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PETITIONER: INCOME -TAX OFFICER KOLAR AND ANOTHER

       Vs.

RESPONDENT: SEGHU BUCHIAH SETTY

DATE OF JUDGMENT: 11/03/1964

BENCH: SARKAR, A.K. BENCH: SARKAR, A.K. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1964 AIR 1473            1964 SCR  (7) 148  CITATOR INFO :  RF         1975 SC2135  (3)  RF         1979 SC 972  (11,12)

ACT: Income-tax-Order of assessment revised in appeal Recovery of tax-Proceedings  based  on  original  order  of  assessment- Continuation, without fresh notice of demand-Legality-Indian Income-tax Act, 1922 (11 of 1922), ss. 29, 45, 46.

HEADNOTE: The  respondent  was assessed to income-tax for  the  years, 1953-54 and 1954-55 on estimated incomes of Rs. 61,000/- and Rs. 1,21,000/ - respectively and notices of demand under  s. 29 of the Indian Income-tax Act, 1922, were served on him by the  Income-tax Officer for the tax due.  On the  respondent failing  to  comply with the notices of  demand  within  the period specified, the Income-tax Officer issued certificates under s. 46(2) of the Act and sent them to the Collector for recovery of the tax, treating the respondent as in  default. In  appeals  filed by the respondent against the  orders  of assessment, the Appellate Assistant Commissioner reduced the income  assessed for the year 1953-54 to Rs. 28,000 and  for the year 1954-55 to Rs. 46,000.  The Income-tax Officer  did not   issue  fresh  notices  of  demand  pursuant   to   the modification  in  the  orders  of  assessment  made  by  the Appellate  Assistant Commissioner, but by a letter  informed the  respondent  that he had to pay tax as  reduced  by  the appellate  order, The respondent did not pay the  amount  of tax demanded, but applied to the High Court of Mysore  under Art.  226  of  the Constitution of India  for  quashing  the certificates  issued  by the Income-tax Officer.   The  High Court  held that the Income-tax Officer could  not,  without issuing  fresh  notices  of  demand,  after  the   Appellate Assistant  Commissioner  of Income-tax reduced  the  taxable income,  treat  the respondent as a defaulter and  that  the proceedings  of  the  Collector based  on  the  certificates issued by the Income-tax Officer were illegal. Held:(per Sarkar and Hidayatullah, JJ.). The decision of the High Court was right. Per  Sarkar,  J.-On  the Income-tax  Officer’s  order  being revised  in  appeal,  the  default  based  on  it  and   all

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consequential  proceedings  must  be  taken  to  have   been superseded  and  fresh  proceedings have to  be  started  to realise the dues as found by the revised order. Per  Hidayatullah, J.-In view of the terms of s. 29  of  the Act,  where an order is passed in appeal and the  amount  of tax  reduced,  the Income-tax Officer must intimate  to  the assessee  the  reduced amount of tax and make a  demand  and give  him  an opportunity to pay before treating  him  as  a defaulter. Per  Shah, J. (dissenting)-In the absence of  any  provision imposing an obligation upon the Income-tax Officer to  issue successive notice-, of demand from time to time for recovery of the amount due during the process of assessment, it  must be held that the notices of demand issued by the  Income-tax Officer  in  exercise  of  the power under  s.  29  must  be enforced  in  the manner provided by s. 46  and  within  the period of limitation 149 provide  in cl. (7) of s. 46, even after the appeal  against the  order  of  assessment  by  the  Income-tax  Officer  is disposed  of,  subject  to adjustment of the  amount  to  be recovered  in  the  light  of the  order  of  the  Appellate Assistant Commissioner.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos. 221 &  222 of  1963.   Appeals by special leave from the  judgment  and order dated April 16, 1959 of the Mysore High Court in  Writ Petitions Nos. 138 and 139 of 1956. N.   D.  Kharkhanis and R. N. Sachthey, for  the  appellants (in both the appeals). K.   Srinivasan  and R. Gopalakrishnan, for  the  respondent (in the appeals). March  11,  1964.  SARKAR J. and HIDAYATULLAH  J.  delivered separate opinions dismissing the appeals.  SHAH J. delivered a dissenting opinion allowing the appeal. SARKAR  J.-The  question  in these two  appeals  is  whether certain  proceedings  for  the  recovery  of  tax  from  the assessee  under the Income-tax Act, 1922, were  invalid  and should be quashed as the assessment order on which they were based had been revised in appeal.  The High Court of  Mysore held  them  to  be invalid and quashed  them.   The  revenue authorities  have  now appealed to this Court  against  that decision. I think it will be helpful to set out the facts  chronologi- cally.  The tax sought to be realise a became due under  two assessment  orders passed by an Income-tax Officer on  March 23,  1955,  in  respect of the  years  1953-54  and  1954-55 finding that the assessee’s income for the earlier year  was Rs.  61,000/-on  which a tax of Rs. 19,808-1-0 was  due  and that  for the other year was Rs. 1,21,000/- creating  a  tax liability of Rs. 66,601-3-0.  Notices of demand under s.  29 of  the  Act  were issued in respect  of  these  dues.   The assessee   tiled   appeals  to   the   Appellate   Assistant Commissioner  against the assessment orders but did not  pay the tax as demanded by the notices.  On such failure to pay, the  Income-tax  Officer  sometime in  September  1955  sent certificates  to  the Deputy Commissioner,  Kolar  under  s. 46(2) of the Act for recovery of the tax as arrears of  land revenue  and  the  latter in the course of  the  same  month attached  various  properties  of  the  assessee  under  the Revenue Recovery Act.  Thereafter on December 17, 1955,  the appeals  filed by the assessee which were till then  pending

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were decided by the Appellate Commissioner.  He reduced  the assessable  income of the assessee to Rs. 27,000/-  for  the year  1953-54 and to Rs. 45,000/- for the year  1954-55  and directed the Income-tax Officer to recompute the tax on  the basis of the reduced income and to refund the excess if  any collected.  It appears that thereafter on February 19, 1956, the  Income-tax Officer informed the assessee that  his  tax liability for 1953-54 150 had reduced to Rs. 4,215-9-0 Rs. 13,346-8-0 and called  upon him  to pay these amounts at once into the  local  treasury. The assessee filed further appeals against the orders of the Appellate   Commissioner   and  asked  that   the   recovery proceedings  might  be  stayed  pending  decision  of  these appeals  and on that request being rejected, moved the  High Court  of  Mysore  by two petitions under Art.  226  of  the Constitution  for  quashing  the  recovery  proceedings   as invalid  with  the  result earlier mentioned.   We  are  not concerned  with the appeals filed by the assessee  from  the appellate  orders and no further reference to them  will  be made in this judgment. The contention of the assessee is that in view of the orders of the Appellate Commissioner the earlier orders, notices of demand  and certificates must be deemed to have been  super- seded  and the attachments therefore ceased to be  effective from the date of the appellate orders and could no longer be proceeded with.  He contends that the Income-tax Officer had to start afresh by serving a new notice of demand and taking the  necessary further steps thereon for realisation of  the tax  which  then was due only under  the  appellate  orders. These  contentions  were accepted by the  High  Court.   The revenue authorities on the other hand, contend in short that the Act does not provide for any such supersession. Now,  the  scheme of the Income-tax Act for  realisation  of moneys  becoming due under it appears to be this.   The  tax becomes due on the making of an assessment order or an order imposing  penalty or requiring interest to be paid.   There- after  a notice of demand in respect of that amount has  to, be  served.   This  is provided by s. 29 which  is  set  out below:               S.    29. When any tax, penalty or interest is               due in               consequence  of any order passed under  or  in               pursuance of this Act, the Income-tax  Officer               shall serve upon the assessee or other  person               liable to pay such tax, penalty or interest  a               notice  of  demand  in  the  prescribed   form               specifying the sum so payable. The form mentioned contains directions as to the time within which, the person to whom and the place at which the payment is to be made. The consequences that follow a non-compliance with a  notice of  demand served under s. 29 are set out in s. 45 which  so far as -material is in the following terms:               Section  45.  Any amount specified as  payable               in a notice of demand under sub-section (3) of               section  23A or under section 29 or  an  order               under section 31 or section 33, shall be  paid               within  the  time,  at the place  and  to  the               person mentioned in the               151               notice  or  order,  of if a  time  is  not  so               mentioned  then on or before the first day  of               the  second  month following the date  of  the               service  of  the A notice or  order,  and  any

