The
statutory provision of section 156 provides that when any tax, interest,
penalty, fine or any other sum is payable in consequence of any order passed
under the Income Tax Act, 1961, the Assessing Officer shall serve upon the
assessee a notice of demand in the prescribed form specifying the sum so
payable. Recovery proceedings cannot be taken unless and until a notice of
demand is served. A notice of demand for tax determined as payable under
section 143(3) or 144 cannot be issued unless an assessment order is passed. From
the assessment year 1989-90 the intimation under section 143(1), of tax and
interest payable itself serves as a notice of demand. Notice for sum payable under
section 143(1), 200A (1), 206CB (1) shall be deemed to be Notice of Demand under section 156.
What is Demand Notice?
If any demand for tax,
interest, penalty, fine or any other sum is raised by the Assessing Officer as
per the provision of Income Tax Act, 1961 then he shall serve a notice of such
demand to the assessee under section 156 specifying the amount payable.
Text of Section 156
NOTICE OF DEMAND
156. (1)] When any tax,
interest, penalty, fine or any other sum is payable in consequence of any order
passed under this Act, the Assessing Officer shall serve upon the assessee a
notice of demand in the prescribed form specifying the sum so payable :
Provided that where any sum is determined to be payable by the assessee or the deductor or the collector under sub-section (1) of section 143 or sub-section (1) of section 200A or sub-section (1) of section 206CB, the intimation under those sub-sections shall be deemed to be a notice of demand for the purposes of this section.
(2) Where the income of the assessee of any assessment year, beginning on or after the 1st day of April, 2021, includes income of the nature specified in clause (vi) of sub-section (2) of section 17 and such specified security or sweat equity shares referred to in the said clause are allotted or transferred directly or indirectly by the current employer, being an eligible start-up referred to in section 80-IAC, the tax or interest on such income included in the notice of demand referred to in sub-section (1) shall be payable by the assessee within fourteen days—
(i) after the expiry of forty-eight months from the end of the relevant assessment year; or
(ii) from the date of the sale of such specified security or sweat equity share by the assessee; or
(iii) from the date of the assessee ceasing to be the employee of the employer who allotted or transferred him such specified security or sweat equity share,
whichever is the earliest.
No time limit prescribed for service of the notice of demand
An assessment must be
completed within the time limit laid down in section 153, but the Act nowhere
imposes any time limit within which service of the notice of demand under this
section has to be affected. However, though no time limit is laid down by the
statue, the notice of demand must be issued within a reasonable time.
Assessment is one integrated process involving not only the assessment of total
income but also the determination of the tax; the latter is crucial as the
former, and both must be done within time.
Time Limit for payment of tax specified in demand notice
As per Section 220(1), amount specified in demand notice, shall be paid within
a period of thirty days from the date of service of notice. As per Section
220(3), an assessee can make an application of the Assessing Officer before the
expiry of the notice period, to extend the time for payment or allow payments
by installment.
In
appropriate cases the Assessing Officer may reduce the said period of 30 days
with the approval of JC/Addl. CIT, if he has a
reason to believe that allowing a period of thirty days will be detrimental to
the Income Tax Department. This
can particularly be done when, in course if assessment proceedings, provisional
attachment is made under section 281B and said 30 days will expire after the
close of the financial year. If in such a case the 30 days are reduced, the Assessing
Officer can get the collection within the financial year itself.
If there is enhancement of demand
If there is enhancement of demand than
the original notice of demand, the Income Tax authority shall serve a fresh
notice of demand only for the excess amount over what was specified and
demanded in the original notice.
