D.N. Dutta vs Income-Tax Investigation Commission

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 7 March 1960

Coram: J.L. Kapur, M. Hidayatullah

In this appeal, the petitioner sought special leave to challenge the report issued by the Income‑Tax Investigation Commission in reference R.C. No. 332A, together with the orders that were issued by the Central Government on 19 November 1949 and on 21 November 1949. Those orders were made respectively under section 8(2) and section 8A(1) of the Taxation on Income (Investigation Commission) Act, 1947, which will be referred to simply as “the Act”. The appellant in the matter was Debendra Nath Dutta. The respondents were the Income‑Tax Investigation Commission, which had been constituted in accordance with section 3 of the Act, and the Union of India. The factual background that gave rise to the present proceedings involved Captain N. N. Dutta, who was a brother of the appellant. Captain Dutta had been the managing director of a company called the Bengal Immunity Co. Ltd. During the last war he had earned large profits which were neither disclosed to nor discovered by the Income‑Tax Department, thereby escaping tax on what was described as “concealed income”. On 23 March 1949 the Commission prepared a report for the Central Government pursuant to section 5(4) of the Act, requesting that the case of Captain N. N. Dutta be referred back to the Commission itself. At almost the same time the Commission ordered searches to be carried out at four premises that were either owned by or occupied by Captain N. N. Dutta and his relatives. As a result of those searches the Commission obtained complete sets of books containing records of receipts and disbursements relating to the secret profits earned by Captain N. N. Dutta. Consequently the Central Government referred the matter back to the Commission for investigation, and the case was recorded as R.C. No. 332A. When the searches were conducted Captain N. N. Dutta was away from Calcutta; upon his return he offered to make a full disclosure of his affairs and agreed to pay whatever tax the Commission might determine to be due. However, a few days after making that offer, on 6 April 1949, Captain N. N. Dutta died, leaving behind brothers, nephews and nieces whose family relationships were shown in a pedigree table included in the record.

The pedigree indicated that Kamini Kumar Dutta was the elder brother of the deceased, while the appellant Debendra Nath Dutta was the younger brother. The deceased Captain had remained unmarried at the time of his death. Another elder brother of the deceased had pre‑deceased him, leaving a widow named Charunalini Dutta. As a result of the investigation it was discovered that a substantial portion of the concealed profits that Captain N. N. Dutta had earned had been invested in the names of his nephews, who were the sons of Kamini Kumar Dutta, as well as in the names of their respective wives, his niece Maya, and his widowed sister‑in‑law Charunalini Dutta. Those investments had been placed in Government securities and bank deposits. Following the death of Captain N. N. Dutta, his two surviving brothers, Kamini Kumar Dutta and the appellant Debendra Nath Dutta, were recorded as the legal representatives of the estate. Kamini Kumar Dutta wrote to the Commission asserting that he had no involvement in his late brother’s business, but in his capacity as legal representative he accepted responsibility for paying in full any sums that were due to the State. He also advised his sons to disclose the true state of affairs and to pay whatever amount was justly due. Through the cooperation of the legal representatives and by examining the books and other material obtained during the searches, the Commission determined that the total concealed income earned and received by Captain N. N. Dutta during the accounting years 1940‑41 to 1947‑48 amounted to Rs. 58,24,023. This amount was accepted by Kamini Kumar Dutta as being the concealed income.

It was recorded that the concealed profits had been put into the names of the deceased’s nephews, who were the sons of Kamini Kumar Dutta, together with their respective wives, as well as his niece Maya and his widowed sister‑in‑law Charunalini Dutta. The investment of those profits was made in Government securities and bank deposits. Upon the death of Captain N. N. Dutta, his two brothers, namely Kamini Kumar Dutta and the appellant Debendra Nath Dutta, were placed on record as the legal representatives of the estate. Kamini Kumar Dutta wrote to the Commission stating that he had no connection with the business affairs of his late brother, but, in his capacity as legal representative, he accepted the obligation to pay in full any amount due to the State. He also directed his sons to disclose the true state of affairs and to pay whatever sum was justly due.

