1964 PLP 739 (PTD)

(a) Income‑tax Act (XI of 1922)

S. 10 (2) (vii) [Before 1962 amendment]‑Acquisition of undertaking by Government‑Com pensation payable on assessment of valuation by Arbitrator Income‑tax Officer not competent to value assets himself and tax any profits. 26 T C 28; A I R 1953 S C 252; A I R 1953 S C 274 and A I R 1951 Cal. 151 ref. (b) Income‑tax Act (XI of 1922)

S. 10 (2) (vii) [Before 1962 amendment] ‑ Acquisition of assets by Government ‑ Whether `sale'‑Question left open. (c) Income‑tax Act (XI of 1922)

S. 46 (7)‑Recovery proceed ings‑Limitation‑ Question of fact‑Not allowed to be raised in writ. Nagina Silk Mill v. Income‑tax Officer P L D 1963 S C 322 and Mehboob Ali Malik v. Province of West Pakistan P L D 1963 Lah. 575 ref. (d) Constitution of Pakistan (1962)

Art. 98 (2) (a) (ii) Writ‑Certiorari‑Mandamus‑Not available if alternative remedy provided in Statute not availed of. (e) Income‑tax Act (XI of 1922)

S. 46 (5‑A)‑Recovery of tax‑Certificate pertaining to assessment set aside in appeal‑Not operative. JUDGMENT SATTAR, J.‑

Messrs Chittagong Engineering and Electric Supply Company Limited filed this petition under Article 98 (2) of the Constitution and obtained a Rule on (1) The Income‑tax Officer, Companies Circle IV, Chittagong, (2) The Deputy Com missioner, Rajshahi, and (3) The Manager, Habib Bank, Nawabganj, Rangpur, to show cause why, the Assessment Order for the assessment year 1953‑54 should not be declared as illegal, void and of no legal effect and the notices issued under section 46 (5‑A) of the Income‑tax Act, 1922 dated the 12th March 1963, should not be declared to have been issued without lawful authority and as such of no legal effect. The facts relevant for the purpose of disposal of the points raised in this case may be shortly stated as follows:‑The petitioner‑Company, which is now a foreign company registered in India, has several Electrical undertakings in different District towns of East Pakistan including one in Chittagong. The Province of East Pakistan took over control and management of the Chittagong Undertaking on the 1st August 1952, presumably under the Electricity Act, 1910. After a delay of about ten years, in 1962, the District Judge, Chittagong was appointed Arbitrator for the purpose of assessment of compensation payable for the acquisition. The petitioner has preferred a claim of Rs. 21,21,856/11/2 as compensation whereas the East Pakistan WAPDA, to whom the Undertaking has been made over, and the Province of East Pakistan have assessed the value at Rs, 4,81,

262. The Income‑tax Officer, Companies Circle IV, Chittagong, while assessing the income of the Chittagong Undertaking for the assessment year 1953‑54 fixed profit under section 10 (2) (vii) of the Income‑tax Act of the undertaking in question at Rs. 8,56,906 and assessed income‑tax on that basis. It is this part of the assessment for the year 1953‑54 and the notices issued under section 46 (5‑A) for realisation of the same and other income‑tax dues which are under challenge in this petition. In order to appreciate the grounds on which the assessment in question has been challenged by Mr. Mahmud Ali Qasuri, it is necessary to reproduce that part of the order of the Income‑tax Officer which deals with profits under section 10 (2) (vii) of the Income‑tax Act. It is as follows: "Profit under section 10 (2) (vii). The company's Chittagong branch with its assets has been taken over by the East Pakistan Government, with effect from 1st August 1952. The sale price of the assets leas not yet been finalised. However, the assessee‑company has filed a com pensation claim to the East Pakistan Government claiming total compensation of Rs. 21,21,857 which includes also the claim of compensation for land. It has been submitted by the assessee company that as yet no offer has been received b3 them from Government regarding the price of the assets. The assessment for this year will be barred by limitation after the end of 31st March 1958 and, therefore, I have no other alternative but to estimate the price of the assets and complete the assessment accordingly. It is quite probable that the East Pakistan Government will not accept the claim of the assessee in full and in ay agree to a lesser amount. In the circumstances I would estimate the price of assets at Rs. 15,00,

