# SUPREl\JE COURT REPORTS [1964} INCOME-TAX OFFICER, KOLAR AND ANOTHER v. SEGHU BUCHIAH SETTY '

- **Citation:** [1964] 7 S.C.R. 148
- **Court:** Supreme Court of India
- **Decided:** 1964-03-11
- **Bench:** A. K. Sarkar, M. Hidayatullah, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/suprel-je-court-reports-1964-income-tax-officer-kolar-and-another-v-seghu-3080
- **Pages:** 26

## Headnote

Inco'me-iax-Order' of assessment revised in appea!-
Recovery of tax-Proceeding& based on original order of assess.
ment-Continuaiion, witholit fresh notice of demand-·-Lega!iiu
-Indian Income-tax Act, 1922 (11 of 1922). ss. 29, 45, 4.6.
The respondent was assessed to income-tax for the years.
1953-54 and 1954-55 on estimatled incomes of Rs. 61,000/- and
Rs. 1,21,000/- respectively and notices of demand under s. 29
of the Indian Income-tax Act; 1922, were served on him by the
Income-tax Officer for the tax due. On the respondent failing to
comply with the notices of demand within the period specified,
the Income-tax Officer issued certificates under s. 46(2) of the
Act and sent them to the Collector for recovery of the tax,
treating the respondent as in default. In appeals filed by the
respondent against the orders of assessment, the Appellate
Assistant Commissioner reduced the income assess<cd for the
year 1953-54 to Rs. 28,000 and for the year 1954-55 to Rs. 46,000.
The Income-tax Officer did not issue fresh notices of demand
pursuant to the modification in the orders of assessr.1ent made
by the .Appellate Assistant Commissioner, but by a letter
informed the respondent that he had to pay tax as reduced by
the appellate order. The respondent did not pay the amount of
tax demanded, but applied to the High Court of Mysore under
Art. 226 of the Constitution of India for quashing the certificates
issued by tl:e Income-tax Officer.
The High Court. hel<'
that the Income-tax Officer could not, without issuing fresh
notices of demand, after the Appellate Assistant Commissioner
of Income-tax reduced the taxable income, treat the respondent
as a defaulter and that the proceedings of the Collector based
on the certificates issued by the Income-tax Officer were illegal.
Held: (per Sarkar and Hidayatullah, JJ.). The d~cision of
the High Court was right.
Per Sarkar, J.-On the Income-tax Officer's order being
revised in appeal, the default based on it and all consequential
proceedings must be taken to have been superseded and fresh
proceedings have to be started --to realise the dues as found by
the revised order.
Per Hidayatullah, J.-In view of the terms of s. 29 of the
Act, where an order is passed in appeal and the amount of tax
reduced, the Income-tax Officer must intimate to the assessee
the reduced amount of tax and make a demand and give him an
opportunity to pay befoye treating him as a defaulter.
Per Shah, J. (dissenting)-In the absence of any provision
imposing an obligation upon the Income-tax Officer to issue
successive notices of demand from time to time for recovery of
the arrlount due during the process of assessment, it must be
held that the notices of demand issued by th" Income-tax
Officer in exercise of the power under s. 29 must b" enforced in
the manner provided by s. 46 and within the period of limitation
7 S.C.R.
SUPREME COURT REPORTS
149
provided in cl. (7) of s. 46, even after the appeal against th7
lfJG.J
order of assessment by the Income-tax Officer is ~isposed. of, 1,, .. ·,,mllaa: O.fiicer,.
subject to adjustment of the amount to be recovered m the hght J;,,f,tr an<l Anoth"
of the order of the Appellate Assistant Commissioner.
v.
S1:1i, '' B11c'1ial1 Set.ty
CIVIL APPELLATE JUl\lSDICTION: Civil Appeals Nos.
--
221 & 222 of 1963. Appeals by special leave from the iu?g·
Sarka,, J.
ment and order dated April 16, 1959 of the Mysore High
Court in Writ Petitions NDs. 138 and 139 of 1956.
N. D. Kharkhanis and R. N. Sachthey, for the appellants
(in both the appeals).
K. Srinivasan and R. Gopa/akrishnan, for the respondent
(in the appeals).
March 11, 1964. SARKAR J. and HIDAYATULLAH J. de·
livered separate opinions dismissing the appeals. SHAH J. de·
livered a dissenting opinion allowing the appeal.
SARKAR J.-The question in these two appeals is whether
certain proceedings for the recovery of tax from the assessee
under the Income-tax Act, 1922, were invalid and should be
quashed as the assessment order on which they were

## Text

_Characters 0–39,955 of 74,663. This is a partial read: ask again with offset=39955 for what follows._

1964
March 11
148
SUPREl\JE COURT REPORTS
[1964}
INCOME-TAX OFFICER, KOLAR AND ANOTHER
v.
SEGHU BUCHIAH SETTY
'
(A. K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH, JJ.)
