Calcutta H.C : 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 IT Act, 1961, but by virtue of the guarantee bond dt. 25th April, 1969, under s. 230(1), could not be held as an assessee within the meaning of s. 2(7) of the IT Act, 1961, thus being entitled to the right of appeal under s. 246 ?

Counsel Appeared

B.K. Bagchi with B.K. Naha, for the Revenue ; Dr. Debi Pal with Miss Manisha Seal, for the Assessee

SUHAS CHANDRA SEN, J.:

The assessee prayed for reference of as many as four questions of law under s. 256(1) of the IT 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 IT Act, 1961, but by virtue of the guarantee bond dt. 25th April, 1969, under s. 230(1), could not be held as an assessee within the meaning of s. 2(7) of the IT Act, 1961, thus being entitled to the right of appeal under s. 246 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the notice under s. 148 was not properly served and the proceedings under s. 147 of IT Act, 1961, were valid ?”

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 s. 148 was not properly served and the proceedings under s. 147 of the IT Act, 1961, were invalid ?”

2. 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 5th May, 1965, to work with Hindusthan Steel, Durgapur. His services were initially approved for a period of three years and later extended upto 4th May, 1969. For the extended period, exemtpion 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 asst. yr. 1969-70 and the salary received upto 31st March, 1969, was assessed to tax.

3. On 13th Dec., 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 to 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 ITO issued a notice under s. 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 ITO held that the return was not signed by the assessee and he consequently made an assessment under s. 144 including the value of salary paid in Canadian dollars in the said income. Hindusthan Steel Ltd. approached the CIT 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.

4. Against the order of the ITO, the assessee filed an appeal before the CIT(A) who held that the ITO 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.

5. 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 contention of the Department cannot be accepted. The appeal before the CIT(A) was no doubt shown as filed by Hindusthan Steel Ltd. in its capacity as agent of Mr. Nemethy. In fact, it was an appeal by Hindusthan Steel Ltd. in so far as it related to the company’s liability in respect of Mr. Nemethy’s income. It cannot be doubted that Hindusthan Steel Ltd. would have a grievance against any tax demanded in respect of the income of Mr. Nemethy. Therefore, an appeal would be filed by Hindusthan Steel Ltd. for claiming that the tax demand was not valid. The service of notice is admittedly not on Mr. Nemethy and no effort was made by the ITO to serve it at his foreign address as known to him through his tax clearance certificate. The tax on the basis of the additional income had already been paid by Hindusthan Steel Ltd. and if the ITO had been satisfied with that, no problem would have arisen. However, when a valid assessment was tried to be made under s. 148, the service of a notice in accordance with law is a condition precedent for such proceedings. We agree with the CIT(A) that there was no valid service of notice under s. 148 and he was, therefore, justified in annulling the assessment made on the basis of such service.”

6. The first question relates to the maintainability of the appeal. At the time when the assessment was made pursuant to the notice under s. 148 of the IT Act, Mr. L. Nemethy had already left India. Hindusthan Steel Ltd. by virtue of the guarantee bond executed on 25th April, 1969, was under an obligation to pay income-tax which might become payable by Mr. Nemethy. In fact, the assessment order itself has described the assessee as Mr. L. Nemethy, C/o Hindustan Steel Ltd., Alloy Steel Plant, Durgapur-8. The return on the basis of which the assessment was made was not signed by the assessee but was signed on behalf of Mr. Nemethy by one Mr. G. Gopal, Dy. Financial Adviser of Hindusthan Steel Ltd., Durgapur.

7. The language of s. 246 of the IT Act, 1961, so far as it relates to appeals to the AAC, is as follows : “246. Appealable orders.—(1) Subject to the provisions of sub-s. (2), any assessee aggrieved by any of the following orders of an ITO may appeal to the AAC against such order—……. (c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under sub-s. (3) of s. 143 or s. 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss….” Therefore, the only question is whether Hindusthan Steel Ltd. which preferred the appeal can be described as an assessee. “Assessee” has been defined in cl. (7) of s. 2 of the IT Act, 1961, which is as under : “2(7) ‘assessee’ means a person by whom any tax or any other sum of money is payable under this Act, and includes— (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any provision of this Act.”

