ANANTHA NAGANNA CHETTY VS COMMISSIONER OF INCOME-TAX, HYDERABAD
1994 P T D 158
[Andhra Pradesh High Court (India)]
Before Gopal Rao Ekbote and Ramachandra Raju, JJ
ANANTHA NAGANNA CHETTY
Versus
COMMISSIONER OF INCOME-TAX, HYDERABAD
C.A. No.62 of 1965, decided on 12/09/1969.
Income-tax---
----Penalty---Transfer of officer pending penalty proceedings---Jurisdiction of successor to proceed with the case---Fresh notice to assessee, whether necessary---Indian Income-tax Act, 1922, Ss.5(7-C) & 28(3).
Even though section 5(7-C) does not in terms or expressly provide for any notice by the succeeding officer to the assessee informing him of his intention to continue the proceedings from the stage at which his predecessor has left, by necessary implication it provides for such an intimation; when the legislature has directed something to be done, it must be considered to have empowered something ancillary to be done which is necessary in order to accomplish the ultimate object of section 5(7-C). Accordingly, the succeeding officer must give notice to the assessee before he decides to continue the proceedings from the stage where it was left by his predecessor.
In the case of a transfer pending penalty proceedings the notice issued by the predecessor under section 28(3) in such proceedings ought not to be confused with the notice, the issue of which is necessarily implied under section 5(7-C). Though once a notice under section 28(3) is served upon the assessee and he puts in this appearance, it is not necessary to issue a fresh notice for the completion of the proceedings if the same officer continues to exercise the jurisdiction in the case, the situation is altogether different when the income-tax authority, who had issued the notice under section 28(3) and had received the written explanation from the assessee, ceases to exercise jurisdiction and is succeeded by another income-tax authority who has and exercises jurisdiction in the given case. Such a succeeding officer is empowered only by section 5(7-C) to continue the proceeding from the stage at which the proceeding was left by his predecessor. This power to continue the proceedings is made expressly subject to the right of the assessee to reopen or rehear the case under the first proviso to section 5(7-C).
The view that it is only in cases where arguments were heard but order was not passed, that a notice to the assessee would be necessary and in all other cases it would be unnecessary, is not correct. If the succeeding officer is authorised to continue the proceedings from the stage where it was left as he is under section 5(7-C), then it is not proper to divide the stages with .a view to hold as to in what cases he can continue without giving notice and in what cases he can continue only after notice. In all cases where the succeeding officer is empowered to continue, that power is made subject to the first proviso and no such artificial division in the stages of proceedings can be permitted to affect the right of the assessee which he has under the first proviso.
Quaere: -- Whether a notice under section 28(3) itself would be necessary even if the assessee failed to exercise his rights under the first proviso to section 5(7-C) by the succeeding officer before he imposes any penalty.
A.C. Metal Works v. Commissioner of Income-tax (1967) 66 ITR 14 (Raj.); Annie Besant v. Emperor ILR 39 Mad. 1164; AIR 1918 Mad. 1266; Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax (1960) 40 ITR 178 (Cal.); Commissioner of Income-tax v. Indo-Mercantile Bank Ltd. (1959) 36 ITR 1; (1959) Supp. 2 SCR 256 (SC); Cooper v. Wandsworth District Board of Works (1863) 32 LJ CP 185; Hulekar and Sons v. Commissioner of Income tax (1967) 63 ITR. 130 (Mys.); Kanailal Gatani v. Commissioner of Income-tax (1963) 48 ITR 262 (Cal.); M. & S.M. Railway v. Bezwada Municipality AIR 1944 PC 71; Murlidhar Tejpal v. Commissioner of Income-tax (1961) 42 TTR 129 (Pat.); Ram Narain Sons Ltd. v. Assistant Sales Tax Commissioner (1955) 6 STC 627; AIR 1955 SC 765; Satparkash Ram Naranjan v. Commissioner of Income-tax (1968) 70 ITR (Sh. N.) 33---Fully reported in (1969) 71 ITR 646 (Punj.) and Shop Siddegowda and Family v. Commissioner of Income-tax (1964) 53 ITR 57 (Mys.) ref.
K. Anantha Babu for the Commissioner.
JUDGMENT
GOPAL RAO EKBOTE, J: -- This is a reference made under section 66(2) of the Income-tax Act, 1922, and arises in the following circumstances.
