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1989 Supreme(Cal) 67
High Court Of Calcutta
SUHAS CHANDRA SEN, BHAGAWATI PRASAD BANERJEE
COMMISSIONER OF INCOME-TAX - Appellant
Versus
HINDUSTHAN STEEL LTD. - Respondent
Income-Tax Reference 59 Of 1982
Decided On : 02/24/1989
B.K.Bagchi, B.K.NAHA, Debi Pal, MANISHA SEAL
A person who will have to bear the burden of the tax will be entitled to prefer an appeal, so that the tax burden can be entirely reduced or lessened. A person who will not have to bear the burden of the tax will never appeal.
Headnote:
INCOME TAX ACT - NOTICE UNDER SECTION 148 - SERVICE - WAIVER - ASSESSEE - WHO IS - SECTION 2 (7) - APPEAL - WHO CAN FILE - SECTION 246 - HINDUSTAN STEEL LTD. - GUARANTEE BOND - LIABILITY TO PAY TAX - WHETHER ASSESSEE - HELD, YES.
Fact of the Case:
Hindustan Steel Ltd. gave a guarantee to pay any income tax payable by Mr. L. Nemethy, a Canadian technician working in India. After Mr. Nemethy left India, the Income Tax Officer issued a notice under Section 148 to Hindustan Steel Ltd. for additional salary paid to Mr. Nemethy in Canada. Hindustan Steel Ltd. filed a return on behalf of Mr. Nemethy and paid the tax. The Income Tax Officer made an assessment under Section 144 including the value of salary paid in Canadian dollars. Hindustan Steel Ltd. filed an appeal before the Commissioner of Income Tax (Appeals) who held that the notice was not properly served and set aside the assessment.
Finding of the Court:
The Tribunal dismissed the departmental appeal and held that the service of notice was not valid and the assessment was invalid.
Issues: 1. Whether Hindustan Steel Ltd., whose liability to pay the income-tax demand raised against Mr. L. Nemethy arose not under the operation of the Income-tax Act, 1961, but by virtue of the guarantee bond dated April 25, 1969, under Section 230 (1), could not be held as an assessee within the meaning of Section 2 (7) of the Income-tax Act, 1961, thus being entitled to the right of appeal under Section 246? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the notice under Section 148 was not properly served and the proceedings under Section 147 of the Income-tax Act, 1961, were invalid.
Ratio Decidendi: 1. The term "assessee" under Section 2 (7) of the Income-tax Act, 1961 includes any person against whom a proceeding has been taken for the assessment of his income or the income of any other person in respect of which he is assessable. Hindustan Steel Ltd. was the person against whom a proceeding had been taken for assessment of the income of Mr. Nemethy. Although the liability to pay the assessed tax is of the assessee and Hindustan Steel Ltd. has no liability under the Income-tax Act, the facts of the case are as such that it is Hindustan Steel Ltd. who will have to pay the tax. Therefore, Hindustan Steel Ltd. can be described as an assessee and is entitled to prefer an appeal under Section 246. 2. The service of notice under Section 148 was not valid as it was not served on the assessee, Mr. Nemethy. The assessee had not appeared at any stage, had not filed nor authorized filing of any return, and had not personally preferred the appeal. Therefore, there was no waiver of the service of the notice.
Final Decision: Both the questions are answered in the affirmative and in favour of the assessee. There will be no order as to costs.
( 1 ) THE assessee prayed for reference of as many as four questions of law under Section 256 (1) of the Income-tax Act, 1961, but the Tribunal has referred only two questions which are as follows :" (1) Whether, on the facts and in the circumstances of the case, Hindusthan Steel Ltd. , whose liability to pay the income-tax demand raised against Mr. L. Nemethy arose not under the operation of the Income-tax Act, 1961, but by virtue of the guarantee bond dated April 25, 1969, under Section 230 (1), could not be held as an assessee within the meaning of Section 2 (7) of the Income-tax Act, 1961, thus being entitled to the right of appeal under Section 246 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the notice under Section 148 was not properly served and the proceedings under Section 147 of the Income-tax Act, 1961, were valid. "
( 2 ) THIS question has been reframed by us and will read as under :"whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the notice under Section 148 was not properly served and the proceedings under Section 147 of the Income-tax Act, 1961, were invalid. "
( 3 ) THE facts of the case as stated by the Tribunal are as follows : one Mr. L. Nemethy was a Canadian technician who came to India on May 5, 1965, to work with Hindusthan Steel, Durgapur. His services were initially approved for a period of three years and later extended up to May 4, 1969. For the extended period, exemption was not granted but the tax was to be paid by Hindusthan Steel Ltd. at the time of departure. Hindusthan Steel Ltd. gave a guarantee that if any tax is found to be payable by Mr. Nemethy, it would be paid by them. In fact, an assessment on the income of Mr. Nemethy had been made on the basis of the return filed for the assessment year 1969-70 and the salary received up to March 31, 1969, was assessed to tax.
( 4 ) ON December 13, 1972, a letter was written by the Financial Controller of Hindusthan Steel Ltd. stating that besides the salary paid to Mr. Nemethy in India, some salary was paid him in Canadian dollars in Canada which had not been disclosed in the return. The company worked out as additional tax Rs. 87,218 which was payable on that amount and accordingly paid the same by cheque. In order to regularise the proceedings, the Income-tax Officer issued a notice under Section 148 for bringing this additional salary to tax. A notice was served on Hindusthan Steel Ltd. and a return was filed on behalf of Mr. Nemethy by their Deputy Financial Officer. The Income-tax Officer held that the return was not signed by the assessee and he consequently made an assessment under Section 144 including the value of salary paid in Canadian dollars in the said income. Hindusthan Steel Ltd. approached the Commissioner of Income-tax for waiving interest and penalty on the voluntary disclosure of this additional income. But it is not clear as to what happened in that matter.
( 5 ) AGAINST the order of the Income-tax Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who held that the Income-tax Officer erred in trying to serve the notice not on the real assessee, Mr. Nemethy, but on Hindusthan Steel Ltd. Since Hindusthan Steel Ltd. had not been authorised to receive the statutory notice on behalf of Mr. Nemethy, he held the entire assessment proceedings to be bad in law and set aside the same.
( 6 ) THE Department went up in second appeal before the Tribunal and took up two points, namely, that the notice issued to Mr. Nemethy and served on Hindusthan Steel Ltd. was good in law and, in any case, Hindusthan Steel Ltd. could not file an appeal in the matter. After considering the arguments of both sides, the Tribunal dismissed the departmental appeal with the following observations :"having considered the facts of the case, we are of the view that the cont