If there is reduction of demand
If there is reduction of demand, no fresh
notice is to be served, the authority shall give intimation of such reduction
to the assessee and to the TRO (if certificate has been drawn by TRO) and any
proceeding initiated before disposal of such appeal or other proceeding may be
continued in relation to the amount so reduced from the stage at which such
proceedings stood immediately before such disposal. [Section 3 of Taxation Laws
(Continuation and validation of Recovery Proceedings) Act, 1964]
Text of Section 3 of Taxation Laws (Continuation and validation of Recovery Proceedings) Act, 1964
3. Continuation and validation of certain
proceedings.— (1) Where any notice of demand in respect of any Government dues
is served upon an assessee by a Taxing Authority under any scheduled Act, and
any appeal or other proceeding is filed or taken in respect of such Government
dues, then,—
(a) where such Government dues are enhanced in such appeal or proceeding, the Taxing Authority shall serve upon the assessee another notice of demand only in respect of the amount by which such Government dues are enhanced and any proceedings in relation to such Government dues as are covered by the notice or notices of demand served upon him before the disposal of such appeal or proceeding may, without the service of any fresh notice of demand, be continued from the stage at which such proceedings stood immediately before such disposal;
(b) where such Government dues are reduced in such appeal or proceeding,—
(i) it shall not be necessary for the Taxing
Authority to serve upon the assessee a fresh notice of demand;
(ii) the Taxing Authority shall give
intimation of the fact of such reduction to the assessee, and where a
certificate has been issued to the Tax Recovery Officer for the recovery of
such amount, also to that officer;
(iii) any proceedings initiated on the
basis of the notice or notices of demand served upon the assessee before the
disposal of such appeal or proceeding may be continued in relation to the
amount so reduced from the stage at which such proceedings stood immediately
before such disposal;
(c) no proceedings in relation to such Government dues (including the imposition of penalty or charging of interest) shall be invalid by reason only that no fresh notice of demand was served upon the assessee after the disposal of such appeal or proceeding or that such Government dues have been enhanced or reduced in such appeal or proceeding:
PROVIDED that if as a result of any final order such Government dues (other than annuity deposit) have been reduced and the penalty imposed on the assessee for default in payment thereof exceeds the amount so reduced, the excess shall not be recovered, and if it has already been recovered, it shall be refunded to the assessee on an application made by him to the Taxing Authority wihin such time and in such manner as may be prescribed by rules made under this Act:
PROVIDED FURTHER that if the amount of penalty imposed on the assessee for failure to make any annuity deposit exceeds one-half of the amount of the annuity deposit required to be made as a result of such order, the excess shall not be recovered and if it has already been recovered, shall be refunded to the assessee on an application made by him to the Taxing Authority within such time and in such manner as may be prescribed by rules made under this Act:
PROVIDED FURTHER that where any Government dues are reduced in such appeal or proceeding and the assessee is entitled to any refund thereof, such refund shall be made in accordance with the provisions of that Act.
(2) For the removal of doubts, it is hereby declared that no fresh notice of demand shall be necessary in any case where the amount of Government dues is not varied as a result of any order passed in any appeal or other proceeding under any scheduled Act.
(3) The provisions of this section shall have effect notwithstanding any judgment, decree or order of any court, tribunal or other authority.
Form of notice of demand
Rule 15 prescribes the
form of the notice of demand upon regular assessment. Specimen form of notice of demand is
prescribed by rule 38 for advance payment of tax under section 210. The mode of
service of the demand is dealt with by section 282.
Text of Rule 15
NOTICE OF DEMAND FOR REGULAR ASSESSMENT, etc.
15. (1) Subject to the
provisions of rules 38 and 48A, the notice of demand under section 156 shall be
in Form No. 7.
(2) [Omitted by the IT (Third Amendment) Rules, 1964, vide S. O. 2567,
dated 27.07.1964]
Text of Rule 38
NOTICE OF DEMAND.
38. Notwithstanding
anything contained in rule 15, the notice of demand under section 156 to be
served upon the assessee in pursuance of an order under section 210 shall be in
Form No. 28.
