UNION OF INDIA & ORS.

SETH R. DALMIA

Febrµary 27, 1975.

7 35

[Y. V. CHANDRACHUD, R. S. SARKARIA AND A. C. GUPTA, JJ .J

Income Tax Act 1961-Sec. 148.

C'ntral Board of Direct Taxes (Regulation of Tra11saction of Busi11ess) R111.ts 1964-Rule 4-Whctlrer approra/ by Ccnt; a/ Go\'ernme11t cf distrilmtion

of the busi11ess of board by Chairman m11.1t be expressed in tire sl1ape of an oriu.

6 notices were issued to the respondent under s. 148 of the Income Tax Act for reopening the assessments for 3 assessment years.

The notices recited that they were issued after obtaining the necessary satisfaction of the Central Board of Direct Taxes. The respondent filed a writ petition in t!ie High Court challenging the said notices inter a/ia 011 the ground that sanctio11' of the Central Board of Direct Taxes was not taken before the notices were issued as required 9y sec. 151 of the Ah:t.

The High Court accepted the •said contention and did not decide the other grounds raised in the petition. The High Court held that on a reading of the affidavit made by J. P. Singh, Chairman of Central Board of Direct Taxes it wou.ld appear that the work which had been done by the Chairman of the Central Board was transferred to the Member of. the Board and the approval of th~ Secretary to the Government of India was obt.aincd for this transfer or allocation of work.

The High Court, however, found that the averments in the affidavit were not in line with the ofliec notes in the relevant file.

The High Court also held that as no formal order was paS'>ed changing the allocation with the previous appmval of the Central Government, the sanction issued by Central Board of Direct Taxes was without jurisdiction and authority.

On appeal by Special Leave it was contended before this Cot•rt that r. 4 of the Central Board of Direct Taxes (Regulation of Transaction of Business) Rules, 1954 provides that the Chairman of the Central Board may with the previous approval of the Central Government distribu'e the business of the. Board between himself Mid the other members and may specif) the cases o; class of cases which shall be considered jointly by the Board. lt was contended that J. P. Singh in his affidavit cka.ly stated that on 30-3-1964 he suggested to ]'firayan Rao a member of the Cen'.ra\ Board of Di; ect Taxes that he should take up the work of ac.:ording sanction of the Board unde: s. 151 ot the Act which was being done by the Chairman. It was further stated in that affidavit that on June 18, 1964 be personally discussed the proposal wi!h the Secretaiy to the Government of India in the Ministry of Finance and that the secretary approved the said proposl and that a note was made by him on 18th June,

1%4 to the effect that the mattr was discussed with the Secretary and that it is just a minor internal arrangement and no formal order was necessary.

Allowing ihe appeal,

HELD. (1) The High Court erred in not taking not~ of the affidavit of P. G. Gandhi Under Secretary Central Board of Direct Taxes, in which it is stated that all assessment work of income tax was assigned to Narayan Rao with the approval of the Centrnl Government.

In view of the statements in the spedfic affidavit of J. P. Singh and P. G. Gandhi it cannot be said that the offire notes were not in line with tbe averments in the affidavits.

[739H;

740C]

(2) It wa~ not necessary to P-xpress the approval of the Central Government formally in the shape of an order. [741HJ

Fonseca Private Limited and Others v. L. C. Gupta & Others, (1973) I S.C.C. 4 18, distinguished.

In that. case what was challenged was the order passed by an officer who A was not entitled to J>aSs it under the rules of business and the decision has no relevance on the question whether on the circumst:mces of the present case, approval of the Cenral Government should have been recorded in a formal order. [741C]

(3) The distribut!on •of the business of the Board by the Chairman is not a sub-delegated leg1slat1on and need not be expressed in a formal document; that the allo=ation of the business and approval are matters of internal arrangement B not affecting any one's rights at that stage. Since the appeals succeed on other grounds the Court diJ not go into the question whether the provisions of tile Central Board of Direct Taxes (Validation of Proceedings) Act 1971 afforded protection to the action taken. [741E-F; 742E] '

C1v1L APPF.LLATE JuRJsDICTION : Civil Appeals Nos. 1107- 1112 (NI) of 1970.