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             assessee failing so to pay,,, shall be  deemed               to  be  in  default,  provided  that  when  an               assessee has presented an appeal under section               30,  the  Income-tax Officer may in  his  dis-               cretion  treat  the assessee as not  being  in               default as, long as such appeal is  undisposed               of. It will be noticed that this section is not confined to  the effect of a failure to comply with the terms of a notice  of demand  issued  under s. 29 but makes the  same  consequence arise  on  the failure to carry out the terms  of  a  notice under  s.  23A(3)  and orders under ss.  31  and  33.   That consequence  is that the assessee is to be deemed to  be  in default.   It  is after an assessee is so  in  default  that coercive processes for realisation of the amount due  start. Provision  for  this  is  made in s.  46  to  which  I  will immediately  come.   Before  doing so, however,  I  wish  to observe that s. 45 gives an Income-tax Officer on an  appeal being  filed,  a discretion to treat an assessee as  not  in default.  An argument has been founded on this aspect of the section and to it I will later refer. Passing on now to s. 46, it will be enough for the  purposes of  these  appeals  to  refer only to  sub-s.  (2)  of  that section.   This  provides that "The Income-tax  Officer  may forward  to the Collector a certificate under his  signature specifying  the amount of arrears due from an assessee,  and the Collector on receipt of such certificate, shall  proceed to  recover from such assessee the amount specified  therein as if it were an arrear of land revenue." It was under  this provision  that in the present case the  Income-tax  Officer sent  the  certificates to the Deputy Commissioner  and  the latter effected the attachment thereafter under the  Revenue Recovery Act. Now there is no dispute that all steps taken in the  present case  by the revenue authorities were valid when  taken  for the appellate orders had not till then been made.  The  only question is as to the effect of the appellate orders.  It is contended on behalf of the revenue authorities that the  Act does not provide that the consequences of a default incurred under  the  Act  cease  to  be  available  to  the   revenue authorities  for realisation of the amount due in  case  the order  which was the basis of the default was later  revised in  appeal.  It is, therefore, said that those  consequences are  not affected by the revision of the order except  where it is annulled and hence all notices and attachments  remain in force and can be acted upon for recovering the tax due. I am unable to agree with this proposition.  It may be  that the Act contains no express provision stating what would 152 happen  which it was incurred was later revised  in  appeal. But  within there is enough in the Act to indicate  that  in some  of these cases at least the default comes to  an  end. If  it  does, it seems to me to follow inevitably  that  the consequences of the default also disappear. I  would first refer to s. 45 which says that when an  order under s. 31 specifies an amount as payable and the amount is not  paid  within the time, at the place and to  the  person mentionect in the order or where no time is mentioned in it, within  the  time  specified  in  the  section  itself,  the assessee so failing to pay shall be deemed to be in default. The  order  under  s.  31  is  an  order  by  the  Appellate Commissioner.  If lie specifies an amount as payable in  his order  and mentions the time when, the place where  and  the person to whom the payment is to be made, then noncompliance with that order would create a, default.  Now this order  is

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made  in  an  appeal from an order made  by  the  Income-tax Officer.  Suppose there is already a default as a result  of non-compliance  with a, notice under s. 29 given in  respect of  the Income-tax Officer’s order.  As clearly there  could not  be  two defaults for there was one liability,  the  Act must  in such a case be taken to have provided by  necessary implication  that the default incurred as a result  of  non- compliance  with the notice to pay the amount  mentioned  in the  Income-tax Officer’s order must be deemed to have  been superseded by the appellate order.  The contention that  the Act  does not contemplate a default ceasing to be so  except when an assessment order is annulled by the appellate order, is,  therefore, unfounded.  Take another case.  Suppose  the appellate order says only that a different amount from  that mentioned in the Income-tax Officer’s order shall be payable on income for a certain period without specifying the person to whom or the place where it is to be paid.  The effect  of it must be to wipe out the Income-tax Officer’s order  since the  two cannot exist together.  In such a case  along  with the  superseded  order  the  default  if  any  incurred   in connection with it must also disappear.  There will have  to be  a fresh notice under s. 29 in respect of the amount  due under the appellate order on breach of which a fresh default may arise. It  was,  however, said that the Act  nowhere  requires  the appellate  order to state the amount payable or  to  specify the time when, the place where and the person to whom it  is to be paid.  That may be so but that does not affect what  I have  said.  Section 45 clearly contemplates  the  appellate order  setting out these things and there is nothing in  the Act to prevent the Appellate Commissioner from setting  them out.   Since  s.  45  cannot be  read  as  contemplating  an impossibility,   it   must  be  held  that   the   Appellate Commissioner may in his order specify the amount payable and state the other particulars about time of 153 payment  etc. If he can do so, that would be enough  for  my present purpose and it is not necessary for it that the  Act must in every case require him to do so.  In case where  the appellate order specifies an amount as payable, the  Income- tax officer’s order must be deemed to have been superseded. One other argument to which I have to refer at this stage is that  if  the  assessee’s contention be  correct,  then  the discretion  given to the Income-tax Officer by s. 45 not  to treat an assessee in default becomes infructuous for then in every case on the making of the appellate order the  default earlier  incurred must disappear.  This does not seem to  me to  put the position accurately.  It is not in dispute  that the  filing of an appeal does not stay the operation of  the original  order.  So if before the appellate order is  made, the amount due is realised by the coercive process following the default, then those steps do not become invalid.   There may  be  a, liability to refund but none the less  what  was done  was  legal  when done.  Again it would,  in  my  view, depend  on  the  terms of the appellate  order  whether  the earlier default was wiped out or not.  If, for example,  the appellate  order  confirms  the  original  order,  then  the default already incurred may not be affected.  In both these cases  the discretion to treat the assessee as  a  defaulter was effectively exercised.  The argument that the acceptance of  the  assessee’s contention would render part  of  s.  45 nugatory  and should, therefore, not be accepted, is  in  my opinion unsound. How  then  does the matter stand?  It seems to me  that  the crux  of  it  is the effect of the appellate  order  on  the

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original order.  If the original order has been destroyed or replaced  by the appellate order, then the notice of  demand and  all other steps based upon the original order  must  be deemed to have become ineffective. In such a case the default earlier incurred must be taken to have  disappeared  and  cannot support  further  action  for recovery of any tax.  Now the general proposition is that an original  order  merges in the appellate order:  cp.   Madan Gopal  Rungta v. Secretary to the Government  of  Orissa(1). But in the present case, it is not necessary to rely on that proposition.   Section 31(3) of the Act seems to me to  make express  provision  on the subject.  It states that  in  the case of an appeal from an order of assessment, which is  the kind of order with which we are now concerned, the Appellate Commissioner  may "(a) confirm, reduce, or enhance or  annul the  assessment, or (b) set aside the assessment and  direct the  Income-tax  Officer to make a  fresh  assessment  after making such further enquiry as the Income-tax Officer thinks fit or the Appellate Assistant Commissioner may direct,  and the Income-tax Officer shall thereupon proceed (1)  [1962] Suppl. 3 S.C.R. 906. 154 to make such fresh assessment and determine where  necessary the amount of tax payable on the basis of such fresh assess- ment."  There will, of course, be no occasion  to  determine the  amount  of the tax payable on the basis  of  the  fresh assessment  if the income on that assessment appears  to  be below the taxable level.  I will consider the various orders contemplated by s.  31(3)(a) & (b) and their effect. It may be that when an appellate order confirms the original order,  the  default earlier incurred and  all  steps  taken pursuant  thereto remain unaffected, for such an  order  may maintain  intact  the  original order.  Now  it  is  not  in dispute  that  when the appellate order annuls  the  earlier order,  the  default disappears.  It is said  that  that  is because  the  debt ceases to exist.  I do not  quite  follow this.   It has never been questioned that the  debt  becomes due  when demand is made under s. 29 and s. 45 of  the  Act: see  Doorga  Prosad  Chamaria  v.  Secretary  of   State(1). Therefore if a debt is to cease to exist it must be  because the source from which it sprang, namely, the original order, has  been annihilated by the appellate order  annulling  it. In  fact  s.  31(3)(a)  contemplates  an  annulment  of  the original assessment order itself; the demand under s. 29  or s.  45  is not annulled directly by it.  Therefore,  in  the case of an order of annulment under s. 31 the original order of  assessment  is itself destroyed.  If  it  disappears,  I cannot conceive the default based on it continuing in force. Likewise,  where  under cl. (b) of s.  31(3)  the  appellate order  sets  aside  the assessment,  the  same  result  must clearly  follow.   There  is  not  much  difference  between annulling an order and setting it aside; both wipe out  ’the original order. I  now come to an appellate order enhancing the  assessment. With  regard  to it, it has not been disputed that  a  fresh notice  of demand must issue.  If this notice has to  be  in respect  of  the  entire amount, then  clearly  the  default earlier  incurred  for the smaller amount found due  by  the original order must have gone for the liability was one  and there  could not be two defaults in respect of it.   But  it was said that the notice has to be issued in respect of  the enhanced amount only.  Indeed in some of the cases cited  at the bar it has been so said.  I have very grave doubts about the correctness of this view.  The notice of demand can only issue  in  respect of the amount due in  consequence  of  an

