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PETITIONER: UNION OF INDIA & ORS.

       Vs.

RESPONDENT: SETH R. DALMIA

DATE OF JUDGMENT27/02/1975

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. CHANDRACHUD, Y.V. SARKARIA, RANJIT SINGH

CITATION:  1975 AIR 1017            1975 SCR  (3) 735  1975 SCC  (4)  16

ACT: Income Tax Act 1961-Sec. 148. Central Board of Direct Taxes (Regulation of Transaction  of Business)  Rules 1964--Rule 4--Whether approval, by  Central Government  of  distribution  of the business  of  board  by Chairman must be expressed in the shape of an order.

HEADNOTE: 6 notices were issued to the respondent under s. 148 of  the Income   Tax  Act  for  reopening  the  assessments  for   3 assessment  years.   The  notices recited  that  they.  were issued  after  obtaining the necessary satisfaction  of  the Central Board of Direct.  Taxes The respondent filed a  writ petition  in  the High Court challenging  the  said  notices inter alia on, the ground that sanction of the Central Board of Direct Taxes was not taken before the notices were issued as required by sec. 151 of the Act.  The High Court accepted the  said  contention and did not decide the  other  grounds raised  in  the  petition.  The High Court held  that  on  a reading  of the affidavit made by J. P. Singh,  Chairman  of Central Board of Direct Taxes it would appear that the  work which had been done by the Chairman of the Central Board was transferred  to the Member of the Board and the approval  of the  Secretary to the Government of India was  obtained  for this  transfer  or  allocation of  work.   The  High  Court, however, found that the averments in the affidavit were  not in  line  with the office notes in the relevant  file.   The High  Court  also held that as no formal  order  was  passed changing  the allocation with the previous approval  of  the Central Government, the sanction issued by Central Board  of Direct Taxes was without jurisdiction and authority. On  appeal  by Special Leave it was  contended  before  this Court  that  r.  4 of the Central  Board,  of  Direct  Taxes (Regulation of Transaction of Business) Rules, 1954 provides that the Chairman of the Central Board may with the previous approval  of the Central Government distribute the  business of  the Board between himself and the other members and  may specify  the  cases  or  class  of  cases  which  shall’  be considered jointly by the Board.  It was contended that J. P Singh  in his affidavit clearly stated that on 30-3-1964  he suggested  to Narayan Rao, a member of the Central Board  of

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Direct  Taxes that lie should take up the work of  according sanction  of  the Board under s. 151 of the  Act  which  was being  done by the Chairman.  It was further stated in  that affidavit that on June 18, 1964 he personally discussed  the proposal with the Secretary to the Government of India,  in, the Ministry of Finance and that the Secretary approved  the said proposal and that a note was made by him on 18th  June, 1964  to the effect that the matter was discussed  with  the Secretary and that it    is    just   a    minor    internal arrangement and no formal order was necessary. Allowing the appeal, HELD’.  (1) The High Court erred in not taking note  of  the affidavit  of P. G. Gandhi Under Secretary Central Board  of Direct Taxes, in which it is stated that all assessment work of income tax was assigned to Narayan Rao with the  approval of the Central Government.  In view of the statements in the specific affidavit of J. P. Singh and P. G. Gandhi it cannot be  said  that the office notes were not in  line  with  the averments in the affidavits. [739H; 740C] (2)  It  was not necessary to express the  approval  of  the Central Government formally in the shape of an order. [741H] Fonseca Private Limited and Others v. L. C. Gupta &  Others, [1973] 1 S.C.C. 418, distinguished. 736 In that case what was challenged was the order passed by  an officer  who was not entitled to pass it under the rules  of business  and the decision has no relevance on the  question whether  on the circumstances of the present case,  approval of  the  Central Government should have been recorded  in  a formal order. [741C] (3)  The  distribution of the business of the Board  by  the Chairman is not a sub-delegated legislation and need not  be expressed  in a formal document; that the allocation of  the business  and approval are matters of  internal  arrangement not  affecting  any one’s rights at that stage.   Since  the appeals  succeed on other grounds the Court did not go  into the question whether the provisions of the Central Board  of Direct Taxes (Validation of Proceedings) Act, 1971  afforded protection to the action taken. [741E-F; 742E]