Inco'me-iax-Order' of assessment revised in appea!-
Recovery of tax-Proceeding& based on original order of assess.
ment-Continuaiion, witholit fresh notice of demand-·-Lega!iiu
-Indian Income-tax Act, 1922 (11 of 1922). ss. 29, 45, 4.6.
The respondent was assessed to income-tax for the years.
1953-54 and 1954-55 on estimatled incomes of Rs. 61,000/- and
Rs. 1,21,000/- respectively and notices of demand under s. 29
of the Indian Income-tax Act; 1922, were served on him by the
Income-tax Officer for the tax due. On the respondent failing to
comply with the notices of demand within the period specified,
the Income-tax Officer issued certificates under s. 46(2) of the
Act and sent them to the Collector for recovery of the tax,
treating the respondent as in default. In appeals filed by the
respondent against the orders of assessment, the Appellate
Assistant Commissioner reduced the income assess<cd for the
year 1953-54 to Rs. 28,000 and for the year 1954-55 to Rs. 46,000.
The Income-tax Officer did not issue fresh notices of demand
pursuant to the modification in the orders of assessr.1ent made
by the .Appellate Assistant Commissioner, but by a letter
informed the respondent that he had to pay tax as reduced by
the appellate order. The respondent did not pay the amount of
tax demanded, but applied to the High Court of Mysore under
Art. 226 of the Constitution of India for quashing the certificates
issued by tl:e Income-tax Officer.
The High Court. hel<'
that the Income-tax Officer could not, without issuing fresh
notices of demand, after the Appellate Assistant Commissioner
of Income-tax reduced the taxable income, treat the respondent
as a defaulter and that the proceedings of the Collector based
on the certificates issued by the Income-tax Officer were illegal.
Held: (per Sarkar and Hidayatullah, JJ.). The d~cision of
the High Court was right.
Per Sarkar, J.-On the Income-tax Officer's order being
revised in appeal, the default based on it and all consequential
proceedings must be taken to have been superseded and fresh
proceedings have to be started --to realise the dues as found by
the revised order.
Per Hidayatullah, J.-In view of the terms of s. 29 of the
Act, where an order is passed in appeal and the amount of tax
reduced, the Income-tax Officer must intimate to the assessee
the reduced amount of tax and make a demand and give him an
opportunity to pay befoye treating him as a defaulter.
Per Shah, J. (dissenting)-In the absence of any provision
imposing an obligation upon the Income-tax Officer to issue
successive notices of demand from time to time for recovery of
the arrlount due during the process of assessment, it must be
held that the notices of demand issued by th" Income-tax
Officer in exercise of the power under s. 29 must b" enforced in
the manner provided by s. 46 and within the period of limitation
7 S.C.R.
SUPREME COURT REPORTS
149
provided in cl. (7) of s. 46, even after the appeal against th7
lfJG.J
order of assessment by the Income-tax Officer is ~isposed. of, 1,, .. ·,,mllaa: O.fiicer,.
subject to adjustment of the amount to be recovered m the hght J;,,f,tr an<l Anoth"
of the order of the Appellate Assistant Commissioner.
v.
S1:1i, '' B11c'1ial1 Set.ty
CIVIL APPELLATE JUl\lSDICTION: Civil Appeals Nos.
--
221 & 222 of 1963. Appeals by special leave from the iu?g·
Sarka,, J.
ment and order dated April 16, 1959 of the Mysore High
Court in Writ Petitions NDs. 138 and 139 of 1956.
N. D. Kharkhanis and R. N. Sachthey, for the appellants
(in both the appeals).
K. Srinivasan and R. Gopa/akrishnan, for the respondent
(in the appeals).
March 11, 1964. SARKAR J. and HIDAYATULLAH J. de·
livered separate opinions dismissing the appeals. SHAH J. de·
livered a dissenting opinion allowing the appeal.
SARKAR J.-The question in these two appeals is whether
certain proceedings for the recovery of tax from the assessee
under the Income-tax Act, 1922, were invalid and should be
quashed as the assessment order on which they were based had
been revised in appeal. The High Court of Mysore held them
to be invalid and quashed them. The revenue authorities have
now appealed to this Court agajnst that decision.
I think it will be helpful to set out the facts chronologi·
cally. The tax sought to be realised became due under two
assessment orders passed by an Income-tax Officer on March
23, 1955. in respect of the years 1953-54 and 1954-55 finding
that the assessee's income for the earlier year was Rs. 61,000/·
on which a tax of Rs. 19,808-1-0 was due and that for the
other year was Rs. 1.21,000/- creating a tax liability of
Rs. 66,601-3-0. Notices of demand under s. 29 of the Act were
issued in respect of these dues .. The assessee filed appeals to
the Appellate Assistant Commissioner against the assessment
orders but did not pay the tax as demanded by the notices.
