L. Hazari Mal Kuthiala vs The Income-Tax Officer, Special...

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 27 September 1960

Coram: J.C. Shah, K.C. Das Gupta, M. Hidayatullah, N. Rajgopala Ayyangar, S.K. Das

The case was titled L. Hazari Mal Kuthiala versus the Income‑Tax Officer, Special Circle, and the judgment was delivered on 27 September 1960 by a bench comprising Justices J.C. Shah, K.C. Das Gupta, M. Hidayatullah, N. Rajgopala Ayyangar and S.K. Das. Justice Hidayatullah recorded that the appellant, the firm L. Hazarimal Kuthiala based in Kapurthala, had approached the High Court of Punjab invoking article 226 of the Constitution. The firm sought writs of prohibition, certiorari, quo warranto and other relief against the Income‑Tax Officer, Special Circle, Ambala, and against the Commissioner of Income‑Tax for Punjab, Himachal Pradesh, Bilaspur and Simla. The relief sought related to the reassessment of the firm’s income for the account year 1945‑46. The High Court dismissed the petition but nevertheless issued a certificate of appeal under articles 132 and 133 of the Constitution, and the present appeal was filed on the basis of that certificate.

The firm’s business consisted of forest leasing and timber trading at Dhilwan, which was then located in the former Kapurthala State. At that time a specific income‑tax law was in operation within the State, and before the State’s integration, the firm’s income for the account year 1945‑46 (Samvat 2002) was assessed on 10 April 1947 and the tax due was paid. Afterward, political changes led to the integration of Kapurthala into the new entity known as PEPSU. The Rajpramukh subsequently issued two Ordinances in Samvat 2005, which terminated the operation of all laws previously in force in Kapurthala, including its income‑tax law, effective from 20 August 1948. Those Ordinances substituted the laws of the Patiala State into the newly formed territory, thereby bringing the Patiala Income‑Tax Act, Samvat 2001, into force. Later, the Indian Finance Act 1950 (Act 26 of 1950) extended the Indian Income‑Tax Act to the Part B States that had arisen from those political changes. Section 13 of the Finance Act repealed the income‑tax statutes that had applied in the Part B States, preserving only their authority for levy, assessment and collection of income‑tax and super‑tax for the period specified in the Act. On 12 March 1955, the Income‑Tax Officer, Special Circle, Ambala, issued a notice to the appellant purporting to be issued under section 34 of the Patiala Income‑Tax Act, Samvat 2001, requesting the firm to file a return of its total worldwide income because the officer believed that the firm’s income had been under‑assessed. Earlier, on 4 November 1953, the Commissioner of Income‑Tax for Punjab, Himachal Pradesh, Bilaspur and Simla, acting under section 5, sub‑sections (5) and (7A) of the Indian Income‑Tax Act, directed that the reassessment of the appellant be carried out by the Income‑Tax Officer, Special Circle, Ambala rather than by the Income‑Tax Officer, B‑Ward, Patiala, who would ordinarily have been the competent assessing authority under section 64 of the Indian Income‑Tax Act. The appellant raised objections to this order, but the objections were not successful, and the firm subsequently filed the petition under article 226 of the Constitution, which gave rise to the present appeal.

The appeal was filed under article 226 of the Constitution. Several objections had been raised concerning the competence of the taxing authorities, but many of those objections were no longer pursued. An argument based on article 14 of the Constitution had been advanced at earlier stages of the litigation, but it had been abandoned by the parties. A second point, namely that a reassessment could not be made under the Patiala Income‑tax Act, was not contested, because the respondents before this Court stated that any reassessment, if it were to be made, would have to follow the Kapurthala law as it existed in the assessment year (Samvat 2002). A third argument, asserting that the words of section 13 of the Indian Finance Act, 1950, did not encompass reassessment, was also abandoned in view of the authority of this Court in Lakshmana Shenoy v. Income‑tax Officer, Ernakulam ([1959] S.C.R. 751) and The Income‑tax Officer, Bangalore v. K. N. Guruswamy ([1959] S.C.R. 785). Consequently, only one issue remained for consideration before this Court. That issue was whether the Income‑tax Officer, Special Circle, Ambala, possessed jurisdiction to issue a notice under section 34, or whether only the Income‑tax Officer, B‑Ward, Patiala, was the competent authority. The petitioners relied on section 64(1) of the Indian Income‑tax Act, which provides that the locally situated income‑tax officer would have jurisdiction in such matters. They characterized the transfer of the case by the Commissioner of Income‑tax, effected by his order dated 4 November 1953, as ultra vires and incompetent, and they sought relief on that ground alone.

