Kumaran v. Income Tax Officer Calicut — 1962 DIGILAW 32 (KER)

JUDGMENT C.A. Vaidialingam, J. 1. In this writ petition, Mr. K. V. Surianarayana Iyer, learned counsel for the petitioner, challenges two orders, namely, Ext. P. 1 dated 13-7-1959 being an order of assessment to income tax made by the respondent herein, as against the petitioner, for the year 1955-56 and Ext. P. 2 dated 20-9-1960 being again an order passed by the same officer as against the petitioner levying a penalty under section 46(1) of the Indian Income Tax Act. 2. The petitioner, who is an Advocate practising at Kozhikode, was appointed receiver of Saiful Bari Saw Mills in O. S. 96 of 1950 on the file of the Subordinate Judge's Court of Kozhikode. Admittedly, the suit was for disssolution of Partnership and for accounts and the petitioner further avers that he was conducting the business of the saw mills under the directions and instructions given by the court. 3. The petitioner further states that the Subordinate Judge's Court passed a preliminary decree in the suit itself and in pursuance of the directions contained in the decree the mills were sold and purchased by some of the plaintiffs and defendants themselves. The petitioner also handed over charge of the mills on 9-7-1955 to the purchasers and after that date the purchasers were carrying on the business of the mills. The petitioner himself applied under I. A. No. 793 of 1956 on 30-6-1956 for discharging him from the receivership and ultimately on 1-8-1957 the learned Subordinate Judge passed final orders discharging the petitioner from receivership. 4. After the settlement of remuneration of the petitioner for work done by him as receiver, it is also mentioned by the petitioner that there were certain directions given by the court regarding the conduct of certain appeals which were then pending before the Income Tax Appellate Tribunal. 5. According to the petitioner, in pursuance of orders given by the court, the persons entitled to the same withdrew a sum of Rs. 25,000/- on 29-3-1957. That sum represents the collections made by the receiver and deposited under orders of court. The petitioner unfortunately, it will be seen, did not reserve any amounts in his hands for payment of income tax nor did he ask the court to give directions for retention of any part of the amounts, so withdrawn, by the various parties for purpose of payment of any other liabilities. 6. The petitioner unfortunately, it will be seen, did not reserve any amounts in his hands for payment of income tax nor did he ask the court to give directions for retention of any part of the amounts, so withdrawn, by the various parties for purpose of payment of any other liabilities. 6. It will be seen that on 8-11-1957, the petitioner was asked to furnish information by the Income Tax Officer on various matters relating to his receivership, the persons on whose behalf he was acting as receiver and also as to the persons to whom the Saiful Bari Saw Mills had been sold for the purpose of completing the assessment for the year 1955-56. The accounting year, there is no controversy again, is the year ending with 9-1-1955. 7. On 13-7-1959, the assessing authority, the respondent, passed the order Ext. P. 1 making an assessment as against the petitioner as receiver of the mills in question for the year 1955-56. As I will have to revert to this order a little more in detail, it is not really now necessary for me to state more than this, namely, that there was an order of assessment for the year in question fixing the petitioner's liability in the sum of Rs. 1350-13-0. The petitioner further states that a few days before the order of assessment was passed, in pursuance of a request made by the income tax authority, he went and explained to the officer that he has already handed over charge of the mills as early as July 1955 and that he has also been discharged from the receivership and that he can no longer represent the saw mills in respect of which the assessment was sought to be made for the year 1955-56. It was also represented by the petitioner to the Income Tax Officer that even in respect of the income tax appeals, which were then pending, these matters were being attended to, not by him, but really by the persons who are entitled to the mills under orders of court. 8. It was also represented by the petitioner to the Income Tax Officer that even in respect of the income tax appeals, which were then pending, these matters were being attended to, not by him, but really by the persons who are entitled to the mills under orders of court. 