P. V. Godbole vs Jagannath Fakirchand

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 585 of 1960

Decision Date: 12 December, 1962

Coram: S.K. Das, J.L. Kapur, A.K. Sarkar, M. Hidayatullah, Raghubar Dayal

In the matter styled P. V. Godbole versus Jagannath Fakirchand, the Supreme Court issued its judgment on the twelfth day of December in the year nineteen hundred and sixty‑two. The matter was reported in the Indian law reports with the citation 1963 AIR 1399 and also as 1964 SCR (1) 130. The bench hearing the appeal was composed of Justices S. K. Das, J. L. Kapur, A. K. Sarkar, M. Hidayatullah, and Raghubar Dayal. The petitioner in the proceeding was P. V. Godbole and the respondent was Jagannath Fakirchand. The issues presented to the Court concerned the applicability and constitutionality of certain provisions of the Indian Income‑Tax Act of nineteen hundred and twenty‑two, specifically section thirty‑four, together with the amendments introduced by the Indian Income‑Tax (Amendment) Act of nineteen fifty‑three, sections eighteen and thirty‑one, and their relationship to the guarantee of equality before the law under article fourteen of the Constitution of India. The headnote of the judgment records that, following a direction from the Appellate Assistant Commissioner in connection with the appeal of another assessee, the Income‑Tax Officer on the eighteenth of February, nineteen fifty‑seven, issued a notice under section thirty‑four, subsection one, to the respondent with respect to the assessment years nineteen forty‑four to nineteen forty‑five, nineteen forty‑five to nineteen forty‑six and nineteen forty‑six to nineteen forty‑seven. The respondent argued that the Income‑Tax Officer had no authority to assess his income after the lapse of four years from the year of assessment. The appellant, identified as number one hundred and thirty‑one, maintained that the second proviso to subsection three of section thirty‑four, introduced by the amendment of nineteen fifty‑three, saved the assessment proceedings. The Court, by a majority of Justices Das, Kapur and Sarkar, held that the proceedings were barred and that the second proviso did not revive the power of assessment that had already been extinguished by subsection three of section thirty‑four. The judgment further noted that this view was supported by the decision in S. C. Prashar, Income‑Tax Officer v. Vasantsen Dwarkadas, reported in the 1964 volume one of the Supreme Court Reports at page twenty‑nine. Justice Sarkar, dissenting, opined that the second proviso was unconstitutional because it violated article fourteen, and cited the case of Commissioner of Income‑Tax, Bihar & Orissa v. Sardar Lakhmir Singh, also reported in the 1964 volume one of the Supreme Court Reports at page one‑forty‑eight. Justices Hidayatullah and Dayal, dissenting, concluded that the notice and the proceedings were valid, that the assessment was governed by the amended second proviso to subsection three of section thirty‑four together with section thirty‑one of the amendment act of nineteen fifty‑three, and that the notice was further protected by provisions of the amendment act of nineteen fifty‑nine.

The civil appeal before the Supreme Court was numbered five hundred and eighty‑five of the year nineteen sixty and arose from the judgment and order dated the fourth of September, nineteen fifty‑seven, issued by the High Court of Bombay in Special Civil Application number fourteen‑hundred of the year nineteen fifty‑seven. Counsel appearing for the appellants were K. N. Rajagopal Sastri and P. D. Menon, while counsel for the respondent were J. B. Dadachanji, O. C. Mathur and Ravinder Narain. The separate opinions of Justices Das, Kapur and Sarkar were delivered, and the joint opinion of Justices Hidayatullah and Raghubar Dayal was delivered by Justice Hidayatullah. Justice S. K. Das indicated that the factual background of the appeal had already been set out comprehensively by his learned brother, Justice Kapur, and therefore he would not repeat those facts. He reiterated that the assessment years in dispute were nineteen forty‑four to nineteen forty‑five, nineteen forty‑five to nineteen forty‑six and nineteen forty‑six to nineteen forty‑seven, and that the notice which gave rise to the proceedings had been issued by the Income‑Tax Officer.