Through the cooperation of the legal representatives and from the books and material obtained during the search of the premises, the total amount of concealed income earned or received by Captain N. N. Dutta for the accounting years 1940‑41 to 1947‑48 was found to be Rs 58,24,023. Both Kamini Kumar Dutta and the appellant accepted that this sum represented concealed income. The appellant did not take part in the enquiry, but after the investigation was completed he was summoned to be present at the final hearing. He was informed of the amount identified as concealed income, invited to examine the materials, and allowed to make any submissions he thought necessary. While he accepted the amount as correct, he submitted that no assets of the deceased were in his possession.

On 5 July 1949, Kamini Kumar Dutta’s branch made an application for composition under section 8A of the Act. The Commission recommended that the settlement be limited to the recovery of tax from Kamini Kumar Dutta, his sons and their daughters‑in‑law, and that the appellant would not be a party to the composition. The Commission suggested that, for assessment purposes, the total concealed income should be allocated equally among the eight accounting years and that a concession be granted to Kamini Kumar Dutta and his branch of the family. Accordingly, the amount to be recovered from that branch was fixed at Rs 29,74,480. The Commission’s report made it clear that the appellant was not a party to this composition and that no order was being made against him. However, the report warned that should any assets of the deceased be found in his possession, or should such assets later come into his possession as a result of litigation he might commence, the Government would be entitled to recover from him the full tax on the concealed income of Rs 58,24,023, whether in the first instance or to the extent that it was not recovered from the other branch.

Subsequently, the Central Government issued two orders. The first order, issued under section 8A of the Act on 19 November 1949, directed that appropriate proceedings be taken in accordance with the Indian Income‑Tax Act and the Excess Profits Tax Act, 1940.

The Central Government issued two orders concerning the deceased’s estate. The first order, dated 19 November 1949, was made under the provisions of the Indian Income‑tax Act and the Excess Profits Tax Act, 1940. It directed that proceedings be instituted against Kamini Kumar Dutta and the appellant, both named as heirs of the deceased, with the purpose of assessing or reassessing the total income of Rs 58,24,023 that had been referred to in paragraph 24 of the Commission’s report. The second order, dated 21 November 1949, accepted the terms and conditions of settlement proposed by the branch of Kamini Kumar Dutta. That order instructed the Income‑tax Officer to serve demand notices under section 29 of the Income‑tax Act and to initiate any other proceedings required by the Income‑tax Act or any other applicable statute.

On 24 March 1950, the Income‑tax Officer of District III‑A, Calcutta, issued a series of assessment orders. Eight separate income‑tax assessment orders, six excess‑profits‑tax assessment orders, and two business‑profits‑tax assessment orders were each made in respect of one‑eighth of the concealed sum. In every assessment the persons named as assessable parties were the two brothers of the deceased, namely Kamini Kumar Dutta and the appellant. Subsequent information indicated that the branch of Kamini Kumar Dutta had been making payments in accordance with the composition and that a substantial portion of its liability had already been satisfied.

Following these assessments, on 15 April 1950 the appellant filed an application with the Commissioner of Income‑tax, West Bengal, invoking section 8(5) of the Act. The appellant sought a reference of fifteen questions of law to the High Court of Calcutta; the number of questions was eventually reduced to three. Because there were sixteen distinct assessment orders, the Commissioner required the appellant to submit sixteen separate applications. The appellant complied, but the Commissioner, by an order dated 3 October 1951, rejected all of the applications, holding that, in his view, no question of law arose from any of the assessment orders.

Undeterred, the appellant then approached the High Court of Calcutta under section 8(5) read with section 66(2) of the Income‑tax Act. The High Court issued appropriate rules, but on 3 March 1952 the Court discharged those rules, effectively refusing to entertain the questions raised. The appellant subsequently applied to this Court for special leave to appeal against the High Court’s order. That application was dismissed on 28 September 1953 when this Court refused to grant special leave.

In the appellant’s affidavit he asserted that this Court had observed that his proper remedy lay in seeking special leave to appeal against the decision of the Commission contained in the report dated 16 November 1949. A review of this Court’s records shows that the only order issued by this Court was the refusal to grant special leave, and no such observation was ever made in any of the Court’s pronouncements. Nevertheless, the appellant eventually obtained special leave to appeal against the Commission’s report of 16 November 1949 and the consequential orders, and it is on that basis that the present appeal has been brought before us.