In the event of Government demand being reduced by an order in appeal or other proceedings it shall not be necessary for the taxing authority to serve upon the assessee a fresh notice of demand
The provision
corresponding to section 156 of the 1961 Act, contained in section 29 of the
Indian Income-tax Act, 1922 came up for the consideration of this Court in ITO
v. Seghu Buchiah Setty (1964) 52 ITR 538 (SC). Hidayatullah, J. (as His
Lordship then was) held that it is after the demand is made, the tax penalty
and interest become a debt due to the Government. 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. His Lordship emphasised that the service of notice of demand
has a few vital impacts amongst others : (i) when the notice of demand is not
complied with, the assessee can be treated as a person in default; (ii) on the
failure of the assessee to pay after a notice of demand is issued, the recovery
proceedings can be started and the amount of tax can be treated as an arrear of
land revenue. However, in this case, Hidayatullah, J. went on to hold that if
an assessment made by the ITO is altered - reduced or increased - by reason of
any order under the Act, it is the duty of the ITO to issue a fresh notice of
demand in the prescribed form and serve upon the assessee.
This particular finding of Hidayatullah, J. created serious complications and resulted in nullifying several recovery proceedings, as also creating bottlenecks in the recoveries of outstanding demands.
The Parliament,
therefore, enacted the Taxation Laws (Continuation and Validation of Recovery
Proceedings) Act, 1964 which was given a retrospective effect. Section 3 of
this Act provides that in the event of Government demand being reduced by an
order in appeal or other proceedings it shall not be necessary for the taxing
authority to serve upon the assessee a fresh notice of demand, it would suffice
if taxation authority intimated of reduction to the assessee and the TRO to
scale down the amount of recovery and the proceedings initiated on the basis of
the previous notice of demand shall continue to be valid.
In Homely Industries v. Sales Tax Officer (1976) 37 STC 483 also the significance of service of demand notice came up for the consideration of this Court and it was held that there can be no recovery without service of a demand notice; if such notice was not served, the recovery proceedings are not maintainable in law and are invalid and the same along with the recovery certificates are liable to be quashed.
Where assessee’s claim for refund was rejected on ground that amount of refund had been adjusted against tax demand relating to subsequent assessment years, in view of fact that notice of demand under section 156 for subsequent years was never served on assessee, impugned order was to be set aside and a direction was to be issued to grant refund to assessee along with applicable rate of interest
Service of notice of
demand - Assessee claimed refund of tax along with interest pertaining to
assessment years 1993-94, 1995-96 and 2002-03. Revenue authorities rejected
assessee’s claim on ground that amount of refund had been adjusted against tax
demand relating to subsequent assessment years 2003-04 and 2009-10. Assessee
filed instant petition contending that no demand was ever raised in relation to
aforesaid assessment years. It was noted that although revenue placed reliance
upon copy of notice of demand found in official records, yet there was no
evidence on record that such a notice under section156 had been served on
assessee. Thus, there was nothing in records which could attribute knowledge of
tax demand to assessee. In view of negligent approach adopted by revenue
authorities, impugned order passed by them was to be set aside and a direction
was to be issued to grant refund to assessee along with applicable rate of
interest. [In favour of assessee] – [Nu-Tech Corporate Services Ltd.
(2018) 259 Taxman 183 : 98 taxmann.com 454 (Bom.)]
Where no assessment order was passed against an assessee nor any notice of demand under section 156 was issued, recovery proceedings could not be initiated against it
Going by the legal
provision as mentioned in Section 156 of Act, 1961, the recovery proceedings
cannot be initiated against the petitioner. Therefore, apparently, notices are
absolutely illegal and invalid as the same are issued without following the
provision of Section 156. Section 156 provides that when any tax, interest,
penalty, fine or any other sum is payable in consequence of any order passed
under this Act, the Assessing Officer shall serve upon the assessee a notice of
demand in the prescribed form specifying the sum so payable. Since the
respondents have failed to serve notice of demand upon the petitioner as
required under Section 156, they have no jurisdiction to commence the tax
recovery proceedings against the assessee. - [Telangana State
Beverage Corporation Ltd. v. Union of India (2015) 377 ITR 622 : 233 Taxman 276
: 60 taxmann.com 236 (Andhra Pradesh and Telangana)]
In absence of any notice of demand under section 156, assessee could not be treated as ‘assessee in default’ or ‘assessee deemed to be in default’ as stipulated under section 220
To bring an assessee under the definition of “assessee deemed to be in default”, there
should be a demand notice under section 156 of the Act and if the said demand
is not paid within the time frame, then only the assessee shall be deemed to be
in default. But, in the instant case, no notice under section 156 of the Act
has been issued to the petitioner. Since no demand notice was issued to term
the petitioner either as “assessee in default” or “assessee deemed to be in
default”, the petitioner will not come within the meaning of either
"assessee in default" or “assessee deemed to be in default”. - [In
favour of assessee] (Related Assessment years : 2010-11 to 2013-14) - [T.