The Patiala Income‑tax Act contained provisions that were almost identical to sections 5(5) and 5(7A) of the Indian Income‑tax Act. The difference in sub‑section (5) was that the Commissioner of Income‑tax was required to obtain the advice of the Minister‑in‑charge before exercising the power conferred by that sub‑section. The only substantive difference in sub‑section (7A) was that the explanatory note which the Court added to section 5(7A) of the Indian Income‑tax Act in Bidi Supply Co. v. Union of India ([1956] S.C.R. 267) was not incorporated into the Patiala Act. When the Commissioner transferred the present case, he referred not to the Patiala Income‑tax Act but to the Indian Income‑tax Act, and the petitioners argued that if the Patiala Act governed reassessment, the Commissioner should have acted under that statute rather than under the Indian Act. That argument, however, fails because the validity of a power depends on the jurisdiction that confers it, not on a jurisdiction that would render the exercise of the power ineffective. This principle is well settled, as noted in Pitamber Vajirshet v. Dhondu Navlapa (I.L.R. 12 Bom. 486, 489). The difficulty does not end there. The Commissioner, while acting under section 5(5) of the Patiala Income‑tax Act, was required to consult the Minister‑in‑charge. The petitioners contended that the Central Board of Revenue, which under the Indian Finance Act, 1950, stands in place of the Minister‑in‑charge, was not consulted, and they argued that this lack of consultation dispelled the presumption of regularity in official acts. They further asserted that because the Indian law did not require such consultation, the Commissioner, acting under that law, would not have felt any need to consult a higher authority.

The Court observed that the Central Board of Revenue, which under the Indian Finance Act of 1950 functioned in place of the Minister‑in‑charge, had not been consulted. It was argued that this lack of consultation disproved the presumption that official acts were regular, because under Indian law no such consultation was required, and the Commissioner, acting under that law, would not have felt any need to seek advice from a higher authority. The Court accepted that argument as possibly correct. It further noted that if the Commissioner had not acted under the Patiala law at all—as the Patiala law required consultation with the Minister‑in‑charge—and instead had acted solely under the Indian law, he would not have considered it necessary to consult the Central Board of Revenue. Nevertheless, the Court held that the absence of such consultation did not render the Commissioner’s order ineffective. The provision mandating consultation was characterized as directory, following principles set out in State of U.P. v. Manbodhan Lal Srivastava ([1958] S.C.R. 533) and K. S. Srinivasan v. Union of India ([1958] S.C.R. 1295, 1321). In the former case, the Court examined article 320(3)(c) of the Constitution, which required consultation with the Union Public Service Commission, and relied on the Privy Council decision in Montreal Street Railway Company v. Normandin (L.R. 1917 A.C. 170). That decision explained that whether a statutory provision is directory or imperative must be determined by looking at the object of the statute, and that when a provision relates to the performance of a public duty, invalidating acts done in neglect of that duty would cause serious inconvenience or injustice and would not further the legislature’s purpose; consequently, such provisions are ordinarily treated as directory, and their neglect does not affect the validity of the acts performed. The Court also cited the Federal Court’s application of the same principle in Biswanath Khemka v. King Emperor ([1945] F.C.R. 99), noting that the language of the provision was even more emphatic and prohibitory. The rule emerging from these authorities is that where consultation is required during the discharge of a public duty, a failure to consult does not make the action wholly void; the consultation requirement is treated as directory, and its omission does not alter the result of the action.

In the cases referred to, the Court observed that a failure to consult the Central Board of Revenue did not invalidate the order issued by the Commissioner, even if such omission might be regarded as administratively improper. The Court noted that the power exercised by the Commissioner was conferred upon him by law, and that the statutory scheme imposed only a duty to obtain the Board’s advice. Consequently, the Court held that the Commissioner’s omission of that consultation did not deprive him of the authority with which he acted, and that the assessee could not challenge the validity of the Commissioner’s exercise of power on the basis of that procedural lapse. The provision requiring consultation was characterised as a measure of administrative control that was directory in nature and therefore not fatal to the substantive effect of the order.

