' MUHAMMAD AKRAM, J.-In pursuance to the directions issued by a Division Bench of the High Court West Pakistan, Lahore in C. M. No, of 4373 of 1966, the Income-tax Appellate Tribunal Pakistan, Lahore submitted a statement of the case and made this reference to the High Court in accordance with section 66 (2) of the Income-tax Act, 1922.
' Briefly stated the facts of this case are these. The respondent-assessee is an Association of Persons and is a Karyana dealer. For the charge years 1959-60 and 1960-61 the Income-tax Officer 'B' Ward, Multan issued notices to the respondent under section 22 (4) of the Income-tax Act for hearing on 25th October 1961. These notices under were duly served on the assessee on the 18th of October 1926. But it may be stated here at the outset that before it no notices under section 22 (2) of the Act were at all issued or served on the assessee. Nonetheless in pursuance to the notice under section 22(4), the respondent despatched a statement of account by post to the Income- tax Officer on the 23rd October, 1961. He, however, failed to appear before him at the hearing on 25th October, 1961. Again on the 12th December, 1961 the Income-tax Officer issued the notices under section 22 (4) for hearing on 21st December, 1961. Accordingly on 21st December, 1961 the assessee appeared before the Income-tax Officer and also filed its return for the assessment year 1959-60 on estimate basis. On this on 21st December, 1961 the Income-tax Officer served a notice under section 23 (2) on the assessee for 23rd January, 1961.
3. However, the assessee failed to appear at the hearing on 23rd January, 1962 and the Income-tax Officer decided to proceed ex parte against it. In these circumstances on 29th < f January, 1962 the Income-tax Officer, B-Ward Multan, completed the ex parte assessment against the respondent under section 23(4) of the Act on an estimated income of Rs, 18,600 for the assessment year 1959-
60. The assessee went up in appeal against the order. On the 27th Marth, 1963 the Appellate Assistant Commissioner of Income-tax, Multan Range, Multan, accepted the appeal before him and annulled the assessm ent completed against the assessee holding that the notice served on the assessee under section 22 (4) of the Act, without the service of notice issued under section 22
(2) and section 34 or before filing of the returns, was absolutely illegal. He observed that in the circumstances of the case the return obtained from the assessee at the hearing on 21st December, 1961 by the Income-tax Officer could not be considered to be a voluntary one and that it was not proper on bis part to have twisted the facts with a view to justify the assessment made against the assessee under section 23 (4) of the Act. The Income-tax Officer went up in appeal but the Income-tax Appellate Tribunal Pakistan, Lahore dismissed the appeal on 11th December, 1964 and refused to interfere with the appellate order passed by the Appellate Assistant Commissioner in the case.
4. In these circumstances the Commissioner of Income-tax, North Zone, West Pakistan, Lahore filed an application before the Tribunal for reference to the High Court under section 66 (1) of the Act.
But the Tribunal rejected the application on 18th January, 1965 holding that no question of law arose out of its appellate order for reference to the High Court. The Commissioner of Income-tax, North Zone, Lahore then by means of C. M. No, 3473 of 1966 applied to the High Court of West Pakistan under section 66 (2) of the Income-tax Act. On this Division Bench of that Court on 16th January, 1968 was of the opinion that in this case a question of law arose as to the interpretation of sections 22 and 23 of the Income-tax Act. Accordingly under the directions Issued by the High Court the Tribunal has made this reference and forwarded the following question of law arising out of its appellate order for its opinion in accordance with section 66(2) of the Act:- ' Whether on facts and in the circumstances of the case the Appellate Tribunal was right in holding that the return of the income filed by the assessee on the 21st December, 1961 was not voluntary return and consequently the assessment under section 23 (4) on the basis of the said return was invalid?"