Senthil Kumar v. CIT (2014) 369 ITR 101 : (2015) 57 taxmann.com 177
(Mad.)]
Section 201, read with section 156, of the Income-tax Act, 1961 - Provisions contained in sections 195, 200 and 201,
if conjointly read, deal with a liability which, at no point of time, depends
on passing any order under this Act, but is attracted immediately upon the
happening of the default mentioned therein, i.e., the failure to deduct under
section 195 or failure to credit the sum deducted as required by section 200.
As soon as such failure occurs, the liability arises automatically and there is
no further requirement of computation or assessment or even the service of a
notice of demand under section 156 unless the revenue decides to initiate
proceedings for imposition of penalty in terms of the proviso to section 201(1),
read with section 221.
Even in the provisions for issue of certificate under section 220, there is clear indication that such certificate may be drawn up under two circumstances i.e., (1) when an assessee is in default, meaning thereby, that it is preceded by service of a notice under section 156 or (2) when he is deemed to be in default in making a payment of tax under the Act, a circumstance covered under section 201.
Therefore, instant appeal, by virtue of provision under section 201, a person is
‘deemed to be an assessee in default’ in view of statutory provision contained
therein and in such a case, there is no scope of giving further notice of
demand under section 156 which is applicable only in cases ‘when any tax,
interest, penalty, fine or any other sum is payable in consequence of any order
passed under this Act’. In a case where section 201(1) is attracted there is no
need of giving any notice under section 156 and if any such notice is given the
same should be held to be redundant. (Related Assessment year : 1995-96) - [PILCOM
v. CIT (TDS), Kolkata (2012) 347 ITR 410
: (2011) 11 taxmann.com 103 (Cal.)]
In case of default under section 140A in payment of tax etc., before imposing penalty under section 221, it is not necessary to serve separate demand notice on assessee in accordance with statutory provision of section 156 in prescribed form
The liability to pay self-assessment tax arises on the assessee on the
basis of the return of income furnished by it and the failure to pay the whole
or any part of such interest or tax payable in accordance with provision of
section 140A(1), renders the assessee to be in default in respect of tax or
interest or both remaining unpaid as per the statutory provision of section
140A(3).
In the instant case, the amount found payable by the assessee was in accordance with the return of income furnished by the assessee for the relevant assessment year and so payable as ‘self-assessment tax’ under the statutory provision of section 140A(1) and the Act, nowhere provides for issue of any notice of demand under section 156, in case the amount of tax or interest is found payable on the basis of the return furnished by the assessee.
The provision of section 221 provides for levy of penalty, when an assessee is in the default or is deemed to be in default in making the payment of tax. The assessee having failed to pay the amount of tax on the basis of the return furnished by it for the relevant assessment year in accordance with the provisions of section 140A(1), was ‘deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid’ as per the statutory provision of section 140A(3). The provision of section 140A(3) further provides that in case the assessee is deemed to be in default, all the provisions of this Act shall apply to the case of the assessee. The words ‘all the provisions of this Act’ shall include the provision of section 221 also, which provides for levy of penalty when an assessee is in default or is deemed to be in default in making the payment of tax, etc.
There is no requirement of the provision of section 221 for service of separate notice of demand under section 156 on the prescribed form before the levy of penalty on the assessee and the only requirement of provisions of section 221 for levying penalty is that the assessee should be in default or deemed to be in default in making the payment of tax, etc.