JUDGMENT: CVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1107-1112 (NI) of 1970. From  the judgment and order dated the 24th March,  1970  of the  Delhi High Court in Civil Writ Petition Nos.  663D  and 668D of 1965. S.  T.  Desai,  T. A. Ramchandran & S.  P.  Nayar,  for  the appellants. L. M. Singhvi and Bishambar Lal, for the respondent. The Judgment of the Court was delivered by GUPTA,  J.-These six appeals by certificates granted by  the High Court of Delhi arise out of six writ petitions filed by the  respondent  before us challenging the validity  of  six notices dated September 7, 1965 issued under sec. 148 of the Income-Tax  Act, 1961 (hereinafter referred to as the  Act). The, notices relate to the assessment years 1949-50, 1950-51 and  1951-52, the corresponding accounting years  ending  on the  30th  September of 1948, 1949  and  1950  respectively. Three  of the notices were issued to the petitioner  in  his individual  capacity and the other three were served on  him as  a member of an association of persons.   The  petitioner had  been  assessed  as  an  individual  for  the  aforesaid assessment  years in accordance with the provision&  of  the

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Indian  Income-Tax Act 1922.  Thereafter a Commission  known as Vivian Bose Commission was appointed to enquire into  the affairs  of various companies with which the  appellant  was alleged to have been associated.  On the facts disclosed  in the  report  of  enquiry, the  Income-tax  Officer,  Special Investigation Circle A, New Delhi, issued the aforesaid  two sets of notices to the petitioner under sec. 148 of the Act. The  notices informed the petitioner that these were  issued "after  obtaining the necessary satisfaction of the  Central Board  of  Direct Taxes, New Delhi".  This claim  was  ques- tioned  by the petitioner in the High Court and one  of  the grounds on which the validity of the notices was  challenged was  that sanction of the Central Board of Direct Taxes  had not been taken before the notices were issued as required by sec.  151  of  the  Act.   The  High  Court  accepting  this contention  queshed  all  the  six  notices  served  on  the petitioner  and by issuing a writ of Prohibition  restrained the  appeallants, the Union of India, the Central  Board  of Direct.   Taxes,  New  Delhi, and  the  Income-tax  Officer, Special Investigation Circle A, New 737 Delhi,  from taking any action upon these notices.   As  the writ petitions succeeded on this ground, the High Court  did not  consider the other objections to the notices raised  in the  petitions.   The  pro, priety of that  decision  is  in question in these appeals.               The relevant part of sec. 151 of the Act reads               as follows               "151.   Sanction for issue of  notice.-(I)  No               notice shall be issued under section 148 after               the expiry of eight years from the end of  the               relevant assessment year, unless the Board  is               satisfied  on  the  reasons  recorded  by  the               Income-tax  Officer that it is a fit case  for               the issue of such notice.               (2)       x              x         x" Section  4(1)  of the Central Boards of  Revenue  Act,  1963 provides  "The  Central Government may make  rules  for  the purposes  of regulating the transaction of business by  each Board  and every order made or act done in  accordance  with such  rules shall be deemed to be the order or act,  as  the case may be, of the Board." "Board" as defined in sec. 2  of this  Act  means the Central Board of Direct  Taxes  or  the Central Board of Excise and Customs.  Rule 4 of the  Central Board  of Direct Taxes (Regulations of Transaction of  Busi- ness) Rules, 1964 is in these terms :               "The  Chairman may, by an order made with  the               previous  approval of the Central  Government,               distribute  the  business of the  Board  among               himself and the other Members and specify  the               cases  or class of cases which shall  be  con-               sidered jointly by the Board." What  happened in this case was that the Income-tax  Officer put  up the case of the respondent to the Central  Board  of Direct  Taxes  by a comprehensive note prepared by  him  and Shri  S.  A. L. Narayana Row, the only Member of  the  Board besides  the  Chairman, on being satisfied  on  the  reasons recorded  by  the income-tax Officer that for  each  of  the assessment years in both capacities of the respondent a  fit case had been made out for the issue of a notice under  sec. 148  of  the Act, the impugned notices were  issued  to  the respondent.   In  support of his case that sanction  of  the Board  had not been obtained, the respondent relied  on  the Office Order dated January 1, 1964 annexed to the  affidavit of  shri  p.  G. Gandhi, Under Secretary  Central  Board  of