The assessee is an individual. The assessment year is 1949-50. The assessee derived income from property, business and share income from firms in which he was a partner. He, however, failed to disclose his 14/16th share in the firm of Messrs Revana Siddeswara Oil Co. for the assessment year. He contended that he had nothing to do with the firm and that he was a mere financier and that he has received only interest on the amount which he had supplied to the firm. This contention was rejected. He was ultimately assessed on the share of income from that firm also. The department had also initiated penalty proceedings against the assessee for his omission to account for the share income from the said firm. The explanation of the assessee was that he had not concealed any particulars of his income and that he had advanced certain monies to the firm by way of loan charging interest therefore. He also stated that since the firm had been dissolved, no penalty, therefore, was exigeble. After this explanation was filed the Income-tax Officer, who had issued the notice under section 28(3), was transferred and was succeeded by a new Income-tax Officer. The succeeding Income-tax Officer without issuing any notice or informing the assessee of his intention to continue the proceedings passed the order levying penalty on the assessee.
The assessee took up the matter in Appeal to the appellate Assistant Commissioner. He confirmed the order of the income-tax Officer. On a further appeal to the Appellate Tribunal, it was contended that the order of the succeeding Income-tax Officer levying penalty on the assessee without the issue of a notice was illegal. The Tribunal went into the merits of the case and while considering the above said contention found that although with the change of the Income-tax Officer no intimation was sent to the assessee, that does not in any way vitiate the proceedings. If the assessee had elected he could have requested the Income-tax Officer to proceed afresh but he did not do so. The Tribunal further observed that, as the assessee had not taken up the plea before the Appellate Assistant Commissioner, the Tribunal refused to entertain the plea at that late stage, although earlier it expressed its opinion.
The assessee, thereafter, filed an application before the Tribunal for reference. By its order, dated November 7, 1962, the Tribunal refused to make a reference as in its opinion the case did not involve any legal principle of interpretation of any law. The assessee, thereafter, filed an application under section 66(2) of the Act before this Court, and this Court directed the Tribunal to state the case. The Tribunal has accordingly submitted the statement of the case, dated August 17, 1965. The question, which must necessarily be answered in this reference is:
"Whether the levy of penalty by the succeeding officer without giving notice to the assessee is valid?"
In order to provide a correct answer to this question, it is necessary to read section 28(3) and section 5(7-C) of the Income-tax Act, 1922.
Section 28.(3):
"No order shall be made under subsection (1) or subsection (2), unless the assessee or the partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard."
Section 5(7-C):
"Wherever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by an other who has and exercises jurisdiction, the Income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor:
Provided that the assessee concerned may demand that before the proceeding is so continued, the previous proceeding or any part thereof be reopened or that before any order of assessment is passed of against him he be reheard:
Provided further that in computing the period of limitation for the purpose of subsection (3) of section 34, the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the preceding proviso shall be excluded."
Section 28, which specifically relates to imposition of penalty for concealment of income, provides in subsection (3) that no order imposing penalty under subsection (1) or subsection (2) shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. This subsection, 'therefore, embodies in itself the wholesome principle of audi alteram partem. For the purpose of this enquiry it is not necessary to enunciate as to what a hearing means and includes. It is also unnecessary to consider as to when reasonable opportunity would be deemed to have been given for the purpose of the said section. Nor is it necessary to consider as to whether the notice issued under section 28(3) in the penalty proceeding is valid. It is sufficient to say that it is obligatory on the part of the authorities imposing penalty under section 28(3) to hear or give a reasonable opportunity to the assessee before any order imposing penalty is passed. The subsection is peremptory and couched in mandatory language. Its compliance is essential to make the order of penalty valid.
We are, therefore, more concerned in this case with section 5(7-C). That provision was inserted by the Amending Act, 1953, which amendment came into effect from April 1, 1952. It provides that whenever in respect of any proceeding under the Act, which, it is admitted, will include a proceeding for imposition of penalty under section 28 of the Act, an income-tax authority is succeeded by another authority, the succeeding authority may continue the proceeding from the stage where it was loft by his predecessor. 'In the absence of any such provision, it would have been a matter of controversy as to whether the succeeding officer can act upon the material which was gathered in an, enquiry by his pedecessor. In order to remove any such controversy, the provision has been inserted with effect from April 1, 1952. There are, however, two provisions added to the main enacting provision, Section 5(7-C). The first proviso entitles the assessee to demand that the previous proceeding or any part thereof conducted by the predecessor be reopened before the succeeding officer decides to continue the proceedings from the stage at which it was left by the predecessor, or ask for a rehearing before any order of assessment is passed against him.
