TMI Blog1942 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the case appear in the Statement of Case and Judg- ment of the Appellate Tribunal : JUDGMENT OF APPELLATE TRIBUNAL. Under Section 33 of the Indian Income-tax Act (XI of 1922) the Income-tax Appellate Tribunal, M. MUNIR, President, N.R. GUNDIL, Judicial Member, and P.N.S. Aiyar, Accountant Member, delivered the following judgment:- PRESIDENT.- This is an appeal by His Highness Maharaja Yadevindra Singh Maharajadhiraj Bahadur, Maharaja of Patiala, from the order of the Appellate Assistant Commissioner of Income-tax, 'A' Range, Bombay, passed on appeal from the order of the respondent by which he assessed for the assessment year 1937-38 the income that accrued in Bombay to the appellant's father, His Highness Maharajadhiraj Sir Bhupindra Singh, the late Maharaja of Patiala. 2. The late Maharaja being a Ruling Prince was residing out of British India within the meaning of Section 42 of the Income-tax Act. He had some private property in several places and was deriving income from some other sources in British India, e.g., from dividends, speculation and dealings in shares, and was being assessed in the past by different Income-tax Officers in Britis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... former year a net loss of ₹ 1,44,700 and assessing for the latter a taxable income of ₹ 3,43,097 and determining ₹ 50,337 to be the tax payable. On 11th October, 1940, the Foreign Minister wrote to the respondent to say that there had been a miscalculation in assessing the income for 1937-38 and that the correct amount of the tax due was ₹ 40,861-8 and not ₹ 50,337 as required by the notice of demand to be paid. The letter contained a request for a reconsideration of the assessment and revision of the notice of demand. Being doubtful about the respondent's power to revise the assessment the Foreign Minister, simultaneously with the letter of 11th October, 1940, and on the same grounds as were taken in that letter, appealed to the Appellate Assistant Commissioner, 'A' Range, Bombay, claiming as relief the reduction of the tax determined from ₹ 50,337 to ₹ 40,861-8. The respondent, acting under Section 35 of the Act, reduced the figure taxable income from ₹ 3,43,097 to ₹ 3,10,461 and made the consequent reduction in the tax payable. 5. The appeal before the Appellate Assistant Commissioner presents a somewhat curio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Assistant Commissioner containing two more grounds of appeal and asking for the setting aside of the order of assessment.These grounds were: 3. The income purported to have been assessed was for the accounting year ended the 31st March, 1937, and the proceedings in respect of such income could have been initiated under Section 22(2) of the Indian Income-tax Act, 1922, only during the year ended the 31st March, 1938. The Income-tax Officer, Non-Residents' Refund Circle, however, initiated such proceedings under Section 22(2) of the Act in November 1938. Further he did not issue and serve on the proper party the requisite notice under Section 34 of the said Act. 4. H.H. the late Maharaja of Patiala died at Patiala on the 23rd March 1938. The notice under Section 22(2) of the said Act, assuming that it was validly issued (it is not admitted) should have been issued and served upon the executor, administrator, or other legal representative of H.H. the late Maharaja of Patiala. The notice, however, purported to be issued to 'H.H. the Maharaja of Patiala' and was sent to your petitioner with a covering letter dated 23rd October 1938. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deceased person as if such executor, administrator or other legal representative were the assessee. 10. Just as there cannot be a decree against a dead man, so under the Indian Income-tax Act, a dead man cannot be assessed. If the income of a dead man is to be assessed the procedure laid down by sub- section (2) of Section 24B must be followed. According to that sub- section, where a dead man's income is sought to be assessed, a notice under Section 22(2) or Section 34, as the case may be, must be served on the executor, administrator or other legal representative of the deceased. It is implied in the sub-section that the notice should inform the person to whom it is addressed that the income of the deceased person whose executor, administrator or legal representative he is, is intended to be assessed. After service of the notice such person, qua the assessment of the income of the deceased person, becomes the assessee. On a plain reading of the sub-section it appears to me to be clear that its requirements are satisfied where the notice under Section 22(2) is served on the legal representative, and on the service of such notice he understands the real issue, namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghtest indication that he had no concern with the matter and that the respondent should deal with the right person. For these reasons, I think, it must be held that not only the contents of the notice under Section 22(2) were communicated by the Foreign Minister to the appellant but that the former throughout the proceedings acted in consultation with, and under the instructions of, the latter. 