8. But notwithstanding all these representations it is the grievance of the petitioner, that ultimately an order of assessment was made on 13-7-1959; but when a communication was received from the officer, the petitioner again says that he informed the officer on 27-8-1959 that he is not liable to pay under the assessment, that he has no funds of the mills with him and that the entire collections made by him as receiver, have been deposited in court and paid over to the appropriate parties under orders of court. He also reiterated that he has no personal liability in the matter and everything he did in connection with the mills was under orders of court. But the officer evidently was not satisfied with the representations made by the petitioner because ultimately it will be seen that on 20-9-1960 the Income Tax officer passed the second order which is under attack, namely, levying penalty as against the petitioner for non-payment of tax under section 46(1) of the Indian Income Tax Act. These facts are not controverted. 9. The petitioner, after referring to these matters, urges that the view taken by the Income Tax Officer in his order that section 41 of the Income Tax Act has no application to this case, cannot be sustained and he also avers that the assessment should not have been made as against him because at the relevant time when the assessment was being made, he had long ago ceased to be the receiver of the mills in question. Therefore, the petitioner challenges the order of assessment, Ext. P. 1, as well as the subsequent order levying penalty, Ext. P. 2. 10. The Income Tax Officer has filed a counter affidavit in this matter, and so far as I could see, there is no controversey raised by the officer regarding the various statements of facts contained in the petitioner's affidavit. P. 1, as well as the subsequent order levying penalty, Ext. P. 2. 10. The Income Tax Officer has filed a counter affidavit in this matter, and so far as I could see, there is no controversey raised by the officer regarding the various statements of facts contained in the petitioner's affidavit. The Income Tax Officer admits the facts in his counter affidavit that the petitioner was appointed receiver of the mills in question by the Subordinate Judge of Kozhikode and as receiver he was carrying on the business of the mill and was in receipt of the income till 1-8-1957. These statements are correct and the Income Tax Officer also affirms these statements as correct. It is further averred by the Income Tax Officer that for the assessment year in question, namely, 1955-56, the income of the mill in the hands of the petitioner was assessed in the status of an individual and the assessment order, as well as the demand notice, were duly served on the petitioner on 27-7-1959. It is further alleged that it is not open to the petitioner to disclaim liability at this stage after having accepted the assessment. 11. In respect of certain decisions referred to by the petitioner in his affidavit, the Income Tax Officer says that those decisions do not affect the liability of the petitioner under the assessment which has become final and the fact that the petitioner was discharged from receivership will not also affect his liability to pay the tax levied on him in respect of the income which he was admittedly in receipt of, during the accounting period in question. There is another statement, which I should frankly say, is a bit difficult to understand, namely, "The objections to the assessment, if any, should have been raised during the assessment proceedings and not at this stage" because I will show, when I consider the line of reasoning adopted by the assessing authority when he passed Ext. P. 1, that the various objections, that are now pressed before me on behalf of the petitioner, had been, as a matter of fact, taken before the officer himself prior to the assessment and those objections have been dealt with seriatim by the officer. That is why I said it is a bit difficult to understand or appreciate this particular statement in the counter affidavit. That is why I said it is a bit difficult to understand or appreciate this particular statement in the counter affidavit. Then there is an objection taken that the writ petition is prima facie belated. 12. The Income Tax Officer further states that it was the duty of the petitioner to have retained a sufficient part of the collections made by him in order to meet the tax liability, before the deposit of the entire amount in court and there was a duty on the part of the receiver to have notified the court also regarding this liability for payment of Income Tax. Therefore, ultimately, the Income Tax Officer says that the assessment order, the demand notice and the imposition of penalty are valid and fully justified and that the petitioner is bound to pay the tax demanded and if at all, his remedy is against the purchasers of the business who withdrew the money from court. Ultimately, the officer says that the petitioner has made out no grounds whatsoever in his affidavit to invoke the jurisdiction of this court under Article 226 of the Constitution. Before I advert to the contentions that have been raised on behalf of the petitioner by Mr. K. V. Surianarayana Iyer, learned counsel, and by Mr. Rama Iyer, learned counsel for the Revenue, it is desirable to refer to the actual reasons given by the Income Tax authority for passing the order Ext. P. 1, as well as for passing the penalty order under Ext. P. 2. 