., Attorneys for Appellant. Abdul Haq, Advocate, Supreme Court, instructed by Naziruddin, Attorney for Respondent. Date of hearing: 18th February 1959. SHAHABUDDIN, J.‑-This is a certificated appeal from the judg ment of the High Court of West Pakistan on a reference Made by the Income‑tax Appellate Tribunal under S. 66 (1) of the Income‑tax Act. The appellant Muhammad Idrees Barry & Co., is an unregis tered firm carrying on business in Anarkali, Lahore, but its partners reside in Karachi. A notice under S. 22 (2) in respect of the assessment year 1950‑51 was served at Lahore on the 27th July 1950 on one Habib‑ur‑Rahman, an employee of the appellant‑firm, who received it signing for the firm though he was not empowered as an agent to receive notices. The Income‑tax Officer, however, treated this as proper service and as no return of income was filed he issued a notice under S. 22 (4) on the 15th January 1951 calling upon the appellant‑firm to produce its account books by the 29th of that month. In the meantime Habib‑ur‑Rahman handed over to the Manager of the firm Manzoor Ahmad the notice issued under S. 22 (2) and he on informing one of the partners at Karachi of the same was directed to consult an advocate. On the 29th January an application was made to the Income‑tax Officer for an adjournment on the ground of illness of the accountant, but this prayer was not granted and on the same day the, Income‑tax Officer made the assessment to the best of his judgment under S. 23 (4). On an appeal by the assessee the Appellate Assistant Commissioner annulled the assessment on the ground that the service on Habib ur‑Rahman was not service on any of the partners or their agents, who could be presumed to have been empowered to receive the notice on their behalf. He directed the Income‑tax Officer to issue a notice again to the firm, get it properly served and then proceed to make the assessment according to law. It was observed in this order that Habib‑ur‑Rahman did not appear to be an agent in any of the proceedings before the Income‑tax Officer, that the Manager of the firm was Manzoor Ahmad and that on the material before the Appellate Assistant Commissioner it could not be found that Habib‑ur‑Rahman was the agent empowered to receive notice on behalf of the firm. The fact that in 1948 a notice received by Habib‑ur‑Rahman on behalf of the firm was acted upon was con sidered insufficient for holding that he was an agent. In this connection reliance was placed by the Appellate Assistant Com missioner on the decision of the Nagpur Judicial Commissioner's Court in Commissioner of Income‑tax v. Baxiram Rodmal (1934 I T R (11) 439), where it was held that the mere fact that a person had accepted notices on behalf of the assessee on previous occasions and appeared for the assessee would not constitute him an agent on whom a notice or requisition under the Act could be validly served, nor would any statement made by him bind the assessee. Another case on which the Appellate Assistant Commissioner relied was Commissioner of Income‑tax Burma v. Dey Brothers (1935 I T R (III) 213). There, it was held that the mere fact that the notice had in some way or other reached the person upon whom it was to be served was not sufficient but that there must be service as prescribed in S. 63 (1) of the Income‑tax Act. As against the decision of the Appellate Assistant Commis sioner the department appealed and the Income‑tax Appellate Tribunal came to the conclusion that the service of notice under S. 22 (2) on Habib‑ur‑Rahman was a proper and valid service, that there was a clear default on the part of the assessee in comply ing with that requisition and that therefore the assessment was rightly completed under S. 23 (4). The case was remanded to the Appellate Assistant Commissioner as‑he had not dealt with it on merits. The conclusion of the Tribunal that the service of the notice under S. 22 (2) was valid and proper service was based on the fact that the partners did not reside in Lahore and the business was looked after by their employees, that Habib‑ur‑Rahman was an employee of the firm and the notice was served during office hours in the business premises and that on various occasions in the past Habib‑ur‑Rahman was receiving notices on behalf of the firm, and his authority to receive such notices was not repudiated. The decisions relied on by the Appellate Assistant Commissioner were not discussed by the Tribunal. The appellant‑firm thereupon put in an application under S. 66 (1) before the Income‑tax Appellate Tribunal for referring two questions to the High Court, one of which however was not pressed at the time the application was heard, while the other question was‑ "Is Habib‑ur‑Rahman, the Agent or Manager, empowered to accept service of the notice from the I. T. O. Lahore on behalf of the assessee‑firm of Messrs Muhammad Idrees Barry & Co., Lahore, within the