At this stage it is unnecessary to decide whether the appeal is competent in view of the High Court’s refusal to direct a case to be stated on the questions of law raised, or in view of this Court’s refusal to grant special leave against the order of the…

The Court observed that the appeal before the High Court was maintainable, but it found that the appeal lacked any substantive merit. The appellant contended that, according to section 24B(1) of the Income‑Tax Act, the liability of executors, administrators or any other legal representatives for the tax due was identical to the liability that fell upon the deceased individual. Because the tax liability was described as a single, indivisible obligation, the appellant argued that the heirs of the deceased shared a joint liability. Consequently, the appellant asserted that any composition entered into with one of the legal representatives – specifically with Kamini Kumar Dutta and his branch of the family – should operate as a complete discharge of the liability of all the heirs. Under this view, no further liability could be imposed on the appellant, nor could any claim be attached to assets that might later come into his possession. To support this position, the appellant relied on several decided cases. The first authority cited was Shaikh Sahad v. Krishna Mohan Basak, wherein a co‑sharer landlord sued the heirs of an original tenant for arrears of rent. In that case two heirs appeared while the third was absent, and a money decree was entered against the absent heir for the whole claim. The High Court, however, held that because the suit was directed against the heirs collectively, they were to be regarded as a single body of registered tenants holding one tenancy, and not as parties to a joint contract that could be enforced against individual co‑contractors. Accordingly, section 43 of the Contract Act was held to be inapplicable, as the parties were jointly interested by operation of law in a contract made by a single person. The second case relied upon was Kasi Kinkar Sen v. Satyendra Nath Bhadra and others, a decision interpreting section 43 of the Contract Act. That judgment explained that the characterization of a promise as joint or several depends on the construction of the parties’ intention, and that where several persons inherit a tenancy jointly, none of the heirs may be held separately liable for the entire rent. The appellant also referred to Salmond’s Jurisprudence, eleventh edition, page 482, to bolster the argument.

The Court, however, concluded that the authorities cited by the appellant were not applicable to the present facts, because the dispute did not involve the enforcement of any contractual liability against either the original contracting parties or their heirs. While it agreed that the tax payable on the concealed income constituted a single liability, the Court held that the respective liabilities of the appellant and the co‑heir must be ascertained in accordance with the statutory provisions governing tax liability. Section 8(2) of the Income‑Tax Act empowers the Central Government, upon receiving a report from the Investigation Commission, to direct that proceedings be instituted under the Income‑Tax Act against the person to whose case the report relates. In the instant matter, the report unmistakably related to the deceased individual, and therefore the order issued under that provision was directed against the deceased’s heirs. The Court emphasized that the statutory scheme did not treat a composition with one heir as a discharge of liability for all heirs, and that the liability of each heir, including the appellant, must be determined separately pursuant to the Act.

The order made under the relevant provision was directed against the heirs of the deceased with the purpose of assessing or reassessing the aggregate income of Rs 58,24,023. An application for composition was filed solely by Kamini Kumar Dutta and members of his branch of the family, and such an application falls within the ambit of section 8A(1) of the Act. Section 8A(1) provides that where a case is pending before the Investigation Commission, any person may at any time apply to the Commission to have the case or any portion of it settled insofar as it pertains to that person. If the Commission is of the opinion that the proposed settlement may be approved, it must refer the matter to the Government; should the Government accept the terms, the Commission records those terms and the investigation relating to the settled portion is deemed to be closed. The clear import of this provision is that the settlement concerns only the person who makes the application, and the closure of the investigation applies exclusively to that individual. No other legal principle interferes with the operation of this provision in matters covered by the Act, and it is the sole basis for determining the effect of the composition in the present circumstances.

Both Kamini Kumar Dutta and the appellant were entered on the record as legal representatives of the deceased and each admitted liability for the amount of Rs 58,24,023. The various assessment orders – including several income‑tax assessment orders, excess‑profits‑tax assessments and business‑profits‑tax assessments – together indicated that the total tax liability to be recovered was Rs 52,34,663, which was divided into eight equal portions. The composition effected by the applicant terminated the liability of Kamini Kumar Dutta and his branch of the family, but this termination does not imply that the entire tax debt was satisfied. Rather, the composition means that the tax liability is considered satisfied only to the extent that the amount is actually recovered from Kamini Kumar Dutta and his family. Consequently, the appellant remains liable for the balance of the tax and for any portion of the deceased’s assets that he presently holds or may acquire in the future. The Court found that the appeal raised no substantive issue, dismissed it as without merit, ordered the appellant to pay the costs of the respondents, and accordingly dismissed the appeal.