Kashiram Agarwala vs Union of India and Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 22 of 1964; Civil Appeal No. 261 of 1964

Decision Date: 6 October, 1964

Coram: P.B. Gajendragadkar, K.N. Wanchoo, M. Hidayatullah, Raghubar Dayal, J.R. Mudholkar

In the matter titled Kashiram Agarwala versus Union of India and others, the judgment was delivered on 6 October 1964 by the Supreme Court of India. The opinion was authored by Justice P. B. Gajendragadkar, who sat as Chief Justice, and the judgment was pronounced by a bench comprising Justice P. B. Gajendragadkar, Justice K. N. Wanchoo, Justice M. Hidayatullah, Justice Raghubar Dayal and Justice J. R. Mudholkar. The petitioner in the case was Kashiram Agarwala and the respondents were the Union of India together with other parties. The official citation of the decision appears as 1965 AIR 1028 and 1965 S. C. R. (1) 671, with a further citator reference of D 1976 SC 437 (14). The dispute concerned the provisions of the Income‑Tax Act, 1961 (Act 43 of 1961), specifically section 127(1) relating to the transfer of income‑tax proceedings from one Income‑Tax Officer to another within the same locality, and the question of whether the requirement to record reasons for such a transfer was mandatory, as well as the effect of the proviso to section 127(1).

The headnote of the judgment explained that income‑tax proceedings against the appellant had originally been before two different Income‑Tax Officers in Calcutta. An order issued by the Central Board of Revenue, invoking section 127(1) of the Income‑Tax Act, transferred the proceedings to another Income‑Tax Officer located in the same place. The appellant challenged that order in writ proceedings before the Circuit Bench of the Punjab High Court at Delhi, contending that the order was invalid because it failed to record the reasons for the transfer, thereby breaching the mandatory requirement of section 127(2). The Punjab High Court rejected the appellant’s plea, after which the appellant obtained special leave to appeal to the Supreme Court.

Before the Supreme Court, the appellant argued that although the proviso to section 127(1) dispensed with the necessity of granting a hearing to the assessee when a transfer occurred between officers in the same city, place or locality, the main clause of section 127(1) still imposed a mandatory duty to record the reasons for the transfer. Consequently, the appellant maintained that even in cases covered by the proviso, the reasons for transfer should have been recorded.

The Court held that the requirement to record reasons was intrinsically linked to the provision for a hearing. When a transfer involved moving a case from an officer in one locality to an officer in a different locality, the statute contemplated that a hearing should, if practicable, be afforded to the assessee, and the reasons for the transfer needed to be recorded to demonstrate that the assessee’s objections had been considered. The Court further observed that even in situations where a hearing could not be actually conducted because it was not feasible, recording the reasons remained desirable for the assessee’s satisfaction. However, the Court explained that when the transfer was from one officer to another within the same locality, there was no necessity to provide a hearing because the assessee would suffer no prejudice. Under section 124(3) of the Act, all officers exercising jurisdiction in the same locality possessed concurrent jurisdiction. Accordingly, a transfer within the same locality was deemed a purely administrative act undertaken for the convenience of the department. In such administrative transfers, the Court concluded that neither a notice nor a recorded reason was required.

In this case the Court observed that the requirement for a hearing and the duty to record reasons were introduced in section 127(1) of the Income‑Tax Act as a direct response to the observations made by this Court in the earlier decision of Pannalal Binjraj v. Union of India. In that earlier case the transfer order, which moved a matter from one locality to another, had been challenged on the ground that it violated Article 14 of the Constitution. While the Court held that the order was unconstitutional, it also remarked that it was desirable, before effecting a transfer, to give the assessee an opportunity to be heard and to record the reasons for the transfer. The present Court considered that, in the circumstances and bearing in mind the purpose of the provision, the proviso attached to section 127(1) was intended to exclude the necessity of providing a hearing and of recording reasons in the categories of cases covered by that proviso. Consequently, the Court concluded that the orders under challenge, which fell within the scope of the proviso, did not require a hearing or a recorded explanation and therefore remained valid. The judgment further referred to the authority of Pannalal Binjraj v. Union of India, reported in 1957 S.C.R. 233, in support of this view.