13. It is true that though the notice required the income of the financial year ended the 31st March, 1937, to be returned, it did not expressly state that the income to be returned was that of the late Maharaja. But it was all along understood both by the appellant and respondent that the income intended to be taxed was that of the late Maharaja. At the time the notice under Section 22(2) was issued the respondent did not know the name of the appellant or of his late father. When in the covering letter dated 17th October, 1939, that accompanied the return the Foreign Minister described the returned income as that of His Highness Maharajadhiraj Mahendra Bahadur from all scurces in British India for the years ended 31st March, 1937 and 1938, and respondent for the first time felt that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no appeal by the appellant to us. It seems to be clear to me that it was fully understood that the appellant was being assessed in respect of the income of his late father for the year ended the 31st March, 1937, and that being so, it must, I think be held that though there has been some confusion as to the manner in which the income of a dead man has to be reached by the tax-collector, the requirements of the law have in fact been fulfilled and the error or confusion, if any, not only does not vitiate the assessment but has not had the slightest effect on it. Absence of notice under Section 34. 14. Coming now to the objection that a notice under Section 34 was not issued, the position is comparatively simple. The section (the case is governed by the old section) does not require a notice in any particular form. All that the section says is that if for any reason income, profits or gains chargeable to income tax have escaped assessment in any year, the Income-tax Officer may, at any time within one year of the end of that year, serve on the person liable to pay tax on such income, profits or gains a notice containing all or any of the requirements which may be included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent. Income-tax Officer, Non-Residents' Refund Circle, Bombay. It has been held in this Allahabad case is unmistakable terms that in the case of a nonresident it is the agent alone and not his non-resident principal that can be treated as the assessee, i.e., the person to whom a notice under Section 22(2) shall issue and by whom the tax is payable. The provisions of Section 42(1), this case proceeds to lay down further, are mandatory and the department is precluded from issuing notices to the principal and from treating him as the assessee except to the limited extent that any arrears of tax may also be recovered from any of his assets which may be found in British India. This is the latest and the most fully argued out case on the point in which all previous authorities and English law have been discussed. The Appellate Assistant Commissioner has made a vain attempt to distinguish the present case from the Allahabad authority but the reasoning adopted by him in attempting to escape from the effect of that decision is poor argument which, I must say, we cannot even seriously consider. If there had been no other authority on the point binding on us, we would have had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be completely unaware of the nonresident assessee's means, of income. 16. I must point out that we are not concerned in this case with the question whether an Income-tax Officer in British India is competent to serve notice under the Income-tax Act on a non-resident while he is out of British India and what are the consequences of non-compliance of such notices. We are dealing with a case where a notice in fact has not only been accepted but also gracefully complied with. 17. Before I take leave of this case I must mention that if this case which involves a substantial revenue is being decided in favour of the Crown it is solely due to the appellant's own willing attitude in the earlier stages of the case. As far as the Department is concerned, there has been no dearth of irregularities. The case had been transferred to the respondent with the direction that he should appoint an agent for the assessee in accordance with the decision of the Allahabad High Court in the case of the Maharaja of Benares. Not the slightest attention seems to have been paid by the respondent to this direction by the Commissioner of the Punjab and N.W.F. and Delhi Provinces, Throughout th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the income that accrued in British India to his father His Highness Maharajadhiraj Sri Bhupindra Singh, the late Maharaja of Patiala. 3. The late Maharaja being a Ruling Prince was residing out of British India within the meaning of Section 42 of the Income-tax Act. He had some private property in several places and was deriving income from some other sources in British India, e.g., from dividends, speculation and dealings in shares, and was being assessed in the past by different Income-tax Officers in British India through different officials of his State. 4. After the Income-tax Officer, Central Circle, Lahore, had determined the case for assessment for the year 1936-37, he received from the Commissioner of Income-tax, Punjab and N.W.F. and Delhi Provinces, an order to the effect that in consequence of the Allahabad High Court decision in the case of Maharaja of Benares1, the files of non-residents should be transferred to the Income-tax Officers in whose jurisdiction the non-resident's own property or in whose jurisdiction the income arises so that those officers may try to appoint an agent connected with the source of income. On receipt of this order the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment the Foreign Minister, simultaneously with the letter of 11th October, 1940, and on the same grounds as were taken in that letter, appealed to the Appellate Assistant Commissioner, 'A' Range, Bombay, claiming as relief the reduction of the tax determined from. ₹ 50,337 to ₹ 40.861-8-0. The Income-tax Officer, acting under Section 35 of the Act, reduced the figure of taxable income from ₹ 3,34,097 to ₹ 3,10,461 and made the consequent reduction in the tax payable. 