TMI Blog1976 (4) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... in the connected rule, who are the respondents before us, preferred an appeal against the said reassessment to the Appellate Assistant Commissioner, who by order dated July 11, 1961, set aside the said assessment and directed the Income-tax Officer to make fresh assessment after bringing on record the legal heirs of the deceased assessee. The Income-tax Officer, thereafter issued notice on July 28, 1962, under section 22(4) of the Indian Income-tax Act, 1922 (hereinafter referred to as the 1922 Act), on the respondents as legal heirs of Kanailal Jatia. On non-compliance thereof the Income-tax Officer, Central Circle XVIII, Calcutta, the appellant No. 1 before us, passed fresh order of reassessment on August 15, 1962, on the legal heirs of Kanailal Jatia, deceased, under section 23(4) read with sections 34(1A) and 31(3)(b) and determined a sum of about Rs. 19 lakhs as tax payable on a total income of about Rs. 22 lakhs for the assessment year 1945-46. Notice of demand under section 29 was issued to the appellants on September 26, 1962. The respondents filed an application before the Income-tax Officer under section 27 of the 1922 Act, for setting aside the said assessment of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinued against them on basis of the notice under section 34(1A) served on Kanailal Jatia during his lifetime. In view of the default of the legal heirs in respect of the notice that was served in such proceedings under section 22(4) and no sufficient cause having been shown for such default, the Income-tax Officer's order under section 27 refusing to reopen the assessment was in order. The Appellate Assistant Commissioner's order dated May 16, 1962, was accordingly cancelled. In the course of the hearing before us we have been informed that the above order is the subject-matter of a reference pending in this court. The petitioners-respondents alleged that the appellants herein were threatening to recover tax in execution of the certificate for the said demand. In the context of existing circumstances they moved an application under article 226(1) of the Constitution contending, inter alia, that the assessment was invalid in law as it was made when the assessee was dead and no notice under section 34 of the 1922 Act was served on the petitioners-respondents. On this application a rule nisi was issued by this court on July 24, 1970, calling upon the Income-tax Officer concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny relief on the assessment as the petitioners had been pursuing their remedy available under the statute in the quantum appeal. In the view that was taken, by judgment and order dated February 25, 1971, the certificate proceeding was quashed and the appellants were restrained from proceeding with the impugned certificate, though the revenue was given liberty to initiate a fresh certificate proceeding after a valid order of assessment was made and the petitioners were in default in spite of service of fresh notice of demand. The rule was made absolute to the extent as indicated above. This appeal, as already stated, is by the revenue against the aforesaid judgment and order. Under section 297(2)(j) of the 1961 Act, any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the 1922 Act may be recovered under the latter Act. The relevant provisions of the 1961 Act may now be considered. Notice of demand under section 156 was issued on the respondents being the legal heirs of Kanailal Jatia, deceased, on September 26, 1962. The respondents were further informed on August 25, 1964, that certificate dated March 16, 1964, for recovery of Rs. 19,92,358 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educed amount of tax and make a demand and give him an opportunity to pay before treating him as a defaulter. This is so because the assessment resulting in the tax itself is set aside or modified and an assessee is entitled to proper assessment and ascertainment of tax before a demand can be made on him. It is to be noticed that in the said judgment fresh demand notice had been directed to be issued and the Income-tax Officer was given liberty, in default of payment, to recall the certificate and to amend the certificate on basis of new assessment and to return the same to the revenue officer for continuing the recovery proceedings. We may now consider the provisions of section 225(4) of the 1961 Act and it may be noted that the 1922 Act did not contain similar provision. "Section 225(4): Where a certificate for the recovery of tax has been issued and subsequently the amount of the outstanding demand is reduced as a result of an appeal or other proceeding under this Act, the Income-tax Officer shall, when the order which was the subject-matter of such appeal or other proceeding has become final and conclusive, amend the certificate or withdraw it, as the case may be." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no application in this case inasmuch as the relevant section 225(4) of the 1961 Act was not in the 1922 Act the provisions whereof were the subject-matter of consideration and even there, as we have seen, the certificate was not quashed, but was directed to be recalled, amended and sent back for execution. The learned judge is, however, of the view that sub-section (4) of section 224 contains provisions which are applicable when the "demand is reduced". This, it was held, applied to cases when the demand is reduced and not when the assessment is set aside. With respect we are unable to accept this interpretation. The word "reduce", inter alia, means according to Shorter Oxford English Dictionary, third edition, volume II, page 1662, "to lead or bring back from error in action, conduct, or belief, to restore to the truth or the right faith, to bring back to a former state." The word "reduce" thus contemplates not merely partial reduction in quantum, but it also includes reduction of the quantum or setting aside an assessment in entirety. This interpretation finds express support in sub-section (2) of section 221 of the 1961 Act, which provides for cancellation of penalty, when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation may hold good with respect to the corresponding provisions of the Income-tax Act, 1961, and in other Acts relating to the imposition of direct taxes. 2. The above decision of the Supreme Court will create difficulties in the collection of income-tax and other direct taxes. The number of assessments involved in the arrear demands of direct taxes is nearly 6 lakhs and recovery certificates have been issued to Collectors or Tax Recovery Officers in approximately 2,25,000 cases and the revenue involved comes to Rs. 157 crores. In view of the above decision of the Supreme Court, in most of these cases, fresh notices of demand may have to be served upon the assessees and the assessees will have to be allowed a further period for paying the tax. It will be only after the expiry of the said period that fresh proceedings for recovery can be started. The result would be that the recalcitrant assessees would get sufficient time to withdraw their funds or alienate their properties with a view to defeating the claims of the revenue. 3. In order to overcome these difficulties it is proposed to provide that in such cases it shall not be necessary to take proceedings afresh or to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd forming the basis of the certificate, the certificate proceeding shall be kept in abeyance unless and until such order becomes final and conclusive in the absence of appeal or other proceeding against it. As soon as an appeal is filed or other proceedings are taken against such order, it loses its finality and conclusiveness and merges into the appellate order or in the order passed in further proceedings under the Act. The certificate proceeding already started under the original assessment in such case remains in abeyance subject to the provisions of section 225(4) abiding with the last order as it attains finality and conclusiveness. If the order of the Tribunal becomes subject to further orders in proceedings under the Act, it will abide with such order as it attains finality and conclusiveness. As we have seen, there is accordingly no question of extinction of the demand or certificate in such cases like the one before us which will abide by the order in the proceedings under the Act which has become final and conclusive. Under section 3(2) of the 1964 Act, it is provided that no fresh demand shall be necessary in any case where the amount of Government dues is not varie ..... 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