The judgment that follows relates to two civil appeals, numbered 22 of 1964 and 261 of 1964, which were filed by special leave against the orders dated 10 April 1963 of the Punjab High Court (Circuit Bench). The original writ petitions, numbered 258‑D and 257‑D of 1963, had been filed in the Punjab High Court, Circuit Bench at Delhi by the appellant, Kashiram Agarwala, challenging two orders issued by the Central Board of Revenue, hereinafter referred to as “the Board”, under section 127(1) of the Income‑Tax Act, 1961 (No. 43 of 1961). The two Board orders, dated 18 January 1963, directed that the income‑tax proceedings then pending against the appellant be transferred from Income‑Tax Officer “D” Ward, District IV(1), Calcutta, and from Income‑Tax Officer “F” Ward, District IV(2), Calcutta, to Income‑Tax Officer “F” Ward, Companies District III, Calcutta. The appellant contended that the Board had acted beyond its authority because it had not complied with the mandatory requirement of section 127(1) to give the assessee a reasonable opportunity of being heard, wherever possible, and to record the reasons for the transfer. The Punjab High Court dismissed both petitions summarily. The appellant then appealed to this Court by special leave. The Court reproduced the full text of section 127(1), which allows the Commissioner, after providing a reasonable opportunity of being heard and recording the reasons, to transfer any case from one subordinate Income‑Tax Officer to another, and similarly permits the Board to make such a transfer, while expressly stating that nothing in the subsection shall be deemed to require such an opportunity where the transfer is between officers situated in the same city, locality, or place. The judgment was delivered by Chief Justice Gajendragadkar, with counsel for the appellant and counsel for the respondents appearing on each side.

The Court observed that the proviso to section 127(1) stated that no requirement to give an opportunity applied when the transfer was between Income‑tax Officers whose offices were located in the same city, locality or place. Section 127(2) was then explained: it permitted a transfer authorised by subsection (1) to occur at any stage of the proceedings and clarified that such a transfer did not necessitate re‑issuing any notice that the original Officer had already served. The Court noted that an explanatory note to section 127 existed, but it was not necessary to refer to it for the purpose of this judgment. It was also undisputed that the orders under challenge failed to record any reasons for the Board’s decision to move the appellant’s cases from one Officer to another. The point raised before the Court was that subsection 127(1) imposed a duty on the authority exercising the power to record the reasons for directing a transfer from one Officer to another.

The Court further explained that subsection 127(1) required, whenever the power to transfer was to be exercised, that the assessee be given an opportunity to be heard wherever such an opportunity was possible, and that the authority must also record the reasons for the transfer. However, the Court clarified that the requirement to give an opportunity was not absolute; the statute left it to the discretion of the authority to decide whether it was possible to afford such an opportunity. The Court added that when the authority concluded that providing an opportunity was not possible, it was required to act reasonably and in good faith. In such a situation, the lack of an opportunity could be lawfully dispensed with, but the duty to record the reasons for the transfer could not be set aside.

The Court said that there was no dispute regarding the foregoing interpretation of subsection 127(1). The precise question for determination, the Court said, was the effect of the proviso to section 127(1). The proviso expressly provides that nothing in subsection (1) shall be deemed to require any such opportunity to be given in cases similar to the present one. The Court observed that the transfer in the present matter was indeed from one Income‑tax Officer to another whose offices were situated in the same locality. Consequently, the issue to be decided was how the proviso modified the statutory requirements. Counsel for the petitioner argued that the proviso only removed the obligation to give a reasonable opportunity, while leaving intact the obligation to record the reasons for the transfer. The Court noted that, if the words of the proviso were given a literal construction, that argument possessed some merit, but the Court also indicated that further analysis of the provision was necessary.

In examining the effect of the proviso to section 127(1), the Court observed that the wording “nothing in sub‑section (1) shall be deemed to require any opportunity to be given” is expressed in a forceful manner and that this emphatic language must be kept in mind when interpreting the provision. The Court further noted that it would not be unreasonable to assume that the requirement to record reasons, which is mandated by section 127(1), would still apply in situations where a transfer is carried out in a manner not covered by the proviso. In such circumstances the assessee is ordinarily entitled to a reasonable opportunity to be heard, and the natural consequence of that entitlement is that any objections raised by the assessee must be considered and the authority must explain why the transfer is being made despite those objections. In other words, the duty to record reasons arises as a logical corollary of the duty to give a reasonable opportunity to the assessee.

The Court explained that if, on the ground that it is impossible to provide a reasonable opportunity, the authority does not grant such an opportunity, then section 127(1) still obliges the authority, because the transfer falls within a category where a reasonable opportunity would ordinarily be required, to record the reasons for the transfer even though no opportunity was actually afforded. If this interpretation were correct, the Court found it difficult to understand why the proviso should be read as requiring the authority to give reasons for the transfer while simultaneously dispensing with the requirement of giving the assessee an opportunity to be heard. This point, the Court said, must be borne in mind in determining the true scope and effect of the proviso.

The Court then turned to another relevant consideration, namely the jurisdictional provisions contained in section 124 of the Act. Section 124(3) provides that, within the limits of the area assigned to him, an Income‑tax Officer shall have jurisdiction over any person carrying on a business or profession if the place of that business or profession is situated within the area, or, where the business is carried on at more than one place, if the principal place is situated within the area, and over any other person residing within the area. The Court observed that this provision indicates that a transfer made under the proviso from one Income‑tax Officer to another in the same locality simply means that a different officer, who is equally competent to deal with the case, has been asked to do so. Such an order is purely administrative, intended for the convenience of the department, and cannot prejudice the assessee. Consequently, in cases like the present one, where assessment proceedings pending against the appellant before an officer in one ward are transferred to an officer in another ward within the same place, there is little justification for requiring a notice or for recording reasons, because the transfer is made solely for administrative convenience and does not affect the assessee’s rights.