13. As I mentioned earlier, the facts alleged by the petitioner are not in controversy, namely, that he was conducting this business as receiver under directions of the Court and that the mills have been delivered over long before the date of the assessment and that he has also ceased to be the receiver on the date of these assessment proceedings. 14. It will be seen from a perusal of the order Ext. P. 1, that the petitioner raised a contention that no assessment can be made against him because he has already handed over charge of the mill and he had also ceased to be the receiver by virtue of the orders passed by the court in question discharging him from receivership as early as 1-3-1957. 15. P. 1, that the petitioner raised a contention that no assessment can be made against him because he has already handed over charge of the mill and he had also ceased to be the receiver by virtue of the orders passed by the court in question discharging him from receivership as early as 1-3-1957. 15. So far as this contention is concerned the Income Tax Officer, no doubt, accepts the position that the petitioner was conducting the business as receiver and that he may have also been discharged by orders of court. But, he is of the view that inasmuch as the assessment is made for the year 1955-56 and as the petitioner was admittedly conducting the business, though as receiver for the relevant accounting year, the department can make an assessment as against the petitioner. Therefore, the contention that no assessment can be made as against the petitioner was overruled. 16. The second aspect that appears to have been pressed before the Income Tax authorities by the petitioner was one based upon section 41 of the Act. The contention that appears to have been taken was that notwithstanding the fact that the computation of the income can be made under the provisions contained in Chapter III of the Act, nevertheless the actual levy and collection can be made, as against the petitioner, who was admittedly functioning as a receiver under orders of court and conducting the business by virtue of the provisions contained, in section 41(1) of the Act. 17. Here again, the Income Tax Officer accepts the position that the assessee was doing the business on behalf of the other persons who were previously partners in the firm, Messrs. Saiful Sari Saw Mills. But he is of the view that that circumstance by itself does not preclude the department from making an assessment on the assessee in his status as individual on the footing that the business was carried on by him. 18. Then the officer refers to the provisions contained in Section 9 of the Act wherein the assessment of property is made and there the Income Tax Officer refers to the use of the expression "owner" and distinguishes it from the expression used in section 10 regarding assessment of profits of a business conducted by an assessee. 18. Then the officer refers to the provisions contained in Section 9 of the Act wherein the assessment of property is made and there the Income Tax Officer refers to the use of the expression "owner" and distinguishes it from the expression used in section 10 regarding assessment of profits of a business conducted by an assessee. Therefore, the view of the officer appears to be that the receiver was carrying on the business of these mills at the relevant time and therefore, an assessment can be made under section 10 of the Act. 19. No doubt, the officer again refers to section 41; but he is of the view that there is no necessity in this case for taking proceedings for making the assessment under section 41 of the Act. More than that, there is no further discussion about the scope and applicability of section 41. No doubt, the officer refers to a decision, of the Bombay High Court reported in Saifudin v I. T. Commnr. Bombay (A. I. R. 1954 Bombay 219). But according to Mr. K. V. Surianarayana Iyer learned counsel for the petitioner the learned Chief Justice, who was a party to this decision, has really modified the views expressed by him in the later decision in I. T. Commr. v M/s. B. J. Vaidya (A. I. R. 1959 Bombay 298) and the learned Chief Justice has even gone to the extent of saying that if the observations contained in the earlier decision intended to convey the impression that in respect of assessments made on trustees or receivers coming under section 41(i) of the Act, there is an option in the assessing authority either to assess them under section 9, 11 or 12 or under section 41, that is a mistake on heir part and that the learned Judges never intended to give that impression. Therefore, the learned counsel urges that in view of the later decision of the Bombay High Court where the learned Judges have held that in circumstances like these there is absolutely no option left in the income tax authorities, but on the other hand there is an obligation and a duty cast upon the officer to make a levy and collection only on the basis of section 41 of the Act. 20. 