Case: Union Of India Vs. Jardine Henderson And Ors. (And Vice Versa)

by the High Court and in our opinion rightly."9. Mr. S. T. Desai appearing for the company submitted that where the amount was enhanced in appeal or revision there was no express provision in the I.T. Act for service of a fresh or another notice of demand for the additional amount. But if the amount was enhanced under the power of rectification under s. 35 then sub-s. (4) thereof requires" Where any such rectification has the effect of enhancing the assessment or reducing a refund the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 29 and the provisions of this Act shall apply accordingly10. The effect of this sub-section, according to the counsel, has not been done away with by cl. (a) of s. 3 of the Validation Act. We reject this argument as being unsound and for two reasons. Firstly, on a correct interpretation of sub-s. (4) of s. 35 it would be noticed that though the expression used is " the sum payable " but in the context it would mean only the " extra enhanced sum payable " and not the whole of the enhanced amount. The expression " sum payable " had to be used in sub-s. (4) because that sub-section was also providing for a contingency where by the rectification order the amount of refund was reduced. In such a case, the expression " the sum payable " would obviously mean the difference between the amount refunded and the reduced amount which was liable to be refunded. The second reason is that even if it were to be held that in the case of enhancement the expression " the sum payable " in sub-s. (4) means the whole of the enhanced amount by a rule of harmonious construction it has got to be held that in view of s. 3(1)(a) of the Validation Act even in the case of a rectification a notice of demand is to be served now only in respect of the amount by which the Government dues are enhanced11. Now, coming to the case of reduction dealt with in cl. (b) of sub-s. (1) of s. 3 of the Validation Act it would be seen that sub-cl. (i) clearly provides that it is not necessary for the taxing authority to serve upon the assessee a fresh notice of demand. The only thing which he is required to do is that he has to give intimation of the fact of such deduction to the assessee and to the TRO. The purpose of giving intimation to the assessee is to bring it to his pointed knowledge that the demand against him has been reduced, although by other methods also such as by service of a copy of the appellate order or the revisional order being served on him he may be made aware of that. The intimation to the TRO is essential, as without that intimation from the taxing authority he cannot reduce the amount of the certificate debt in the proceedings already commenced. The High Court has taken the view that the provision contained in sub-cl. (ii) of cl. (b) of s. 3(1) of the Validation Act is mandatory and, in the absence of a formal intimation to the assessee and to the TRO as required by the said provision, the proceedings initially started could not be continued under sub-cl. (iii). In our opinion the view of the High Court is not sustainable in law. On the facts of this case, the assessee himself in his review application had clearly mentioned that the demand against him stood reduced in appeal. He also claimed that he had made certain payments. Although the TRO rejected his review petition, as, probably, he had no power of review, he took the precautionary measure of making inquiry from the taxing authority. Thereupon, the taxing authority gave him the information and the amount of the certificate debt was substantially reduced. We, therefore, hold that, on the facts of this case, the requirement of sub-cl. (ii) stood fulfilled and nothing further had to be done in the matter by the taxing authority. That being so, the proceedings initiated on the basis of the notice of demand served upon the assessee before the reduction of the amount in appeal could be continued in relation to the amount so reduced from the stage at which such proceedings stood immediately before such disposal as provided for in sub-cl. (iii)Clause (c) of s. 3(1) of the Validation Act is also important and it clearly and expressly provides that no proceedings in relation to the Government dues shall be invalid merely because no fresh notice of demand was served upon the assessee after the dues were enhanced or reduced in any appeal or proceeding. It is, therefore, plain that in neither of the two cases did the certificate proceeding become invalid, in one case by reduction of the demand and in the other by an enhancement. In both the cases notices under s. 7 of the Bengal Act had been served upon the certificate-debtors before the property in question was transferred by them to the company. The transfer was, therefore, void against the certificate claims in both the cases under s. 8(a) of the Bengal Act12. Mr. S. T. Desai called our attention to the decision of the Allahabad High Court in Ram Swarup Gupta v. Behari Lal Baldeo Prasad [1974] 95 ITR 339. That case is, however, clearly distinguishable as in that the property was sold in certificate proceedings started for the realisation of the original amount even after the amount had been reduced in appeal. It is obvious that that sale was illegal and invalid as rightly held by the High Court because after reduction the demand had to be reduced on intimation by the taxing authority and the property could not be sold for the original amount13.