On such failure to pay, the Income-tax Officer sometime in
September 1955 sent certificates to the Deputy Commissioner,
Kolar -under s. 46(2) of the Act far recovery of the tax as
arrears of land revenue and the latter in the course of the same
month attached various properties of the assessee under the
Revenue Recovery Act. Thereafter on December 17, 1955, the
appeals filed by the assessee which were till then pending were
decided by the Appellate Commissioner. He reduced the
assessable income of the assessee to Rs. 27,000/- for the year
1953-54 and to Rs. 45,000/- for the year 1954-55 and directed
the Income-tax Officer to recompute the tax on the basis of the
reduced income and to refund the excess if any collected. It
appears. that thereafter on February 19, 1956, the Income-tax
Officer mformed the assessee that his tax liability for 1953-54
150
SUPREME COURT REPORTS
[1964]
1961
had been reduced to Rs. 4,215-9-0 and for 1954-55 to
lncomclax Officer,
Rs. 13,346-8-0 and called upon him to pay these amounts at
Kolm and .4nother once into the local treasury. The assessee filed further appeals
Se h" Bu;h;ah 8,11. against the orders of the ~ppell~te Commissioner ai~d aske?
g
_
/ that the recovery proceedmgs might be stayed pendmg dec1Sarkar. J.
sion of these appeals and on that request being rejected, moved
the High Court of Mysore by two petitions under Art. 226 of
the Constitution for quashing the recovery proceedings as
invalid with the result earlier mentioned. We are not concerned with the appeals filed by the assessee from the appellate
orders and no further reference to them will be made in this
judgment.
The contention of the assessee is that in view of the orders
of the Appellate Commissioner the earlier orders, notices of
demand and certificates must be deemed to have been superseded and the attachments therefore ceased to be effec:tive from
the elate of the appellate orders and could no longer be proceeded with. He contends that the Income-tax Offia:r had to
start afresh by serving a new notice of demand and taking the
necessary further steps thereon foc realisation of the tax which
then was clue only under the appellate orders. These contentions were accepted by the High Court. The revenue authorities on the other hand, contend in short that the Act does
not provide for any such supersession.
Now, the scheme of the Income-tax Act far realisation of
moneys becoming due under it appears to be this. The tax
becomes due on the making of an assessment order or an
order imposing penalty or requiring interest to be paid. Thereafter a notice of demand in respect of that amount has to be
served. This is provided by s. 29 which is set out below:
S. 29. When any tax, penalty or interest is due in
consequence of any order passed under or in pursuance of this Act, the Income-tax Officer shall
serve upon. the assessee or other person liable to
pa,y such tax, penalty or interest a notice of
demand in the prescribed form specifying the.- sum
so payable.
The form mentioned contains directions as to the time within
which, the person to whom and the place at which the payment
,
is to be made.
•
The consequences that follow a non-<:<>mpliance with a
notice of demand· served under s. 29 are set out in s. 45 which
so far as material is in the following terms :
Section 45. Any amount specified as payable in a
notice of demand under sub-section (3) of section
23A or under section 29 or an order under section
31 or section 33, shall be paid within the time, at
the place and to the person mentioned in the
7 S.C.R.
SUPRE:lIE COURT REPORTS ·---~l51
notice or order, or if a time'is not so mentioned.
1964
then on or before the first day of the seconct Incometax Officer;.
month following the date of the service of the Kolar and Another .
notice or order. and any_ assessee failing _so to pay S•ahu Bu:hiah s,
111'
shall be deemed to be m default. provided that,
_
when an assessee has presented an appeal under
Sarkar, J.
section 30, the Income-tax Officer may in his discretion treat the assessee as not being in default as.
long as such appeal is undisposed of.
It will be noticed that this section is not confined to the
effect of a failure to comply with the terms of a notice of
demand issued under s. 29 but makes the same consequenc"
arise on the failure to carry out the terms of a notice under
s. 23A(3) and orders under ss. 31 and 33. That consequence is
that the assessee is to be deemed to be in default. It is after an
assessee is so.in default that coercive processes for realisation
of the amount due start. Provision for this is made in s. 46 to·
which I will immediately come. Before doing so. however. I
wish to observe that s. 45 gives an Income-tax Officer on an
appeal being filed, a discretion to trea.t an assessee as not in
default. An argument has been founded on this aspect of the
section and to it I will later refer.
Passing on now to s. 46, it will be enough for the purposes.
of these appeals to refer only to sub-s. (2) of that section. This
provides that "The Income-tax Officer may forward to the
Collector a certificate under his signa.ture specifying the
amount of arrears due from an assessee. and the Collector on
receipt of such certificate. shall proceed to recover from such
assessee the amount specified therein as if it were an arrear of
land revenue." It was under this provision that in the present
case the Income-tax Officer sent the certificates to the Deputy
Commissioner and the latter effected the attachment thereafter
under the Revenue Recovery Act.
Now there is no dispute that all steps taken in the present
case by .the revenue authorities were valid when taken for the
appellate orders had not till then been made. The only question
is as to the effect of the appellate orders. It is contended on
behalf of the revenue authorities that the Act does not provide
that the consequences of a default incurred under the Act
cease to be available to the revenue authorities for realisation
of the amount due in case the order which was the basis of
the default was later revised in appeal. It is. therefore. said
that those consequences are not affected by the revision of the
order except where it is annulled and hence all notices and
attachments remain in force and can be acted upon for recovering the tax due.