Counsel for the respondent, however, argued that irrespective of the Court’s view on the consultation requirement, the transfer of the case could be effected only under sub‑section (7A) of section 5 and not under sub‑section (5). He contended that sub‑section (7A) dealt specifically with the transfer of individual cases, and that because no case was pending at the relevant time, a transfer could not be validly effected, relying on the Court’s earlier decision in the Bidi Supply case ([1956] S.C.R. 267). He further submitted that, unlike the Indian Income‑Tax Act, the Patiala Act lacked an explanatory provision that would permit the transfer of a non‑pending case under sub‑section (7A). In addition, he maintained that sub‑section (5) was intended to address the distribution of work among officers rather than the transfer of individual cases. The two sub‑sections of section 5 of the Patiala Income‑Tax Act were then read as follows: “(5) Income‑tax Officers shall perform their functions in respect of such persons or classes of persons or of such incomes or classes of income or in respect of such areas as the Commissioner of Income‑tax may in consultation with the Minister Incharge direct, and, where such directions have assigned to two or more Income‑tax Officers, the same persons or classes of persons or the same incomes or classes of income or the same area, in accordance with any orders which the Commissioner of Income‑tax may in consultation with the Minister Incharge make for the distribution and allocation of work to be performed. The Minister Incharge may, with the previous approval of the Ijlas‑i‑Khas, by general or special order in writing, direct that the powers conferred on the Income‑tax Officer by or under this Act shall, in respect of any specified case or class of cases, be exercised by the Commissioner, and, for the purposes of any case in respect of which such order applies, references in this Act or in any rules made hereunder to the Income‑tax Officer shall be deemed to be references to the Commissioner. (7A) The Commissioner of Income‑tax may transfer any case from one Income‑tax Officer subordinate to him to another, and the Minister Incharge may transfer any cases from any one Income‑tax Officer to another. Such transfer may be made at any”.

In this portion of the judgment, the Court explained that sub‑section (7A) expressly permits the Commissioner of Income‑tax to transfer an individual case from one Income‑tax Officer who is subordinate to him to another. The provision uses the language “any case … such transfer may be made at any stage of the proceedings,” which, according to the Court, clearly indicates that the power relates to the transfer of individual cases. However, the Court also noted that sub‑section (7A) cannot be applied in the present matter because, in the corresponding provision of the Indian Income‑tax Act, this Court had earlier ruled that the sub‑section was limited to cases that were already pending. To remedy that limitation, Parliament added an Explanation to the Indian Act in 1956. The Patiala Act, which predates that amendment, contains no similar Explanation because the question had not arisen before 1956. Another distinction pointed out by the Court is that while the Indian Act incorporated sub‑section (7A) through a later amendment, the Patiala Act introduced its comparable sub‑section at the same time as the rest of the Act.

The Court then turned to the question of whether a case that was not pending at the time of transfer could be moved under sub‑section (7A) of section 5 of the Patiala Act. It held that such a transfer is not permissible under that sub‑section, applying the same reasoning that it applied to the Indian Act. The Court referred to an affidavit of the Under‑Secretary, Central Board of Revenue, reproduced in Pannalal Binjraj v. Union of India ([1957] S.C.R. 233, 246), which explained why sub‑section (7A) had been introduced. The Court found the affidavit a weak source for ascertaining legislative intention, especially because it concerned a different statute enacted by another legislature. Nevertheless, the Court observed that sub‑section (7A) expressly authorises the transfer of pending cases and is silent on cases that are not yet pending. Consequently, the authority to transfer a case before it becomes pending must be found in some other enactment. The Department argued that the power might lie in sub‑section (5) of section 5 and pointed out that this Court was not required to decide on that sub‑section because the transfers discussed in the Bidi Supply case ([1956] S.C.R. 267) were made by an authority not named in sub‑section (5), and therefore could not be said to fall under it. The Department further contended that the Commissioner of Income‑tax is mentioned in both sub‑section (5) and sub‑section (7A), and that his power could be derived from either or both provisions. The Court thus framed the short question: whether an individual case that was not pending could be transferred from one Income‑tax Officer to another under sub‑section (5) of section 5 of the Patiala Act, which remains in force for assessments and reassessments relating to earlier assessment years. Mr.