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Direct  Taxes, filed in answer to the writ petitions,  which sets  out the distribution of work between the Chairman  and the  Member of the Central Board of Direct Taxes.   In  this document, entry No. 7 in thelist  of work allotted to  the Chairman reads : "all assessment work ofincome-tax". It  was  contended that Shri Narayana Row had  therefore  no authority  to deal with cases for reopening  of  assessments and assuch   the  impugned  notices  issued   upon   his satisfaction were invalid.  In paragraph 5 of the  affidavit of  Shri P. G. Gandhi, it is admitted that  "all  assessment work  of  Income-tax" I had been assigned  to  the  Chairman under  office  order dated January 1,  1964  which  included matters relating to the reopening of assessments 738 under sec. 34 of the Income-Tax Act, 1922 or under sec.  147 of  the  income-Tax Act, 1961, but the paragraph  adds  that "later with the approval of the Central Government this item of  work was assigned to the Member of the Board Shri S.  A. L. Narayana Row who in this case accorded the sanction". An affidavit afirmed by Shri J. P. Singh who at the relevant time  was the Chairman of the Central Board of Direct  Taxes and  ex-ofricio  Additional Secretary to the  Government  of India  in the Ministry of Finance, was also filed on  behalf of  the  appellants.   Paragraphs 3 to  7  of  Shri  Singh’s affidavit state how Shri Narayana Row came to .deal with the cases  relating  to  the reopening  of  assessments.   These paragraphs read as follows :               "3.  That on 30-3 641 suggested to Shri S.  A.               L.  Narayana  Row,  the  then  Member  of  the               Central  Board of Direct Taxes that he  should               take up the work of according sanction of  the               Board  under Section 151(1) for  reopening  of               assessments  under Section 147 of the  Income-               Tax Act, 1961 to which he consented.               4. Rule 4 of the Central Board of Direct Taxes               (Regulation of Transaction of Business) Rules,               1964  envisaged that Chairman may by an  order               made with the previous approval of the Central               Government  distribute  the  business  of  the               Board  among  himself and the  other  members.               The  approval regarding the transfer  of  work               relating  to sanction under section 151(1)  of               Income-Tax Act from the Chairman to the Member               Central Board of Direct Taxes was  accordingly               referred  to by me to the Secretary,  Ministry               of   Finance   (Department   of   Revenue    &               Expenditure) on 9-6-1964.               5. That on 18-6, 1964, 1 personally  discussed               the  proposal regarding transfer of work  from               myself to the Member, Central Board of  Direct               Taxes  with  Shri  V.  T.  Dehejia,  the  then               Secretary of the Government of India, Ministry               of   Finance   (Department   of   Revenue    &               Expenditure).               6. That Shri V. T. Dehejia, the then Secretary               to   the   of  India,  Ministry   of   Finance               (Department of Expenditure) approved the  said               proposal  to  a note was made by me  on  18-6-               1964.               7.  That pursuant to the duty assigned to  him               under  of  the  Income-Tax Act,  1961  in  the               aforesaid  Rule  4  of the  Central  Board  of               Direct  Taxes  (Regulation of  Transaction  of               Business)  Rules 1964, Shri S. A. L.  Narayana               Row,  Member,  Central Board of  Direct  Taxes

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             gave   sanction  for  the  reopening  of   the               assessments  under Section 147 of the  Income-               Tax Act, 1961 in the, aforesaid case on  11-8-               1965." 739 The  High Court observed that on a reading of the  affidavit affirmed by Shri J. P. Singh "it would appear that the  work which  had  till then been done by the Chairman  was  to  be transferred  to the Member and approval of the Secretary  to the  Government of India was obtained for this  transfer  or allocation of work." Thee High Court however found that  the averments  in  the  affidavit were "not in  line"  with  the office notes in the relevant file which appears to have been made  available to the learned Judges of the High Court  who heard  these writ petitions.  We have also looked  into  the copies  of  these  office-notes which  are  on  record.   It appears  that on March 13, 1964 Shri I. P. Singh,  Chair-man of the Board, recorded the following note : "M(I&ED)  may  also consider whether he could  take  up  the cases for sanction of reopening of assessments (old  section 34)." This  was  obviously a note for consideration of  the  other Member  of  the  Board who, on the next  day,  recorded  his consent to this proposal in the following words    "I will take up, cases of reopening of assessment also." Below  the  sentence  conveying Shri  Row’s  assent  to  the proposal,  the Chairman wrote "Thanks".  The matter  however did not rest there.  On May 14, 1964 the following note  was put up by Shri B. B. Ghosh, Under Secretary               "Rule  4 of the Central Board of Direct  Taxes               (Regulation of Transaction of Business) Rules,               1964  envisage that Chairman may by  an  order               made with the previous approval of the Central               Government  distribute  the  business  of  the               Board  among  himself and the  other  Members.               Accordingly,  the Office Order already  issued               in  the matter will require amendment.   Draft               D.O.  is submitted for consideration.  We  may               also inform the Heads of Departments under the               Board  about  the decision.  Draft  letter  is               submitted for approval."               The last relevant note on this subject reads :               "Discussed  with  Secy. (R&E).  It is  just  a               minor  internal arrangement.  No formal  order               is necessary." This is signed by Shri J. P. Singh and bears the date  18-6- 64. The  High  Court  held that as no formal  order  was  passed "changing  the allocation with the previous approval of  the Central Government, the sanction as granted by Shri ’S.   A. L. Narayana Row is without jurisdiction and authority".   It is not quite clear whether the High Court was not  satisfied that  Shri  J.  P.  Singh’s proposal for  a  change  in  the allocation of work was at all approved by the Government  or that  in  the absence of a formal order to that  effect  the approval  was  of no consequence.  The High Court  does  not appear to, have taken any note of the affidavit ’of Shri  P. G.  Gandhi  in paragraph 5 of which it is  stated  that  all assessment work of Income-tax was assigned to Shri  Narayana Row with the approval of the Central 740 Government.   From  the affidavit of Shri J. P.  Singh,  the then Chairman of the Central Board of Direct Taxes, part  of which  we have extracted above, it appears that  Shri  Singh had   referred  to  ,he  Secretary,  Ministry   of   Finance