·
·
I am unable to agree with this proposition. It may be that
the Act contains no express provision stating what would
I
I
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.-
I
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' ._..
. .._
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152'
SUPRE~IE COURT REPORTS
(1964]
1961
happen to the default already incurred when the order under
Jncom<tax Offiur,
which it was incurred was later revised in appeal.. But I think
.Kola.and Anoth" there is enough in the Act to indicate that in some of these
cS h B v;, h s
cases at least the default comes to an end. If it does. it seems
' 9 u ·~ eny to me to follow inevitably that the consequences of the default
Sarkar, J.
also disappear.
I would first refer to s. 45 which says that when an order
under s. 31 specifies an amount as payable and the amount is
not paid within the time, at the place and to the person mentioned in the order or where no time is mentioned in it, within
the time specified in the section itself, the assessee so failing
to pay shall be deemed to be in default. The order under s. 31
is an order by the Appellate Commissioner. If he specifies an
amount as payable in his order and mentions the time when,
the place where and the person to whom the payment is to be
made, then non-compliance with that order would create a,
default. Now this order is made in an appeal from an order
made by the Income-tax Officer. Suppose there is already a
default as a result of non-compliance with a, notice under s. 29
given in respect of the Income-tax Officer's order. As clearly
there could not be two defaults for there was one liability, the
Act must in such a case be taken to have provided by necessary implication that the default incurred as a result of noncompliance with the notice to pay the amount mentioned in
the Income-tax Officer's. order must be deemed to have been
superseded by the appellate . order. The contention that the
Act does not contemplate a default ceasing to be so except
when an assessment order is annulled by the appellate order,
1s, therefore, unfounded. Take another case. Suppose the appellate order says only that a different amount from that mentioned in the Income-tax Officer's order shall be payable on
income for a certain period without specifying the person to
whom or the place where it is to be paid. The effect of it must
be to wipe out the Income-tax Officer's order since the two
cannot exist together. In such a case along with the superseded
order the default if any incurred in connection with it must
also disappear. There will ha,ve to be a fresh notice under s. 29
in respect of the amount due under the appellate order on
breach of which a fresh default may arise.
It was, however, said that the Act nowhere requires the
appellate order to state the amount payable or to specify the
time when, the place where and the person to whom it is to be
paid. That may be so but that does not affect what I have said.
Section 45 clearly contemplates the appellate order setting out
· these things and there is nothing in the Act to prevent the Appellate Commissioner from setting them out. Since s. 45 cannot be read as contemplating an impossibility. it must be held
that the Appellate Commissioner may in his order specify the
amount payable and state the other particulars about time of
7 S.C.R.
SUPREME COURT REPORTS .
153
payment etc. If he can do so, that would be enough for my
1964
present purpose and it .is not necessary for it that the Act must J.comct;;;Officer,
m every case reqmre him to do so. In case where the appellate Kolar and Another
order specifies an amount as payable, the Income-tax Officer's 8 hu B"~hiah 8, 11
order must be deemed to have been superseded.
"J
_
w
One other argument to which I have to refer at this stage
is that if the assessee's contention be correct, then the discretion given to the Income-tax Officer by s. 45 not to treat an
assessee in default becomes infructuous for then in every case
on the making of the appellate order the default earlier incurred must disappear. This does not seem to me to put the position accurately. It is not in dispute th~t the filing of an appeal
does not stay the operation of the original order. So if before
the appellate order is made, the amount dl!e is realised by the
coercive process following the default, then those steps do not
become invalid. There may be a, liability to refund but none
the Jess what was done was legal when done. Again it would,
in my view, depend on the terms of the appellate order whether
the earlier default was wiped out or not. If, for example, the
appellate order confirms the original order, then the default
already incurred may not be affected. In both these cases the
discretion to treat the assessee as a defaulter was effectively
exercised. The argument that the acceptance of the assessee'!\
contention would render part of s. 45 nugatory and should,
therefore, not be accepted, is in my opinion unsound.
How then doe.s the matter stand? It seems to me tha.t the
crux of it is the effect of the appellate order on the original
order. If the original order has been destroyed or replaced by
the appellate order, then the notice of demand and all other
steps based upon the original order must be deemed to have
become ineffective.
In such a case the default earlier incurred must be taken
to have disappeared and cannot support further action for
recovery of any tax. Now the general proposition is that an
original order merges in the appella.te order: cp. Madan Gopa/
Rungta v. Secretary to the Government of Orissa('). But in the
present case. it is not necessary to rely on that proposition. Section 31(3) of the Act seems to me to make express provision on
the subject. It states that in the case of an appeal from an order
of assessment, which is the kind of order with which we are
now concerned, the Appellate Commissioner may "(a) confirm,
reduce, or enhance or annul the assessment, or (b) set aside the
assessment and direct the Income-tax Officer to make a fresh
assessment after making such further enquiry as the Incometax Officer thinks fit or the Appellate Assistant Commissioner
may direct, and the Income-tax Officer shall thereupon proceed
(') [1962] Suppl. 3 S.C.R. 906.