20. The learned counsel further urged that the same principles have been also reiterated by the Assam High Court in the decision reported in Saifullah v I. T. Commr. (A. I. R. 1959 Assam 191). The learned counsel has also relied upon an observation of his Lordship Mr. Justice Subba Rao, in the more recent decision of the Supreme Court reported in Commr. of I. Tax v Puthiya Ponmanichinthakam Wakf (1962 K. L. J. 130.) I will refer to these decisions immediately after adverting to the contentions of Mr. Rama Iyer, learned counsel for the Revenue and also referring to the relevant sections of the Statute. 21. Mr. Surianarayana lyer finally urged that the assessment made in this case is absolutely illegal and therefore inasmuch as the assessment itself is illegal the levy of penalty for non-payment of tax illegally levied cannot also be sustained and therefore the learned counsel pressed for quashing the two orders under attack. 22. On the other hand, Mr. G. Rama Iyer, learned counsel for the Revenue, urged that the assessment proceedings initiated by the officer and finalised by him are absolutely legal and valid. He also urged that inasmuch as the petitioner did not pay the tax within the time mentioned in the notice served upon him, the officer had no other option but to levy a penalty under section 46(1) of the Act and therefore that levy of penalty should also be sustained. 23. The learned counsel, in this connection urged that in respect of this same year there was a previous order of assessment which was taken up on appeal by the petitioner and the appellate authority had categorically stated that an assessment is to be made as against the petitioner in the status of 'individual.' When the assessing authority passed the present order of assessment as against the petitioner treating him as an 'individual,' the petitioner could have no complaint whatsoever because if he was aggrieved by the order of the appellate authority he should have challenged the said order in further appeal before the Tribunal. 24. Learned Counsel also urged that in respect of certain other years, namely 1952-53, 1953-54, 1954-55 and 1956-57, the same contentions based upon section 41 were raised by the petitioner and they were overruled in the first instance by the assessing authority and that order was confirmed also on appeal by the Appellate Assistant Commissioner. 24. Learned Counsel also urged that in respect of certain other years, namely 1952-53, 1953-54, 1954-55 and 1956-57, the same contentions based upon section 41 were raised by the petitioner and they were overruled in the first instance by the assessing authority and that order was confirmed also on appeal by the Appellate Assistant Commissioner. Therefore, the learned counsel also urged that the assessment having been made by the authority in question on the basis of the previous orders of assessment, as confirmed by the Appellate Assistant Commissioner, cannot be considered to be illegal or void. 25. Learned counsel further urged that section 41 has no application whatsoever in this case, because the petitioner, though a receiver, must be considered to be a person who is carrying on business and, therefore, the assessment under section 10 has been properly made in respect of the income that the petitioner derives from carrying on business of the Saw Mills in question. No doubt, the learned counsel further attempted to raise another point, namely, that even on the basis that section 41 applies, he will be able to satisfy this court that the assessment is to be made in this case under the first proviso to section 41 because the share income that was received by the petitioner on behalf of the various individuals is indeterminate and therefore the tax at the maximum rate can be levied. I am not much impressed by this argument as I will indicate later, when considering the applicability or otherwise of section 41. 26. Mr. Rama Iyer further urged that even assuming that there is some error committed by the assessing authority in not applying a particular provision of the statute for purposes of assessment, that by itself will riot enable the petitioner to challenge the order in proceedings under Article 226. According to the learned counsel, unless the petitioner is able to satisfy this court that there was absolutely no jurisdiction in the officer for making the assessment in question, the remedy if any of the petitioner was, not to come to this court under Article 226, but to seek relief before the appropriate appellate authorities constituted for this purpose. 