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order.   Unless,  therefore, the appellate  order  specifies only the enhanced amount as due I do not see how a notice in respect  of  that  amount can be issued  under  s.  29.  The appellate  order  has  to  specify an  amount  due.   If  it specifies  the entire amount due including the  enhancement, -then  it  cannot be said that under it the  amount  of  the enhancement  only  is due and no notice  demanding  such  an amount (1)  72 I.A. 114. 155 only  under  s. 29 can be issued.  If  the  appellate  order specifies  only  the amount of the enhancement, it  will  be making  an. additional or supplementary  assessment.   Apart from s. 34 of the Act with which we are not now concerned, I am not aware,. of any other provision which permits such  an assessment.  In any case s. 31(3)(a) does not seem to me  to contemplate  it.   Therefore, in my view when  an  order  of enhancement  of  assessment is made under s. 31  the  notice must  be in respect of the entire amount and in such a  case the earlier notice issued in respect of original order  must be deemed to have been superseded. But  assume  I am wrong in this.  Assume that  an  appellate order  of enhancement may be confined to the amount  of  the enhancement only.  Even so I am wholly unable to agree  that the  appellate  order  cannot specify  the  entire  enhanced amount  due.   There is nothing in the Act to  prevent  this being  done.  When this is done then at least  the  original order and the notice must be deemed to have been put out  of existence  along  with  the default arising  from  the  non- compliance with the latter and all its consequences. That leaves only the case of an appellate order reducing the amount.  It seems to me that it would be somewhat curious if in all other cases excepting the case of a confirmation, the appellate  order destroys the original order it does not  do so  in the case of a reduction.  An order confirming may  be different for it confirms and, therefore, does not  destroy. It has, however, been said that "if subsequently the  demand is  modified on appeal and the amount of the tax payable  is reduced, all that happens is that the liability sought to be imposed by the notice of demand, in respect of the amount by which the assessment is reduced is found to have never  been a  liability  at  all but the liability in  respect  of  the remainder  which  stands unaffected by the  appellate  order remains" and also that "where a notice of the demand has, in fact,  been  issued  in  respect  of  a  larger  amount   as determined by the assessment order, it has been issued  even in  respect of the smaller amount which is ultimately  found to be the tax properly payable.  That being so, the assessee was  under an obligation to pay it by the date fixed and  if he did not pay it by that date, he became a, defaulter": see Ladthuram   Taparia  v. D. K. Ghosh and Ors.(1)  With  great respect  I am unable to accede to this proposition  and  the conclusion  based  thereon that the default and  its  conse- quences continue even after the appellate order reducing the original assessment.  How does the assessee know before  the appellate order the smaller amount which he might ultimately be  liable to pay?  It would be curious if he did  not  know what he had to pay and could still have defaulted in  paying it. (1) 33 I.T.R. 407, 423, 424. 156 The order of reduction must, in my opinion, necessarily have the  effect of setting aside the original order as a  whole. It does not simply strike out a few of the figures appearing in   the  original order.  That would really be  a  case  of

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rectification  for which provision is made in s. 35  of  the Act.   What an appellate order does in a case  of  reduction is,  as in the present case, to go into all the figures  and arrive  afresh at the assessable income which  replaces  the amount  of the income arrived at by the Income-tax  Officer. Therefore  it seems to me that in all cases of an  appellate order reducing the assessment the original order goes and if it  goes, of course the notice of demand also falls  to  the ground  and  the default based thereupon also ceases  to  be default anymore.  Suppose the appellate order itself  stated that  a  smaller  amount of tax was  payable  after  it  had reduced  the  figure of the assessable income at  which  the Income-tax Officer had arrived.  Indeed I cannot imagine how else it can be expressed.  After such an order the  original order  must go for the debt being one the two  cannot  exist together.  If that order goes, all default arising out of it must also go. Therefore  I  think that on the Income-tax  Officer’s  order being  revised  in appeal, the default based on it  and  all consequential  proceedings  must  be  taken  to  have   been superseded  and  fresh  proceedings have to  be  started  to realise the dues as found by the revised order. Coming now to the present case, in view of the order made in it,  it seems to me impossible to contend that the  original default  continued.  What happened in the present  case  was that on December 17, 1955 the Appellate Commissioner reduced the  assessable  income  of the assessee  as  found  by  the Income-tax Officer by a large sum and directed him to recom- pute  the  tax  due on the basis of  the  assessable  income stated  in  the  appellate  order.   The  assessee  was  not informed  about the recomputed amount of tax  till  February 14,  1956.  The assessee had not paid the tax  mentioned  in the Income-tax Officer’s order.  If he had done that then he would  under the express terms of the appellate  order  have become  entitled  to a refund.  What then was  the  position between  these  two dates?  If the revenue  authorities  are right,  then  the assessee continued to be in  default  even after  the  appellate  order.  But what was  the  amount  in respect of which he was so in default?  Clearly he could not have  continued  to be in default in respect of  the  amount found  due by the Income-tax Officer in his  original  order for  that amount was no longer due.  He could not have  been in  default in respect of the amount which was found due  on recomputation  by  the Income-tax Officer according  to  the direction  of the Appellate Commissioner because be did  not know   that  amount.   It  would  be  absurd  if   the   Act contemplated  a  default without the  assessee  knowing  the amount in respect of which the default occurred and  without his having a chance 157 to  pay it. It would be impossible to construe the in a  way to produce that result.  It has, therefore, to be held  that between   the   date  of  the  appellate   order   and   the communication  of  the recomputed amount of the tax  to  the assessee  by  the  Income-tax  Officer  there  could  be  no default.   Since  the, Act does not provide  for  a  default being  in suspension for a period it must be held  that  the original  default ceased to exist after the appellate  order was  made.  Proceedings initiated on the  original  ,default before   the  appellate  order  could  not,  therefore,   be continued  any more.  Indeed the appellate order  superseded the original order and its consequences. If the effect of an appellate order reducing the  assessment as in the present case did not wipe out the original  order, a most anomalous situation would, in my view, arise.   Under