It is well-recognised principle of construction that there is no rule that the enacting part is to be construed without reference to the proviso. The proper course to apply the broad general rule of construction, which is that a section or enactment must be construed as a whole, each portion throwing light, if need be on the rest. Thus, the true principle is that the sound interpretation and meaning of the statute on a view of the enacting clause and provisions taken and construed together should prevail.
Now, the function of a proviso is well-known. To quote from Statutory Construction by France, J. McFray (1953), paragraph 56, page 115, "either to except something from the enacting clause, or to qualify or restrain its generality or to exclude some possible ground of misinterpretation of it, as enacting to cases not intended by the legislature to be brought within its purview".
The learned author in the 'same work in paragraph 91, -at page 121, states:
"A proviso is a clause added to an enactment, for the purposes of acting as a restraint upon, or as a qualification of the generality of the language which it follows."
Craies on Statute Law, 6th edition, observes, at page 217, as follows:--
"The effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it."
It will thus be seen that a proviso to a particular provision embraces the field, which is covered by the main provision. It carves out an exception to the main provision and deals with a case, which would otherwise fall within the general language of the main enactment. It thus acts as a restraint upon or serves as a qualification of the generality of the language of the main provision. The proviso is often in the nature of a condition precedent to the enforcement of the operative clause See Annie Besant v. Emperor II.R 39 Mad. 1164, AIR 1918 Mad. 1266, 1278 M. & S.M. Railway v. Bezwada Municipality AIR 1944 PC 71, Ram Narain Sons Ltd. v. Assistant Sales-tax Commissioner (1955) 6 STC 627; AIR 1955 SC 765 and Commissioner of Income-tax v. Indo- Mercantile Bank (1959) 36 ITR 1, (1959) Supp. 2 SCR 256 (SC).
If the two provisions are carefully read in the light of the foregoing, it will leave no one in doubt that to the power to continue the proceedings conferred upon the succeeding officer from the stage where the predecessor had left is qualified or restrained by the first proviso with the effect that such a power is made subject to the right which the first proviso confers on the assessee. If the assessee demands that the previous proceedings should be reopened before it is decided to be continued or that he should be reheard before an order of assessment is passed, the income-tax authority has no option whatever except to direct the re-opening of the proceeding or rehearing as the case may be. The compliance of the first proviso is condition precedent for the exercise of the power to continue the proceedings by the succeeding officer. It is true that the assessee under the first proviso may demand reopening or rehearing or may not demand or, even waive his right of reopening or rehearing of the proceeding but he must have an opportunity to exercise that right. If in spite of such opportunity, he either expressly decides not to exercise it or waives its exercise, then the succeeding Income-tax Officer can continue the proceedings. But as the absence of any opportunity provided for the exercise of his right or without the knowledge that any such opportunity exists, the assessee cannot be deemed to have declined to avail of the opportunity by demanding to have rehearing or reopening of. the case, nor could he be deemed to have waived it.
How then the assessee can exercise this right unless he knows that the predecessor of the income-tax authority before whom his case was being heard and was not finally disposed of is succeeded by another Income-tax Officer who intends to continue the proceedings from the stage at which it was left by his predecessor. If the hearing of the case like the trial of a civil suit either goes on from day-to-day or from date to date fixed in the presence of the assessee, then, as the assessee has entered appearance and is aware of the dates of hearing, no intimation of the change of officer of the fact that the succeeding officer proposes to continue the hearing from the stage at which it was left by his predecessor would be necessary or even would be called for. But, whereas, here, the dates of hearing were not fixed in the presence of the assessee or his representatives and, admittedly, the practice is that whenever the officer requires fresh information the assessee is called upon to provide the same by issuing him a notice to that effect, then it becomes necessary to give intimation to him of the fact that the Income-tax Officer before whom his case was going on has ceased to exercise jurisdiction and instead a new officer had come who has the necessary jurisdiction and. is proposing to continue the proceedings from the stage where it was left by the predecessor so that the assessee may claim to demand a reopening or rehearing, as the case may be. The contention that when where the dates of hearing are not fixed by the Income-tax Officer even then it is the duty of the assessee to follow the notifications published notifying the transfers of Income-tax Officers with a view to exercise his right to claim reopening of the case is not sound and cannot be accepted. The argument that no duty is cast upon the succeeding officer to communicate his intention to continue the proceedings to the assessee, and therefore, it would not be proper to expect from him any notice to the assessee is also devoid of any substance. To accept such a contention would only mean that while conferring on the assessee a right to demand reopening of the case and making the right of the succeeding officer to continue the proceedings subject to such a right the notice has been deliberately dispensed with. We do not think that such a construction is valid. The more appropriate approach to such a case would be to hold that the question of notice merely escaped the observation of the legislature. But from such an omission, no inference can properly be drawn against the necessity of notice before the proceedings are decided to be continued as any such interpretation will defeat the real object of the provisions.