The provisions of section 221 providing for penalty payable when tax is in default applies to both the situations, i.e., when the assessee is in default in respect of the assessed tax or is deemed to be in default in making the payment of tax under 'self-assessment tax' as per the return of income filed by the assessee. In this view of the matter, the penalty under section 221 was rightly levied on the assessee and there was no mistake apparent from the record in the order of the Tribunal in directing the Assessing Officer to calculate the penalty under section 221 at the rate of 10 per cent of the tax payable and, accordingly, the instant application of the assessee had no merit, which was, accordingly, dismissed. (Related Assessment year : 2001-02) – [Safari Mercantile (P) Ltd. v. ACIT (2008) 21 SOT 531 (ITAT Mumbai)]
Assessing Officer has to serve a demand notice on assessee under section 156 only if any tax, etc., is payable in consequence of any order passed under Act - Therefore, where reassessment order did not raise any demand of tax, Assessing Officer was not liable to serve any demand notice upon assessee pursuant to reassessment order
The contention of the assessee that reassessment having been
completed only on 17-5-2002, the date which the demand notice bore, was barred
by limitation, could not be accepted. The Assessing Officer has to serve a
demand notice on the assessee under section 156 only if any tax, etc., is
payable in consequence of any order passed under the Act. It was not denied
that reassessment order passed on 28-3-2002 did not raise any demand of tax.
The Assessing Officer was, therefore, not liable to serve any demand notice
upon the assessee pursuant to the reassessment order. The issue of the demand
notice on 17.05.2002 was unnecessary and had to be ignored as superfluous.
(Related Assessment year : 1994-95) - [Indian Farmers Fertiliser
Co-operative Ltd. v. JCIT (2007) 107 TTJ 98 : 105 ITD 33 (Del.)]
Issuance and service of notice of demand under section 156 is a necessary condition for applicability of section 220; where Assessing Officer had levied interest under section 220(2) while determining tax liability of assessee in assessment order passed under section 143(3) read with section 158BC/158BD and no notice of demand under section 156 was served, levy of interest under section 220(2) was not justified
If section 220 is read with provisions of section 156, it is
clear that issuance and service of notice of demand under section156 is a
necessary condition for the applicability of section 220. Thus, interest under
section 220(2) can be charged from an assessee if a notice of demand has been
served upon an assessee in consequence of an order passed by the Assessing
Officer.
Where the Assessing Officer had levied interest under section 220(2) while determining tax liabilities of the assessee in the assessment order passed under section 143(3), read with section 158BC/158BD, since at the time of levy of interest under section 220(2), no notice of demand had been served on the assessee, and merely an order determining the amount payable by the assessee towards the tax was passed, no interest could be levied under section 220(2). – [Pedda Sankara Rao v. DCIT (2006) 99 TTJ 424 (ITAT Visakhapatnam)]
Service of demand notice of demand under section 156 is mandatory before initiating recovery proceedings and constitutes foundation of subsequent recovery proceedings
Section 222, read with Schedule II and sections 225 and 156,
of the Income-tax Act, 1961 - Sale of property in question was held on
11.01.1980 but TRO was injuncted by writ of civil court from confirming sale -
Interim order issued by civil court ceased to operate on 12.01.1998 - In
meanwhile demand against assessee stood reduced to nil and ITO as also TRO had
been informed about that through letter dated 22.11.1996. However, order of
confirmation of sale was passed on 25.03.1998 by TRO ignoring this important
event. Between date of sale and actual passing of order confirming sale if an
event happens or a fact comes to notice of TRO which goes to root of matter TRO
may refuse to pass order confirming sale. In view of facts within knowledge of
department, TRO was unjustified in confirming sale on 25.03.1998 and he was
obliged to annul same. Further service of notice of demand on assessee under
section 156 is mandatory before taking steps for recovery under Second Schedule
and a sale held in recovery proceedings initiated without serving notice of
demand shall be invalid. Since in instant case, finding of fact recorded by
Tribunal was that notice of demand was not served on assessee, assessee could
neither have been deemed to be in default nor any proceedings for recovery of
tax could have been initiated against him. – [Mohan Wahi v. CIT (2001) 248 ITR
799 : 167 CTR 86 : 116 Taxman 63 (SC)]
Where an order under section 143(1)(a) is passed and intimation thereto is sent on account of tax due to be paid, no separate demand notice under section 156 is required to be issued
In the intimation sent under section 143(1)(a) a note was
given that this intimation was deemed to be a notice of demand under section
156 and the amount was required to be paid within 30 days of the service of the
intimation. This was not objected to earlier and, therefore, could not be
objected to at this stage. Even on merits, the fiction created for treating the
intimation under section 143(1)(a) dispenses with the requirement of issuing
notice of demand under section 156. All the machinery provisions of recovery of
tax assessed are applicable to the tax for which intimation only has been
given. The contention, therefore, that the tax had not become due was not
correct. The petition was dismissed accordingly. – [Shree
Someshwara Farmers Co-operative Spg. Mills Ltd. v. Joint Commissioner of
Income-tax (Assessment) (1999) 236 ITR
829 : 153 CTR 622 (Karn.)]