1 From the judgment and order dated the 24th March, 1970 of the Delhi High Court In Civil Writ .Petition Nos. 663D and 6680 of 1965.

S •. T. Desai, T. A. Ramchandran & S. P. Nayar, for the appellants.

L. M. Singhvi and Bishambar Lal, for the respondent.

The Judgment of the Court was delivered by D

GUPTA, J.-These six appeals by certificates granted by the High Court of Delhi arise out of six writ petitions filed by the respondent before us challenging the validity of six ootices dated September 7, 1965 issued under sec. 148 of the Income-Tax Act, 1961 (hereinafter referred to as the Act). The notices relate to . the assessment years E 1949'-50 1950-51 and 1951-52, the corresponding accounting years

ending bn the 30th September of 1948, 1949 and 1950 respectively.

Three of the notices were issued to the petitioner in his individual capacity and the other three were served on him as a member of an association of persons. The petitioner had been assessed as an individual for the aforesaid assessment years in accordance with the provisions of the Indian Income-Tax Act 1922. Thereafter a Comm.is- F sion known as Vivian Bose Commission was appointed to enquire into the affairs of various companies with which the appellant was alleged to have been associated._ On the facts disclosed in the report of enquiry, the Jncome1-tax Officer, Special Investigation Circle A, New Delhi, issued the aforesaid two sets of notices to the petitioner under sec. 148 of the Act. The notices informed the petitioner that these were issued "after obtaining the necessary satisfaction of the G Central Board of Direct Taxes, New Delhi". This claim was questioned by the petitioner in the High Court and one of the grounds on which . the validity of the notices was challenged was that sanction of the Central Board of Direct Taxes had not been taken before the notices were isued as req:iired by sec. 151 of the Act. The High Court accea:ing this contention queshed all the six notices served OR the petitioner and by issuing a writ of prohibition restrained the aooel- H !ants, the Uniot1i of India, the Central Board of Direct Taxes, New Delhi, and the Income-tax Officer, Special Investigation Circle A, New

Delhi from taking any action upon these notices. As the writ petitions' succeeded on this ground, the High Court did not consider the othe, r objections to the notices raised in the petitions. The pro-- priety of that decision is in question in these appeals.

The relevant part of sec. 151 of the Act reads as follows:-

"151.

Sanction' for issue of notice.-(l) No notice shall be issued under section 148 after the expiry of eight years from the end. of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Incometax Officer that it is a fit case for the issue of such notice.

(2) x x x x"

Section 4(1) of the Central Boards of Revenue Act, 1963 provides:

"The Central Government may make rules for the purposes of regulating the 1 transaction of business by each Board and every order made or act done in accordance with such rules shall be deemed to be the order or act, a5 the case may be, of the Board." "Board" as defined inl sec. 2 of this Act means the Central Board of Direct Taxes or the Central Board of Excise and Customs. Rule 4 of the Central Board of Direct Taxes (Regulations of Transaction of Business) Ru!es, 1964 is in these terms :

"The Chairman may, by an order made with the previous approval of the Central Government, distribute the busilliess of the Board among himself and the other Members allld specify the cases or class of cases which shall be considered jointly by the Board."

What happened in this case was that the Income-tax Officer put up the case of the respondent to the Central .Board of Direct Taxes by a comprehensive note prepared by him and Shri S. 4.. L. Narayana Row, the only Member of the Board besides the Ch irman, on being satisfied on the reasons recorded by the Income-tax Officer that for each of the assessment years in both capacities of the respondent a fit case had been made out for the issue of a notice under sec. 148 of the Act, the impugned notices were issued to the respondent. In support of his case that sanction of the Board had not been obtained, the respondent relied on the Office Order dated January 1, 1964 annexed to the affidavit of Shri P. G. Gandhi, Under Secretary Central Board of Direct. Taxes, led in er to the writ petitions, which sets out the distribution of r between the Chairman and the Member of the Central Boar of Direct Taxe~: . I.n this document, entry No. 7 in the lisB0f ; woK allotted to the Chairman reads : "all assessment work ofincome-tix''. It was cori•ended that Shri: Narayana Row had therefore no .auP.liority to deal with cases for reopeninirof-.....,..

asse.ssments a!ld a~ sucJ.ilthe impugned notices. issued upon his satis- ........_ faction. w_er~ mval!d !, l'I paragraph 5 of the affidavit of Shri P. .G.