It is not disputed that in very many cases the penalty proceedings are kept in abeyance awaiting the final result of the assessment proceedings and although notice under section 28(3) is served upon the assessee and he filed a written explanation, for months and sometimes years together the penalty proceedings are kept in abeyance and the assessee has no knowledge as to what has happened or is happening except when he gets the final' order made in the proceedings served upon him. In such a case, if the assessee, due to a long lapse of time, assumes that his explanation perhaps was found to be satisfactory and proceedings were dropped, he cannot be said to be altogether wrong in such assumption. If officer after order succeed when proceedings are thus pending and the assessee does not even know about such transfers then how is he to exercise his right to demand reopening or rehearing if he has no notice that the succeeding officer proposes to continue the proceedings. The assessee must therefore, be aware about the intention of the succeeding officer to continue the proceedings and who can tell him so, except the succeeding officer who proposes to continue the proceedings and who also knows that he cannot continue the proceedings if he is told by the assessee that he wants him to reopen the case or give him a rehearing. It is thus inherent in the situation that the succeeding officer should give notice to the assessee not under section 28(3) but under section 5(7-C) itself intimating him that, the succeeding officer proposes to continue the proceedings. This intimation alone would provide the assessee with an opportunity to exercise or decline to exercise the right given to him by the first proviso to section 5(7-C). The second proviso lends considerable support to such a construction. The notice is thus necessarily implied in the provisions of section 6(7-C) as the right to continue the proceedings is made dependent upon the assessee's right of demanding reopening or rehearing of the case. It cannot be assumed that legislature has given with one hand right to the assessee to demand reopening or rehearing and has taken away that right with the other by not intending to inform him about the opportunity to exercise such a right by not expecting any notice to be given to the assessee by the succeeding officer of his intention to continue the proceedings. Any such interpretation would mean that the enactment has conferred on the assessee a mere illusory right.
In this connection, it is well to remember that the proceedings under the Act, which can be said to fall within the purview of section 5(7-C), are of quasi-judicial character. The penalty proceedings in any case are of a quasi -criminal nature. It can therefore, safely be presumed that the legislature while conferring the power on the succeeding officer to continue the proceeding from the stage where it was left by his predecessor thought it proper to provide an opportunity to the assessee to demand the reopening or rehearing of the case and that is why the power to continue the proceedings is made subject to such a right. The notice, therefore, for the exercise, of such right becomes necessary.
That such a notice is implicit under section 5(7-C) becomes very clear when we remind ourselves of the principles of construction of statutes in such cases:--
"It is cardinal principle of construction that in giving quasi judicial powers to affect prejudicially the rights of person or property, a statute is understood as silently implying, when it does not expressly provide, the condition or qualification that the power is to be exercised in accordance with the fundamental rules of judicial procedure, such, for instance, as that which requires that, before its exercise, the person sought to ' be prejudicially affected shall have an opportunity of defending himself." [See Maxwell on the Interpretation of Statutes,
That this is so, is well-supported by an oft-quoted decision in Cooper Wandsworth District Board of Works ((1863) 32 LJ CP 185). In that case the Metropolis Management Act, 1855, Section 176, which required that before laying foundations of a building 7 days notice should be given to the district board and authorised that board to order the demolition of any building erected without such notice, was construed impliedly as imposing on the board the condition of giving the presumed defaulter either a hearing before making the order or notice that the order has been made, so that he might remonstrate or appeal, before proceeding of the demolition of his building, and a district board which had confined itself to the letter of the Act and had demolished a building respecting which it had received no notice without first calling on the owner to show cause against its order for doing so was held liable in an action as a wrong-doer. Justice Byles laid down that "although there may be no positive words in a statute requiring that a party shall be heard, yet a long course of decisions, beginning with Dr. Bentley's case (Sty. 557) established that the justice of the common law will supply the omission of the legislature",
To use the words of North, J., although " `it is a very lamented way of legislating that one should be driven to get at the meaning of these Acts by removing difficulties (as far as can be done) by construction rather than that the intention of the legislature should be clearly expressed upon the face of the Act'. Yet the Courts have quite often to give meaning and effect to the expressed intention of the legislature by supplying the omission by adopting the well-recognised tools of interpretation of statutes. And it is fairly held that if a statute is passed for the purpose of enabling something to be done, but omits to mention in terms some detail which is of great importance, if not actually essential, to the proper and effectual performance of the work which the statute has in contemplation, the Courts are at liberty to infer that the statute by implication empowers the detail to be carried out".