In this case, ultimately, the amount of tax will be paid by Hindusthan Steel Ltd. Hindusthan Steel Ltd. is also the person against whom a proceeding has been taken for assessment of the income of Mr. Nemethy. Although the liability to pay the assessed tax is of the assessee and Hindusthan Steel Ltd. has no liability under the IT Act, the facts of the case are as such that it is Hindusthan Steel Ltd. who will have to pay the tax. In our opinion, under s. 246, any person who really is aggrieved by the assessment order and on whom the burden of tax will fall 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.

On behalf of the assessee, my attention was drawn to the judgment in the case of CIT vs. N. Ch. R. Row and Co. (1983) 32 CTR (Cal) 73 : (1983) 144 ITR 557 (Cal), where it was held that the right to appeal to the Tribunal from an order passed by the AAC was not confined technically to the party who was a party to the appeal but was a much wider right which might have been exercised by any person who was liable to pay tax by any order against which the appeal was preferred. That judgment was given in the context of s. 253 of the IT Act, 1961, which is as follows : “253. Appeals to the Appellate Tribunal.—(1) Any assessee aggrieved by any of the following orders ….. passed by the AAC or, as the case may be, a Commissioner (Appeals) under sub-s. (2) of s. 131….”

It will be noted that under s. 253, it is the assessee who is aggrieved by an order passed by the Revenue authorities.

10. Therefore, the first question is to be answered in the affirmative and in favour of the assessee.

11. So far as the second question is concerned, two facts are important. It has been noted by the Tribunal that Mr. Nemethy, at the time of his departure from India, obtained an income-tax clearance certificate and gave his Canadian address to the Department. The second important fact that is to be borne in mind is that the return of income of Mr. Nemethy was not filed by him nor was signed by him. It was signed by one of the officers of Hindusthan Steel Ltd. and filed purportedly on behalf of Mr. Nemethy.

12. Mr. Bagchi, appearing on behalf of the Department, has sought to argue that there has been a waiver of an irregularity. It has been argued that the service of notice upon the assessee can be waived. Such service is not upon the assessee and the assessee is entitled to waive this condition.

13. This point came up for consideration by this Court in the case of CWT vs. Mrs. Illa Pal Choudhury (1971) 82 ITR 936 (Cal). In that case, a notice under s. 17(b) of the WT Act, which corresponds to s. 147 of the IT Act, 1961, was addressed to Mrs. Illa Pal Choudhury and was served upon her accountant. The accountant used to appear in connection with the wealth-tax assessment proceedings of Mrs. Pal Choudhury, but was not authorised to accept notices. Pursuant to the notice served upon the accountant, the assessee duly filed the returns and reassessment orders were passed. At the hearing before the AAC, a ground was allowed to be taken that the accountant was not the accredited agent of the assessee and, therefore, service of notice upon her was not proper service. It was held by this Court that when the notice was served and the return was filed by the assessee pursuant to the notice, no point was taken that the assessee was not properly or validly served and even in the original grounds of appeal taken before the AAC, this point was also not taken. It was only at the time of hearing before the AAC that this point was raised. Taking the cumulative effect of all these factors together, it appeared that there was sufficient evidence to establish that the accountant had been duly authorised to accept service of notice on behalf of the assessee.

14. But in this case, Mr. Nemethy had not appeared at any stage. He had left India. It is Hindusthan Steel Ltd. which accepted the service of the notice and filed returns under the signature of an officer of Hindusthan Steel Ltd. From these facts, it cannot be inferred that the service of the notice was waived by Mr. Nemethy. The basic principle of waiver is conscious relingquishment of a known right. Even assuming that the non service of notice was a mere irregularity, it has been nowhere stated that Mr. Nemethy has waived the irregularity with full knowledge of all facts and that as such the waiver was a conscious act.

15. Mr. Nemethy had nothing to do with the case. It does not appear that he participated in the proceedings at any stage. He has not filed nor authorised filing of any return nor has he written any letter. He has not personally preferred the appeal. In the facts and circumstances of the case, we are of the view that there was no waiver of the service of the notice.

16. Therefore, question No. 2 must also be answered in the affirmative and in favour of the assessee. In the premises, both the questions are answered in the affirmative and in favour of the assessee.

There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J.:

I agree.

[Citation : 179 ITR 213]