meaning of Order V, rule 9 (1) (sic) of the Code of Civil Procedure?" The respondent to the application, the Commissioner of Income tax, Punjab and N. W. F. P. contended that no question of law arose out of the Tribunal's order, but the Tribunal was of the opinion that a question of law did arise and formulated the same in the following words: "Whether there is any material in support of the Tribunal's finding that Habib‑ur‑Rahman was the assessee's agent empo wered to accept service of notice within the meaning of Order V, rule 12 of the Code of Civil Procedure, read with section 63 (1) of the Income‑tax Act?" The form of this question was accepted by the appellant‑firm and the same was referred to the High Court. The learned Judges of the High Court found themselves unable to agree with the Tribunal on this question. They came to the conclusion that the circumstances on which the Tribunal based its conclusion that service of the notice on Habib‑ur‑Rahman was valid and proper were "quite capable of explanation on a basis other than the grant of authority to Habib‑ur‑Rahman to accept service". They observed that another difficulty in the way of accepting the service of notice as service in accordance with Order V, rule 12 of the Civil Procedure Code was that under Order III, rule 6, an authority to accept service of process should be in writing. They however did not give a definite answer to the question, but went on to observe as follows: "But, although the answer to the question as framed by the Appellate Tribunal may have to be against the Income‑tax Com missioner, the answer to the real question that arises in these proceedings, should be against the assessee. The real question is whether service of notice was effective and not whether it was valid by virtue of Order V, rule 12. We propose altering the form of the question for we are not bound by the particular form in which a question has been framed by the Appellate Tribunal, and although we cannot frame a new question, we are entitled, according to the Full Bench judgment in Seth Gurmukh Singh v. Commissioner of Income‑tax, Punjab 1944 I T R 399, to change the form of question if we preserve the substance of it." They then referred to certain decisions of the Privy Council which emphasise the fact that the High Court's jurisdiction is confined to the consideration of the question referred to it and that the proce dure prescribed in provisions of S. 66 Income‑tax Act should not be departed from. Earlier in their judgment the learned Judges pointed out that the assessee‑firm had full knowledge through its own employees that a notice had been issued and that by moving for an adjournment it had accepted the notice as given and under the circumstances the plea of non‑service was purely technical. The question which was formulated by the learned Judges as the real question arising in the case was whether the service on Habib‑ur‑Rahman was effective so as to bind the assessee and that question was answered in the affirmative on the ground that the assessee‑firm accepted the service on Habib‑ur‑Rahman and acted on it. They considered the application for an adjournment for producing accounts required under notice issued under S. 22 (4) as an acceptance of the earlier notice and they also took the view that it was not shown that any prejudice was caused to the appellant firm. In respect of the contention that when time was applied for the acceptance of service was conditional on the adjournment being granted, they observed that if that was so the appellant should have mentioned it before the Income‑tax Officer, whereupon the counsel for the appellant requested that the application for adjournment might be sent for. But as the counsel was unable to make a statement at the Bar that such a condition was mentioned in the application for adjournment the learned Judges thought that no useful purpose would be served by sending for the application. It was contended on behalf of the appellant‑firm that the learned Judges formulated a question different from the one referred by the Tribunal and that in doing so they exceeded their jurisdiction which was only advisory and confined to the answering of the question actually referred. It was also pointed out that the answer of the learned Judges to the question formulated by them was not correct as an application far adjourn ment for the production of accounts did not amount to a waiver of the right of the firm to contest the assessment on the ground that service of notice under S. 22 (2) not being valid the Income tax Officer had no jurisdiction to issue the notice under S. 22 (4). The argument in this connection was that all that Manzoor Ahmad the Manager stated was that the direction received from one of the partners was to take legal advice, and that he did not say that he was directed to accept the service as valid and proceed on that basis. On behalf of