Palkhivala argued that the language of sub‑section (5) – namely the phrase “such persons or classes of persons or of such incomes or classes of income or in respect of such areas” – employed the plural form and therefore indicated that the provision dealt with groups rather than with individual cases. He further maintained that if the sub‑section were to be interpreted as covering individual cases, then sub‑section (7A) would become unnecessary and redundant. According to his reasoning, a harmonious construction of the statute required that the two sub‑sections be read as addressing distinct situations, with sub‑section (5) applying to one set of circumstances and sub‑section (7A) to another.

The Court observed that the final argument raised by Palkhivala had already been addressed by earlier decisions of this Court. It noted that if sub‑section (7A) were limited only to pending cases, then cases that were not pending would fall outside its scope and consequently would not be provided for by that sub‑section. Accordingly, there was no overlap between the two provisions with respect to non‑pending cases. The Court explained that the use of the plural does not preclude the inclusion of a single case, because a plural term can logically encompass a singular instance. It further observed that statutes sometimes contain overlapping or duplicated powers without reducing the effectiveness of those powers; examples cited included Section 24 of the Civil Procedure Code concerning the transfer of cases and the provisions of the Letters Patent of the High Court. The Court held that if an action is permissible under one statutory provision, it does not become invalid merely because the same action is also permissible under another provision, even when both provisions appear in the same enactment. Moreover, sub‑section (7A) would limit the operation of sub‑section (5) only to the extent that sub‑section (7A) itself provides, and it had already been held that sub‑section (7A) applied solely to pending cases. Consequently, sub‑section (5) remained available for cases that were not pending, and the specific case that formed the subject of the Commissioner’s order was not a pending case.

Palkhivala also contended that sub‑section (5) merely authorized the distribution of work and did not contemplate the transfer of cases. The Court responded that when a case is not pending, an order concerning that case may take the form of either a transfer or an arrangement for its disposal. Nothing in the statute prevented the Commissioner, acting under sub‑section (5), from directing that a particular assessee’s case be dealt with by a specified Income‑Tax Officer. The wording of sub‑section (5) – that “Income‑Tax Officers shall perform their functions in respect of such persons … as the Commissioner … may … direct” – demonstrated that the Commissioner possessed the authority to direct that one officer should not perform certain functions while another officer should perform those functions with respect to the same person or class of persons. Since the plural term includes the singular, the Commissioner’s order was valid because it represented an arrangement and distribution of work rather than an attempt to transfer a pending case. Although the argument was raised that this interpretation might render sub‑section (7A) redundant, the Court held that it did not. A special provision for the transfer of pending cases was expressly contained in sub‑section (7A), and whenever such a transfer occurred, sub‑section (7A) would be invoked. The two provisions were to be read as complementary, each preserving the general powers granted by the other.

In its discussion of the statutory scheme, the Court explained that the provisions contained in the relevant section address two distinct but related situations. The Court noted that the language of the provision sets out a comprehensive framework, and that when a transfer of a case actually occurs, the specific rules laid down in sub‑section (7A) become operative. The Court further clarified that sub‑section (7A) must be interpreted in a manner that it does not diminish or curtail the broader authority granted to the Commissioner under sub‑section (5). At the same time, the general powers conferred by sub‑section (5) are not to be understood as limiting the effect or the application of sub‑section (7A). Accordingly, the two subsections are to be read as complementary provisions, each exercising its own function without prejudice to the other. This approach, the Court held, preserves the integrity of the statutory scheme by allowing the Commissioner to allocate work among Income‑tax Officers under sub‑section (5) while also retaining the ability to effect a transfer of a pending case under sub‑section (7A) when the circumstances require such a move. By reading the provisions together in this harmonious way, the Court ensured that the powers of distribution and transfer could coexist without creating any legal inconsistency.

After applying this interpretation to the facts before it, the Court concluded that the appellant had not demonstrated any error or illegality in the Commissioner’s exercise of his powers. Consequently, the Court found that the appeal could not succeed. For that reason, the Court dismissed the appeal and ordered that the appellant pay the costs of the proceedings. The dismissal of the appeal was recorded as the final order, thereby bringing the matter to a close.