9911796707
TMI Blog1995 (10) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... " On verification of the return for the assessment year 1985-86 filed by you on 10-9-1985, it is found that the verification portion of the return was not signed by a person required under section 140(c) of the Income-tax Act, 1961 but by the Chairman of the Board and Chief Executive Officer. As such, I regret to inform you that the said return is invalid. You are, therefore, required to file a fresh return duly signed by the Managing Director/Director of your company. Formal notice under section 148 is enclosed herewith. Please also note that the statement of income filed along with the said return did not contain the details of agreements under which the Technical fees, Royalty and Engineering Service were received. Moreover, original TDS certificates in respect of Technical Fees from Madras Rubber Factory Ltd. have to be filed in place of the photo copies of certificates filed by you. The above wanting documents and information may please be filed along with the fresh return in order to expedite the assessment. " 3. The limitation period for finalising the assessment for the assessment year 1985-86 ends on 31-3-1988. However, the assessee filed the return in response to notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irman without being a director thereof and therefore, having mentioned in the verification part of the return, Sri J. D. Ong as Chairman of the Board would implicitly connote that he is a director within the meaning of section 140(c) of the Act. The Ld. authorised representative has quoted several decisions, i.e., CIT v. Anand & Co. [1994] 207 ITR 418 (Cal.), Grindlays Bank Ltd v. ITO [1980] 122 ITR 55 (SC)/107 Taxman 67/107 Taxman 93 (sic) and also Sheonath Singh v. CIT [1958] 33 ITR 591 (Cal.) to project his case that the technical triviality such as improper mention of the status of the signatory in the verification column should not cover the fate of the assessee and at best an opportunity could have been given to rectify the defect. The Ld. departmental representative, on the other hand, has strongly supported the order of the CIT(A). 5. We have heard the rival contentions. A good deal of the arguments on behalf of the assessee was directed against the finding of the revenue authorities that the return was an invalid return. The reason is obvious. If the return is invalid the ITO would be legally correct in issuing the notice under section 148 and in re-opening the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts. The judgment thereafter refers to Order VI, Rule 14 of the CPC and proceeds to refer to the various aspects of the issue such as the effect of omission to sign the plaint, defective signature in the plaint, etc. The position was ultimately summarised at page 602 to the effect that " the rule as to the signature of a plaint or a memorandum of appeal by the plaintiff or the appellant, although expressed in the relevant statute in the language of a mandatory provision has never been regarded as mandatory, but the rule being a procedural rule has been treated as only directory, non-compliance or defective compliance therewith being held to be irregularities, curable by the Court at its own instance and not illegalities affecting the jurisdiction of the Court ". This decision has very recently been applied by the Calcutta High Court in Anand & Co.'s case. There, the assessee challenged the notice issued under section 148 of the Act on the ground that it did not contain the distinct signature of the ITO but only contained a curved line purporting to be the signature. The contention on behalf of the revenue before the High Court was that the absence of or a defect in the signature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to invalidate the registration or to result in the invalidity of the document. 7. We may turn to the provisions requiring the signature of the persons in the application for registration of a firm under section 185 of the Act. Sub-section (2) of section 185 provides that where the ITO considers that the application for registration is not in order, he shall intimate the defect to the firm and grant an opportunity to rectify the defect. In construing this provision, it has been held by the Madras High Court in CIT v. Ganesh Fire Works Industries [1984] 147 ITR 781 that the absence of the signature of a partner in the application for registration is a curable defect and the ITO should have given opportunity to the firm to rectify the same. 8. The same view has been taken by the Orissa High Court in Addl. CIT v. K. Padmalochan Sahu [1974] 95 ITR 113 and by the Punjab and Haryana High Court in Gian Chand Vir Bhan v. CIT [1960] 39 ITR 414. 9. It therefore appears to us that there is a consensus of judicial opinion in this country that the absence of or a defect in the signature of a party in a document is a curable defect and does not invalidate the document. The legal position h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was contended on behalf of the assessee that had the ITO intimated the assessee that the return was not accompanied by the audit report in the prescribed form as contemplated by section 139(9), the assessee would have supplied the report and inasmuch as no such opportunity was given to the assessee, the denial of exemption of its income under section 11 was not justified. On behalf of the revenue a contention was taken that non-filing of the audit report was not a defect covered by the Explanation to section 139(9) and therefore the assessee was not entitled to the opportunity. The High Court rejected the revenue's contention by holding that the defects specified in the Explanation to section 139(9) are only illustrative and not exhaustive and it was open to the Legislature to add to the categories of defects. In effect it was held that the ITO was not bound to consider only those defects mentioned in the Explanation and to hold so would lead to inconvenient consequences and absurd results not intended by the Legislature. It was however observed that the ITO's powers to call upon the assessee to remove the defects did not extend to defects making the return invalid. We have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case that no opportunity to rectify the defect was specifically afforded to the assessee. 