000. Out of the above value of depreciable assets is taken at Rs.12,00,000 Less‑W. D. V. Rs. 3,59,898 Balance profit Rs.8,40,102 The original cost of the assets could not be furnished. The company is a very old one and the total depreciation allowed will not be lesser than the amount of Rs. 8,40,

102. Hence profit under section 10 (2) (vii) is taken at Rs. 8,40,

102. Total Income ...Rs. 8,56,906." Mr. Qasuri has contended, firstly, that, as no Award has yet been made and payment received with regard to the Undertaking of the petitioner, the Income‑tax Officer was not within his rights under section 10 (2) (vii) to assess profit. The relevant provisions of section 10 of the Income‑tax Act are as follows:‑ " 10.‑(1) The tax shall be payable by an assessee under the head Profits and Gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely: (i) * * * * * * * * * * (ii) * * * * * * * * * * (iii) * * * * * * * * * * (iv) * * * * * * * * * * (v) * * * * * * * * * * (vi) * * * * * * * * * * (vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value: * * * * * * * * * * The question that arises is: Whether, in view of the fact that no Award had been made and no payment receive, the Income‑tax Officer on the date of assessment could estimate the amount payable for the depreciable assets and assess income‑taxi on that basis? The Income‑tax Officer has taken the view t ha the assessment would have been barred by limitation if not made by the 31st March 1958. The provision of section 34 (2) could come into play only if the depreciable assets became assessable as income for the assessment year 1953‑

54. If however the value of the properties coming under section 10 (2) (vii) not having been A received cannot be said to be profits or gains for that year, the question of limitation could not arise. The properties in question were no doubt taken over by the Provincial Government but the value of the same was not assessed as required under the Electricity Act and the petitioner did not receive any payment. In these circumstances, we do not see how the income‑tax Officer could make an estimate of the value and proceed to assess the same. We have found no authority for this power in the Income tax Officer nor have we been shown any by Mr. Mesbahuddin who appears on behalf of respondent No.

1. The second ground of attack of the assessment has been that, as there was no sale by the petitioner‑company of its assets, the value of the properties coming under section 10 (2) (vii) was not liable to assessment at all under that section. Mr. Mahmud Ali, on the authority of the decisions reported in Reports of Tax Cases (English) Vol. XXVI p. 28, A I R 1953 S C (Ind.) 252 and 274 and A I R 1951 Cal. 151, has argued that the relevant provisions of section 10 do not apply to a compulsory acquisition. The provisions contemplate only a voluntary sale. The pro position of law canvassed receives support not only from the above decisions but also from the fact that this section was amended in 1962 so as to include compulsory acquisition. In the present case, we have already indicated that the properties were taken over under the Electricity Act. In section 7 of that Act which was evidently applied in this case, the words "sale" and e "purchase" occur. In that view of the matter and regard being had to the other provisions of that Act, we asked Mr. Mesbahud din to consider whether the acquisition in the present ca‑,c could be said to be a case of voluntary, sale. The learned Advocate could not give us any assistance in this regard and Mr. Mahmud Ali therefore could not fully reply. We have, therefore, decided to keep‑this point open for the purposes of this case. Mr. Mesbahuddin's only reply to the arguments challenging the assessment has been that, as the petitioner‑company did not avail itself of the provisions of the Income‑tax Act to have the assessment set aside, and the present petition was filed tong after the date of assessment, it cannot be quashed in this proceeding. He has also attempted to argue that, as the act of the Income‑tax Officer at the most amounts to an irregularity in the exercise of his jurisdiction, and does not amount to an act done without jurisdiction, the petitioner is not entitled to any relief. Ultimately, he found himself in difficulty to press this point in view of the provisions of Article 98 (2) (a) (ii) of the Constitution. To meet the objection of Mr. Mesbahuddin that since the petitioner did not get the assessment set aside under the provisions of the Income‑tax Act and therefore it has become final, reliance has been placed on behalf of the petitioner on the decision of the Supreme Court in the case of Nagina Silk Mill v. Income‑tax Officer (P L D 1963 S C 322). In this case, two years assessment by the Income tax Officer was challenged on the ground of limitation and a writ of certiorari was prayed for. An objection as the present one was taken on behalf of the respondent. In answer to that S. A. Rahman, J. observed as follows: "In the present two cases, writs of certiorari had been prayed for in the High Court for quashing the impugned orders which were alleged to suffer from lack of jurisdiction. The circum stances in which certiorari may issue to quash [lie orders of administrative Tribunals that are required to act judicially fell for consideration in two recent cases decided by this Court and reported as S. A. Haroon v. Collector of Customs. Karachi P L D 1959 S C (Pak.) 177 and Pakistan v. Ziauddin P L D 1962 S C