the Commissioner of Income‑tax it was not disputed that the High Court cannot under S. 66 formulate suo moto a fresh question, but it was argued that what was done in this case was only an alteration in the form and not in the substance of the question referred. On the second point die argument was that the conduct of the appellant‑firm clearly estopped them from questioning the validity of the service of the first notice: We do not think it necessary to deal with the latter question as in our opinion it was different from the one actually referred by the Tribunal and therefore on the authority of the very decisions on which the learned Judges have relied they had no jurisdiction to formulate and answer it. That the two questions are not the same in substance is evident from the language in which they are couched. The question referred by the Tribunal, relates only to the validity of the service of notice under S. 22 (2) with reference to Order V, rule 12 of the Civil Procedure Code. Section 63 of the Act prescribes that a notice or requisition under the Act should be served' on the person named therein either 'by post or as if it were a summons issued by a Court under the Code of Civil Procedure, 1908. In the present case the notice in question was served as if it were a summons and so the question arose whether the service effected was as contemplated under Order V, rule 12 of the Code. If the answer to this question is in the negative the assessment would become void as the fact that the notice in some way or other reached the person authorised to receive it is not sufficient to bind the firm. Therefore, it is open to an assessee to contest the assessment on the ground that he was not served in accordance with law and that was what the appellant‑firm did. It is true that it is equally open to an assessee on whom notice was not duly served to ignore that fact and act as if the service was according to law, and in such a case his conduct might estop him from contesting the assessment on the ground of service not being according to law, but that would be a different matter not covered by the question referred by the Tribunal. In fact the manner in which the learned Judges dealt with the questions indicates that they treated them as different questions. They did not find the language of the question referred in any way obscure or ambiguous so that it could be said that in formulating the second question they are merely restating the question referred to them. On the other hand that question as it stood in the reference was considered by the learned Judges fully, but they did not record a finding thereon because in their opinion "the real question is whether service of notice was effective and not whether it was valid by virtue of Order V, rule 12. This observation by itself shows that the two questions of were different from each other; and yet the learned Judges went on to say in the very next sentence that they proposed altering, the form of the question, for they are not bound by the particular form in which the question was framed by the Appellate Tribunal and although they could not frame a new question they were entitled according to the Full Bench judgment in Seth Gurmuk Singh v. Commissioner of Income‑tax, Punjab to change the form if they preserved the substance of it. The question which they ultimately formulated as stated above was whether in the circum stances of the case, service of notice on Habib‑ur‑Rahman was effective so as to bind the assessee. We find it difficult to under stand how the substance of the question referred is preserved in the question formulated by the learned Judges. As indicated already the question referred deals only with the validity or otherwise of the service while in the other question the position of the assessee is to be considered irrespective of the service of the notice not being according to law and therefore invalid. Further what is provided for in S. 66 (1) is not a reference of any question arising on the facts of the case but only a reference of a question or questions which arise out of the order of the Appellate Tribunal. This is clear from the language of the section as well as from the decisions on which the learned Judges have relied. The extract from the above‑mentioned Full Bench judgment incorporated in the judgment under appeal is to the effect that the Tribunal cannot travel beyond the question originally indicated by the assessee and the High Court cannot raise any question suo moto which is not covered by the reference. The learned Judges recognised this limitation but as is seen from the following observation in their judgment they proceeded on the basis that the order of the Tribunal covers the question which they formulated and answered: "The reference to Order V, rule 12 in the question framed by the Appellate Tribunal, is unfortunate, for the Appellate Tribunal had nor even in