1957 (2) TMI 70 - HC - Income Tax

Summary

Issues Involved:
1. Validity of service of notice under section 22(2) of the Income-tax Act.
2. Authority of Habib-ur-Rahman to accept service on behalf of the assessee.
3. Effective service and estoppel due to subsequent conduct of the assessee.

Detailed Analysis:

1. Validity of Service of Notice Under Section 22(2) of the Income-tax Act:
The initial issue revolves around whether the notice served on Habib-ur-Rahman, an employee of the assessee firm, was valid under section 22(2) of the Income-tax Act. The notice was served on July 27, 1950, but the return was not filed by the due date, leading to a best judgment assessment under section 23(4) by the Income-tax Officer.

The Appellate Assistant Commissioner initially set aside the assessment, holding that the service on Habib-ur-Rahman was not valid. However, the Appellate Tribunal reversed this decision, stating that the service was effective.

2. Authority of Habib-ur-Rahman to Accept Service:
The core of the legal argument was whether Habib-ur-Rahman was authorized to accept service of the notice. The Tribunal's finding was based on the fact that Habib-ur-Rahman had previously received notices on behalf of the firm, and the firm had acted upon those notices without repudiating his authority.

The High Court examined the provisions of Order V, rule 12, and Order III, rule 6, of the Civil Procedure Code, along with section 63 of the Income-tax Act. The Court noted that an authority to accept service should be in writing as per Order III, rule 6. Since there was no written authority, the Court held that the reply to the question of whether Habib-ur-Rahman was empowered to accept service would have to be in the negative.

3. Effective Service and Estoppel Due to Subsequent Conduct:
Despite the lack of written authority, the High Court focused on whether the service was effective in binding the assessee. The Court noted that the assessee had full knowledge of the notice, acted upon it, and even requested an adjournment. This conduct indicated acceptance of the notice, thereby waiving any irregularity in the service.

The Court emphasized that while strict compliance with service provisions is crucial due to the serious consequences of non-compliance, the assessee's actions amounted to a waiver of any procedural defects. The Court stated, "It is open to a person to waive any irregularity in a procedure that is intended for his benefit and once having waived it, he is henceforth estopped from objecting to it."

The Court concluded that the real question was whether the service was effective, not whether it was valid under Order V, rule 12. The High Court recast the question to focus on the effectiveness of the service and answered it in the affirmative, stating that the assessee's subsequent conduct estopped them from challenging the service.

Conclusion:
The High Court held that the service of notice on Habib-ur-Rahman was effective and binding on the assessee due to their subsequent conduct, which indicated acceptance and waiver of any procedural irregularities. The reference was answered in the affirmative, upholding the Tribunal's decision to restore the order of assessment by the Income-tax Officer.