27. There was a last contention raised by the learned counsel, namely, that this writ petition is very belated and therefore it must be thrown out on that ground. 28. According to Mr. 27. There was a last contention raised by the learned counsel, namely, that this writ petition is very belated and therefore it must be thrown out on that ground. 28. According to Mr. Rama Iyer, the order under attack, namely, the assessment order, was passed as early as 13-7-1959 and the petitioner has come to this court only on 13-10-1960. Therefore, there has been considerable delay in the petitioner seeking relief. The reliance placed upon the further order levying penalty on 20-9-1960, cannot certainly enable the petitioner to ignore the previous order and ask this court to consider the correctness of the assessment order when the order levying a penalty is also attacked by the petitioner. 29. So far as the last two contentions raised by Mr. Rama Iyer are concerned, I am not impressed by these contentions in the circumstances of this case. It cannot be controverted that the authority will have a jurisdiction to levy penalty under Section 46(i) only if there has been a valid and proper order of assessment which a party was bound to obey. In this case as the validity of the order levying penalty under Ext. P. 2 does arise directly and in a consideration of the question relating to its validity it becomes absolutely necessary to consider also the other question, as to whether the order of assessment under Ext. P. 1 itself was valid or not. 30. No doubt, I am aware of the decision of their Lordships of the Supreme Court in C. A. Abraham v I. T. Officer (A. I. R. 1961 S. C. 609=1961 K. L. J. 165) where the learned Judges have said that the provisions of the Income Tax Act are a complete code by themselves and they provide adequate machinery for purpose of obtaining relief. But in the particular circumstances of this case, in my view, the order under attack suffers from certain infirmities, which go to the root of the jurisdiction of the officer to make the assessment itself. In this connection, it is only necessary to refer to the decision of a Division Bench of the Madras High Court in R. Constructions v Dy. Commercial Tax Officer (A. I. R. 1959 Madras 382), where, if 1 may say so with great respect, Mr. In this connection, it is only necessary to refer to the decision of a Division Bench of the Madras High Court in R. Constructions v Dy. Commercial Tax Officer (A. I. R. 1959 Madras 382), where, if 1 may say so with great respect, Mr. Justice Balakrishna Iyer delivering judgment on behalf of the Division Bench, has considered some of these aspects and has ultimately held that if a party is able to satisfy the Court that there is a fundamental error committed by the authority in question, it can certainly be considered that there is no levy of taxation by virtue of authority of law and, therefore, even the provisions of Article 265 of the Constitution can be said to be violated. Mr. Justice Balakrishna Iyer after a very elaborate and exhaustive consideration of the entire matter, ultimately is of the view that it would not make any difference whether the absence of jurisdiction arises out of an attempt to usurp jurisdiction or because the officer has through ignorance or otherwise strayed beyond the limits of his jurisdiction. At page 386 the learned Judge observes: "In relation to a tax, where an assessing officer acts outside the boundaries of his jurisdiction, his acts would to that extent be null and void. No one would have any power to call upon a citizen to make payment of a tax so imposed, and, if any authority seeks to collect a tax so imposed, the citizen can call in aid Art. 265, and seek the assistance of this Court." These observations have been adopted and approved by a Division Bench of this Court consisting of the learned Chief Justice and Mr. Justice T. C. Raghavan in Aluminium Industries Ltd., v The Agrl. Income Tax and Rural Sales-lax Officer and another (1961 K. L. J. 1336). The learned Chief Justice, referring to this judgment of the Madras High Court, is of the view that levy and collection of tax, in Article 265 of the Constitution, ought to be treated as comprehensive to include and envelop the entire process of taxation commencing from taxing to the taking away of the money from the pocket of the citizen. I had also occasion to adopt the reasoning of the Madras High Court in the Judgment delivered by me in O. P. Nos. 309 and 310 of 1957. I had also occasion to adopt the reasoning of the Madras High Court in the Judgment delivered by me in O. P. Nos. 309 and 310 of 1957. Therefore, in my view, in accordance with the principles laid down by the decisions referred to above, this court has ample jurisdiction to interfere, when it is satisfied that the order of assessment to tax, is so manifestly illegal and erroneous that it requires interference at the hands of this court under Article 226. 