Sarkar, J.
154
SUPREME COURT REPORTS
[1964]
196l
to make such fresh assessment and determine where necessary
Incometax Officer,
the amount of tax payable on the basis of such fresh asscssKolar awi Another ment." There will, of course, be no occasion to determine the
Beghu Bu~j,iah Setty amount of the tax payable on the basis of the fresh asse&sment
-
if the income on that assessment appears to be below lhe taxRark'"• J.
able level. I will consider the various orders contemplated by
s. 31(3)(a) & (b) and their effect.
It may be that when an appellate order confirms the original order, the default earlier incurred and aII steps taken
pursuant thereto remain unaffected, for such an order may
maintain intact the original order. Now it is not in dispute that
when the 'appeIIate order pnnuls the earlier order, the default
disappears. It is said that that is because the debt ceases to
exist. I do not quite follow this. It has never been questioned
that the debt becomes due when demand is made under s. 29
and s. 45 of the Act: see Doorga Prosad Chamaria v .. Secretary
of State('). Therefore if a debt is 'to cease to exist it must be
because the source from which it sprang, namely. the original
order, has been annihilated by the appeIIate order annulling it.
In fact s. 31 (3)(a) contemplates an annulment of the original
assessment order itself; the demand under s. 29 or s. 45 is not
annulled directly by i~. Therefore, in the case of an order of
annulment under s. 31 the original order of assessrpent is itself
destroyed. If it disappears, I cannot conceive the default based
on it continuing in force. Likewise, where under cl. (b) of
s. 31(3) the appeilate order sets aside the assessment, the same
result must clearly follow. There is not )llUCh difference between annulling an order and setting it aside; both wipe out
the original order.
I now come to an appellate order enhancing the assessment. With regard to it, it has not been disputed that a fresh
notice of demand must issue. If this notice has to be in respect
of the entire amount, then clearly the default earlier incurred
for the smaller amount found due by the original order must
have gone for the liability was one and there could not be two
defaults in tespect of it. But it was said that the notice has to
be issued in respect of the enhanced amount only. Indeed in
some of the cases cited at the bar it has been so said. I have
very grave doubts about the correctness of this view. The
notice of demand can only issue in respect of the amount due
fa consequence of an order. Unless, therefore, the appellate
order specifies only the enhanced amount as due I do not see
how a notice in respect of that amount can be issued under
s. 29. The appellate order has to specify an amount due. If it
specifies the entire amount due including the enhancement,
then it cannot be said that under it the amount of the enhancement only is due and no notice demanding such an amount
(') 72 I.A. 114.
7 S.C.R.
SUPREME COURT REPORTS
155
only under s. 29 can be issued. If the appellate order specifies
1961
only the amount of the enhancement, it will be making an Incometax Officer,
additional or supplementary assessment. Apart from s. 34 of Kolar and Another
the Act with which we are not now concerned, I am not aware se91,. Bnehiah Setfy
of any other provision which permits such an assessment. ~n
any case s. 31 (3)(a) does not seem to me to contemplate tt.
Therefore, in my view when an order of enhancement of assessment is made under s. 31 the notice must be in respect of the
entire amount and in such a case the earlier notice issued in
respect of original order must be deemed to have been superseded.
But assume I am wrong in this. Assume that an appellate
order cf enhancement ma.y be confined to the amount of the
enhancement only. Even so I am wholly unable to agree that
the appellate order cannot specify the entire enhanced amount
due. There is nothing in the Act to prevent this being done.
When this is done then at least the original order and the
notice must be deemed to have been put out of existence along
with the default arising from the non-compliance with the
latter and all its consequences.
That leaves only the aase of an appellate order reducing
the amount. It seems to me that it would be somewhat curious
if in all other cases excepting the case of a confirmation, the
appellate order destroys the original order it does not do so in
the case of a reduction. An order confirming may be different
for it confirms a,nd, therefore, does not destroy. It has, however, been said that "if subsequently the demand is modified
on appeal and the amount of the tax payable is reduced, all
that happens is that the liability sought to be imposed by the
notice of demand, in respect of the amount by which the
assessment is reduced is found to have never been a liability
at all but the liability in respect of the remainder which stands
unaffected by the appellate order remains" and also that
"where a notice of the demand has, in fact, been issued in
respect of a larger amount as determined by the assessment
order, it has been issued even in respect of the smaller amount
w~ich is ultimately found to be the tax properly payable. That
bemg so, the assessee was under an obligation to pay it by the
date fixed and if he did not pay it by that date, he became a,
defaulter": see Ladhuram Taparia v. D. K. Ghosh and Ors.(')
With great respect I am unable to accede to this proposition
and the conclusion based thereon that the default and its consequences continue even after the appellate order reducing the
original assessment. How does the assessee know before the
ap~llate order the smaller amount which he might ultimately
be liable to pay? It would be curious if he did not know what
he had to pay and could still ha,ve defaulted in paying it.