We are, therefore, satisfied that even though section 5(7-C) does not in terms or expressly provide for any notice by the succeeding officer to the assessee informing him of his intention to continue the proceedings from the stage at which his predecessor has left, by necessary implication it provides for such an intimation: We must, we think, infer from the power given to the succeeding officer that such a notice was intended by the legislature. When the legislature has directed something to be done, it must be considered to have empowered something ancillary to be done which is necessary in order to accomplish the ultimate object of section 5(7-C). What must follow is that the succeeding officer must give notice to the assessee before 'he decides to continue the proceedings from the stage where it was left by his predecessor.
The assessee may or may not exercise the right conferred on him by the first proviso to section 5(7-C). In the light of what the assessee demands or does not demand the succeeding officer has to decide as to whether he has to reopen or rehear the case or continue the proceedings from the stage where it was left.
It must in this connection, be borne in mind that the notice issued by the predecessor under section 28(3) in the penalty proceedings ought not to be confused with the notice, the issue of which is necessarily implied under section (7-C). It is no doubt true that once a notice under section 28(3) is served upon the assessee and he puts in his appearance, it is then not necessary to issue a fresh notice for the completion of the proceedings if the same officer continues to exercise the jurisdiction in the case. If the assessee had filed a written explanation and had not asked for anything else for the purpose of completing, hearing the officer who had given the notice might well-conclude the proceedings without any further reference to the assessee. But the situation is altogether different when the income-tax authority, who had issued the notice under section 28(3) and had received the written explanation from the assessee, ceases to exercise jurisdiction and is succeeded by another income-tax authority who has and exercises jurisdiction in the given case. Such a succeeding officer is empowered only by section 5(7-C) to continue the proceedings from the stage at which the proceeding was left by his predecessor. This power to continue the proceedings is made expressly subject to the right of the assessee to reopen or rehear the case as is mentioned in the first proviso to section 5(7-C). By necessary implication therefore, a notice to the assessee becomes necessary to give meaning and effect to those competing rights conferred on the succeeding officer on the one hand and the assessee on the other. Sections 28(3) and 5(7-C) should not therefore be confused in so far as the question of notice under section 5(7-C) is concerned. It is true that section 5(7-C) empowers the succeeding officer to continue the proceedings initiated under section 28 but in so far as the succeeding officer's jurisdiction to continue the proceedings is concerned, it is expressly controlled by the first proviso to section 5(7-C). It would not be correct to characterise the demand of reopening or rehearing of the matter under the first proviso to section 5(7-C) as a further or additional opportunity, which the assessee is demanding under section 28. It is a right which the assessee can assert in a given situation referred to in the main provision, that, is, section 5(7-C), which has nothing to do with the additional or further opportunity asked for in the main case if the outgoing income-tax authority has continued to exercise the jurisdiction in the case.
It must be borne in mind that the stage at which the predecessor left the case may vary from case to case. In some cases it may be that the predecessor merely gave notice under section 28(3) and then he ceased to exercise the jurisdiction. In other cases he may have received the written explanation in response to his notice. Yet there may be cases where he may have recorded the evidence partly or wholly or there may be cases where he had even heard the arguments but had not written the final order as by that time he had ceased to have jurisdiction over the case. To all such cases, the provisions of section 5(7-C) apply and it should not be correct to contend that only in cases where arguments were heard but order was not passed that a notice to the assessee would be necessary and in all other cases it would be unnecessary. If the succeeding officer is authorised to continue the proceedings from the stage where it was left as he is under section 5(7-C), then it is meaningless to divide the stages with a view to hold as to in what cases he can continue without giving notice- and in what cases he can continue only after notice. In all cases where the succeeding officer is empowered to continue, that power is made subject to the first proviso and no such artificial division in the stages of the proceedings can be permitted to affect the right of the assessee which he was under (he first proviso,
In Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax (1960) 40 ITR 178, 182, 183 (Cal.) the question which falls for our consideration was raised before the Calcutta High Court, Lahiri, C.J., who wrote the opinion for the Bench, observed that this argument is of some force. But the Court did not allow the assessee to raise that point as in its opinion it did not arise out of the order of the Tribunal. Moreover, that point was not in contention before the Tribunal and it was not invited to rule on it.