6. The appeal before the Appellate Assistant Commissioner dated 11th October, 1940, admitted the liability to tax to the extent of ₹ 40,861-8-0 and claimed a reduction of ₹ 9,475-8-0 on the ground of an error in the calculations. The appeal was not in the prescribed form and in the concluding paragraph contained the following prayer:- The notice of demand was received in this office on 20th September, 1940. As it wilt take some time to complete the necessary formalities, I request you to kindly extend the time limit of filing the appeal from 30 days to at least 90 days, failing which this letter may kindly be treated as a regular appeal and ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly issued (it is not admitted) should have been issued and served upon the executor, administrator or other legal representative of H.H. the Maharaja of Patiala. The notice, however, purported to be issued to 'H.H. the late Maharaja of Patiala' and was sent to your petitioner with a covering letter dated 23rd October, 1938. There was, therefore, no proper notice and no proper service of any notice and consequently the return for the accounting year ended 31st March, 1937, was submitted blank. This petition was signed and verified by an officer of the Income- tax Department of the State, who had for his authority a certificate of authorisation under Section 61 of the Income-tax Act purporting to have been given by the assessee. 8. All the grounds taken from time to time before the Appellate Assistant Commissioner were entertained and gone into by him. He found that the Foreign Minister's original appeal of 11th October 1940 was a good appeal. He therefore reduced the taxable income by ₹ 31,319. The technical objections to the assessment, raised later, found no favour with him and were consequently repelled. 9. From the order of the Appellate Assistant Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an agent under Section 43 of the Income-tax Act. 13. Question (a) as formulated by the assessee in the application for reference assumes that the Tribunal in its order under Section 33 found that the provisions of Section 24B(2) had not been complied with. This assumption, however, is incorrect, inasmuch as the Tribunal on this part of the case found:- (1) that the assessee was the legal representative of H.H. Bhupindra Singh Sahib Bahadur, the late Maharaja of Patiala, whose income was intended to be assessed and was in fact assessed; (2) that the contents of the notice under Section 22(2), dated 23rd November, 1938, which was addressed to H.H. the Maharaja of Patiala and which was sent with a covering letter addressed to the Foreign Minister, His Highness's Government, Patiaia, were communicated by the Foreign Minister to the assessee and that throughout the subsequent proceedings, including the making of the return of income, the production of copies of accounts and the filing of an application under Section 35 and an appeal under Section 30 which resulted in a substantial reduction of the income of the assessee, the Foreign Minister acted in consultation with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appealing under Section 30 of the Act. The third question, therefore, that arises in the case and which we refer to the High Court is:- Whether in the circumstances found by the Tribunal in its order under Section 33, the assessment is invalid and can be called in question by the assessee on the ground that it was made without appointing an agent under Section 43. 16. Under Section 66(1), Income-tax Act, 1922, we refer the following questions to the High Court of Bombay:- 1. Whether in the circumstances found by the Tribunal in its order under Section 33, the assessment was not made in accordance with the provisions of Section 24B of the Income-tax Act and is for that reason invalid. 2. Whether in the circumstances found by the Tribunal in its order under Section 33, the assessment was validly made under Section 34 of the Act. 3. Whether in the circumstances found by the Tribunal in its order under Section 33, the assessment is invalid and can be called in question by the assessee on the ground that it was made without appointing an agent under Section 43, These questions are subject to this statement of the case and the finding of fact in the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year 1938, requiring the Maharaja (that is, the present Maharaja) to make a return of his income. Returns were made of the late Maharaja's income, and on September 16, 1940, assessment orders for the respective years 1937-38 and 1938-39 were passed. In those orders the name of the assessee is stated to be His Highness Maharajadhiraj Sir Bhupindra Singh, that is, the late Maharaja, and subsequently notices to pay were served on the Foreign Minister on behalf of the late Maharaja in the case of one notice, and of the present Maharaja in the case of the other. I will deal first with the third question, which was first argued on behalf of the Commissioner. It is in these terms: Whether in the circumstances found by the Tribunal in its order under Section 33, the assessment is invalid and can be called in question by the assessee on the ground that it was made without appointing an agent under Section 43? In view of the conflict which exist between High Courts in India on the question whether under the Act, before the amendment of Section 42 