(') 33 I.T.R. 407, 423, 424.
Sarkar, J.
156
SUPREME COURT REPORTS
[1964]
1901
The order of reduction must, in my opinion, necessarily
.lncometax Officer,
have the effect of setting aside the original order as a whole .
.Kolar and Aiwtlier It does not simply strike out a few of the figures appearing in
8 h B •;. 1
~ . the original order. That would really be a case of rectification
· eg "
·~~· ' elly for which provision is made ins. 35 of the Act. What an appel·
SarJ,at, J.
late order does in a case of reduction is, as in the present case,
to go into all the figures and arrive afresh at the assessable
income which replaces the amount of the income arrived at
by the Income-tax Officer. Therefore it seems to me that in all
cases of an appellate order reducing the assessment the original
order goes and if it goes, of course the notice of demand also
falls to the ground and the default based thereupon also ceases
to be default anymore. Suppose the appellate order itself stated
that a smaller amount of tax was payable after it had reduced
the figure of the assessable income at which the Income-tax
Officer had arrived. Indeed I cannot imagine how else it can
be expressed. After such an order the original order must go
for the debt being one the two cannot exist together. If that
order goes, all default arising out of it must also go.
Therefore I think that on the Income-tax Officer's order
being revised in appeal, the default based on it and all consequential proceedings must be taken to have been superseded
and fresh proceedings have to be ·started to realise the dues
as found by the revised order.
Comipg now to the present case, in view of the order
made in it, it seems to me impossible to contend that the original default continued. What happened in the present case was
that on December 17, 1955 the Appellate Commissioner
reduced the assessable income of the assessee as found by the
Income-tax Officer by a large sum and directed him 110 recompute the tax due on the basis of the assessable income stated
in the appellate order. The assessee was not informed about
the recomputed amount of tax till February 14, 1956. The
assessee had not paid the tax mentioned in the Income-tax
Officer's order. If he had done that then he would under the
express terms of the appellate order have become entitled to
a refund. What then was the position between these two dates?
If the revenue authorities are right, then the assessee continued
to be in default even after the appellate order. But what was
the amount in respect of which he was so in default? Clearly
he could not have continued to be in default in respect of the
amount found due by the Income-tax Officer in his original
order for that amount was no longer due. He could not have
been in default in respect of the amount which was found due
on recomputation by the Income-tax Officer according to the
direction of the Appellate Commissioner because he did not
know that amount. It would be absurd if the Act contemplated
a default without the assessee knowing the amount in respect
of which the default occurred and without his having; a chance
'
7 S.C.R.
SUPREME COURT REPORTS
157
to pay it. It would be impossible to construe the Act in a way
1964
to produce that result. It has, therefore. to be held that between I""""1dax OJ!i<er
the date of the appellate order and the communica.tion of the Kolar and AMlhe;
,recomputed amount of the tax to the as~essee by the Income- Seghu B.0.iah Saty
tax Officer there could be. no default. Smee the Act does not
_
provide for a default being in suspension for a period it must
Sarkar, J.
be held that the original default ceased to exist after the appellate order was made. Proceedings initiated on the original
default before the appellate order could not, therefore, be
.continued any more. Indeed the appellate order superseded
the original order and its consequences.
If the effect of an appellate order reducing the assessment
:as in the present case did not wipe out the original order, a
most anomalous situa.tion would, in my view, arise. Under
s. 46(1) of the Act after a default has been committed in terms
-0f s. 45(1) the Income-tax Officer may impose a penalty not
exceeding the amount of the tax due in respect of which the
default has occurred. This penalty may be recovered in the
same way as the tax due, tha.t is to say, by a notice under s. 29
and thereafter by a certificate issued under s. 46(2). Now suppose the penalty for the full amount of the tax found due by
the Income-tax Officer has been imposed and thereafter the
appellate order reduces the amount of the tax. What happens
to the order of penalty then? Obviously it does not automati-
<:ally stand reduced to the reduced amount of the tax. It would
again be absurd if the penalty could be recovered for the full
original amount. The only sensible view to take in such a case
would be that the order of penalty falls to the ·ground and the
only logical way to support that conclusion would be to say
that the original default has ·disappeared.
For these reasons I have come to the conclusion tha.t the
decision of the ·High Court was right and I would, therefore,
dismiss the appeals.