' Section 2 (2) of the Income-tax Act, 1922 defines an "assessee" to mean any person by whom the income-tax is payable. The return of income in the case of an assessee is required to be filed under section 22 of the Income-tax Act, under the scheme of this section. Under subsection (1) the ssessee is required to furnish a return of his total income during the previous year by a prescribed date. This is a substitute for a public notice to the assessee in general inviting the returns to be file by them suo mato by the prescribed date or dates. In this connection under subsection (2) provides for an individual notice issued by the Income-tax Officer to the assessee to file his return of income during the previous year within a specified period. It may be seen that under subsection
(2) of section 22 it is contemplated that the individual or special notice may be issued by the Income-tax Officer at any time during the course of the assessment year, requiring any person whose total income renders him liable to income-tax to furnish his return of total income for the previous year. But subsection (3) of this section further lays down that if any person has not furnished a return within the time by or under subsection (1) or subsection (2), or having furnished a return under either of these subsections, discovers any omission or wrong statement therein, he may furnish a return or a revised return as the case may be, at any time before the assessment is made. Then comes subsection (4) of this section. It lays down that the Income-tax Officer may serve on any person who has made a return under subsection (1) or upon whom a notice has been served under subsection (2), a notice requiring him, on a date to be therein specified, to produce or cause to be produced such accounts or documents as the Income-tax Officer may require,
5. According to the Scheme of section 22 of the Act an assessment may well be made upon a return voluntarily filed by the assessee in pursuance to the provisions contained in subsection (1) of the section. But in the absence of any such return filed under subsection (1) no assessment can be completed against a person on whom an individual notice under subsection (2) has not been served. This is so to say a condition precedent to the making of the assessment by the Income-tax Officer against a person who has not filed his return under subsection (1). But as laid down in subsection (3) in case any person has not furnished a return under subsection (1) or (2) of section 22 he may furnish a return at anytime before the assessment is made. This is not to say anything about the penalty that may have been incurred by any person under section 28 of the Act for his failure to comply with the requirement of subsections (1) and (2) of section 22 of the Act.
6. In C. V. Govindarajulu Iyer v. Commissioner of Income-tax, Madras (1) it was contended on behalf of the assessee that because there was no notice under section 22 (2) and no action was taken by the Income-tax Officer during the year of assessment, the general notice under section 22 (1) and the default committed by him in not submitting a return as required by that notice lapsed, as it were, at the end of the year. But the learned Judges of the Madras High Court repelled the contention and observed that there was no lapse in the sense that after a year there could not be a valid assessm ent at all by the Income-tax Officer. In case the assessee himself submits return, thoungh after the end of the year of assessment, the Income-tax Officer can proceed to make a valid order of assessm ent without any individual notice served upon him under section 22 and taking action under section 34 of the Act. Once assessment proceedings have thus commended, they can only come to an end by either an order of assessment or an order declaring that no assessm ent can be made. In Harakchand & Co. v. Commissioner of Income-tax, Bombay City (2) the facts were that for the assessm ent year 194243 no notice under section 22 (2) was at all served on the assessee but he filed a belated return after the assessment year and the assessment was completed against him without issuing any notice under section 34 of the Act. In the circumstances, a question arose as to whether the failure of the Income-tax Officer to issue a notice under section 34 of the Act vitiated the assessment. In that case Chagla, C. J. In his judgment with which Tendolkar, J. Concurred, observed that under section 22 (1) of the Income-tax Act assessm ent proceedings are initiated by a public notice given by the Income-tax Officer on or before the 1st. Of May, each year requiring persons whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax to furnish their return.
Subsection (2) of that section enabled the Income-tax Officer to serve a similar notice personally upon any assessee. Therefore, once a public notice is given under subsection (1) the assessment proceedings have commenced and there is no obligation upon the Income-Tax Officer to serve an assessee individually a, well, The law does not lay down that if the return is not male within the prescribed time, it would not be accepted by the Department. The Court held that the return having been made no possible question could arise under section 34 of the assessment escaping and therefore it IA as not open to the Income-tax authorities to serve any notice under section 34 at all.
Notice under section 34 is necessary only if at the end of the assessment year no return has been filed by the assessee and the Income-tax Authorities wished to proceed under section 22 (2) by serving a notice individually. It may then be stated that as
(1) 1948 T R 391 (2) (1940 16 T R 119 the assessm ent year bad come to an end as no return had been furnished and as the authorities wished to proceed under section 22 (2) they should not do so without a notice under section 34. But the assessee having chosen voluntarily to make the return no question of notice either under section 22 (2) or section 34 arose. In another case in Ranchhodas Karsondas v. Commissioner of Income-tax, Bombay City (1) Chagla, C. J. Discussing the scheme of section 22 remarked:- "The scheme of section 22 is fairly clear. Subsection (1) of section 22 provides for a public notice, subsection (2) provides for a notice by the Income-tax Officer upon individual assessee, and subsection (3) which is the material subsection, provides that if any person has not furnished a return within the time allowed by or under section (t) or subsection (2) to quote the material words, he may furnish a return at any time before the assessment is made. Therefore, there is a time limit under subsection (1) of section 22 to make a return, there is a time limit also under subsection (2) to make a return but notwithstanding the fact that the time so limited has passed, a person is entitled to make a return provided before he makes a return, no assessment is made. Now, this is exactly what the assessee did in this case."