Gandhi, 1t 1s adm1ttef! that "all assessment work of Income-tax" had been assie~ to t.J;\e Chairman under office order dated January 1, 1964 which mclur!fed matters relating to the reopening of assessments / { I \

under sec. 34 of the Income-Tax Act, 1922 or under sec. 147 of the Income-Tax Act, 1961, but the paragraph adds that "later wit'.1 the approval of the Central Government this item of work was as:'1gne.d to the Member of the Board Shri S. A. L. Narayana Row who m thts case accorded the sanction".

An affidavit atirmed by Shri J. P. Singh who at the relevant time was the Chairman of the Central Board of Direct Taxes and ex-oflicio Additional S1:cretary to the Govcrnmont of India in the Ministry of Finance, was aiso filed on behalf of the appellants. Paragraphs 3 to 7 of Shri Singh's affidavit state how Shri Narayana Row came to d1:al with the cases relating to the reopening of assessme.nts.

These paragraphs read as follows :

''3. That on 30-3 64 I suggested to Shri

S. A. L.

Narayana Row, the then Member of the Central Board of Direct Taxes that he should take up the work of according sanction of the Board under Section 151 ( 1) for reopening of assessments under Section 14 7 of the Income-Tax Act, 1961 to which he consented.

4. Rule 4 of the Central Board of Direct Taxes (Regulation of Transaction of Business) Rules, 1964 envisaged

that Chairman may by an order made with the previous approval of the Central Government distribute the business of the Board among himself and the other members.

The approval regarding the transfer of work relating to sanction un:der section 151(1) of Income-Tax Act from the Chairman to the Member Central Board of Direct Taxes was accordingly referred to by me to the Secretary, Ministry of Finance (Department of Revenue & Expenditure) on 9-6-1964.

5. Tiat on 18-61964. I personally discussed the proposal rega ding transfer of work from myself to the Member, Central Board of Direct Taxes with Shri V. T. Dehejia, the then Secretary of the Government of India, Ministry of Finance (Department of Revenue & Expediture).

6. That Shri V. T. Dehejia, the then Secretary to the Government of India, Ministry of Finance (Department of Revenue & Expcmgture) approved the said proposal to which effect a note wa~ by me on 18-6-1964.

7. That pursuant to the ci~ assigned to him under Section- 147 of the Income-Tax )\ct, 1961 in the aforesaid Rule 4 of the Central Board of Dirt Taxes (Regulation of Transaction of BusiIJess) Rules 1-..964, Shri

S. A. L.

Narayana Row, Member, Central Boa:..d of Direct Taxes gave sanction for the reopening of the 'j!Ssessments under

Section 147 of the Income-Tax Act, 196t in the aforesaid case on 11-8-1965 ." \

\ ' \

The High Court observed that on a reading of the affidavit. afli.rmed bv Shri J. P. Singh "it would appear that the work which had tiil then been done by the Chairman was to be transferred to the Member and approval of the 'secretary to the Government of India was obtained for this transfer or allocation of work." Th('.

High Court however found that the averments in the affidavit \\'ere "net in line" with the office notes in the relevant file which aprears to have been made available to the learned Judges of the High Court who heard these writ petitions.

We have also looked into the copies of these oJlice-notes which are on record. lt appears that on March 13, 1964 Shri .I. P. Singh, Chairman of the Board, recmded the following note : ·

"M(I&ED) may also consider whether he coufd take up th.:

cases for sanction of reopening of assessments (old section 34)."

This was obviously a note for consideration of the other Ml:mbcr of the Board who, on the next day, recorded his consent to this prorosal in the following words : ·

"I will take up cases of reopening of assessment als0.''

Below the sentence conveying Shri Row's assent to the proposal, the Chairman wrote "ThankS:".

The matter however did not rest there.

On May 14, 1964 the following note was put up by Shri B. B.

Ghosh, Under Secretary :

"Rule 4 of the Central Hoard of Direct Taxes (Regulation of Transaction of Business) Rules, 1964 envisage that Chairman may by an order made with the previous approval of the Central Government distribute the business of the Board among himself and the other Members.