The Calcutta High Court, however, held that the assessee has not lost the right of hearing under section 28(3) on account of its failure to exercise its right of having the proceedings reopened under the first proviso to section`5(7-C). His Lordship observed:
"In my opinion there may be a hearing without having the proceeding reopened and that hearing may be confined to the hearing of arguments only."
It was further observed:
"In a penalty proceeding the assessee has a statutory right of being heard under section 28(3):"
and thus concluded:
"The combined effect of the two sections is to authorise the succeeding Income-tax Officer to pass an order upon the evidence produced before his predecessor-in-office, but the effect is not to authorise the former to pass an order upon arguments advanced before the latter."
This conclusion was obviously based on section 28(3) and not under section 5(7-C). It obviously rested upon the wholesome principle that even if the succeeding officer is entitled to continue, as no demand for reopening was made, even then he cannot pass an order based on the arguments which were addressed to his predecessor and not to him, because one who decides ought to hear the case.
In Murlidhar Tejpal v. Commissioner of Income-tax (1961) 42 ITR 129 (Pat.) the facts were that a notice under section 28(3) was issued by Sri K.P. Kumar, Income-tax Officer, on 30th November, 1948. The assessee submitted a written explanation before the same officer on the 10th January, 1949. The final order, however, was passed by his successor, Sri V. f ha. It was contended before the Patna High Court that it was necessary for Sri V. Jha to issue another show-cause notice under section 28(3) before the penalty was actually imposed. Rejecting that contention it was observed at pages 134 and 135:
"Reading, therefore, section 28(3) of the Act, in the context and background of section 5(7-C) of the Act, it is manifest that Sri V. Jha, successor in office of Sri K.P. Kumar, had authority to continue the proceeding started against the assessee under section 28(1) of the Act and to impose proper penalty under that section. It was urged on behalf of the assessee that section 28(3) requires oral hearing by the Income-tax Officer before the order imposing penalty is passed against the assessee. We do not think that this argument is correct. Section 28(3) requires that there should be a hearing of the assessee, or, in the alternative the assessee should be given a reasonable opportunity of being heard. After receiving the notice under section 28(3) it is open to the assessee to appear before the Income- tax Officer to make oral submissions or to send a representation in writing if he prefers to do so."
The learned Judge further stated at page 135:
"In our opinion, the combined effect of section 28(3) and section 5(7-C) of the Indian Income-tax Act is that the succeeding Income-tax Officer has authority to pass an order upon the explanation of the assessee produced before his predecessor-in-office, if the assessee had failed to exercise his right under section 5(7-C) demanding that the proceeding should be reopened. It is admitted in the present case that the assessee did not make any demand for reopening the proceeding before Sri V. Jha, the succeeding Income- tax Officer, under the first proviso to section 5(7-C) of the Income-tax Act. If the assessee had chosen to do so, he might have exercised his statutory right under section 5(7-C) of the Income-tax Act, and required the succeeding Income-tax Officer to take a fresh explanation from him before making any order of penalty. But the admitted position is that, in the present case, the assessee did not exercise his statutory right under section 5(7-C):"
It is thus clear that their Lordships: were not concerned in that case with the question as to whether a notice under section 5(7-C) is necessary with a view to provide an opportunity to the assessee to exercise his statutory right, a right which this decision also recognises as conferred on him under the first proviso to section 5(7-C). This decision, therefore, cannot be said to be an authority for the proposition that no notice under section 5(7-C) as above is necessary.
Kanaialal Gatani v. Commissioner of Income-tax (1963) 18 ITR 262, 268, 269 (Cal.) is a case which distinguished the Calcutta case, Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax (1960) 40 ITR 178 (Cal.). The facts were that Mr. A. De, Income-tax Officer, gave a notice under section 28(3) on 3rd March, 1957, to the assessee. The assessee filed a written statement before the said Income-tax Officer. After some adjournment Mr. De was told by the assessee's Advocate, that beyond his written statement already filed, he had nothing to add. Before Mr. De could pass an order finally he was transferred and was succeeded by one Mr. S.N. Roy. Mr. Roy concurring with the draft order, which Mr. De has already prepared made an order of penalty. The question referred to the High Court was whether in view of section 28(3), which is a mandatory provision, imposition of penalty by the succeeding officer, who had not heard the assessee, was legal. The High Court of Calcutta said:
"A hearing of a case may be of many kinds. It usually involves the calling of witnesses, their examination and cross-examination and then arguments are addressed to the Tribunal. Where witnesses have been called and examined, or where arguments have been advanced, it is clear that one man cannot hear the case and another man pass judgment. The reason is that much may depend on the view that the Tribunal takes as to credibility of witnesses and his mind may be swayed one way or the other by the demeanour of witnesses and as a result of arguments. This is such an intangible and personal task, that it cannot be handed over to the successor. Where, however, no witnesses have been called and no arguments have been advanced, but the matter depends on written objections filed, then the successor is in the same position as the officer who originally was in the conduct of the case. Therefore, as long as the successor applies his mind to the materials before him, this is sufficient."