It was held that the passing of an assessment order is only an integral part of the process of assessment and therefore, the word ‘assessment’ cannot be confined to the act of making an order of assessment; there is a certain legal difference between the terms ‘assessment’ & ‘assessment order’; it can be stated that the use of the word ‘assessment’ would mean the whole process of determination of income and the same should not be restricted to a mere passing of an assessment order. – [CIT v. Purshottamdas T. Patel (1994) 209 ITR 52 (Guj.)]
Assessing Officer has to determine, by an order in writing, not only the total income but also the net sum which will be payable by the assessee for the assessment year in question and that the demand notice under section 156 has to be issued in consequence of such an order
"Assessment" is one integrated process involving
not only the assessment of the total income but also the determination of the
tax. The latter is as crucial for the assessee as the former. Section 144,
which also describes the same process, makes no distinction as suggested. It
will not, therefore, be correct to read the provision as leaving undefined the
process of determination of the net sum payable by the assessee. In our
opinion, therefore, learned counsel for the petitioner is right in his
submission that the Income-tax Officer has to determine, by an order in writing, not only the total income but also the net sum
which will be payable by the assessee for the assessment year in question and
that the demand notice under section 156 has to be issued in consequence of
such an order. – [Kalyankumar
Ray v. CIT (1991) 191 ITR 634 : (1992) 102 CTR 188 (SC)]
Tax can be recovered from an assessee only when it becomes a debt due from him and it becomes a debt due when notice of demand calling for payment of tax has been served on assessee - Where ITO make application under section 226(4) for recovery of tax to court in which there is money lying to credit of assessee in default and if assessee objects to said recovery proceeding under section 226(9) on ground that there has been no valid service of notice of demand and that therefore, no debt is due, Court must decide objection, and if it upholds objection, it cannot permit recovery of tax claimed
A perusal of these provisions clearly showed that
the TRO has nothing to do with an application under section 226(4) made by the
ITO to a court in which there is money lying to the credit of the assessee in
default. If such an application is made, it is certainly open to the court to
determine as to whether there has been a proper notice of demand served on the
decreeholder (assessee in default) according to law. It is only after the court
is satisfied of this that the court can proceed to pay over the amount demanded
to the ITO.
It is settled by authority long accepted that tax can be recovered from an assessee only when it becomes a debt due from him and that it becomes a debt due when a notice of demand calling for payment of the tax has been served on the assessee. If an assessee objects to the recovery proceeding taken under section 226(4) on the ground that there has been no valid service of a notice of demand and that, therefore, no debt is due, the Court must decide the objection, and if it upholds the objection, it cannot permit recovery of the tax claimed. In view of this, the judgment of the Single Judge was set aside and the matter was remanded to the High Court to determine the civil revision application afresh. [In favour of the assessee] – [Manmohanlal v. ITO (1987) 168 ITR 616 : 66 CTR 58 (SC)]
It was held that, it is mandatory that notice must be served only in the manner provided in section 282 of the Income Tax Act, hence notice by telegram could not be said to be a substitute for notice by post. However, now even Electronic mode is prescribed under section 282(2) as acceptable mode of communication of notice. At the relevant time only service by post or by way of summons issued by court under CPC were available. – [CIT v. Sattandas Mohandas Sidhi (1982) 230 ITR 591 (MP)]
Assessing Officer’s power to curtail the period of payment of 30 days
Though
proviso to section 220(1) empowers Assessing Officer to grant period shorter
than 30 days in Notice of Demand for making payment, Assessing Officer cannot
curtail the period of 30 days without valid reasons recorded in writing. – [M.