made in 1939, a foreign resident could be assessed direct upon income chargable to income-tax under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in Rogers Pratt Shellac Co. v. Secretary of State for India [1924] 52 Cal. 1. There is no doubt, reading Section 42 by itself, that at first sight there is a great deal to be said for the view that the only way in which income brought in to tax by that Section can be charged is through an agent of the person entitled to the income, because the words are mandatory and provide that the income referred to shall be chargeable to income-tax in the name of the agent of any such person, and such agent shall be deemed to be the assessee for the purposes of the Act. But I think the principle which has been established by certain English cases, Tischler Co. v. Apthorpe [1885] 52 L.T. 814; 2 Tax Cas. 89 and Werle Co. v. Colquhoun [1888] 20 Q.B.D. 753; 2 Tax Cas. 402, approved by the House of Lords in Whitney v. Inland Revenue Commissioners applies to the construction of Section 42. The English cases were decided no Section 41 of the English Income-tax Act of 1842, and, no doubt, there are distinctions between the wording of that section and the wording of Section 42, and, of course, the whole scheme of the English Income-tax Act is very different from the scheme of the Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to be taxed under Sections 4 and 42, but anxious to avoid the interposition of an agent, makes an offer to the Income-tax Officer in Bombay that if the Officer will tax him direct, he will fill up the necessary forms, attend the office of the Income-tax Officer in Bombay, and produce any books that the Officer may require. If the Officer were to accept that offer, and make the assessment direct on the assesses under the provisions of Sections 22 and 23, could it seriously be suggested that the assessment was bad, and that the Income-tax Officer was bound to assess through the medium of an agent whom neither he nor the assessee desired to introduce? That would be a most unreasonable construction to put on the Act, and is not one I am prepared to adopt, unless obliged to do so by clear language. The mandatory terms of the machinery portion of Section 42 present no difficulty when once it is realised that such machinery is additional to the ordinary machinery. If the additional machinery is adopted, its terms must be followed, but it need not be adopted at all. With regard to the authorities in India, the High Court of Madras as long ago as the year 1921 in Chief Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. So that, their decision leaves the decision of this Court, so far as it relates to the construction of Section 42, untouched. That was how the matter stood until the year 1938, when the matter came before the Allahabad High Court in Maharaja of Benares v. Commissioner of Income-tax [1938] 6 I.T.R 217; 1938 All. 432, and the learned Judges refused to follow the rulings of the Madras and Bombay High Courts, and held that, even assuming that Section 42 was a machinery section, the provisions of the section made it compulsory to make an assessment on the nonresident under that section only through an agent. I have carefully reconsidered the question in the light of the reasoning of the Allahabad High Court and for the reasons which I have given, I do not agree with the view of that Court, which, in my opinion, took too superficial a view of Section 42. Therefore, I think the answer to the third question is that the assessment is not invalid. It may be noticed that the unfortunate position introduced by the Allahabad decision, which results in one construction being put upon Section 42 in the United Provinces and a different one in Madras and Bombay, is only temporary, because under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence to support it; but, apart from that I am certainly not disposed to hold as a matter of law that, when a notice is given in terms under Section 22(2), which subsequently turns out to be a bad notice under that section because it is out of time, it can be held automatically to be a good notice under Section 34, although there is no reason for supposing that the Income-tax Officer ever considered the question under Section 34. It seems to me quite clear that the notice in this case was not a notice under Section 34, and I decline to treat it as such. The second question, therefore, must be answered in the negative. In view of that answer, the assessment is illegal, and the first question is really of only academic interest. The first question is: Whether in the circumstances found by the Tribunal in its order under Section 33, the assessment was not made in accordance with the provisions of Section 24B of the Indian Income-tax Act and is for that reason invalid? I observe in passing, with regret, that it seems from the wording of this question and others which have been submitted to us by the Tribunal that the Tribunal are adopting the practice followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a good deal of force in the contention of the Tribunal that any irregularities in this respect were waived by the Maharaja, because returns of the late Maharaja's income were made by the Foreign Minister on behalf of the Maharaja, and then subsequently corrections were made in the assessment at the instance of the Maharaja. There is no doubt that the present Maharaja knew perfectly well that what was being assessed was the income of his predecessor. Then when one comes to the actual assessment, it is made on the deceased Maharaja. It is, of course, wholly irregular to