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(Department  of  Revenue and Expenditure) the  proposal  for transfer of work relating to sanction under sec. 151 (1)  of the  Act from the Chairman to the Member of the Board,  that Shri  Singh personally discussed the matter with Shri V.  T. Dehejia who was then the Secretary, Ministry of Finance, and that Shri Dehejia approved the proposal.  Shri J. P. Singh’s affidavit  adds that the note he made in the office file  on June  18,  1964-"Discussed with Secy. (R&E).  It is  just  a minor internal arrangement.  No formal order is necessary."- refers  to  these  facts.  In the  face  of  the  statements appearing in the affidavits of Shri J. P. Singh and Shri  P. G.  Gandhi  that  the  work relating  to  the  reopening  of assessments  was  assigned  to Shri Row  with  the  previous approval’ of the Central Government, it is difficult to  see how  it can, be said that the office notes were not in  line with  the averments in the affidavits.  The High  Court  did not disbelieve the statement of Shri J. P. Singh that he had discussed the proposal with Shri V. T. Dehejia, who approved the  proposal.  to Possibly, the absence of a  formal  order expressing  the  approval led to the observation  that  Shri Singhs  affidavit was not in line with the office notes  and also  the ultimate finding that the notices issued upon  the satisfaction of the member of the Board was "without  juris- diction  and authority".  Dr. Singhvi, learned  counsel  for the  respondent, contended (1) that the material  on  record did  not prove beyond doubt that the Central Government  had approved-the proposal of the Chairman to alter the  original distribution  of  work  and (2) that in any  event  the  law required  the  approval to be expressed in the  shape  of  a formal order.  Referring to the office note of the  Chairman dated  June 18, 1964, Dr. Singhvi submitted that it was  not clear from this note what exactly was considered unnecessary a  formal  order  expressing the approval,  or  getting  the proposed alteration approved by the Central Government ?  It was  argued that as the suggested alteration was  considered "just a minor internal arrangement," it was likely that  the Chairman  thought  that  no prior approval  of  the  Central Government was necessary before the altered arrangement  was put  into  operation,  in which case the  notices  would  be invalid  in  view of Rule 4 of the Central Board  of  Direct Taxes  (Regulation of Transaction of Business) Rules,  1964. However, it seems to us, when the note said "no formal order is  necessary" it could not possibly mean that  approval  of the Central Government was unnecessary, and we have no doubt that  it meant that no formal order conveying  the  approval was  necessary.  Regarding the statements in the  affidavits of  Shri  J. P. Singh and Shri P. G. Gandhi  that  all  work relating  to  the reopening of assessments was  assigned  to Shri   Narayana  Row  with  the  approval  of  the   Central Government,  Dr. Singhvi pointed out that  these  statements had  been  verified  by  Shri J. P. Singh  as  true  to  his knowledge  "derived  from records in the possession  of  the Central  Board of Direct Taxes" and by Shri P. G. Gandhi  as "based on the information derived from record in  possession of  the Board".  It, was argued that as the records did  not disclose  any order of approval by the  Central  Government, the said statements were of no value. 741 It  seems to us that the verification of the  statements  in Shri J. P. Singh’s affidavit clearly suggests that the facts stated therein were true to his knowledge which the  records also  bear out.  As stated already, the High Court  did  not question  the  truth  of the facts stated  in  Shri  Singh’s affidavit,  nor do we find any reason to do so.  We have  no doubt that the office note made by Shri J. P. Singh on  June