In the present matter, the Court observed that when a transfer of assessment cases occurs within the same geographical location, there is essentially no justification for providing any detailed reasons for the transfer. Such transfers are routinely executed for administrative convenience, and consequently, the principle underlying these situations is that a formal notice is not required, nor is it necessary to record the reasons for the transfer. The Court then turned to the statutory provisions, noting that section 124(3) of the Income‑Tax Act addresses exactly the same issue that was previously dealt with under sections 64(1) and 64(2) of the Income‑Tax Act, 1922 (No. 11 of 1922). While section 124 determines the jurisdiction—whether territorial or otherwise—of Income‑Tax Officers, sections 64(1) and 64(2) of the earlier Act fixed the place where an assessee should be assessed. The Court indicated that, in order to understand the present provision in section 127, it is necessary to consider the historical background of the earlier rule. The Court referred to the decision in Pannalal Binjraj v. Union of India, where the validity of section 5(7A) of the 1922 Act was contested. Section 5(7A) had authorized the Commissioner of Income‑Tax to transfer any case from one subordinate Income‑Tax Officer to another, and it also empowered the Central Board of Revenue to transfer a case from any one Income‑Tax Officer to another at any stage of the proceedings, without the need to issue a fresh notice after the transfer. The petitioners argued that this provision violated the fundamental rights guaranteed by Articles 14 and 19(1)(g) of the Constitution, relying on the fact that sections 64(1) and 64(2) gave the assessee the right to have his tax matter decided by the specific officers named in those provisions. They contended that because section 5(7A) permitted the case to be moved from one officer to another, the assessee’s constitutional rights were infringed, as highlighted in the citation of the 1957 Supreme Court Reporter (233). The Court emphasized that section 5(7A) allowed transfer of tax cases not only within the same locality but also across different jurisdictions, meaning that a case could be shifted from an officer who had jurisdiction under sections 64(1) and 64(2) to an officer who might lack such jurisdiction. This was the precise ground on which the validity of section 5(7A) had been challenged. However, the Court rejected the challenge, holding that the right conferred by sections 64(1) and 64(2) was not an absolute entitlement; it must be balanced against the primary purpose of the statute, which is the assessment and collection of income‑tax. Moreover, the Court stated that when the exigencies of tax collection require it, the Commissioner of Income‑Tax or the Central Board of Revenue may lawfully transfer the case, even if the transfer takes the matter outside the area where the assessee resides or conducts business.

The Court explained that, when the collection of tax required it, the Commissioner of Income‑Tax or the Central Board of Revenue possessed the authority under section 5(7A) to transfer a case to another officer even if that officer was situated outside the area where the assessee lived or conducted business. This reasoning was the basis for upholding the validity of section 5(7A). Nevertheless, the Court observed in the decision of Pannalal Binjraj that it would be preferable to afford the assessee an opportunity to be heard before a transfer contemplated under section 5(7A) is effected, so that the assessee could raise any objections to the proposed transfer. In the same context, the Court further expressed that if the reasons for ordering the transfer were reduced, even briefly, to writing, the assessee would be better able to understand the circumstances that made the transfer necessary or desirable. The Legislature, acting on these observations, introduced the relevant provisions in section 127(1) of the Act. Keeping this background in mind, it becomes clear that the Court’s emphasis on giving the assessee an opportunity and on recording reasons pertained to situations where a transfer was to be made from an Income‑Tax Officer in one location to an Income‑Tax Officer in another location. Those observations did not address transfers of the kind presently before us, where the transfer involves moving the case from one officer to another officer within the same locality. Accordingly, the Court must interpret the proviso to section 127(1) in light of these considerations. The construction advocated by Mr Jain is indeed a plausible reading; if the proviso’s language is read literally, Mr Jain could argue that the requirement to record reasons applies even to transfers falling within the proviso. However, when the apparent object of the proviso is taken into account and the preceding discussion is considered, it is reasonable to conclude that, for transfers covered by the proviso—specifically those occurring within the same locality—there is no necessity to provide the assessee an opportunity to be heard, nor is there a need to record reasons for the transfer. Such an interpretation is consistent with the scheme of the provision and its intended purpose. Accordingly, the Court held that the orders under challenge could not be set aside on the ground that the Board failed to record reasons for directing the transfer of the pending assessment from one Income‑Tax Officer to another officer in the same locality. Consequently, the appeals were dismissed, no costs were awarded, and the orders of the Board stood affirmed.