11. The income-tax authorities, especially the CIT(A), has been at pains to point out the contumacious conduct of the assessee in delaying the filing of a rectified return till the period of limitation was over. The gist of his allegation is that the assessee knew that the signature in the return was defective but still protested to the ITO against the absence of any opportunity given to rectify the same only by letter dated 27/28-9-1988 by which time the assessment under section 143(3) had become hopelessly barred. The answer to this allegation is again that the ITO having noticed the defect as early as 9-11-1987, when she issued the letter informing the assessee that the return was invalid and also issued notice under section 148, could have, instead of hastening to do so, intimated the defect in the signature and called upon the assessee to furnish a rectified return. That perhaps would have solved the problem easily since on 9-11-1987 the assessment had not become barred and there was time to complete the assessee till 31-3-1988. The legal position regarding the defective returns in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a company by its 'principal officer'. Clause (35) of section 2 defines a 'principal officer' as the secretary, treasurer, manager or agent of the company or any person connected with the management or administration of the company upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer. Section 277 as it stands at present contemplates prosecution of that person only who knowingly makes a false statement in any verification under the Act. In the case of a company, the return is usually signed by the Secretary who is merely an employee and thus it is he who can be prosecuted under section 277 of the Act. The managing director and other directors who are in fact the persons in charge of running the concern, and in that capacity are normally responsible for commission of tax offences escape prosecution. Similarly, in the case of partnerships, the managing partners escape prosecution if the return is signed by the partner who does not actively participate in managing the business. In order to get at the persons who are really responsible for tax offences, we recommend that the definition of 'principal officer' for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision being so, it is difficult to imagine that a defective signature would result in the invalidity of the return itself and is not to be considered a curable defect or immaterial irregularity. Thus even from the point of view of proper revenue administration, it would be an untenable proposition to hold that a defect in the signature in the return of income invalidates the return. 13. We have already referred to the various authorities including the judgments of the Calcutta High Court both under the Income-tax Law and under the Civil Law on the question whether the absence of a signature or a defective signature would invalidate the document. The stand taken by the revenue authorities in the present case is inconsistent with the legal position as expounded by the judgments. Our attention was however drawn to a decision of the Calcutta High Court in National Insurance Co. Ltd v. CIT [1995] 213 ITR 862. This judgment no doubt appears to assist the revenue's stand since there is close similarity between the facts of the present case and the facts in the case before the High Court. However, the ultimate decision in that case turned on the fact that the assessee therein did not avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done or not in the absence of a specific provision to that effect would depend upon the object of that provision and other relevant factors like the consequences which may follow if it is held that it cannot be done. " (page 121 of the report) The aforesaid observations of the Supreme Court can be applied to the present case also. The omission to confer a specific power on the ITO to grant an opportunity to the assessee to rectify a return has to be supplied by applying the principles laid down by the Supreme Court. We have earlier seen that the Calcutta High Court held in Sheonath Singh's case and in Anand & Co.'s case that even applying the rigorous principles of the Civil Procedure Code which are mainly concerned with private litigation in Civil Courts, a defect in the signature or the absence of the signature in the Plaint cannot be and has not been held to be fatal to the validity of the Plaint. Similar principles have to be imported into the provisions of the Income-tax Act as has been held by the Supreme Court in the recent judgment. Even otherwise from the observations of the Supreme Court extracted above, it is our duty to infer a power on the part of the ITO to call upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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