31. No doubt Mr. Surianarayana Iyer rather strenuously urged that the petitioner has already ceased to be. a receiver as early as 1-8-1957 and therefore no order of assessment should have been made on 13-7-1959 as against the petitioner. In my view, however hard the result may be, the position in law will be that inasmuch as he has been a receiver at the relevant time, for which period the assessment is sought to be made, I cannot say that the order of the Income Tax authorities proceeding to make an assessment as against the petitioner is in any way illegal or without jurisdiction. 32. But the petitioner is, in my view, entitled to succeed on the second aspect that has been strenuously urged by Mr. Surianarayana Iyer, namely, the officer proceeding on the basis that he has got an option to apply section 41(1) was not correct in the circumstances of this case. 33. No doubt, section 10 states that the tax is payable by an assessee under the head 'profits, gains, etc.' in respect of profits or gains of any business, profession or vocation carried on by him. Section 9 also no doubt provides for tax being payable by an assessee in respect of the properties mentioned therein of which he is the owner. But when we come to section 41, it will be noted that it occurs in Part V relating to liability in special cases. Section 40 deals with guardians, trustees and agents. Section 41 deals with the levy and collection of tax as against court of wards, receiver, manager, etc. appointed by or under any order of court, etc. But when we come to section 41, it will be noted that it occurs in Part V relating to liability in special cases. Section 40 deals with guardians, trustees and agents. Section 41 deals with the levy and collection of tax as against court of wards, receiver, manager, etc. appointed by or under any order of court, etc. Section 41(1) is to the following effect: "In the case of income, profits or gains chargeable under this Act which the Courts of wards, Administrators General, the Official Trustees or any receiver or manager (including any person whatever his designation who in fact manages property on behalf of another) appointed by or under any order of a court, or any trustee or trustees appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise including the trustee or trustees under any Wakf deed which is valid under the Mussalman Wakf Validating Act, 1913, (VI of 1913), are entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from such Court of Wards, Administrator General, Official Trustee, receiver or manager or trustee, or trustees, in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this Act shall apply accordingly: Provided that where any such income, profits or gains or any part thereof are not specifically recoverable on behalf of any one person, or where the individual shares of the persons, on whose behalf they are receivable are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate, but where such persons have no other personal income chargeable under this Act, and none of them is an artificial juridical person, as if such income, profits or gains or such part thereof were the total income of an association of persons : Provided further that when part only of the income, profits and gains, of a trust is chargeable under this Act, that proportion only of the income, profits and gains receivable by a beneficiary from the trust which the part so chargeable bears to the whole income, profits and gains of the trust shall be deemed to have been derived from that part." 34. It will be noted that after referring to the various persons mentioned therein, it is categorically stated that the tax is to be levied "in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable", and there is a further provision to the effect that all the provisions of the Act, shall apply. According to Mr. Surianarayana Iyer, in this case, the partners of the business, who were Mohammedans, owned a specific, definite and determinate share in the partnership and it is in respect of these various partners that the petitioner was conducting the business as receiver under orders of court. Therefore, the liability of the receiver must be co-extensive with the liability of the assessees and it cannot certainly be larger or greater than that of the assessees. That is, putting it in another way, according to Mr. Surianarayana Iyer, the assessment in this case should have been made as an assessment against individual persons who are entitled to specific shares which have been received by the receiver in question. If that method had been adopted, according to Mr. Surianarayana Iyer, it may be that there is no taxable income at all available for purpose of taxation and, therefore, there will be no necessity to impose a tax on the petitioner. Whereas what the authority has done, according to the learned counsel, is to collect all the income together and levy an assessment as against the petitioner. There is a 1st proviso to sub-s.