assess a deceased person. The assessment should have been made on the legal representative in respect of the income of the deceased. However, there again, the Patiala authorities seem to have accepted the view that it was an assessment made on the agent in respect of the income of the deceased person, because they have actually appealed against the assessment, and if the assessment was an assessment on a dead man, it was obviously a nullity, and there is nothing to appeal from. On the whole, though I certainly do not wish to give any countenance to the idea that the provisions of Section 24B need not be str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een done hitherto. So, as a start I am sending the usual notices and beg to request that you will be good enough to let me have the returns of income of His Highness from all sources in British India for the years ended March 31, 1937, and 1938. Along with that he had sent two printed notices which were headed under Section 22(2) and Section 38 of the Income-tax Act. They were addressed to His Highness the Maharaja of Patiala, and by paragraph 2 the addressee was called upon to send a return of the total income from all sources during the previous year, i.e., twelve months ending March 31, 1937, and in the other notice for twelve months ending March 31, 1938. Two returns signed by the Foreign Minister in response to those notices were sent to Bombay. The return for 1937 was blank; the other, for 1938-39, had certain figures written against item No. 5, viz., business, trade, commerce, manufacture or dealing in property, shares or securities, etc. At the foot of the first return it was stated This period also is covered by the attached return (i.e., the other return). Subsequent correspondence followed in which at the request of the Bombay Income-tax Office items were discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not disputed the validity of the notice till the matter finally came before the Tribunal. The second point, however, appears to be more difficult to get over at first sight. The assessment order clearly discloses the name of the late Maharaja Sir Bhupindra Singh as the assessee, and that is certainly bad. But the notice directing payment is addressed to the Foreign Minister and thereafter proceedings were adopted by the Foreign Minister evidently under instructions from the present Maharaja. In the matter of this assessment having regard to all the circumstances, although there is gross irregularity, if other things were against the assessee, on this ground alone I would not have perhaps disturbed the assessment order. I must however put on record my opinion that the issue of the assessment order in the name of the late Maharaja was highly irregular and should not in the ordinary course and circumstances be validated lightly. The second question relates to Section 34 of the Act, and the question is whether the notice given to the Maharaja on November 23, 1918, was in fact a notice under that section. It may be noted that two notices were sent on the same day to the same part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, so long as it brings to the attention of the person to whom it is served the matters required to be answered or dealt with or the things required to be furnished it is sufficient. From this it was argued that if a notice containing all the particulars under Section 22(2) was served on the assessee, the assessee had notice of what he was required to give by way of information and therefore the notice was sufficient. I am unable to read the observations of that learned Judge with such meaning at all. The learned Judge was dealing with the question whether a notice clearly given under Section 34 requiring certain particulars to be given conveyed to the assessee what particulars were called for. The observations are not general, and in my opinion it is wrong to read them in the general sense without reference to the context. In view of this finding the assessment made on the footing of this notice is invalid, and the answer to that question must be as stated in the judgement of the learned Chief Justice. The third question gives rise to a somewhat intricate question of law on which there has been a difference of opinion in India. Section 4 of the Act st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Chief Commissioner of Income-tax v. Bhanjee Ramjee Co. [1921] 44 Mad. 773; 1 I.T.C. 147, held that this section was only a machinery section, to recover tax on income which a non-resident was liable to pay, and it did not exclude the liability of the non-resident himself to be taxed if the taxing officer could reach him. That view was approved by Rangnekar, J., expressly in Commissioner of Income-tax, Bombay v. National Mutual Association of Australasia Ltd. [1924] 52 Cal. 1 In terms the learned Chief Justice has not recorded his approval but the basis of the decision can be assumed to be the approval of that interpretation. In Rogers Pratt Shellac Co. v. Secretary of State for India, the later part of the section was considered a machinery to recover the tax. In Maharaja of Benares v. Commissioner of Income-tax[1938] All. 432; 6 I.T.R. 217., (the decision under which the records of this case were sent over from Lahore to Bombay) the Allahabad High Court, differing from the view of the Madras High Court, held that in respect of non-residents, under Section 42 the agent alone had to be taxed and they relied in particular on the concluding words of Section 42. This Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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