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s.  46(1) of the Act after a default has been  committed  in terms  of  s.  45(1) the Income-tax  Officer  may  impose  a penalty not ,exceeding the amount of the tax due in  respect of  which  the default has occurred.  This  penalty  may  be recovered  in the ,same way as the tax due, that is to  say, by  a  notice under s. 29 and thereafter  by  a  certificate issued under s. 46(2).  Now suppose the penalty for the full amount  of the tax found due by the Income-tax  Officer  has been imposed and thereafter the appellate order reduces  the amount  of  the tax.  What happens to the order  of  penalty then?  Obviously it does not automatically stand reduced  to the reduced amount of the tax.  It would again be absurd  if the  penalty  could  be recovered  for  the  full  ,original amount.  The only sensible view to take in such a case would be  that  the order of penalty falls to the ground  and  the only logical way to support that conclusion would be to  say that the original default has disappeared. For  these  reasons I have come to the conclusion  that  the decision of the High Court was right and I would, therefore, dismiss the appeals. HIDAYATULLAH, J.-These appeals by special leave arise from a common  order  in two writ petitions under Art. 226  of  the Constitution passed by the High Court of Mysore on April 16, 1959.  The Income-tax Officer, Kolar and the Commissioner of Income-tax,  Bangalore  are the appellants before  us.   The assessee  Seghu Buchiah Setty, who is the respondent,  is  a merchant of Srinivaspur, Kolar District.  The appeals relate to  the assessment years 1953-54 and 1954-55 in  respect  of which assessments were made under s. 23(4) of the  Incometax Act.  For the assessment year 1953-54, the assessee’s income was estimated to be Rs. 61,000/- and the tax levied was  Rs. 19,808-1-0.   For the second year, his income was  estimated to  be Rs. 1,21,000 and the tax levied was  Rs.  66,601-3-0. The  assessee applied under s. 27 of the Income-tax Act  for the  cancellation of these assessments but his  applications were 158 rejected.  It  was stated before us that  other  proceedings were  pending  in this behalf; but I am not  concerned  with them  except in so far as a preliminary objection  based  on those  and   some other proceedings was made  before  us  to which  I  shall refer presently.  After the  assessment  was made,  the Incometax Officer sent notices of  demand  asking the  assessee to pay Rs. 86,409-4-0 as tax, and on  default, issued  a  certificate  under s. 46(2) of  the  Act  to  the Collector of Kolar District to recover the amount as arrears of land revenue. On December 17, 1955, the Appellate Assistant  Commissioner, "A"  Range,  Bangalore,  before whom  the  assessments  were challenged  by  appeal, passed his order  and  assessed  the income for the two years to be Rs. 28,000/- and Rs. 46,000/- respectively.   The  Income-tax Officer did  not  issue  any fresh  notices of demand under s. 29 of the Act but wrote  a letter demanding the reduced tax for the two years which now stood   reduced   to  Rs.  4,215-9-0  and   Rs.   13,346-8-0 respectively.   It is significant that the reduction in  the tax  was  from  eighty-six  thousand  rupees  to   seventeen thousand rupees.  It appears that the assessee took  further appeals to the Income-tax Appellate Tribunal and the  matter was said to be pending there. The  assessee then applied to the High Court under Art.  226 of the Constitution for quashing the old certificates issued under s. 46(2) by the Income-tax Officer on the ground  that as.  no fresh notices of demand were issued against  him  in respect of the reduced tax, he was not in default.  The High

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Court  accepted  this  contention and  the  necessary  writs quashing the proceedings were issued.  After the decision of the High Court, fresh notices of demand for the reduced  tax were  issued  to  the  assessee on May  8,  1959  and  those proceedings  were also pending.  The  preliminary  objection which is based on the pendency of the other proceedings  and particularly the last fact is really of great force, because these  appeals  do  not now appear  to  serve  any  tangible purpose.   However, the appeals were heard at length  and  I must express my decision on the point mooted before us. In these appeals, the Department contends that the  original notices  of demand issued in September 1955 had  not  become inoperative  after  the  order of  the  Appellate  Assistant Commissioner.  The reason advanced is that there is  nothing in the Income-tax Act which requires that a fresh notice  of demand must issue every time the amount of tax is reduced in appeal.   It  is pointed out that if a  previous  notice  of demand  is  not  complied  with,  the  assessee  becomes   a defaulter  and  it is submitted that he continues  to  be  a defaulter,  in  respect  of  the  balance.   It  is  however conceded  that  where the Appellate  Assistant  Commissioner increases the assessment, a fresh notice 159 of  demand  must  issue. It is urged  that  proceedings  for recovery  which  may  have commenced are  likely  to  become useless  if,  fresh  notices  were  compulsory,  and  it  is submitted  that  all  that is necessary  is  to  inform  the assessee  and  the Collector by, letters  what  the  reduced amount  is and as the default still continues,  the  reduced amount can straightaway be realised on the old  certificates and  a  refund can be ordered if excess amount  has  already been  recovered.   The assessee contends that  the  original notice  of  demand lapses and with it the  default  and  the certificate,  and  that the Income-tax Officer is  bound  to issue a fresh notice of demand. The High Court accepted the assessee’s contention  following a  decision  of  the Calcutta  High  Court  in  Metropolitan Structural Works Ltd. v. Union of India(1).  The  appellants contend  that  the true view of the law is  contained  in  a later  decision  of  the Calcutta  High  Court  reported  in Ladhuran  Taparia  v. D. K. Ghosh and others(2),  where  the earlier case was explained.  The appellants rely further  on The  Municipal  Board, Agra v. Commissioner  of  Income-tax, United  Provinces: No. 2(3), Auto Transport Union  (Private) Ltd. v. Incometax Officer, Alwave(4) and Hiralal v.  Income- tax Officer(5) for support. in Metropolitan Structural Works Ltd. Gv. Union of  India(1) there  were  successive demand notices after  the  Appellate Assistant   Commissioner  and  the  Tribunal   reduced   the assessment  and  the  Income-tax  Officer  finally  sent   a certificate under s. 46(2) of the Act.  The assessee in that case, relying upon the seventh sub-section of s. 46, claimed that  the  proceedings were barred as according to  it,  the period  of one year could only be calculated from  the  last day of the financial year in which demand was made and  this could  only  be the first demand.  It was contended  by  the assessee  that the Act did not provide that a  fresh  notice should  issue  after revision of assessment, though  it  was admitted that there was no prohibition.  Chakravartti, C. J. and Lahiri, J. observed:               "The real point, however, is whether a  second               or  a  third  notice  of  demand  is  at   all               permissible   under  s.  29,  even   when   an               assessment  is altered in a first or a  second               appeal.   It appears to me that the  necessity

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             of  issuing a fresh notice of demand  in  such               circumstances is beyond argument."           (Italics supplied) (1)  (1955) 28 I.T.R. 432. (1) (1958) 33 I.T.R. 407. (3) (1951) 19 I.T.R. 63. (4) (1962) 45 I.T.R. 103. (5)  (1962) 45 I.T.R. 317. 160 The learned Chief Justice gave illustrations of those  cases which   the   earlier   notice   becomes    "inappropriate". Addressing.  himself to the necessity of a new  notice,  the learned Chief Justice observed:               "In  my view the answer to that could only  be               in the affirmative." (Italics supplied) The  difference  between the words ’in  consequence  of  any order’ used in the Act and ’in consequence of any assessment order in pursuance of this Act’ which, he pointed out, could have  easily been used, was next stressed and he  held  that the  orders of the Appellate Assistant Commissioner and  the Tribunal answered the former description.  He expressed  his conclusion thus:               "If  so,  when  there  is  some  tax  due   in              consequence of an order passed by the Appellate               Assistant Commissioner or in consequence of an               order  passed  by the  Appellate  Tribunal,  a               clear  occasion arise& under the words of  the               section  to serve a notice of demand upon  the               assessee.   That such fresh notice  should  be               issued  when the assessment is altered is  but               common  sense and I see no reason to  construe               the  section  against reason and  against  the               actual necessities of realisation." In  the  next  case, Ladhuram Taparia v.  D.  K.  Ghosh  and others(1)  the  facts  were the converse.   There  a  demand notice  was  issued  and  then the  tax  was  reduced.   The assessee  contended that there should be a fresh  notice  of demand before he was deemed to be in default.  Chakravartti, C.  J.  and  Das,  Gupta,  J.  held  that  on  reduction  of assessment nothing further was required beyond an intimation to the assessee and the.  Collector of the reduction of  the tax.  The reason given was that the demand in respect of the excess  stood  ’eliminated’ and the demand for  the  balance remained.   It  was  held that a  case  of  enhancement  was different  and it needed a fresh notice of demand.   It  was however  not pointed out whether the fresh demand should  be for  the excess amount or the whole of the amount.  Nor  was it  shown  why a letter to the assessee  and  the  Collector would  not do in that case also.  In either  case,  speaking arithmetically, a portion of the demand is saved, but speak- ing  legally, the demand notice, to quote the words  of  the earlier judgment, ’becomes inappropriate’. Whether  the  learned Chief Justice was right on  the  first occasion or on the second can only be said after  discussing the  relative sections of the Income-tax Act, but this  much must (1958) 33 I.T.R. 407. 161 say   (and  I  say  it  with  considerable  hesitation   and diffidence  since  I  have always  held  the  learned  Chief Justice  in  high esteem) that he has not been able  to  get clear of the words used by him on the earlier occasion.   It seems  anomalous  that  if the tax  is  increased  from  Rs. 10,000/-  to Rs. 10,010/- a fresh notice of demand must  go, that  is to say the earlier default is wiped off; but if  it is reduced from Rs. 10,010/- to Rs. 10 /- a fresh notice  is