Accordingly, the Office Order already issued in the matter will require amendment.

Draft D.O. -is submitted for consideratio1i.

We imiy

alo inform the Heads 'Jf Departments under the Board about the decision. Draft letter is submitted for approval."

The last relevant note on this subject reads :

"Discussed with Secy. (R&E). It is just a minor il'lernal arrangement.

No formal order is necessary."

This is signed by Shri J. P. Singh and bears the date 18-6-64.

The High Court held that a~: no formal order was pas; cd "chanrring the allocation with the previous approval of the Central Government, the sanction as granted by Shri 'S. A. L. Narayana Row is without jurisdiction and authorify".

It is not quite clear whether the High Court was not satisfied that Shri J. P. Singh's proposal for a change in the allocation of work was at all approved by the G, wernment or that in the absence of a formal order to that effect the approval was of no consequence.

The High Court does not appear to have taken any rrote of the affidavit of Shri P. G. Gandhi in paragraph 5 0( which it is stated that all assessment work of Inome-tax was assigned to Shri Narayana Row with the approval of the Central

...

Goverwnent.

From the affidavit of Shri J. P. Singh, the then Chairman of the. Central Board of Direct Taxes, part of which we have

extracted above, it appears that Shri Singh had referred to the Secretary, Ministry of Finance (Department of Revenue and Expenditure) the proposal for transfer of work relating. to sanction under sec. 151(1) of the Act from the Chairman to the Member of the Board, that Shri Singh personally discussed the matter with Shri V.

Dehejia who was then the Secretary, Ministry of Finance, and that Shri Dehejia approved the proposal. Shri J. P. Singh'.s affidavit adds that the note he made in the office file on June 18, 1964-"Discussed with Secy. (R&E). It is just a minor internal arrangement. No formal order is necessary."-refers to these facts. In the face of the statements appearing in the affidavits of Shri J. P. Singh and Shri P. G. Gandhi that the work relating to the reopening of assessments W:\S assigned to Shri Row with the previous approval of the Central Government, it is difficult to see how it can be said that the office notes were not in line with the averments in the affidavits.

The High Court did not disbelieve the statement of Shri J. P. Singh that h~ had di•- cussed the proposal with Shri V. T. Dehejia, who approved the proposal. Possibly, the absence of a formal order expressing the approval led to the observation that Shri Singh's affidavit was not in line with the office notes and also the ultimate finding that the notices issued upon the satisfaction of the member of the Board was "without jurisdiction and authority".

Dr. Singhvi, learned counsel for the respondent, contendd (1) that the material on record did not prove beyond doubt that the Central Government had approved the proposal of the Chairman to alter the original distribution of work and (2) that in any event the law required the. approval to be expressed in the 'hape of a formal order. Referring fo the office note of the Chairman dated June 18, 1964, Dr .. Singhvi submitted that it was not clear from thi~

note what exactly was considered unnecessary-a formal order expressing the approval, or getting the proposed alteration approved by the Central Government ? It was argued that as the suggested alteration was considered "just a n1inor internal arrangement," it \Vas likely that the Chairman thought that no prior approval of th" Central Government was necessary before the altered arrangement was put into operation, in which case the notices would be -.invalid in view of Rule 4 of the Central Board of Direct Taxes (Regulation of Transaction of.Business) Rules, 1964.

However, it seems to us, when :he note said "no formal order is necessary." it could not possibly mean that approval of the Central Government was unnecessary, and we have no doubt that it meant that no fonnal order conveying the approval was necessary.

Regarding the statements in the affidavits of Shri J. P. Singh and Shri P. G. Gandhi that all work relating to the reopening of assessments was assigned to Shri Narayana Row with the approval of the Central Government, Dr. Singhvi pointed out that these statements had been verified by Shri J. P. Singh as true to his. hrowledge "derived from records in the possession of the Central Board of Direct Taxes" and by Shri P. G. Gandhi as "based on the. information derived from record in possession of the Board".

It was argued that as the records did not disclose any order of appro- val by the Central Government, the said statements were of no value.

-'G

It seems .to us that the verifica.tion of the statements in Shri J. P.

Singh's affidavit clearly suggests that the facts stated therein were true to his knowledge which the records also bear out.