440. In both cases certain orders passed by Customs authorities had been challenged by means of writ petitions in the High Court. It was laid down that the general rule un doubtedly is that it is wrong on principle to entertain petitions for which writs except in very exceptional circumstances, when the law provides a remedy by appeal to another Tribunal, fully competent to award the requisite relief. At the same time, it was held that in cases of absence of excess of jurisdiction or where the impugned order suffers from illegality on the face of the record, a certiorari may be granted even though the right of statutory appeal had not been availed of. A certain amount of flexibility is allowed by the law in the case of a prayer for a writ of certiorari as compared with a case for a mandamus. It was further observed that if the application for certiorari is made by a party aggrieved, then it ought to be granted ex debito justitiae and the High Court has not the general discretion which it would have, when the application is made by a member of the public, who is not personally concerned. This would specialty be the case where the alternative remedy provided by the relevant statutes is not as efficacious, speedy or convenient as the one available under the writ jurisdiction of the High Court. This principle would be found discussed in Ferries on Extraordinary Legal Remedies at pp. 185‑187, 1926, Edn. That relief in these cases could not have been obtained as quickly or with as such facility and convenience under the Act which provides for a series of appeals, revision and reference to the High Court on law points, on condition that the tax assessed is first paid, as by recourse to the writ jurisdiction of the High Court can hardly be contested. It is at the same time conceded that the Income‑tax Officer was required to act judicially in applying the provisions of the Act. Article 98 (2) (a) (ii) of the Constitution provides that a High Court of a Province may, "if it is satisfied that no other adequate remedy is provided by law", on the application of any aggrieved party, make an order declaring that any, act done or proceeding taken in the Province by a person performing functions in connec tion with the affairs of the Centre, the Province or a local autho rity has been done or taken without lawful authority and is of no legal effect. The above provisions apply with equal force to prayers, whether for direction in the nature of mandamus or declaration in the nature of certiorari. We respectfully agree with the decision of the West Pakistan High Court in the case of Mehboob Ali Malik v. Province of West Pakistan (P L D 1963 Lah. 575) to which an attention has been drawn by Mr. Mahmud Ali that the jurisdiction of the High Court in Article 98 has been enlarged in certain matters; but on the basis of the same decision we feel no hesitation in holding that in some other respects the scope of action has been curtailed. This conclusion follows from the following passage in the judgment of the learned Chief Justice: "Prior to the promulgation of the present Constitution, this Court exercised jurisdiction (popularly referred to as the writ jurisdiction) that was conferred on it by an earlier constitutional provision, to issue in addition to other orders and directions, writs in the nature of mandamus prohibition, certiorari and quo warranto. The scope of those writs was not defined in the Constitution, but had to be gathered from the tax‑books on the subject, and from cases decided in England and other countries where writs under those names are issued. The present Constitution by its 98th Article appears to have made an attempt to reduce into self‑contained propositions, that which was regarded as the substance of those four writs. In the course of their evolution some distinguishing incidents had come to attach separately to some of those writs. Those distinguish ing features, have not been incorporated in Article 98, apparently because they were not regarded as being of the essence of the remedy. The conditions of exercise of jurisdic tion in relation to the various writs have thus become more uniform. As a consequence, in some cases the field covered by the earlier writ has become somewhat enlarged and in others it has been somewhat curtailed. The writ of certiorari for example, was available originally in respect of judicial or quasi- judicial determinations only. It was not available in respect of non judicial determinations. Article 98 has not preserved any such distinction, with the result that all orders passed in excess of lawful authority, whether by judicial, quasi‑judicial or non judicial functionaries, are equally liable to be declared as being of no legal effect. On the other hand, the require ment that this jurisdiction should be exercised only if there is no other adequate remedy, has become equally applicable to all the cases falling under Article