HIDAYATULLAH, J.-These appeals by special leave arise
Hid!Jyatullalt, J
from a common order in two writ petitions under Art. 226 of
the Constitution passed by the High Court of Mysore on April ·
16. 1959. The Income-tax Officer, Kolar and the Commissioner
of Income-tax, Bangalore are the appellants before us. The
assessee Seghu Buchiah Setty, who is the respondent, is a
merchant of Srinivaspur, Kolar pistrict. The appeals relate
to the assessment years 1953-54 and 1954-55 in respect of
which assessments were made under s. 23(4) of the Incometax Act. For the assessment year 1953-54; the assessee's income was estimated to be Rs. 61,000 /- and the tax levied was
Rs. 19,808-1-0. For the second year, his income was estimated
to be Rs. 1,21,000 and the tax levied was Rs. 66,601-3-0. The
assessee applied under s. 27 of the Income-tax Act for the
cancellation of these assessments but his applications were
158
SUPREME COURT REPORTS
[1964}
1!!64
rejected. It was stated before us that other proceedings were•
Inwmetax Officer,
pending in this behalf; but I am not concerned with them exKolar "ad Annt1'a cept in so far as a preliminary objection based on those and
8,91,,, n,,~i,;0 1, &tty some other proceedings was made before us to which 1 shall
--
refer presently. After the assessment was made, the IncomeHidayni•llah, J. tax Officer sent notices of demand asking the assessee to pay
Rs. 86,409-4-0 as tax, and on default, issued a certificate under
s. 46(2) of the Act to the Collector of Kolar District to recover
the amount as arrears of land revenue.
On December 17, 1955, the Appellate Assistant Commissioner, "A" Range, Bangalore, before whom the assessments
were challenged by appeal, passed his order and assessed the
income for the two years to be Rs. 28,000/- and Rs. 46,000/-
respectively. The 1 ncome-tax Officer did not issue any fresh
notices of demand under s. 29 of the Act but wrote a letter.
demanding the reduced tax for the two years which now stood
reduced to Rs. 4.215-9-0 and Rs. 13,346-8-0 respectively. It is
significant that the reduction in the tax was from eighty-six
thousand rupees to seventeen thousand rupees. It appears that
the assessee took further appeals to the Income-tax Appellate
Tribunal and the matter was said to be pending there.
The assessee then applied to the High Court under Art.
226 of the Constitution for quashing the old certificates issued
under s. 46(2) by the Income-tax Officer on the ground that as.
no fresh notices of demand were issued against him in respect
of the reduced tax, he was not in default. The High Court
accepted this contention and the necessary writs quashing the
proceedings were issued. After the decision of the High Court,
fresh notices of demand for the reduced tax were issw~d to the
assessee on May 8, 1959 and those proceedings were also pending. The preliminary objection which is based on the pendency
of the other proceedings and particularly the last fact is really
of great force, because these appeals do not now appear to
serve any tangible purpose. However, the appeals were heard·
at length and I must express my decision on the poinil mooted
before us.
Jn these appeals. the Department contends that the original notices of demand issued in September 1955 had not become inoperative after the order of the Appellate Ass;stant
Commissioner. The reason advanced is that there is nothing in
the J ncome-tax Act which requires that a fresh notice of demand must issue every time the amount of tax is reduced in
appeal. It is pointed out that if a previous notice of demand is
not compiied with. the assessee becomes a defaulter and it is
submitted that he continues to be a defaulter, in respect of the
balance. It is however conceded that where the Appellate
Assistant Commissioner incrnases the assessment, a fresh notice
7 S.C.R
SUPRE:'.\IE COURT REPORTS
159
of demand must issue. It is urged that proceedings for recovery
19'"
which may have commenced are likely to become useless if1,,,0,,,,,;;()fficer,
fresh notices were compulsory, and it is submitted that all that Koh11· and Anoth"
is necessary is to inform the assessee and the Collector bys ghu 8,,~;. .. ,,,, >'elfy
letters what the reduced amount is and as the default still
--
-
continues, the reduced amount can straightaway be realised
mJay•dulloh, J.
on the old certificates and a refund can be ordered if excess
amount has already been recovered. The assessee contends
that the original notice of demand lapses and with it the default and the certificate, and that the Income-tax Officer is
bound to issue a fresh n.otice of demand.
The High Court accepted the asses.see's contention following a decision of the Calcutta High ·Court in Metropolitan
Structural Works Ltd. v. Union of Tndia('). The' appellants
contend that the true view of the law is contained in a later
decision of the Calcutta High Court reported in Ladhuram
Taparia v. D. K. G/u;sh and others('), where the earlier case
was explained. The appellants rely further on The Municipal
Board, Agra v. Commissioner of Income-tax, United Provinces: No. 2('), Auto Transport Union (Private) Ltd. v. Tncometax Officer, Alwaye(') and Hiralal v. Tncome-tax Officer(") for
support.
In Metropolitan Structural Works Ltd. v. Union of.
Tndia(') there were successive demand notices after the Appellate Assistant Commissioner and the Tribunal reduced the
assessment and the Income-tax Officer finally sent a certificate
under s. 46(2) of the Act. The assessee in that case, relying
upon the seventh sub-section of s. 46, claimed that the proceedings were barred as according to it, the period of one year
could only be calculated from the last day of the financial
year in which demand was made and this could only be the
first demand. It was contended by the assessee that the Act
did not provide that a fresh notice should issue after revision
of assessment. though it was admitted that there was no prohibition. Chakravartti, C. J. and Lahiri, J. observed:
"The real point, however, is whether a second or a
third notice of demand is at all permissible under
s. 29, even when an assessment is altered in a first
or a second appeal. It appears to me that the necessity of issuing a fresh notice of demand in such
circumstances is beyond argument."