In regard to the earlier Calcutta case, it is said at page 269:--
"In my opinion, this judgment supports rather than destroys the proposition I have mentioned above. It would be observed that the order in this case was made prior to the amendment, but even prior to the amendment the position was not different."
It was further observed at the same page:
"In this case, we are not concerned with the provisions of section 5(7-C), but the position seems to be as stated above, even under the Income-tax Act as it stood previous to the amendment."
It is, therefore, evident from the above-said extracts that the said case was not concerned with the construction of section 5(7-C) and, although the earlier Calcutta case was sought to be distinguished as it was a case decided after section 5(7-C) was introduced, even then it was considered that the said case supported the view taken in the later case. It is, however, clear that this decision did not consider the implications of section 5(7-C) and, as already noted, even the earlier Calcutta case had declined to go into that question. This case also, therefore, cannot be said to be an authority for the proposition, which we have laid down.
Shop Siddegowda and Family v. Commissioner of Income-tax (1964) 53 ITR 57, 61 (Mys.) is the next case, which has to be considered. In that case after a notice in a penalty proceeding was served upon the assessee he filed his explanation in writing. He did not choose to appear nor ask for an opportunity to adduce oral evidence or to address arguments. The Income-tax Officer was succeeded by another before an order was passed. The question referred to was whether it was incumbent on the officer passing an order to hear the assessee even though the predecessor had given reasonable opportunity of being heard. After noticing section 5(7-C) and section 28(3) it is stated that the succeeding Income-tax Officer can continue the proceedings from the stage where it was left. When the assessee was content with a mere explanation, he cannot claim a further opportunity of being heard, even though the assessee did not seek to reopen the proceeding under the proviso to section 5(7-C). The High Court, referring to Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax (1960) 40 ITR 178 (Cal.) observed that the conclusion in that case appears to be obvious and stated:--
"It will be mockery if it is held that one officer could hear the arguments and another officer could decide the case. But this principle of law is inapplicable in cases where the officers concerned have only to see the written representation."
The Mysore High Court refrained from expressing any opinion on the question that if the witnesses are examined before one officer whether the succeeding officer can pass any order based on such evidence. It will thus be apparent that both the above said sections, although were read combinedly, the implications of section 5(7-C) and the competing rights which it confers on the assessees were not considered from the succeeding officer's point of view, it would, therefore, be incorrect to treat this case as holding a contrary view to the view which we have expressed.
Hulekar & Sons v. Commissioner of Income-tax (1967) 63 ITR 130 (Mys.) is another decision of the Mysore High Court. The question referred to was whether the succeeding Income-tax Officer was competent to levy penalty without giving the assessee a fresh opportunity of being heard. Since the question was referred in that fashion the High Court answered it by saying that, as no request was made to the succeeding officer by the assessee that the proceedings should be reopened or he should be reheard, there was complete compliance of section 28(3) and section 5(7-C) of the Act. It will immediately be plain that if the question was referred as to whether under section 5(7-C) a notice to the assessee is implied for the purpose of exercising the right under the first proviso to section 5(7-C) the Court would have been required to consider the question, which directly has fallen for our consideration. This decision also, therefore, renders very little assistance to our case. In any case that is an authority, which can be said to be taken a contrary view.
Then comes A.C. Metal Works v. Commissioner of Income-tax (1967) 66 ITR 14 (Raj) decided by the Rajasthan High Court. The question referred in that case was whether it was obligatory on the succeeding Income-tax Officer to give another opportunity of showing cause before imposing the penalty under section 28. The High Court decided that where one Income-tax Officer issued notice and the assessee remained content with filing a written explanation and did not choose to appear or ask for an opportunity to adduce evidence or address arguments nor demanded rehearing under the proviso to section 5(7-C), the succeeding officer had authority to continue the proceeding and impose penalty considering the written statement filed by the assessee. It was however recognised in the judgment "under the first proviso to that section the assessee could demand an opportunity of rehearing. But in that case the High Court thought that the assessee had not asked for any such rehearing from the succeeding officer. Whether the successor should have given notice for the exercise of such a right by the assessee under section 5(7-C) or not, was not considered. This case, therefore, can be clubbed with the cases already referred to above.