Redanna v. Revenue Divisional Officer (1980) 46 STC (232) (FB) (AP)]
Provisions of section 156 are mandatory - Where assessment of deceased-assessee was completed under old Act of 1922 and rectification order was passed after coming into force of 1961 Act, a notice of demand under section156 had to be served on legal representatives of assessee
The
petitioner was the wife and legal representative of the deceased-assessee. For
the assessment years 1956-57, 1957-58 and 1958-59, the assessee was assessed in
his individual status and his share income from a firm was fixed. Subsequently,
the assessment of the firm was completed and on the basis of that, the
assessments of the assessee for the years 1956-57, 1957-58 and 1958-59 were
rectified. As a result of this rectification, the assessee had to pay certain
amount.
On writ, the petitioner contended that no notice of demand as required was ever served on her. It was also further urged that as the rectification under section 35 of the 1922 was made only 07.03.1963, after the 1961 Act came into force, the notice of demand should be given under section 156.
Held
: Section 156 is clearly mandatory. Rule 15 of the Income-tax Rules, 1962,
prescribed that subject to the provisions of rules 16 and 38, the notice of
demand under section 156 shall be in Form No. 7. In the instant case, the order
of rectification itself was passed after the coming into force of the 1961 Act.
There was no proceeding pending which was already taken before the coming into
force of the new Act for the recovery of the amount, for the simple reason that
the order itself was passed after the commencement of the new Act. The amount
due by the assessee and now payable by the petitioner had to be recovered under
the provisions of the new Act, 1961. Therefore, a notice of demand under
section156 of the new Act in Form No. 7 given under rule 15 of the Income-tax
Rules calling upon the petitioner to pay the amount due within 35 days of the
service of the notice in that form had to be served by the ITO before he could
take any further action for the recovery of the tax or for levying penalty. But
such a notice admittedly had not been served on the petitioner. The writ was
allowed accordingly. [In favour of assessee] (Related Assessment years : 1956-57
to 1958-59) – [Misri Bai v. ITO (1964) 51 ITR 487 (AP)]
If the assessee dies before service of the notice under section 156, it is essential that each of the heirs who is sought to be made liable for recovery is served with a notice of demand – [Shah Mahmood v. ACIT (1963) 47 ITR 55 (Mysore)]
If after service of a notice of demand, an assessee dies, it is not necessary that a fresh demand notice should be served on his heirs – [Koteswara Rao v. CIT (1962) 46 ITR 882 (AP)]
Assessee made a default in making payment of income-tax – Consquently, ITO passed an order under section 46(1) of 1922 Act wherein penalty was levied from assessee – However, said order did not mention amount of penalty to be levied – Pursuant to said order a demand was made for payment under section 29 of 1922 Act – Since order passed by ITO under section 46(1) of 1922 Act did not specify amount of penalty, said order was bad and notice of demand was equally bad as it followed upon an invalid order of ITO – Consequently, penalty imposed by ITO was not valid in law
Section 156, read with
section 221 of the Income-tax Act, 1961 [Corresponding to section 29, read with
section 46(1) of the Indian Income-tax Act, 1922] - Section 46(1) of 1922 Act
provides that when an assessee is in default making payment of income-tax the
ITO may in his discretion direct that in addition to the amount in arrears a
sum not exceeding that amount shall be recovered from the assessee. It is clear
that the direction that the ITO has to give under section 46(1) of 1922 Act
must be a direction which must take the form of an order and that order must
state the specific sum which the assessee has got to pay by way of penalty. The
limitation laid down upon the ITO under that sub-section is that the amount
which the assessee has to pay as penalty must not exceed the amount of arrears.