its judgment relied upon this rule. It has only held that service was valid. It is true that the finding in the judgment is that Habib ur‑Rahman had been empowered and it is urged before us by the assessee that as it is only with this aspect of the matter that the Tribunal dealt and also it is on this aspect of the matter that they sought our advice, we should not travel beyond the strict words of the question. Now, it is true that the Tribunal held that Habib‑ur‑Rahman was empowered and their finding seems to have been based mainly on this ground, but they have also referred to the other facts, i.e., acceptance by the assessee of the notice as valid and to his subsequent conduct in appearing before the Income‑tax Officer and applying for adjournment. It cannot, therefore, be contended that their finding as to service was exclusively based on the authority which they presumed in Habib‑ur‑Rahman to accept service and, in any case, as the Tribunal had relied upon the conduct of the assessee too, it would be open to the High court to hold service effective on the basis of the facts found by the Tribunal even though the High Court does not agree with the reasoning on which the conclusion of the Tribunal is based. On an examination of the order of the Appellate Tribunal v. we find ourselves unable to agree with the above observation. It is clear from para. 3 of the order that the contention raised by the departmental representative had no reference to the conduct S of the assessee. It was only this that Habib‑ur‑Rahman must be deemed to be an agent empowered to accept all relevant notices on behalf of the firm in question. It is stated by the Tribunal that it was common ground that authority to accept these notices need not be in writing. In view of this concession the Tribunal confined itself to the question whether in fact Habib‑ur‑Rahman had the authority to receive notices on behalf of the firm even though there was nothing in writing giving him such authority. The argument of the assessee was that such an inference could not be drawn from the facts of the case. Therefore there was no argument before the Tribunal that the conduct of the assessee estopped it from questioning the validity of service of notice. It is true that reference is made in the next paragraph to the fact that Manzoor Ahmad, the Manager admitted that the notice received by Habib‑ur‑Rahman was made over to him and that on his informing one of the partners about it he gave him certain instructions, but from what follows in that paragraph it is clear that that reference was made in support of the view that Habib ur‑Rahman had in fact authority to accept notices from the firm. The order of the Tribunal does not indicate that it considered the question before it from the point of view that the appellant-firm waived its right to object to the service of notice. The fact that there is no mention of Order V, rule 12, does not show that the question referred was not considered by the Tribunal with reference to that provision. The conclusion of the Tribunal which is that the service was a valid service can only mean that it was a service according to Order V, rule 12, as S. 63 of the Income‑tax Act prescribes such a service. We, therefore, consider that the question which the learned Judges have formulated and answered is not ole arising out of the order of the Appellate Tribunal. In National Mutual Life Association of Australasia, Limited v. Commissioner of Income‑tax, Bombay Presideney and Aden (63 I A 99) cited in the judgment under appeal the High Court had decided a case on an argument raised for the first time by the Advocate‑General. Their Lordships of the Privy Council observed that any claim as to liability to tax based on that argument was a matter outside the letter of reference and irrelevant to the question submitted. It may well be that when the question referred is considered some point may emerge with regard to the assessee's liability which should have been raised before the Tribunal and dealt by it, but as long as that matter is not covered by the reference, the High Court cannot formulgate a new question and deal with it for, as pointed out by their Lordships of the Privy Council in Raja Bahadur Sir Rajendra Narayan Blianj Deo v. Commissioner of Income‑tax, Bihar and Orissa (A I R 1940 P C 158 at 159) "the function of the High Court in cases referred to it under S. 66 of the Act is advisory only and is confined to considering and answering the actual question referred to it". The learned Judge should therefore have answered Y the question referred by the Income‑tax Appellate Tribunal instead of formulating a different question and answering it. We, therefore, set aside the answer recorded by the High Court and remand the case for the recording of a finding on the actual question referred to it. There shall be no order as to cost of this appeal. A. H. Case remanded.