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not  required  and  the assessee must be  deemed  to  be  in default for Rs. 10 with all the evil consequences of default because he did not pay an extra ten thousand rupees with the ten rupees.  But it may be said, there is no room for  logic and  mathematics if the Act so requires and the true  answer can  only  be furnished by what the  law  requires.   Before dealing  with  the pertinent sections to determine  how  the matter  stands there, I may say that the other cases of  the other   High  Courts  cited  earlier  do  not  add  to   the discussion, but mention must be made of The Municipal  Board Agra  v. Commissioner of Income-tax, United  Provinces:  No. 2(1).   In  that case, though a fresh notice of  demand  was served after reduction of tax under s. 35 of the  Income-tax Act,  calculation of limitation from the date of service  of that notice was not allowed because the clauses relating  to right  of appeal, period of limitation etc.  were  pencilled through.   The  reason  given was that  s.  35(4)  makes  it compulsory  to serve a notice of demand only when  there  is enhancement  and as no fresh notice is made compulsory  when the tax is reduced, none need issue.  An assessee might,  on such construction, lose his limitation for appeal in a  case under  s.  27 of the Income-tax Act even  before  the  order under s. 27 determining the amount of tax is passed. It is contended that there is no provision that a second  or third  notice of demand must issue.  There is no  need  that the Act must expressly authorise the issue of fresh  notices of demand.  Even if such a power is not expressly  included, it flows from s. 14 of the General Clauses Act under which a power can be exercised as often as the occasion demands.   I am, however, of the opinion, that (except in cases of demnin is) the Act does contemplate, that a fresh notice of  demand shall  issue.  There are two reasons for it.  The  first  is the  language  of s. 29 and the other  is  the  consequences following the issuance of a notice of demand.  I shall  deal first with the second ground. After  the  demand is made, the tax,  penalty  and  interest become  a  debt due to the Government.  This was  decided  a long  time  ago  by the Privy Council in  Doorga  Prasad  v. Secretary  of  State(2).  Further, by issuing  a  notice  of demand, the (1) (1951) 19 I.T.R. 63.    (2) (1945) T.T.R. 285 at 289. L/P(D)1SCT-6 162 period  of  limitation for appeals under s. 30  of  the  Act starts  in  many cases.  Further still, when the  notice  of demand is not complied with, the assessee can be treated  as a person in default and he is liable to pay a penalty  equal to  the  tax  debt under s. 46(1)  of  the  Income-tax  Act. Lastly, on the failure of the assessee to pay after a notice of demand is issued, the recovery proceedings can be started within a time limit and the amount of tax can be treated  as an arrear of land revenue. It follows, therefore, that the notice of demand is a  vital document  in  many respects.  Disobedience to it  makes  the assessee  a defaulter.  It is a condition precedent  to  the treatment  of the tax as an arrear of land revenue.   It  is the starting point of limitation in two ways and the  breach of obedience to the notice of demand draws a heavy  penalty. The  notice  of  demand which is issued must be  in  a  form prescribed  by  r. 20 and the form  includes  the  following particulars:  it shows the amount which has to be  paid  and indicates  the person to whom, the place where and the  time within which it has to be so paid.  Compare with it s. 45 of the Income-tax Act which provides: -               "Any  amount specified as payable in a  notice

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             of  demand...... under section 29 or an  order               under  section 31 or section 33 shall be  paid               within  the  time,  at the place  and  to  the               person mentioned in the notice or order, or if               a time is not so mentioned, then on or  before               the  first day of the second  month  following               the  date  of  the service of  the  notice  or               order,  and  any assessee failing  so  to  pay               shall  be  deemed to be in  default,  provided               that, when an assessee has presented an appeal               under  section 30, the Income-tax Officer  may               in  his discretion treat the assessee  as  not               being  in  default as long as such  appeal  is               undisposed of:" (Proviso and Explanation omitted). From this section, it follows that an assessee is deemed  to be in default if he disobeys either a notice of demand under s. 29 or an order under ss. 31 and 33.  The contents of  the notice  of  demand may be included in these orders  and  the order then serves the purpose of a notice of demand as well. In  both cases, if time is not mentioned, the assessee  must pay  the tax on or before the first day of the second  month following  the date of the service of the notice  or  order. Once  a default is incurred, it continues and the filing  of an appeal does not save the assessee from the default.   The Income-,Lax  Officer can start and continue the  proceedings for  recovery of the tax notwithstanding the filing  of  the appeal.  It is however to be 163 seen that he has been given the power to treat the  assessee as  not in default as long as the appeal is  undisposed  of. This power is conferred, because s. 46(1) provides:               "When  an assessee is in default in  making  a               payment. of income-tax, the Income-tax Officer               may  in his discretion direct that, a sum  not               exceeding that amount shall be recovered  from               the assessee by way of penalty." To save an assessee from penalty, the Income-tax Officer may treat him as not in default but if he does not, he is within his rights. Now take a case in which an assessee is considered to be  in default  after it notice of demand is served.   Assume  that the tax which is due is Rs. 10,010.  The Income-tax Officer, can,  in  his discretion, add another Rs. 10,010 by  way  of penalty and issue a certificate against him for recovery  as arrears of land revenue of a sum of Rs. 20,020.  Suppose the assessment is then reduced and his tax liability is found to be Rs. 10.  To say that the old proceedings for the recovery of Rs. 20,020 can still be pursued in respect of Rs. 20  and the petty amount recovered as arrears of land revenue, when, if  a  notice of demand for Rs. 10 were  sent  the  assessee would have paid the sum readily, is to make the law  operate very harshly with-out any advantage.  To say again that  the assessee  whose tax is enhanced must receive a fresh  notice of demand because the old notice becomes inappropriate is to make  the  lot of a person whose tax is reduced  worse  than that  of  a  person whose tax is increased.   At  least  the contumacy of the latter is the same if not greater than that of the former. It is said that all that is necessary is that the Income-tax Officer  should write a letter informing the  assessee  that the tax is reduced from Rs. 10,010 to Rs.  10.  The question is, why not send him a fresh notice of demand?  If there  is no  provision in the Income-tax Act to send a  fresh  notice there is none authorising the sending of letters.  No doubt,