7. In this connection in the Commissioner of Agricultural Income-tax v. Sultan All Charami (2) the Calcutta High Court held that under the Income-tax Act it was well settled that a notice under section 22 (2) could not be issued after the expiry of the year of assessment and if no notice under the section had been issued during the assessment year, nor had the assessee filed return assessm ent proceedings could be initiated thereafter only by the issue of a notice under section
34. It was further observed that at the same time, it has been held that if the assessee himself filed a return after the expiry of the assessment year, although during that year no notice under section 22 (2) had been served on him, assessment proceedings could be started on that return and the issue of a notice under section 34 was no longer necessary. It was also held that the jurisdiction to assess was not dependent on the validity of the notice under section 22 (2). This case was disapproved by the Supreme Court of India though not precisely on this point but in an other connection, in the Commissioner of Income-tax, Bombay City II v. Ranchhod Das Karsondas (3) At the same Lime the Supreme Court of India observed that as the Bombay High Court has concurrently observed there was no time limit provided in subsections (1) and (2) of section 22 of the Indian Income-tax Act and the failure or omission occurred when that period passed, but subsection (3) allowed a locus poenitentiae before the assessment was actually made.
' Now coming to the facts in this case before us, the Appellate Assistant Commissioner of Income- tax held that: ".. The assessm ents are null and void in view of the fact that notices under section 34 or 22 (2) were not at all issued in this case. The proceedings were started in this case by straightaway issue of notices under section 22 (4). Issue of notices under section 22 (4) without service of notices issued under section 22 (2) /34, or before filing of returns is also absolutely illegal. The filing of the returns by the appellant cannot be considered as voluntary. They were filed by the appellant in response to notice' issued under section 22 (4). They were
(1) (1954) 16 I T R 105 (2) (1951) 20 1 T R 432 (3) (1959) 1 Taxation 38 not filed by the appellant in response to notice under section 22 (1). It had been held by the Income-tax Appellate Tribunal and various High Courts that to assess a tax payer it is absolutely essential to issue notice under section 22 (2) or 34 and that proceedings taken without the issue of such notice are absolutely illegal."
' In this connection the Appellate Assistant Commissioner was further of the opinion that it was not proper on the part of the Income-tax Officer to have twisted the facts with a view to justify the assessm ent made by him under section 23 (4) of the Income-tax Act. He, therefore, annulled the assessm ent made by him.
9. On further appeal the Income-tax Appellate Tribunal after recapitulating the argument addressed by the representatives of the parties before it, affirmed the order passed by the Appellate Assistant Commissioner and observed as follows:- "After hearing both the parties and considering their respective arguments I have come to the conclusion that the return of income filed on 21-12-1961 was not voluntary. Narration of circumstances in the foregoing paragraph leaves me in no doubt that the issuance of notice under section 22 (4) was only a means adopted by the assessing officer to somehow obtain the return of income beyond the period fixed under section 22 (1). The effect of this notice otherwise illegally issued cannot be divorced from the way the partner of the A.
0. P. Per force cams to look at the whole matter in the presence of the Income-Tax Officer. The notice under section 22 (4) must be preceded by one under section 22 (2) and further as the return had not been filed within the statutory period it was incumbent on the Department to have issued a notice under section 34 to put the entire matter on an even keel from the point of view of the law.
I am constrained to support the Appellate Assistant Commissioner's observation that the Income- tax Officer twisted the facts with a view to justifying the assessment made by him under section 23
(4) of the Income-tax Act. The argument that the voluntary character of the return should be inferred from the assessee's awareness of the risk it had run of being penalised for default in returning income under section 22 (1) of the Income-tax Act is too far-fetched and has a ring of artificiality."