Section 29 of 1922 Act
provides that when any tax, penalty or interest is due in consequence of any
order passed under or in pursuance of the 1922 Act, the ITO 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.
Therefore, the notice of demand can only be served under this section provided
tax, penalty or interest is due in consequence of an order passed under the
Act. Therefore, the condition precedent to the validity of the notice of demand
under section 29 of 1922 Act must be an order passed under the Act and the
notice is merely consequential upon that order. Therefore, if there is no order
under the Act then no notice can be served under section 29 of 1922 Act.
Under section 46(1) of 1922 Act, there must not only be a formal order which imposes a penalty but it must also specify the actual amount of the penalty which the assessee is liable to pay. After that order is passed then consequential upon that order a notice of demand may be served under section 29 of 1922 Act and the assessee has a right of appeal against such order under section 30 of 1922 Act. Inasmuch as the order passed by the ITO in the instant case under section 46(1) of 1922 Act did not specify the amount of the penalty the order was bad and the notice of demand was equally bad as it follows upon an invalid order of the ITO. In the result the penalty imposed by the ITO was not valid in law. [In favour of assessee]. (Related Assessment years : 1944-45 and 1945-46) – [N. N. Kotak v. CIT (1952) 21 ITR 18 (Bom.)]
No period within which a notice demanding
income-tax is to be issued is prescribed in Act, and, therefore, prima facie
notice issued about 14 months after expiration of year of assessment would not
necessarily be too late – If any part of form under which demand is to be made
is not applicable to particular facts of case then it can be altered in
ordinary course before form is sent out, but mere fact that forms are
prescribed under Act, does not carry with it result that unless everything is
done exactly as provided by form, it is no force and effect
Section
156 of the Income-tax Act, 1961[Corresponding to section 29 of the Indian
Income-tax Act, 1922] – No period within which a notice
demanding income-tax is to be issued is prescribed in the Act and therefore prima
facie a notice issued about 14 months after the expiration of the year of
assessment would not necessarily be too late. No doubt in the ordinary
course the form prescribed would be quite applicable, because assessments are
generally made as soon as possible after the commencement of the financial year
and the demand notices are sent out in the ordinary course soon after the
assessment is made. One could not believe, however, that it was intended by
prescribing a form of notice of this sort to create a limitation period within
which such notice must be given. If it had been the intention of the
legislature to prescribe a period of limitation for such notices, such an
important provision would have found place in the body of the Act itself
indicating that intention. In other sections of the Act one do find that where
certain notices have to be given the period within which they have to be given
is prescribed. But so far as section 29 of the 1922 Act is concerned no period
at all is prescribed in the Act. Again it is quite possible that in certain
cases no demand could be made within the actual year for which the tax is
payable. Provision is made for disputes which may arise as to the acceptance or
rejection of the assessee’s return. If his return is not accepted then an
enquiry takes place, evidence may be demanded of him and much time may be
expended in carrying on the enquiry and it is quite possible that such enquiry,
would not terminate until after the year of assessment and it could not be
suggested that because the ordinary form prescribed for such a demand
contemplated that it will be issued during the current year of assessment, it
would not tantamount to an enactment that it could not be issued afterwards. If
any part of the form should not be applicable to the particular facts of the
case then it can be altered in the ordinary course before the forms is sent
out, but the mere fact that forms are prescribed under the Act does not seem to
carry with it the results that unless everything is done exactly as provided by
the form it is of no force and effect. Although no time is prescribed for
issuing the notice in question it may be said that such a notice must be issued
within a reasonable time. What would be a reasonable time might vary according
to circumstances. In the circumstances, the notice was issued within a
reasonable time. There was no period of limitation in the Act and in the
circumstances the assessee should not be allowed to escape payment of that
which was justly due from him. [In favour of Revenue] – [Raja Rajendra Narayan Bhanja Deo v. CIT (1925) 2 ITC
82 : AIR 1925 Pat 581 (Patna)]
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