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the old proceedings for recovery of the tax might become out of  date  and  inappropriate, but it is  one  thing  to  use coercion to recover an amount which the assessee did not but probably  could  not pay, and another to recover  an  amount which the assessee could and would pay readily.  However, if the  law requires that a notice of demand need not go,  that would be the end of the matter; but, in my opinion, s. 29 in its terms is extremely clear and indicates that a notice  of demand must always issue.  It reads:               "When  any tax, penalty or interest is due  in               consequence  of any order passed under  or  in               pursuance of this Act, the Income-tax  Officer               shall serve               L/P (D) 1 SCI-6               upon  the assessee or other person  liable  to               pay such tax, penalty or interest a notice  of               demand  in the prescribed form specifying  the               sum so payable." The  learned Chief Justice of the Calcutta High  Court,   if may  say respectfully, was perfectly right in  pointing  out its meaning in his first case.  I cannot add to what he said and I adopt all lie said.  But I would add a few words.  The mandatory part of the section is quite clear.  "The  Income- tax  Officer  shall  serve  a  notice  of  demand  upon  the assessee" are emphatic words and the earlier part shows that he  has  to  do it when tax is due in  consequence  of  "any order".   Any  order  means  not only  an  order  passed  by himself,  but also an order passed by reason of the  success of  an appeal which the assessee may file and in  which  the old  assessment is set aside.  In view of  the  consequences that  ensue, it is clear to me that when an  asssessment  is gone through a second time and the amount of tax is reduced, the  Income-tax  Officer must intimate to the  assessee  the reduced  amount  of tax and make a demand and  give  him  an opportunity to pay before treating him as a defaulter.  ’his is incumbent because the assessment resulting in the tax  is itself set aside or modified and as assessee is entitled  to a proper assessment and ascertainment of tax before a demand can be made on him. It is said that the Income-tax Officer can send a letter but the law says that he ’shall serve upon the assesses a notice of  demand in the prescribed form’.  When the  law  requires that a notice of demand should issue, the mode of compliance by  a  letter is excluded.  It may be that the letter  is  a good  substitute  for  a notice of demand  but  the  section demands  that it should be ’in the prescribed form’.   If  a letter  is to be written.. why not a notice of  demand?   In other  words, when the assessment is altered, whether it  is reduced or it is increased, by reason of any order under the Act,  it  is the duty of the Income-tax Officer to  issue  a notice  of demand in the prescribed form and serve  it  upon the  assessee.   The learned Chief Justice of  the  Calcutta High  Court clearly was of the view in the first  case  that there was only one answer to the question and I respectfully agree with him.  He could only depart from his earlier  view by finding fault with the drafting of s. 45. 1 regret I can- not agree with him there.  Section 45 intends that the order of the Appellate Assistant Commissioner and the Tribunal may in  some cases also serve as notices of demand.  Further  it is  not  clear  from  the  later  decision  whether  on  the enhancement of the tax, a fresh notice of demand is required for  the  excess  only or for the whole of  the  sum.   That answer  is not furnished in any of the other cases to  which reference  was  made  at the bar.  If default  is  saved  in respect of the reduced amount a

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165 165 default  would  also  be saved in respect  of  the  original amount when the demand is increased.  If a notice of  demand were  to issue in respect of the excess only, there will  be two notices of demand and two starting points of limitation, both  for the purpose of coercive action under s.  46(7)  as well  as  for purposes of any appeal that  might  lie.   If, however, a fresh notice of demand is to go in respect of the composite sum, the question to ask would be, what happens to the  default  which  was incurred  already’?   How  does  it disappear?  In my opinion, there is only one possible answer and it was given by the learned Chief Justice in the earlier case. I  would  therefore dismiss these appeals and all  the  more readily because a fresh notice of demand has issued in  this case.   If it is disobeyed, the Income-tax Officer would  be able  to  recall the old certificate issued to  the  Revenue Officer,  amend  it and bring it in line with  the  tax  now demandable and return it to him for continuing the  recovery proceedings. I would dismiss the appeals but in the circumstances of  the case, I would make no order about costs. SHAH,  J.-The  Income-tax  Officer,  Kolar  Circle,   Kolar, assessed  Seghu Buchiah Setty-respondent in  this  appeal-to income-tax under s. 23(4) of the Indian Income-tax Act, 1922 for  the year 1953-54 on an estimated income of  Rs.  61,000 and  for  the  year 1954-55 on an estimated  income  of  Rs. 1,21,000 and served notices of demand under s. 29 of the Act for the tax due under the two orders of assessment.  On  the respondent  failing  to comply with the  notices  of  demand within the period specified, the Income-tax Officer  treated the respondent as in default and sent certificates under  s. 46(2)  of  the Act to the Deputy  Commissioner,  Kolar,  for recovery of the tax determined by the orders of  assessment. The   Deputy   Commissioner  attached   certain   properties belonging  to  the  respondent.  In  appeals  filed  by  the respondent  against the orders of assessment  the  Appellate Assistant  Commissioner reduced the income assessed for  the year  1953-54 to Rs. 28,000 and for the year 1954-55 to  Rs. 46,000.  The Income-tax Officer did not issue fresh  notices of  demand  pursuant to the modification in  the  orders  of assessment made by the Appellate Assistant Commissioner, but by   his  letter  dated  February  14,  1956  informed   the respondent  that he had to pay tax as reduced by the  appel- late  order.  The respondent did not pay the amount  of  tax demanded, and applied to the High Court of Mysore under Art. 226  of the Constitution for a writ of  certiorari  quashing the  certificates issued by the Income-tax Officer  treating him as in default and a writ of prohibition prohibiting  the Income-tax Officer from enforcing the certificates under  s. 46(2)  of  the  Income-tax Act.  The High  Court  of  Mysore relying upon the 166 judgment   of  the  Calcutta  High  Court  in   Metropolitan Structural Works Ltd. v. Union of India(1) held that the In- come-tax Officer could not, without issuing fresh notices of demand,  after the Appellate Assistant Commissioner  of  In- come-tax  reduced  the taxable income, setting out  the  tax payable  by  him for the two years in  question,  treat  the respondent  as a defaulter and that the proceedings  of  the Collector  based on the certificates issued pursuant to  the order of assessment by the Income-tax Officer were  illegal. Against the orders passed by the High Court, the  Income-tax Officer has appealed to this Court, with special leave.

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The question which falls to be determined in this appeal  is about  the legal effect of the reduction of  the  assessable income by the order of the Appellate Assistant  Commissioner on the notices of demand previously issued by the Income-tax Officer.  The respondent contends that by the  modifications made  in  the  orders of assessment the  notices  of  demand issued by the Income-tax Officer must be deemed cancelled or superseded, and he cannot be regarded as in default,  unless fresh notices of demand are issued by the Income-tax Officer specifying  the  amount payable pursuant  to  the  appellate order.   The respondent says that there was at the  material time  no outstanding demand notice or order  specifying  the amount payable failure to comply with which may be  regarded as  constituting a default.  The respondent strongly  relies upon  the observations made by Chakravartti, C. J.,  in  his judgment in Metropolitan Structural Works Ltd’s case(1) that where  the  income  assessed by the  Income-tax  Officer  is reduced  in  appeal,  the notice of  demand  issued  by  the Income-tax Officer in respect of the income assessed by  him will  on such reduction cease to be appropriate, such  being the  meaning  of the statute and any interpretation  to  the contrary  is  "against  reason"’  and  against  the   actual necessities of realization". The  respondent  therefore  submits that an  order  of  the, Appellate  Assistant Commissioner in appeal not only  super- sedes  the order of assessment against which the  appeal  is carried, but also the notice of demand issued by the Income- tax Officer and all proceedings taken for recovery of tax in pursuance  of  the notice of demand, and  therefore  default which  has  resulted  from the failure to  comply  with  the notice  of  demand becomes inoperative, when  the  Appellate Assistant  Commissioner passes his order in  appeal  against the   order  of  assessment,  whether  such  order   is   of confirmation  or  variance..  The  Income-tax  Officer  may, submits  the respondent, issue a certificate under s. 46  if there  be a fresh default resulting from  non-compliance  of the order of the Appellate authority.  If this submission is true, the demand notices must be issued and all’ (1)  (1955) 28 I.T.R. 432. steps  pursuant to an order of assessment for recovery  must be  completed  before  the  appeal  against  the  order   of assessment  is  disposed  of.  If the  proceedings  are  not completed,  they will be superseded by the order  passed  by the appellate authority. We  may  examine the correctness of the plea raised  by  the respondent  in the light of the scheme for recovery of  tax, penalty  or  interest due under the provisions of  the  Act. After  the income of an assessee is computed, and  liability to pay tax, penalty or interest is determined in the  manner provided by the Act, proceedings for recovery of the  amount commence.   A  notice of demand is the  foundation  of  such proceedings and of the jurisdiction to collect the tax.   It is  the  notice  of  demand  which  converts  the  liability determined by the order of assessment into a debt due by the assessee  to  the State.  There must therefore  be  a  valid order  of  assessment, on which a notice of  demand  may  be founded.   Section 29 invests the Income-tax  Officer  alone with jurisdiction to issue a notice of demand, and no  other officer  out of the hierarchy of Revenue Officers  has  that jurisdiction.  It provides:               "When  any tax, penalty or interest is due  in               consequence  of any order passed under  or  in               pursuance of this Act, the Income-tax  Officer               shall serve upon the assessee or other  person               liable to pay such tax, penalty or interest  a