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Hence, the notice served under s. 7 on the certificate-debtor continued to have its effect in spite of the reduction of the amount and no fresh notice under s. 7 was necessary to be served. In agreement with the High Court we have no difficulty in rejecting thiswas, therefore, not quite accurate to say that the company had no locus standi to prefer the claim. It was open to it to show under r. 40 that at the date of the service of notice under s. 7 it had some interest in the property in dispute. If the notice served at the beginning of the two certificate cases under s. 7 on the two certificate-debtors was not a valid notice in the sense that in one case on the reduction of the amount of the certificate it became necessary to give a fresh notice and in the other without a fresh demand notice under the I.T. Act for the enhanced amount, the certificate case could not proceed, then the company had validly purchased the property and its purchase was not void. The property purchased by it could not then be sold for realization of the income-tax dues against the two brothers. If, however, no fresh notice was necessary to be served in either of the two cases then it is plain that the companys purchase was void as against the claim enforceable in execution of the certificate. The answer in both the cases has got to be given with reference to the Validation Act and no other point of any consequence was argued or could be pressed with any success in either of the twoa plain reading of cl. (a) of s. 3 it is clear that the intention of the legislature is not to allow the nullification of the proceedings which were initiated for recovery of the original demand. On the basis of another notice of demand for the enhanced amount, two courses are open to the department :(1) to initiate another proceeding for the recovery of the amount by which the dues are enhanced treating it as a separate demand, or(2) to cancel the first proceedings and start a fresh one for the recovery of the entire amount including the enhanced one. In the latter case, the first proceedings started for the recovery of the original amount will lose its force and the fresh proceeding will have to proceed de novo. But in the former the first proceedings are not affected at all. In Civil Appeal No. 1965 of 1971 this is exactly the view taken by the High Court and in our opinionreject this argument as being unsound and for two reasons. Firstly, on a correct interpretation of sub-s. (4) of s. 35 it would be noticed that though the expression used is " the sum payable " but in the context it would mean only the " extra enhanced sum payable " and not the whole of the enhanced amount. The expression " sum payable " had to be used in sub-s. (4) because that sub-section was also providing for a contingency where by the rectification order the amount of refund was reduced. In such a case, the expression " the sum payable " would obviously mean the difference between the amount refunded and the reduced amount which was liable to be refunded. The second reason is that even if it were to be held that in the case of enhancement the expression " the sum payable " in sub-s. (4) means the whole of the enhanced amount by a rule of harmonious construction it has got to be held that in view of s. 3(1)(a) of the Validation Act even in the case of a rectification a notice of demand is to be served now only in respect of the amount by which the Government dues arecoming to the case of reduction dealt with in cl. (b) of sub-s. (1) of s. 3 of the Validation Act it would be seen that sub-cl. (i) clearly provides that it is not necessary for the taxing authority to serve upon the assessee a fresh notice of demand. The only thing which he is required to do is that he has to give intimation of the fact of such deduction to the assessee and to the TRO. The purpose of giving intimation to the assessee is to bring it to his pointed knowledge that the demand against him has been reduced, although by other methods also such as by service of a copy of the appellate order or the revisional order being served on him he may be made aware of that. The intimation to the TRO is essential, as without that intimation from the taxing authority he cannot reduce the amount of the certificate debt in the proceedings already commenced. The High Court has taken the view that the provision contained in sub-cl. (ii) of cl. (b) of s. 3(1) of the Validation Act is mandatory and, in the absence of a formal intimation to the assessee and to the TRO as required by the said provision, the proceedings initially started could not be continued under sub-cl. (iii). In our opinion the view of the High Court is not sustainable in law. On the facts of this case, the assessee himself in his review application had clearly mentioned that the demand against him stood reduced in appeal. He also claimed that he had made certain payments. Although the TRO rejected his review petition, as, probably, he had no power of review, he took the precautionary measure of making inquiry from the taxing authority. Thereupon, the taxing authority gave him the information and the amount of the certificate debt was substantially reduced. We, therefore, hold that, on the facts of this case, the requirement of sub-cl. (ii) stood fulfilled and nothing further had to be done in the matter by the taxing authority. That being so, the proceedings initiated on the basis of the notice of demand served upon the assessee before the reduction of the amount in appeal could be continued in relation to the amount so reduced from the stage at which such proceedings stood immediately before such disposal as provided for in sub-cl. (iii)Clause (c) of s. 3(1) of the Validation Act is also important and it clearly and expressly provides that no proceedings in relation to the Government dues shall be invalid merely because no fresh notice of demand was served upon the assessee after the dues were enhanced or reduced in any appeal or proceeding. It is, therefore, plain that in neither of the two cases did the certificate proceeding become invalid, in one case by reduction of the demand and in the other by an enhancement. In both the cases notices under s. 7 of the Bengal Act had been served upon the certificate-debtors before the property in question was transferred by them to the company. The transfer was, therefore, void against the certificate claims in both the cases under s. 8(a) of the Bengalcase is, however, clearly distinguishable as in that the property was sold in certificate proceedings started for the realisation of the original amount even after the amount had been reduced in appeal. It is obvious that that sale was illegal and invalid as rightly held by the High Court because after reduction the demand had to be reduced on intimation by the taxing authority and the property could not be sold for the original amount