In this case, the Court noted that the notice in question had been issued on 18 February 1957, and that issuance had been made pursuant to a direction given by the Appellate Assistant Commissioner in the course of an appeal involving a different assessee. The sole issue before the Court was whether the second proviso to subsection (3) of section 34, as it stood after the 1953 amendment, protected the impugned proceedings from being set aside. The Court further observed that, for the reasons articulated earlier in the judgment in S. C. Prashar, Income‑Tax Officer v. Vasantsen Dwarkadas (1964) S.C.R. 29, the appeal was to be dismissed and costs were to be awarded. The appeal had been filed by the Revenue against the judgment and order of the Bombay High Court, which had been issued on a certificate granted by that Court. In W. P. No. 1400/57 the present respondent had contested the jurisdiction of the Income‑Tax Officer to serve a notice under section 34(1) of the Income‑Tax Act. The assessment years relevant to the dispute were 1944‑45, 1945‑46 and 1946‑47, and the notice at issue had indeed been served on 18 February 1957 following the direction of the Appellate Assistant Commissioner in an appeal relating to another assessee, on the ground that the income concerned belonged to a partnership of which the respondent and the other assessee were partners. The High Court had held that the respondent was a stranger to the proceedings before the Appellate Assistant Commissioner and had further held that the second proviso to section 34(3) under which the notice was issued was unconstitutional because it violated article 14 of the Constitution. The facts underlying the appeal were as follows: the respondent was the karta of a Hindu Undivided Family engaged in the business of merchants and commission agents dealing in cotton, grains and other commodities. The Hindu Undivided Family had been assessed for the years 1944‑45, 1945‑46 and 1946‑47. The assessment for the year 1944‑45 had been completed by the Income‑Tax Officer on 14 March 1949; an appeal against that assessment had been filed before the Appellate Assistant Commissioner and decided on 9 February 1956, after which a further appeal had been lodged with the Income‑Tax Appellate Tribunal, the disposition of which was not recorded. For the years 1945‑46 and 1946‑47 the assessments had been completed in March 1950 and May 1950 respectively; appeals against those assessments had been made to the Appellate Assistant Commissioner, who remanded the matters to the Income‑Tax Officer, and those appeals remained undecided. Regarding the assessment year 1946‑47, a notice under section 34(1) had been issued and an order passed on 6 March 1956; an appeal against that order had been filed with the Appellate Assistant Commissioner and was still pending. No notice under section 34(1) appeared to have been issued for the assessment year 1945‑46. In 1946, on behalf of the Hindu Undivided Family, the respondent had instituted a suit against Jagannath Ramkishan seeking an account of the Munim; the defendant’s defence that he was a partner rather than a Munim was accepted, resulting in the dismissal of the suit, and an appeal against that decree was also dismissed.

During the pendency of the appeal before the High Court, Jagannath Ramkishan died and his widow, Kalavatibai, was impleaded as his representative. While the appeal was still pending, the revenue authorities commenced proceedings under section 34(1)(a) of the Income‑tax Act against Kalavatibai for the assessment years 1944‑45, 1945‑46 and 1946‑47. These proceedings related to the business that her deceased husband, Jagannath Ramkishan, had claimed to be a partnership between the respondent’s Hindu Undivided Family and himself. The Income‑tax Officer issued two assessment orders covering those years. Kalavatibai appealed both orders, and on 10 October 1956 the Appellate Assistant Commissioner allowed the appeals. In doing so, the Commissioner found that the business indeed belonged to the partnership as asserted by Jagannath Ramkishan and consequently authorized the Income‑tax Officer to make assessments under section 34 on behalf of the partnership as well as on the respondent, Jagannath Fakirchand, for the three assessment years. Following that finding, a notice was issued on 18 February 1957 demanding that the partnership and Jagannath Fakirchand file returns for the years 1944‑45, 1945‑46 and 1946‑47. Those notices were challenged before the High Court, which held them to be illegal. The present appeal is filed against the High Court’s order, relying on a certificate of the High Court under article 132(1) and article 133(1)(b) of the Constitution. In accordance with the reasons articulated in the judgment of S. C. Prashad, Income‑tax Officer v. Vasantsen Dwarkadas (1) [1964] Vol. 1 S.C.R. 29, the appellate court dismissed the appeal and awarded costs.