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             notice  in the prescribed from specifying  the               sum so payable." The notice of demand has to be in the form prescribed  under rule  20  which requires that the amount demanded,  and  the person  to  whom together with the place where it is  to  be paid,  must be stated in the notice.  Section 45 of the  Act provides that the amount specified as payable in the  notice of  demand  or an order under s. 31 or s. 33 shall  be  paid within  the time, at the place and to the  person  mentioned therein,  or if no time be so mentioned, then on  or  before the first day of the second month following the date of  the service of the notice or order and if the assessee fails  to pay the tax he shall be deemed to be in default, unless  the assessee has presented an appeal ’under s. 30 of the Income- tax Act and the Income-tax Officer in his discretion  treats the assessee as not being in default as long as such  appeal is  undisposed  of.   Section 45  therefore  prescribes  the conditions  under  which  a  person may  be  treated  as  in default.  Section 46 provides the mode and time of  recovery of  the amount due by an assessee.  Sub-sections (2) to  (6) of  s.  46  lay down the method which  may  be  adopted  for recovery  of  the  dues.   Sub-section  (2)  authorises  the Income-tax Officer to forward to the Collector a certificate under  his  signature specifying the amount of  arrears  due from  an  assessee.   The  Collector,  on  receipt  of  such certificate has to proceed to 168 recover  from such assessee the amount specified therein  as if  it were an arrear of land revenue.  Sub-sections (3)  to (6)  deal with other modes of recovery.  But resort  to  the modes  of recovery is subject to sub-s. (7)  which  provides that save in accordance with the provisions of sub-s. (1) of s.  42,  or  of the proviso to s. 45,  (which  are  for  the purposes  of  this  case not material)  no  proceedings  for recovery of any sum payable under the Act shall be commenced after  the expiration of one year from the last day  of  the financial year in which a demand is made under the Act.  The Act therefore provides that if an assessee makes default  in complying with the notice of demand or order under ss. 31 or 33, proceedings may be taken in the manner provided in s. 46 for  recovery of the tax due but such proceedings shall  not be commenced after the expiration of the period specified in sub-s. (7). By  the determination of tax under s. 23, or  imposition  of penalty  in circumstances mentioned in s. 28,  or  liability for payment of interest in circumstances mentioned in s. 18- A(4),  (6),  (7) or (8) obligation to pay  tax,  penalty  or interest  arises,  and upon service of a  notice  of  demand under  s.  29  or an order under s. 31 or s.  33,  the  tax, penalty  or interest become due and payable, and if the  tax is  not paid within the time specified, the  assessee  must, unless the Income-tax Officer otherwise directs, be  treated as in default.  Against the assessee in default, the Income- tax  Officer may take appropriate steps for recovery of  tax as  prescribed  in  cls.  (2) to (6)  of  s.  46.   But  the Legislature has not enacted that steps taken by the  Income- tax Officer for recovery of tax will lapse or be  superseded when  the appeal against the order of assessment  passed  by the  Income-tax  Officer  is disposed of  by  the  appellate authority.   Section  45  in terms  provides  that  when  an assessee is served with the notice of demand and has  failed to  comply  with  the notice,  he  shall,  unless  otherwise ordered,  be deemed to be a defaulter.  The Act  provides  a right of appeal against the order of assessment, but on  the presentation  of  the  appeal the power  of  the  Income-tax

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Officer to take steps for recovery of tax is not  suspended. The Income-tax Officer is obliged by the statute to issue  a notice of demand for payment of tax, penalty or interest due in consequence of any order passed under or in pursuance  of the  Act.  Lodging of an appeal does not operate as  a  stay and  would not entitle the assessee to withhold  payment  of tax till the appeal is decided.  The Income-tax Officer  may in  his discretion treat the assessee as not in  default  as long  as such appeal is not disposed of, but unless such  an order  is  passed the assessee would, on failure  to  comply with the order, be a defaulter and proceedings for  recovery of tax may be initiated and continued during the pendency of the appeal. 169 It is clear therefore that when tax, penalty or interest  is determined and demanded, proceedings shall be commenced  for recovery,  and  these  proceedings  may  be  commenced   and continued,  notwithstanding the presentation of  an  appeal. By failing to comply with the demand the assessee becomes  a defaulter, and it is not provided that he shall cease to  be a  defaulter on the disposal by the appellate  authority  of the appeal against the order of assessment.  In the  absence of such a provision, it is difficult to perceive any  ground for  holding  that  the  proceedings  commenced  against   a defaulting tax-payer for recovery of tax must be  abandoned, and fresh proceedings commenced for recovery of tax pursuant to the order of the appellate authority.  If on the  passing of an order by the appellate authority, the notice of demand previously  issued is deemed to be cancelled or  superseded, an   assessee   must  be  treated  as  absolved   from   the consequences of his default even if the -appellate authority confirms  the order of the Income-tax Officer,  because  the earlier  default by the tax-payer will in every case  go  by the board, and the proceedings must be commenced again after service of a fresh notice of demand.  The discretion  vested in  the  Income-tax  Officer to treat or  not  to  treat  an assessee  pending  appeal in default will, in all  cases  be valueless.   The provisions of the Act do not  indicate  any such  legislative  intent and express  enactment  conferring upon  the Incometax Officer, in his exercise of  discretion, power not to treat a person who has preferred an appeal as a defaulter,  contains  strong  indication  to  the  contrary. Therefore, in my view a person who has failed to comply with a  notice  of  demand  would  continue  to  be  a  defaulter notwithstanding  the reduction of liability by order of  the appellate  authority.  There would be only one exception  to this  rule i.e. when the order of assessment is  wholly  set aside.   But that is not a real exception, for  against  the assessee no steps can be taken because there is no debt  due by him. It  was urged that a person can be said to be in default  in payment of tax, when he fails to comply with a demand for  a specific  amount,  and  when the amount payable  by  him  is reduced in appeal, he is no longer in default because he has had  no  opportunity to meet the reduced  demand.   But  the status  of  a  defaulter under the Act is  a  condition  for initiation of proceedings for recovery, and by the reduction of  liability in appeal the status is not altered.  Even  if the  amount  due is modified, the status persists,  but  the process  for  recovery  will be adjusted  according  to  the modified demand including the imposition of penalty under s. 46(1).   It  is  true  that  the  Act  contains  no  express provision which enables the Income-tax Officer to modify the certificate  which  is  issued to  the  Collector,  but  the absence of such a provision does not detract from

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170 the  duty of the Income-tax Officer to give  information  to the   recovering  authority  about  the  reduction  in   the liability for tax, penalty or interest made by the appellate authority  and  to  request such  authority  to  adjust  his proceeding  to  the  modified  demand.   Such  a  duty  must necessarily  be  implied.  An error in the  certificate  can always  be  clarified by an amendment and if that  power  be granted,  there is no reason to suppose that a demand  which is   reduced   because  of  subsequent   events,   such   as modification  of the assessment by the appellate  authority, or  payment made by the tax-payer as directed by the  notice of  demand may not be enforced in a manner  consistent  with the  outstanding  demand.   If in an  appeal  the  Appellate Assistant  Commissioner  enhances the  tax,  the  Income-tax Officer  may  give intimation to  the  recovering  authority about the enhanced demand.  No fresh notice is  contemplated to  be given by the Act in the case either of  reduction  of assessment or enhancement.  The plea that a fresh notice  of demand may have to be issued when the assessment is enhanced is  not  warranted  by the statute, and  the  argument  that against  the assessee two notices of demand may  in  certain cases  be issued, failure to comply with which may make  him doubly a defaulter has no valid basis. Counsel  for  the respondent urged that it is  open  to  the Appellate Assistant Commissioner to specify by his order the time  and place at which the tax determined by him is to  be paid,  and  the  person to whom it is to be  paid.   If  the Appellate Assistant Commissioner does so specify the amount, the person to whom and the place at which the payment is  to be made, the order of the Income-tax Officer would be deemed to  be superseded and it would be the duty of  the  assessee then to pay the tax determined pursuant to the order of  the Appellate Authority after a fresh notice is served upon  him and  he  cannot  be deemed to be in default  unless  he  has failed  to  comply  with the  directions  of  the  Appellate Assistant Commissioner within the period prescribed by  that order.   Section  45 does undoubtedly refer  to  the  amount specified  in an order passed under s. 31-which  deals  with the  procedure  and  the power of  the  Appellate  Assistant Commissioner hearing an appeal from the order of the Income- tax  Officer, and to the amount specified in an order  under s.  33  dealing  with the procedure and  the  power  of  the Income-tax Appellate Tribunal in appeal against the order of the  Appellate  Assistant Commissioner,  and  provides  that default in payment of the amount so specified can only arise if  it is not paid within the time at the place and  to  the person mentioned in the order under s. 31 or s. 33 or in the demand  notice under s. 29.  But ss. 31 & 33 do not  provide that  in  making  their  respective  orders  the   Appellate Assistant  Commissioner  and the  Appellate  Tribunal  shall determine the 171 tax, penalty or interest, and shall also prescribe the  time within which, the person to whom, and the place at which the amount specified shall be paid, and it would be difficult to accept  the contention that the Legislature in  enacting  s. 45-a  provision  relating  to recovery of  tax  intended  to provide  that  in  exercise of  the  appellate  powers,  the Appellate Assistant Commissioner and the Income-tax Tribunal shall   comply  with  certain  requirements.    In   certain exceptional cases such as those in which an appeal is  filed only  against  the amount of tax determined under s.  23  or against imposition of penalty under s. 28 or against  orders specifying the amount of interest payable under s. 18-A, the