98. In the English Law, apparently, this requirement was insisted upon rigorously only in relation to mandamus. In relation to certiorari, it was frequently relaxed. Article 98, however, is not succeptible to any discrimination between mandamus and certiorari on this point." In determining what should be the tests to judge whether the alternative remedy is adequate, the learned Chief Justice observed: "The correct position therefore, seems to be the adequacy of an alternative remedy is to be judged in relation to the requisite relief. (i) If the relief available through the alternative remedy, in its nature or extent is not what is necessary to give the requisite relief, the alternative remedy is not an "other adequate remedy" within the meaning of Article 98. (ii) If the relief available through the alternative remedy, in its nature or extent is not what is necessary to give the requisite relief, the `adequacy' of the alternative remedy must further be judged, with reference to a comparison of the speed, expense or convenience of obtaining that relief through the alternative remedy, with the speed, expense or convenience of obtaining it under Article

98. But in making this comparison those factors must be taken into account which would themselves alter if the remedy under Article 98 were used as a substitute for the other remedy. (a) Formulate the grievance in the given case, as a generalised category. (b) Formulate the relief that is necessary to redress that category of grievance; (c) See if the law has prescribed any remedy that can redress that category of grievance in that way and to the . required extent. (d) If such a remedy is prescribed, the law contemplates that resort must be had to that remedy; (e) If it appears that the machinery established for the pur poses of that remedy is not functioning properly, the correct step to take will be a step that is calculated to ensure, as far as lies in the power of the Court that the machinery begins to function as it should. It would not be correct to take over the function of that machinery. If the function of another organ is taken over, that other organ will atrophy, and the organ that takes over; will break down under the strain; (f) If there is no other remedy that can redress that category of grievance in that way and to the required extent, or if there is such a remedy but conditions attached to it which for a particular category of cases, would neutralise or defeat it so as to deprive if (sic) of its substance, the Court should give the requisite relief under Article 98; (g) If there is such other remedy, but is something so special in the circumstances of a given case that the other remedy while generally adequate, to the relief required for that category of grievance, is adequate to the relief that is essential in the very special category to which that case belongs, the Court should give the required relief under Article

