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

The facts of Civil Appeal No. 1575 of 1971 are these : For realization of arrears of income-tax dues the Certificate Officer (sic) of 24 Parganas forwarded to the Collector a certificate in accordance with s. 46(2) of the Indian I.T. Act, 1922, specifying the amount of arrears due from respondent No.2. Thereupon a certificate case was started against him (Basanta Kumar Daw) under the Bengal Public Demands Recovery Act, 1913, hereinafter called the Bengal Act, by the Certificate Officer acting as a Collector. Notice under s. 7 was served on the certificate-debtor on October 31, 1949. Basanta Kumar Daw entered appearance and filed an objection under s. 9 of the Bengal Act. This objection was rejected by the Certificate Officer by his order dated March 8, 1951. On April 2, 1951, the certificate-debtor made an application for review of the said order dated March 8, 1951, stating therein, inter alia, that the appeal preferred by him before the Income-tax Appellate Tribunal had been allowed in part and some payments also had been made since then ; the certificate case, therefore, could not proceed for the recovery of the sum of Rs. 36, 874-10-0, the original amount mentioned in the certificate. The Certificate Officer declined to review his previous order and rejected the review petition. But he made certain enquiries from the ITO whether the amount of the certificate had to be reduced. The ITO informed him that the Tribunal had reduced the demand on appeal on September 13, 1956, and after adjustment of the previous payments made by the certificate-debtor the revised demand stood at Rs. 19, 001-3-0 only. Thereupon, the Certificate Officer amended the certificate on the basis of the information received from the ITO and reduced the demand. On July 18, 1956, he directed the issue of sale notice under r. 46(2) framed under the Bengal Act in respect of the half share of Basanta Kumar Daw (the other half belonging to big brother, Haridhan Daw) in premises Nos. 201 to 205/1, Old China Bazar Street, CalcuttaNow, a few facts of the other appeal, being Civil Appeal No. 1965 of 1971, may be stated. The ITO sent a requisition to the Certificate Officer of 24 Parganas for the recovery of a sum of Rs. 59, 541-15-0 against Haridhan Daw, respondent No. 2, in this appeal. A certificate case was started. A notice under s. 7 of the Bengal Act was served on the certificate-debtor on January 30, 1951. He also filed a petition of objection under s. 9. But the Certificate Officer by his order dated January 13, 1954, rejected the objection filed by the certificate-debtor under the Bengal Act. A review application was also rejected in this case on January 27, 1954. On March 2, 1954, the ITO informed the Certificate Officer that the original demand of Rs. 59, 541-15-0 had been enhanced to Rs. 59, 604-7-0 under s. 35 of the I.T. Act and requested him to realize the enhanced amount. The order under s. 35 was passed on March 2, 1953. The Certificate Officer thereupon informed the ITO that the Bengal Act did not provide for enhancing the demand of the existing certificate and asked him to file a separate certificate for the additional amount. He, however, continued the certificate proceedings for the recovery of the originalJardine Henderson Ltd., respondent in Civil Appeal No. 1575 of 1971, and appellant in Civil Appeal No. 1965 of 1971, purchased the whole of the premises in question on September 20, 1954, for a total sum of Rs. 3, 00, 100 purchasing one-half of the undivided share from each of the twoboth the cases, the company received a notice on August 6, 1956, fixing a date for settling the terms of the sale proclamations in respect of the respective one-half share of each of the two certificate-debtors. Immediately thereafter, the respondent-company made an application in each of the two cases that it had purchased the property being unaware of the pendency of any certificate case against any of its vendors for realization of income-tax dues and that the Company was the owner of the property and it was not liable to be sold as that of the certificate-debtor. The Certificate Officer rejected the objection holding that the purchase, having been made after service of notice under s. 7 of the Bengal Act on the certificate-debtor, was void as against any claim enforceable in execution of the certificate and hence the company had no right to object to the sale. The company went up in appeal before the Commissioner and succeeded in both the cases. Two revisions were filed before the Board of Revenue which were allowed. The respondent-company then moved the High Court under art. 227 of the Constitution. The petition giving rise to Civil Appeal No. 1575 of 1971 was allowed and hence the Union of India has come up in appeal. The other petition giving rise to Civil Appeal No. 1965 of 1971 was dismissed by the same Bench and the company has, therefore, come up in appeal

Reasoning:
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