10. The Appellate Assistant Commissioner and the Tribunal have concurred in holding that the return in question filed by the respondent assessee was not voluntary. The question that arises is as to whether they were justified in holding that it was not a voluntary return filed by the assessee. The term "voluntary return" is not a term of art and is nowhere defined in the Income-tax Act. However, in para. 4 of the statement of the case forwarded by the I ribunal to the High Court in noticing the contention of the assessee's authorised representative it was submitted that the return in question was obtained in pursuance to the notice under section 22 (4). It was pleaded that there was no understandable reason why the respondent should have filed the return when it had only been asked by the notice issued under section 22 (4) to produce its account on the 21st December, 1961.
He submitted that the circumstances accompanying the filing of the return indicated that it was obtained from the assessee otherwise than in pursuance of the notice issued under section 22 (4) in response to which it attended the Income-tax Office. This is sufficiently indicative of the fact that the term "voluntary return" was understood in the sense that it was obtained otherwise than by a notice issued to him under section 22 (4).
11. We have already discussed above the scheme of section 22 of the Income-tax Act. It has been held and there is no dispute before us that an assessee is at liberty to file his return is pursuance to the provisions contained in subsection (1) of section 22 of the Act or in accordance with the notices issued to him during the course of the assessment year under subsection (2) of section 22 of the Act. In case,, however, the Income-tax Officer has failed to issue any such notice to the assessee under section 22 (2) of the Act it is nevertheless open to the assessee to file his return at any time before the assessm ent is actually completed against him for the relevant assessment year. Any return thus filed by the assessee under section 22 (3) of the Act cannot be held as involuntary return obtained from him under any coercive process issued by the Income-tax Officer. As already observed above, in finalising the assessment in pursuance to the return filed by the assessee under section 22 (3) it was not necessary to have recourse to the proceedings laid down in section 34 of the Act.
12. It may also be mentioned herein passing that in Chatturam and others v. Commissioner of Income-tax, Bihar (1) the Federal Court repelled the contention advanced before it to the effect that notices under section 22 (1) and (2) of the Income-tax Act formed the foundation of the jurisdiction of the Income-tax Officer to proceed to the assessment. In this connection the Court observed as under:- "The Income-tax assessm ent proceedings commence with the issue or a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make the assessm ent or of the liability of the assessee to pay the tax. It may be urged that the issue and service of a notice under section 22 (1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under section 22 (1), or before he receives a notice under section 22 (2) of the Income-tax Act, gets a form of return from the Income-tax Office and submits his return, it will be futile to contend that the Income-tax Officer is not entitled to assess the patty or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded on sections 3 and 4 of the Income-tax Act, which are the charging sections. Section 22 etc are the machinery sections to determine the amount of tax.. They enable the liability to be quantified and when quantified to be enforced against the subject, but the liability is definitely and finally created by the charging section and all the materials for ascertaining it are available immediately."
In our opinion this weighty pronouncement is sufficient to hold that the ommission or failure on the part of the Income-tax Officer t o serve any B notice under section 22 (2) of the Act was no bar in his way to receive the return filed by the assessee under section 22 (3) of the Act and complete the assessm ent in pursuance thereto. Following the above observations by the Federal Court in Re: Bihar Mica Concern Ltd. (2) it was observed that section 22 and others were the machinery sections to determine the amount of tax and that it was futile to contend that the Income-tax Officer was not
(1) (1947) 15 I T R 302 (2) (1951) 19 T R 553 entitled to assess a party or that the party was not liable to pay any tax because notice had not been issued to him. Also in Jitan Ram Nirmal Ra v. Commissioner of Income-tax, Bihar and Orissa
(1) it was similarly held that issue and service of notice under section 22 (1) & (2) might affect the liability under the penal jurisdiction to assess and liability to pay the tax, however, is not conditional on the vaildity of the notice.
13. For the foregoing reasons we have no hesitation in holding that on the facts and in the circumstances of the case the Appellate Tribunal was not justified in holding that the return of income filed by the assessee on the 21st of December, 1961 was not a voluntary return and that consequently the assessm ent made under section 23 (4) on the basis of the Income-tax return was invalid. We accordingly return our answer to the question referred to the High Court in the negative with costs to the petitioner.
(1) (1951) 19 I T R 476