98. In the words of an eminent author: "there would be something in the nature of the act or pro ceeding that makes it apparent to the superior Court that it will not be able to protect the rights of the litigants or afford them adequate redress otherwise than through the exercise of the extraordinary jurisdiction." . The only explanation furnished for not filing appeal in this case under the Income‑tax Act has been given in paragraph 18 of the petition. It has been asserted that the Government of East Pakistan at the time of taking over the Chittagong Under taking seized all the books of accounts of the petitioner‑company on the plea of estimating the valuation of the assets of the Undertaking and as such the books of account were not available to the petitioner for checking up the accounts for the purpose of filing an appeal against the assessment order of 1953‑54 and hence the petitioner could not file any appeal as against the said assess ment order." The assessment in question related to an estimate of the value of the depreciable assets made by the Income‑tax Officer. We are unable to see how the petitioner was prevente from filing an appeal against the order of assessment for want o Books of Accounts. The petitioner has filed a copy of the order of assessment (Annexure `D') with the petition. It shows that a Return was filed and one Mr. A. G. Nabi represented the company at the time of assessment. These facts have not been challenged in the petition. There is no special condition attached to the filing of an appeal against an order of assessment under section 23 of the Act. We are therefore of the view that the petitioner has not availed itself of the alternative remedy provided under the Income‑tax Act which cannot be said to be inadequate in giving the reliefs asked for in the present petition in regard to the assessment. Mr. Mahmud Ali, on the basis of the affidavit‑in‑opposition filed by the Income‑tax Officer, has contended that the petitioner, after assessment, was not served with any notice under section 29 of the Act. This contention has been grounded on the fact that a copy of the Postal receipt filed with the affidavit‑in‑opposition shows that the notice was sent to the petitioner to Mukerjee Road, Calcutta. Respondent No. 1 has claimed that the notice was first sent to the Chittagong address of the petitioner but Mr. A. G. Nabi refused to accept it and advised the Income‑tax Officer to send it to 90, Shyamaprosad Mokerjee Road, Calcutta‑26, Mr. Mahmud Ali has argued that as the notice was not correctly addressed, the respondent cannot claim that it was served. The legal proposition cannot be disputed. The petitioner, in the affidavit‑in‑reply, has asserted that no notice of demand for the income‑tax assessed for the assessment year 1953‑54, was ever served on the petitioner. It has further been said that it is false to say that the company had no office at Chittagong on the relevant date. The address supplied by the authorised representa tive, as alleged in the affidavit‑in‑opposition, was wholly without any justification, and if at all the so‑called authorised representa tive had given the address as alleged, it was given without any authority. Respondent No. 2, the Deputy Commissioner, Rajshahi; has in the affidavit‑in‑opposition, filed a letter dated 30th January 1961, written by the Secretary & Electrical Engineer of the petitioner‑company. This letter was addressed to the Certificate Officer, Dacca and runs as follows:‑ "Dear Sir, In acknowledging receipt of the above through a peon of the local Collectorate on 28th January 1961, demanding payment from us of a sum of Rs. 5,52,727 only on account of Income tax assessed for the year 1953‑54, we beg to forward herewith a copy of our letter dated 24th November 1958, addressed to the Income‑tax Officer, Companies Circle II, Cltittagong, by our the then Director‑in‑charge, Dr. P. K. Bose. On a perusal of that letter you will be pleased to find that an aggregate amount of Rs. 53,44,741/8/sp. still remains due to LIS from the Provincial Government on account of value of our assets of the four Electrical Undertakings at Chittagong, Rajshahi, Serajgonj and Narayanganj taken over by Government on 1st August 1952, 15th January 1955, 15th September 1955 and 27th May 1957, respectively. In terms of that letter this company agreed to set off the amount of demand, viz. Rs. 5,52,727 only from its dues from the Government of East Pakistan and accordingly the Income‑tax Officer, Companies Circle II, Chittagong, vide his Notice under section 46 (5‑A) of the Income‑tax Act, 1922, dated 30th May 1959, addressed to the Secretary to the Government of East Pakistan Depart ment of Labour, Commerce and Industries, Dacca. attached his dues viz., Rs. 5,52,727 only from the amount of our dues by way of claims from the Provincial Government. In that notice the Government was advised to deduct that amount from our dues before making payment to us. So, the dues of the Income‑tax Officer, Chittagong, are quite safe and against it there is adequate safeguard, while such a huge amount is still due to us from the Government. In the circumstances set forth above, we pray humbly that you will be pleased to drop the Certificate proceedings on a kind reference to the Income‑tax Officer at Chittagong and also to the Government." The point raised by Mr. Mahmud Ali related to a disputed question of fact and we are unable to dispose of the same on the basis of affidavits only. In any view of the matter non‑receipt of the notice under section 29 cannot be pleaded in justification of filing a petition under Article 98 