THIRD INCOME-TAX OFFICER, MANGALORE vs. M. DAMODAR BHAT

CIVIL APPEAL No. 1654/1967Supreme Court[1969] 2 S.C.R. 2906 September 1968Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER12 pages
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What were the facts?

The assessee, M. Damodar Bhat, challenged a notice under Section 226(3) of the Income-tax Act, 1961, for recovery of tax and penalty for assessment years 1960-61 to 1963-64. The assessment for 1961-62 was concluded under the Income-tax Act, 1922, with a reduced liability after appeal. A notice of demand under Section 156 of the 1961 Act was issued on December 11, 1963, expiring on January 22, 1964. The impugned notice under Section 226(3) was issued on April 23, 1965. For penalty in 1962-63 and tax for 1963-64, demand notices were served, with the payment due date being May 21, 1965. The assessee contended the Section 226(3) notice was premature. For 1960-61, it was argued the Income-tax Officer (ITO) improperly exercised discretion while an appeal was pending. The High Court allowed the petition, finding Section 226(3) inapplicable to assessments under the 1922 Act and that an assessee must be 'in default' for such a notice to issue.

What did the Supreme Court hold?

The Supreme Court allowed the appeal, setting aside the High Court's judgment and dismissing the writ petition. The Court held that the Income-tax Officer had the authority to issue notices under Section 156 and Section 226(3) of the 1961 Act with respect to the respondent's liability under the old Act. The High Court erred in holding the notice inoperative for the 1961-62 assessment year. The Court reasoned that Section 297(2)(j) of the 1961 Act allows for the application of the new Act's recovery provisions, mutatis mutandis, to cases arising under the old Act, and that requiring the assessee to be 'in default' under Section 220(4) before issuing a Section 226(3) notice would nullify Section 297(2)(j). Regarding the tax and penalty for 1962-63 and 1963-64, the Court found that as demand notices under Section 156 of the 1961 Act had been issued, the amounts were 'due from the assessee' when the Section 226(3) notice was issued on April 23, 1965, making the notice valid. Concerning the 1960-61 assessment, the Court held that the High Court's finding of improper exercise of discretion could not be upheld because the respondent had not alleged specific particulars in his writ petition to support his claim of arbitrary action by the ITO. The Court did not expressly leave any issue undecided.

What were the issues?

1. Whether the provisions of Section 226(3) of the Income-tax Act, 1961, are available for the recovery of tax assessed under the Income-tax Act, 1922, and if the assessee must be 'in default' before a notice under Section 226(3) can issue, considering the effect of Section 297(2)(j) of the 1961 Act. - Assessee's contention: Section 226(3) of the 1961 Act is not applicable to assessments made under the 1922 Act. An assessee must be 'in default' for a notice under Section 226(3) to be issued. - Revenue's contention: The notice under Section 226(3) is valid, and the provisions of the 1961 Act, including Section 226(3), can apply to liabilities incurred under the 1922 Act, with Section 297(2)(j) facilitating this transition. 2. Whether the amount of tax and penalty for assessment years 1962-63 and 1963-64 were 'due from the assessee' on April 23, 1965, when the notice under Section 226(3) was issued, given that the demand notices were served with a due date of May 21, 1965. - Assessee's contention: The notice under Section 226(3) was illegally issued as it predated the expiry of the time given in the demand notices for payment, and the tax was not yet 'due to be paid'. - Revenue's contention: The tax and penalty were due as demand notices under Section 156 of the 1961 Act had been issued. 3. Whether the Income-tax Officer properly exercised his statutory discretion in issuing the impugned notice for the assessment year 1960-61, given that an appeal was pending before the Appellate Assistant Commissioner. - Assessee's contention: The ITO did not properly exercise his statutory discretion when an appeal was pending against the assessment order. - Revenue's contention: The assessee failed to provide specific particulars in his writ petition to demonstrate arbitrary exercise of discretion by the ITO.

Which sections of the Income-tax Act were involved?

Section 226(3),Section 297(2)(j),Section 156,Section 220,Section 221,Section 222,Section 220(4),Section 220(6)

AI-generated summary — verify with the full judgment below

. 'I • •. A B c D E F THIRD INCOME-TAX OFFICER, MANGALORE v. M. DAMODAR BHAT September 6, 1968 (J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] Income-tax Act, 1961, ss. 226(3), 297(2) (j)-Scope of.-Whether provisions of s. 226( 3) available for recovery of tax assessed under the Income-tax Act, 1922.-If assessee must be "in default" before a notice under s. 226(3) can issue.-Effect of s. 297(2)(j)-After notice of demand under s. 156 whether tax "due from the assessee'' to enable notice under s. 226(3) to be issued.

By a writ petition under Article 226 of the Constitution the respondent challenged the validity of a notice under s. 226(3) of the Income-tax Act, 1961, in respect of tax due from him 'for the four assessment years from 1960-61 to 1963-64 and penalty for the assessment year 1962-63. For the assessment year 1961-62 the assessment proceedings against the respondent were taken and concluded under the Income-tax Act, 1922, and as a result of an appeal filed by the respondent, the tax liability was reduced by the Appellate Assistant Commissioner. The I.T.O. there- after issued a notice to the respondent on December 11, 1963, under s. 156 of the

The order continues below.

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