(') (1955) 28 I.T.R. 432.
(") (1951) 19 I.T.R. 63.
(") (1962) 45 I.T.R. 317.
(Italics supplied)
(') (1958) 33 I.T.R. 407.
(') (1962) 45 I.T.R. 103.
160
SUPREME COURT REPORTS
[196iJ
1964
The learned Chief Justice gave illustrations of those cases' in
Jncomeu.. Ojficer, which the earlier notice becomes "inappropriate". Addressing
KJlar and Anoth<r himself to the necessity of a new notice, the learned Chief
Seqhu Bu"a.iah Setty Justice observed :
Hidayalullal1, J.
"In my view the answer to that could only be in the
affirmative."
(Italics supplied~
The difference between the word~ 'in consequenc<: of any
order' used in the Act and 'in consequance of any o:;sessment
order in pursuance of this Act' which, he pointed out, could
have easily been used, w~s next stressed and he held that the
orders of the Appellate Assistant Commissioner and the Tribunal answered the former description. He expressed his conclusion thus:
"If so, when there is some tax due in consequence of
an order passed by the Appellate Assistant Commissioner or in consequence of an order passed
by the Appellate Tribunal, a clear occasion arises
under the words of the section to serve a notice of
demand upon the assessee. That such fresh notice
should be issued when the assessment is altered is
but common sense and I see no reasori to construe
the section against reason and against the actual
necessities of realisation."
In the next case, Ladhuram Taparia v. D. K. Ghosh and
others(') the facts were the converse. There a demand notice
was issued and then the tax was reduced. The assessee con-·
tended that there should be a fresh notice of dem2,nd before·
he was deemed to be in default. Chakravartti, C. J. and Das
Gupta, J. held that on reduction of assessment nothing further
was required beyond an intimation to the assessee and the
Collector of the reduction of the tax. The reason given was
that the demand in respect of the excess stood 'eliminated' and
the demand for the balance remained. It was held tha.t a case of
enhancement was different and it needed a fresh notice of demand. It was however not pointed out whether the fresh demand should be for the excess amount or the whole of the
amount. Nor was it shown why a letter to the assessee and the
Collector would not do in that case also. In either case, speaking arithmetically, a portion of the demand is saved, but speaking legally, the demand notice, to quote the words of the
earlier judgment, 'becomes inappropriate'.
Whether the learned Chief Justice was right on the first
occasion or on the second can only be said after discussing the
relative sections of the Income-tax Act, but this much I must
(') (1958) 33 I.T.~7.
•
7 S.C.R.
SUPREME COURT REPORTS
161
say (and I say it with considerable hesitation and diffidence
'
1964
since 1 have always held the learned Chief Justice in high lneomrtnx Officer,
esteem) that he has not been able to get clear of the words Kata',,.,,, Another
used by him on the earlier occasion. It seems anomalous that 8 , B "i. h-8 11
if the tax is increased from Rs. 10,000/- to Rs. 10,010/- a fresh '9"'
'.'.'.'.'.'~ ... ' 11
notice of demand must go, that is to say me earner default 1s
m.z,,,1a1u11n1,; J.
wiped off; but if it is reduced from Rs. 10,010 /- to Rs. I 0 !- a
fresh notice is not required and the assessee must be deemed
to be in default for Rs. IO with all the evil consequences of
cjefault because he did not pay an extra ten thousand rupees
with the ten rupees. But it may be said, there is no room for
logic and mathematics if the Act so requires and the true
answer can only be furnished by what the law requires. Before
dealing with the pertinent sections to determine how the
matter stands there, I may say that the other cases of the other
High Courts cited earlier do not add to the discussion, but
mention must be made of The Municipal Board Agra v. Commissioner of Income-tax, United Provinces:No. 2('). In that
case, though a fresh notice of demand was served after 1eduction of tax under s. 35 of the Income-tax Act, calculation
of limitation from the date of service of that notice was 11ot
allowed because the clauses relating to right of appeal, period
of limitation etc. were pencilled through. The reason given
was that s. 35(4) makes it compulsory to serve a notice of demand only when there is enhancement and as no fresh notice
is made compulsory when the tax is reduced, none need issue.
An assessee might, on such construction, lose his limitation for
appeal in a case under s. 27 of the Income-tax Act even before the order Under s .• 27 determining the amount of ta::. is
passed.
It is contended that there is no provision that a second or
third notice of demand must issue. There is no need that the
Act must expressly authorise the issue of fresh notices of demand. Even if such a power is not expressly included, it flows
from s. 14 of the General Clauses Act under which a power
can be exercised as often as the occasion demands. I am,
however, of the opinion, that (except in cases of de minimis)
the Act does contemplate that a fresh notice of demand shall
issue. There are two reasons for it. The first is the language of
s.