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18, 1964 supports the statements made in his affidavit. The  next question is whether the approval should have  been formally  expressed  in  the shape of  an  order.   On  this question Dr. Singhvi referred to the decision of this  Court in  Fonseca  (P) Ltd., & Ors. v. L. C. Gupta & Ors.  (1)  In that  case  an  order made by the Deputy  Secretary  to  the Government of India, Ministry of Works and Housing, who  was not  empowered  to  make such an order under  the  Rules  of Business, was held to be illegal, ineffective and void.   We do not think this decision has any relevance.  The authority of  Mr.  V.  T.  Dehejia,  Secretary,  Ministry  of  Finance (Department  of  Revenue  and Expenditure)  to  approve  the proposal  for the Central Government was  never  questioned, nor the power of the Chairman to distribute the business  of the  Board  between himself and the other  Member  with  the previous  approval  of  the  Central  Government.   We  have already held that upon the material on record such  approval appears to have been given Fonseca’s case (supra) is  hardly of  any assistance on the question whether in this case  the approval of the Central Government should have been recorded in   a   formal  order.   Dr.  Singhvi   characterised   the distribution of the business of the Board by the Chairman as sub  delegated  legislation  and referred  to  a  number  of authorities  to  show that the law required  publication  of such subdelegated legislation which implied that it must  be expressed  in aformal document.  It was submitted that  this was  necessary  to enable the persons affected by  such  sub delegated legilsation to ascertain what the legislation was. We  do  not  think  that the distribution  of  York  by  the Chairman of the Board can be equated with legislation.   The allocation  of  business  and the approval  are  matters  of internal   arrangement   not  affecting   anyone’s   rights. Initially the Board consistng of the Chairman and the member had  the  jurisdiction to deal with he matter  in  question. Thereafter, in exercise of the power conferred by Rule 4  of the Central Board of Direct Taxes (Regulation of Transaction of  Business) Rules, 1964 the Chairman with the approval  of the Central Government distributed the business of the Board between  himself and the member keeping all assessment  work of Income-tax to himself.  Then, again with the approval  of the Central Government, he assigned this work to the member. Rule  4 of the central Board of Direct Taxes (Regulation  of Transaction  of Busiass) Rules, 1964 does not prescribe  any special or particular manner in which the, approval is to be recorded.   The approval given at hat stage does  not  touch the  rights  of the assessees.  The fact that  approval  was given  must  of course be proved and. in our view,  that  is been  done in this case; no question of publication  of  the order (1)  [1973] 1 SCC418. 742 of allocation and the approval accorded to it by the Central Government  can therefore arise.  The office file  does  not also  disclose  any  formal  order  approving  the  original distribution of work as between the Chairman and the  member of the Board.  It appears from the office note of January 1, 1964 that a draft showing the allocation of work was  signed by Shri J. P. Singh and Shri V. T. Dehejia, Secretary of the Ministry of Finance (Department of Revenue and  Expenditure) appended  his  signature  below Shri  Singh’s.   This  shows clearly  that  a formal expression of the approval  was  not considered  necessary.  If there is no reason to  doubt  the truth  of  the  statements  made  in  Shri  J.  P.   Singh’s affidavit,. and we think there is none, then the leigalty of the  impugned  notices under sec. 148 of the Act  cannot  be

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challenged  on  the ground that they were  issued  upon  the satisfaction of Shri Narayana Row. On behalf of the appellants our attention was also drawn  to the   Central   Board  of  Direct   Taxes   (Validation   of Proceedings)  Act,  1971 (No. 37 of  1971)  which  provides, inter  alia, that no action taken by the Chairman and  other members  of  the Board, either singly  or  jointly,  without having been validly entrusted with the powers or duties  in- that behalf in accordance with the provisions of the Central Boards  of  Revenue Act, 1963 or the rules  made  thereunder shall  be deemed to be invalid or ever to have been  invalid on that ground.  As in our opinion the impugned notices were issued in due compliance with the requirements of Rule 4  of Central Board of Direct Taxes (Regulation of Transaction  of Business)  Rules,  1964.  we do not  find  it  necessary  to consider the provisions of this Act for the purpose of these appeals. The  appeals  are accordingly allowed and the  Judgment  and orders appealed from are set aside.  The High Court will now proceed to dispose of the writ petitions in accordance  with law  on  the other grounds raised therein.   The  appellants will entitled to their costs in this Court- one hearing fee. P.H.P.                               Appeals allowed. 743