As stated already, the High Court did not question the truth of the facts stated in Shri Singh's affidavit, nor do we find any reason to do so.

We have no doubt that the office note made by Shri J. P. Singh on June 18, 1964 supports the statements made in his affidavit.

The next question is whethe{ the approval should have been formally expressed in the shape of an order.

On this question Dr.

Singhvi referred to the decision of this Court in Fonseca (P) Ltd., & Ors. v. L. C. Gupta & Ors. (1) In that case an order made by the Deputy Secretary to the Government of India, Ministry of Works and Housing, who was not empowered to make such an order under the Rules of Business, was held to be illegal, ineffective and void.

We do not think this decision has any relevance. Thr authority of Mr. V. T. Dehejia, Secretary, Ministry of Finance (Department of Reveuue and Expenditure) to approve the proposal for the Central Government was never questioned, nor the power of the Chairman to distribute the business of the Board between himself and the other D . Member with the previous approval of the Central Government. We

have already held that upon the material on record such approval appears to have been given Fonseca's case (supra) is hardly of any assistance on the question whether in this case the approval of the Cl?ntral Government should have been recorded in a formal order. Dr.

Singhvi characterised the distribution of the business of the Board by

the Chairman as suh delegated legislation and referred to a number of authorities to show that the law required publication of such subdelegated legislation which implied that it must be expressed in a formal document. It was submitted that this was necessary to enable the persons affected by such sub delegated legislation to ascertain what the legislation was. We do not think that the distribution of work by the Chairman of the Board can be equated with legislation.

The allocation of business and the approval are matters of internal arrangement not affecting anyone's rights. llliitially the Board consisting of the Chairman and the member had the jurisdiction to deal with the matter in question. Thereafter, in exercise of the power conferred by Rule 4 of the Central Board of Direct Taxes (Regulation of Transaction of Business) Rules. 1964 the Chairman with the approval of the Central Government distributed the business of the Board between himself and the member keeping all assessment work of income-tax to himself. Then, again with the approval of the Central Government, he assi!med this work to the member. Rule 4 of the Central Board of Direct Taxes (Regulation of Transaction of Business) Rules, 1964 does not prescribe any sriecial or particuhr manner in which the, aporoval is to be recorded. The approval given at that stage does not touch the rights of the assessc:es. The fact that approval was given must of course be oroved nd. in our view. that

hs been done in this case; no question of publication of the order --- ----- en [l973J 1 sec 418.

' ' '

of allocation and the approval accorded to it by the Centrl Government can therefore arise. The office file does not also disclose any formal order approving the original distribution of work as b.::twee11 'the Chairman and the member of the Board. It appears from the office note of January 1. 1964 that a draft showing the allocation of work was signed by Shri J. P. Singh and Shri V. T. Dehejia, Secretary of the Ministry of Finance (Department of Revenue a'1d Expenditure) appended his signature below Shri Singh's. This shows clearly that a formal expression of the approval was not considered necessary. If there is no reason to doubt the truth of the statements made in Shri J. P. Singh's affidavit,. and we think there is nom:, then the legality of the impugned notices under sec. 148 ofthe Ac:t cannot be challenged on the ground that they were issued upon the satisfaction of Shri Narayana Row.

On behalf of the appellants our attention was also drawn to the Central Board of Direct Taxes (Validation of Proceedings) Act, 1971 (No. 37 of 1971) which provides, inter alia, that no action taken by the Chairman and other members of the Board, either singly or jointly, without having been validly entrusted with the powers or duties in that behalf in accordane with the provisions of the Central Boards of Revenue Act, 1963 or the rules made thereunder shall be 'deemed to be invalid or ever to have been invalid on that ground.

As in our opinion the impugned notices were issued in due compliance with the requirements of Rule 4 of Central Board of Direct Taxes (Regulation of Transaction of Business) Rules, 1964. we do not find it newssary to consider the provisions of this Act for the purpose of these appeals.

The appeals are accordingly allowed and the Judgment and orders appealed from are set aside. The High Court will now proceed to di~

poe of the :Nrit oetitions in accordance with Jaw on the other )l; l'ounds

raised therem. The appellants will entitled to their costs in this Courtone hearing fee.

P.H.P.

Appeals allowed.