The last case to which we would refer is a decision of the Punjab and Haryana High Court, but the decision is reported in Satprakash Ram Naranjan v. Commissioner of Income-tax (1968) 66 ITR 14 (Raj.) by way of short notes. The facts as they appear from the short notes are that a notice under section 28(1)(c) was given by the Income-tax Officer, B-Ward. The case was subsequently transferred to the Income-tax Officer, C-Ward, who, without any notice, imposed the penalty. The Tribunal upheld the order on the ground that the assessee having the knowledge of the change of jurisdiction did not make any request for allowing him an opportunity of being heard. On a reference, it was held that the Income-tax Officer C-Ward bound to give the assessee an opportunity of being heard and the order imposing penalty was illegal. Some of the cases considered by us above seem to have been considered by the said High Court in the decision. In the absence of the full judgment, it is not possible to say that the High Court had held that a notice under section 5(7-C) was necessary before the succeeding officer continued the proceedings and, as no notice was given, the penalty imposed was illegal. It is also not possible to say whether it was held, as was held by the first Calcutta case referred to above, that even though the assessee had not exercised his right under the first proviso to section 5(7-C), the succeeding officer is bound to give notice under section 28(3) itself before he makes an order imposing penalty. It would, therefore, be not proper to seek any assistance from this decision not fully reported.
We are not in this case called upon to consider as to which of the two views expressed by the Calcutta and Punjab and Haryana High Courts on the one hand and the Patna, Mysore and Rajasthan High Courts on the other, that is to say, whether a notice under section 28(3) itself would be necessary even if the assessee failed to exercise his rights under the first proviso to section 5(7-C) by the succeeding officer before he imposes any penalty, is correct. Nor is it necessary to decide that question in the view, which we have taken in the light of the construction, which we have put on section 5(7-C).
From a careful consideration of the above said cases, it would be clear that the point which we have decided was expressly only in Calcutta Tanneries (1944) Ltd. v. Commissioner of Income-tax (1960) 40 ITR 178 (Cal.), but was declined to be considered because of certain reasons. In no other case this point was directly raised and considered. Thus, it can safely be said that the point although extremely a short one is really one of first impressions. In our judgment, no assistance can be derived in the present case from the authorities referred to above, as they do not provide even a close parallel to the present case.
In this connection it is proper to bear in mind that nothing is more likely to conduce to just and right decision than the habit of first giving an opportunity to a party who has certain rights and is going to be affected by any decision. All power needs to be so exercised, whether it is judicial, quasi -judicial or even administrative. The underlying reality is that the Judges have always regarded it as intolerable that an act of drastic power such as imposition of penalty by succeeding officer should be put into effect against anyone without his first being given a fair chance to avert it if possible, by exercising his rights, which the statute conferred upon him. It is, therefore, proper that a person liable to be directly affected by the proposal of continuance of the proceedings by the succeeding officer, i.e. the assessee, be given adequate notice of what is proposed by the succeeding officer' so that the assessee may be in a position to make representation and assert his right of reopening or rehearing.
It is common ground that after the succeeding officer assumed the jurisdiction; no notice was given to the assessee. The assessee, therefore, had no opportunity to exercise his right under the first proviso to section 5(7-C). It is not doubted that if it is found that notice was accessory and was not given, then the entire proceedings conducted by the succeeding officer would be illegal, and any order passed in such proceedings cannot be given any effect.
It was, however, contended by the learned standing counsel for the department that the Tribunal had not allowed the assessee to raise the question as it was raised before it at a late stage and was not raised before the Appellate Assistant Commissioner. It is true that the Tribunal in its order stated that it declined to give permission to the assessee to raise such a question. Nevertheless, the Tribunal dealt with that question and held that the omission to give any intimation by the succeeding officer did not in any way vitiate the proceedings. It is also true that when in the reference application this point was stressed the Tribunal stated that it had not allowed this plea to be raised at that late stage. But even in the reference order, in a way, it is conceded that certain decisions were brought to its notice and the Tribunal thought that there was some conflict between the decisions cited before it. In spite of this feeling that it is a question of law on which there is a conflict, it refused to refer the case. In any case, the question, which this Court has framed covers the point, which we have considered; and it cannot be said that it does not arise from the order of the Tribunal. We, therefore, do not experience any difficulty in rejecting this contention.
For the aforesaid reasons, we answer the question in the negative in favour of the assessee and against the department. The assessee will be entitled to his costs from the department.
M.B.A./3-T/FC Question answered.