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Appellate  Assistant  Commissioner or the Tribunal  may,  in their  final orders, specify the amount to be paid and  also the time within which and the place at which and the  person to  whom  the  amount is to be paid.  Such  a  direction  is intended  only to effectuate in appropriate cases the  order of the Appellate Assistant Commissioner or the Tribunal.  It does not take the place of a notice of demand, but if  made, may  operate if not complied with to make the person  liable to  pay  the  amount specified a  defaulter.   An  Appellate Assistant  Commissioner may, in an appeal against the  order of  the Incometax Officer, either confirm the assessment  or modify  it  by  reducing or increasing  it.   Similarly  the Tribunal  may  confirm  the  assessment  of  the   Appellate Assistant  Commissioner or may reduce the  assessment.   But the  Appellate Assistant Commissioner and the  Tribunal  are not required by statute to specify the amount as payable  in their  order, nor are they required to direct payment to  be made in their order. The  Appellate Assistant Commissioner and the Tribunal  have power to impose penalty in the conditions specified in  cls. (a),  (b)  or (c) of sub-s. (1) of s. 28 of  the  Income-tax Act.   But  these  orders are passed in  exercise  of  their appellate jurisdiction conferred by ss. 31 and 33 of the Act and  where  the  Appellate  Assistant  Commissioner  imposes penalty  he may specify the amount thereof.   Similarly  the Tribunal imposing penalty may specify the amount of penalty. To  such cases the provision relating to default arising  on failure to comply with the direction to pay may apply if the person to whom, and the place at which, it is to be paid are specified. The assumption that s. 45 of the Income-tax Act requires the appellate  authority  to specify the amount payable  in  the order  therefore seems to be unwarranted and the  fact  that under certain circumstances, having regard to the nature  of the order appealed from, the appellate authority may specify in  the  order  such  particulars,  does  not  justify   the interpretation  either that the Income-tax Officer  has  the power  to  issue the notice of demand only  in  those  cases where by inadvertence the Appellate Assistant.  Commissioner or the Tribunal 172 have failed to specify the amount payable or superseding the notices for any provision  orders by the Appellate Assistant Commissioner  or  the Tribunal deciding the appeal  has  the effect  of superseding the notices of demand issued  by  the Income-tax  Officer.   In  the  absence  of  any   provision imposing an obligation upon the Income-tax Officer to  issue successive notices of demand from time to time for  recovery of the amount due during the process of assessment, it  must be held that the notices of demand issued by the  Income-tax Officer in exercise of the power under s. 29 may be enforced in  the  manner provided by s. 46 and within the  period  of limitation  provided  in cl. (7) of s. 46,  even  after  the appeal  against  the order of assessment  by  the  Incometax Officer is disposed of, subject to adjustment of the  amount to  be recovered in the light of the order of the  Appellate Assistant Commissioner. Observations  made  by Chakravartti, C. J., in the  case  in Metropolitan Structural Works Ltd’s case(1) do lend support, to  the  argument  that  the issue  of  a  fresh  notice  on modification  by  the appellate authority was a  "matter  of reason" and "based on the actual necessities of realisation" and  that  it is obligatory upon the Income-tax  Officer  to issue  such a notice on every occasion when  the  assessment was  modified.   But  the  learned  Chief  Justice   himself

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explained  the  observations  in his  judgment  in  Ladhuram Taparia v. D. K. Ghosh and others(2) and pointed out that in Metropolitan   Structural  Works  Ltd’s  case(1)  the   sole question  which  fell  to  be  determined  was  as  to   the commencement of the period of limitation under s. 46(7)  for enforcement of a notice of demand when successive notices of demand  were in fact issued by the Income-tax  Officer,  and that  the earlier judgment was not intended to lay down  and did  not lay down that the Income-tax Officer was  under  an obligation to issue a fresh notice of demand merely  because the  Appellate  Assistant  Commissioner  had  modified   the assessment.   Chakravartti,  C. J., after referring  to  the contention which was advanced and his observations regarding the necessity of issuing a fresh notice of demand where  the earlier  notice  had  become  inappropriate  by  reason   of reduction  in the amount of the tax payable observed  at  p. 422:               "To  say that was not to say that a  necessary               modification of the demand could only be  made               by  issuing a second notice under  section  29               and could not be made in any other way, or  to               put it in other words. it was not to say  that               the  necessity  of issuing a fresh  notice  of               demand   was  an  invariable  and   imperative               necessity               (1) 28 I.T.R. 432.                         (2)               33 I.T.R. 407.               I  am  altogether  unable  to  see  how   that               decision can be construed as having laid  down               that whenever an assessment order was modified               by an appellate order, an obligation arose  to               issue a second notice of demand under  section               29, if the,, modified amount was sought to  be               made payable and if it was sought to establish               that  a  default in respect  of  the  modified               demand has been committed." The observations of Chakravartti, C. J., in the Metropolitan Structural, Works Ltd’s case(1) relating to the necessity of issuing a fresh notice on the modification of the assessment were somewhat wide and literally read may support the  argu- ment  advanced  by the counsel for the  respondent  in  this case,  but  they were, in my judgment, unnecessary  for  the purpose of deciding the case and did not correctly interpret the  provisions  of ss. 29, 45 and 46.  The view  which  has been expressed by Chakravartti, C. J., in Ladhuram Taparia’s case(2)  has  been  adopted in other  cases  as  well:  Auto Transport Union (Private) Ltd. v. Income-tax Officer, Alwaye (3)  and  Hiralal  v. Income-tax Officers and  Mali  Ram  v. Collector  Bhilwara  (4).   In my view  the  validity  of  a certificate  issued  under  s. 46(2) to  the  Collector  for recovery of tax must depend upon the power of the Income-tax Officer  to issue that notice.  That power may be  exercised only if the assessee is a defaulter, and the proceedings are commenced  within  the  period provided  in  s.  46(7).   If because  of  failure  to comply with the  notice  of  demand issued by the Income-tax Officer the assessee is in default, I  fail to appreciate how such a person can be  regarded  as not  in default, merely because the order of  assessment  is modified but is not vacated.  The High Court was, therefore, in  error in holding that it was necessary to issue a  fresh notice  of demand, if the Appellate  Assistant  Commissioner modified  the assessment so as to reduce the amount  of  tax due and unless such a notice was issued, the assessee  could not be regarded as in default. The appeal will therefore be allowed and the petition  filed

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by  the respondent will stand dismissed with costs  in  this Court and the High Court.                            ORDER By  order of the majority, the appeals are  dismissed.   But there will be no order as to costs. Appeals dismissed. (1) 28 I.T.R. 432.  (2)  33 I.T.R. 407. (3)45 I.T.R. 103.   (4)  45 I.T.R. 317. 174