without filing an appeal. provided for in the Income‑tax Act. We must point out that this has not also been the ground of Mr. Mahmud Ali. He raised this question in connection with the right to issue notice under section 46 (5‑A) of the Income‑tax Act. Regard being had to our finding with regard to the availability of an adequate remedy and failure on the part of the petitioner company to avail itself of the same, we feel it unnecessary to decide how far on the ground of delay alone a petition under Article 98 (2) of the Constitution can be rejected. The only other questions that remain to be considered are: How far the issue by notices under section 46 (5‑A) of the Act had legal basis and whether the same can be questioned in the present proceedings. Subsection (5‑A) of section 46 of the Act, runs as follows: "The Income‑tax Officer may at any time, or from time to time by notice in writing (a copy of which shall be forwarded to the assessee at his last address known to the Income‑tax Officer) require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Income‑tax Officer, either forthwith, or forthwith upon the money becoming due or coming into the possession of the person who holds or may hold it as aforesaid, or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the tax‑payer in respect of arrears of income‑tax and penalty of the whole of the money when it is equal to or less than that amount. The Income‑tax Officer may at any time or from time to time amend or revoke any such notice or extend the time for making any payment in pursuance of the notice. Any person making any payment in compliance with a notice under this subsection shall be deemed to have made the payment under the authority of the assessee and the receipt of the Income‑tax Officer shall constitute a good and sufficient dis charge of the liability of such person to the extent of the amount referred to in the receipt. Any person discharging any liability to the assessee after receipt of the notice referred to in this subsection shall be personally liable to the Income‑tax Officer to the extent of the liability discharged or to the extent of the liability of the assessee for the tax and penalties, whichever is less. If the person to whom a notice under this subsection is sent fails to make payment in compliance therewith to the Income tax Officer the notice issued by the Income‑tax Officer shall have the same effect as an attachment by the collector in exercise of his powers under the proviso to subsection (2) of section 46 and further proceedings may be taken by and before the Collector accordingly." Mr. Mahmud Ali has argued that, as under subsection (7) of the section no proceedings for the recovery of any sum payable under this Act can be commenced after the expiration of two years from the last date of the financial year in which any demand is made under this Act, the notices issued on the 12th March 1963, were without jurisdiction. The assessment was made, as we have already pointed out, on the 14th March 1958 The notice of demand is alleged to have been sent on the 18th March 1962. Mr. Mahmud Ali's contention is that no proceedings could be commenced after the 31st March 1960. The explanation to subsection (7) says that a proceeding for the recovery of any sum shall be deemed to have commenced within the meaning of this section, if some action is taken to recover the whole or any part of the sum within the period hereinbefore referred to and for the removal of doubts it is hereby declared that the several modes of recovery specified in this section are neither mutually exclusive, nor affect in any way any other law for the time being in force relating to the recovery of debts due to Government, and it shall be lawful for the Income‑tax Officer, if for any special reasons to be recorded he so thinks fit, to have recourse to any such mode of recovery notwithstanding that the tax due is being recovered from an assessee by any other mode. This point urged by Mr. Mahmud Ali has not been specifically raised in the petition and its determination is dependant on the question whether any proceeding was commenced within the 31st March 1960. We are unable to decide this as the respondents are not called to meet the same. The learned counsel for the petitioner has placed 'before us an order of the Income‑tax Appellate Tribunal setting aside some assessment orders made by Income‑tax Officer. The notices issued under section 46 (5‑A) cover claims not only for the assess ment year 1953‑54 but also some other claims which have since been set aside. This fact has not been disputed on behalf of the Income‑tax Officer. It is true that this point was not raised when the petition was filed. The point relates to what happened during the pendency of the proceeding. We however feel that in the interest of justice the notices cannot be allowed to remain in force as that is likely to create complications and bring about multiplicity of proceedings: Regard being had to these facts, must accept this petition in part and accordingly make this Rule absolute in part. Though we are unable to accept the prayer of the petitioner in regard to the assessment in question, we hold that the notices under section 46 (5‑A) cannot be allowed to remain in force. We direct respondent No. 1 to withdraw the same. He will however be free to issue fresh notices under section 46 (5‑A) for the dues of 1953‑

54. In such an eventuality, the petitioner will also be at liberty to raise the question of limitation in appropriate proceedings. We direct the parties to bear their own costs. SIKANDAR ALI, J.‑I agree. Rule made absolute.