SARKAR J. observed that the matter concerned the assessment years 1944‑45, 1945‑46 and 1946‑47, and that the assessee was the respondent Jagannath Fakirchand, who served as the karta of a Hindu Undivided Family that had been assessed as such for those years. In 1946 the respondent filed a suit against his former employee, Jagannath Ramkishan, seeking accounts of certain transactions. Jagannath Ramkishan counter‑claimed that he was not an employee but that the transactions arose from a partnership carried on between himself and the respondent. The trial court accepted Ramkishan’s contention and dismissed the suit. The respondent appealed that decision to the High Court of Bombay. While the appeal was pending, Jagannath Ramkishan died and his wife, Kalavatibai, was substituted as his representative in the appeal. The High Court dismissed the appeal but did not express any view on whether Ramkishan was a partner. In view of the High Court’s decision, the revenue authorities initiated proceedings against Kalavatibai under section 34(1)(a) of the Income‑tax Act and assessed her on the total income generated in the three years from the transactions in question. Kalavatibai appealed the assessment, contending that the estate of her husband could not be held liable for tax on the entire income because that income belonged to a firm of which her husband was only one partner. The Appellate Assistant Commissioner accepted Kalavatibai’s contention and observed, “In view of my finding… that the business belonged to the partnership… the Income‑tax Officer is hereby authorised to make assessments under the provisions of section 34 on the said partnership as also on the other partner, Shri Jagannath Fakirchand, for the assessment years 1944‑45, 1945‑46 and 1946‑47.”

The Court recorded that the finding of the lower authority was that the business in question was owned by a partnership. Consequently, the Income‑tax Officer was authorised to make assessments under the provisions of section 34 of the Income‑tax Act on the partnership itself and also on the other individual partner, Shri Jagannath Fakirchand, for each of the assessment years 1944‑45, 1945‑46 and 1946‑47. Pursuant to this authorisation, the Income‑tax Officer initiated proceedings under subsection 3 of section 34 of the Income‑tax Act, 1922. On 18 February 1947, the Officer issued a notice to the assessee directing him to file a return for the three assessment years mentioned above, on the ground that the income for those years had escaped assessment. The assessee challenged the notice by invoking article 226 of the Constitution and filing an application before the High Court of Bombay for a writ that would set aside the notice and prohibit any further proceedings under it. The High Court entertained the petition and granted the writ, thereby nullifying the notice and the attendant proceedings.

The present appeal therefore arose on the singular question of whether the second proviso to subsection 3 of section 34 of the Income‑tax Act, as amended in 1953, could preserve the validity of the impugned notice and proceedings. Referring to his earlier judgment in The Commissioner of Income‑tax, Bihar & Orissa v. Sardar Lakhmir Singh, the Court expressed the view that the second proviso was unconstitutional because it infringed article 14 of the Constitution and offered no protection to the revenue authorities. The Court further noted that the notice under challenge had been issued in the wake of an order made under section 31 in a proceeding to which the assessee was not a party. Accordingly, the Court dismissed the appeal and ordered the appellant to pay costs. For the full judgment of Justices Hidayatullah and Raghubar Dayal, the Court directed reference to S. C. Prashar, Income‑tax Officer v. Vasantsen Dwarkadas, page 29. In conformity with the majority opinion, the appeal was dismissed with costs, and the citation of the decision appears in volume 1 of the 1964 Supreme Court Reports, page 148.