(1) wherein it is stated that if the income, profits, gains etc. are not specifically receivable on behalf of any one person or where the individual shares of persons are indeterminate or unknown, then the tax is to be levied and recoverable at the maximum rate. As I mentioned earlier, according to Mr. Rama Iyer, the particular circumstances of this case will warrant the application of the first proviso to section 41(1). Sub-section 2 of section 41 gives a discretion to the officer in certain circumstances, namely, that the provisions in sub-section 1 shall not prevent either the direct assessment of the person on whose behalf, income, profits or gains are receivable or the recovery from such person of the tax payable in respect of such income, profits or gains. Sub-section 2 of section 41 gives a discretion to the officer in certain circumstances, namely, that the provisions in sub-section 1 shall not prevent either the direct assessment of the person on whose behalf, income, profits or gains are receivable or the recovery from such person of the tax payable in respect of such income, profits or gains. That is, it will be open to the officer either to make an assessment on the persons themselves, on whose behalf the income has been received or even after making an assessment against the receiver, attempt to recover from such persons the tax payable. 35. No doubt, there is an early decision of the Madras High Court in Commissioner of Income Tax v Saldanha (A. I. R. 1932 Mad. 378) based upon section 40 of the Indian Income Tax Act as it then stood. But I do not think it necessary to consider it because we are not concerned with the section as it then stood but with the sections as amended and as they stand at present. In fact even the counsel for the Revenue did not place reliance on this decision. 36. There are two decisions of the Patna High Court reported in I. T. Commissioner v Habibur Rahman (A. I. R. 1945 Patna 494) and S. C. Mazumdar v I. T. Commissioner B. & O. (A. I. R. 1948 Patna 385). In fact, the later decision deals directly with a levy and collection of tax as against a receiver functioning under orders of court, under section 41(1). In fact, the later decision deals directly with a levy and collection of tax as against a receiver functioning under orders of court, under section 41(1). In the earlier decision, namely, I. T. Commissioner v Habibur Rahman (A. I. R. 1945 Patna 494) Fazl Ali C. J. observes at page 496 : " The assessee mutwalli should be taxed on the basis of profits falling to the share of each beneficiary and not on the footing of all the beneficiaries constituting an association of persons, that is to say, the first proviso to section 41 is inapplicable and the tax should be levied in the manner indicated by the appellate tribunal." From these observations extracted above it will be seen that it is the view of the learned Judges that the assessee in that case, who was a mutwalli is to be taxed on the basis of the profits falling to the share of each beneficiary ; and it is also the further view of the learned Judge that the tax should not be levied on the basis of the income derived by all the beneficiaries constituting an association of persons. This decision has been referred to and accepted by the later decision of the Patna High Court in S. C. Muzumdar v I. T. Commissioner B. & O. (A. 1. R. 1948 Patna 385) by Manohar Lal and Ramaswamy JJ. The learned Judges had to deal with the case of an assessment, levy and collection of tax as against a receiver, carrying on business and who was managing an estate under orders of court, pending a limitation. Mr. Justice Manohar Lall, delivering Judgment on behalf of the Division Bench, deals with the contention raised by the counsel for the assessee based on section 41 (1) of the Act, that the tax should be levied on the receiver only in the same manner as it would be leviable and recoverable from each of the sharers in question. The decision in I. T. Commissioner v Habibur Rahman (A. I. R. 1945 Patna 494) was relied upon by the learned counsel appearing for the assessee. The learned Judge, after adverting to the said decision, is of the view that the contention of the counsel is to be accepted. The decision in I. T. Commissioner v Habibur Rahman (A. I. R. 1945 Patna 494) was relied upon by the learned counsel appearing for the assessee. The learned Judge, after adverting to the said decision, is of the view that the contention of the counsel is to be accepted. Following the principles laid down in the earlier decision, the learned Judges finally held that the assessment in that case must be made under section 41(1) on the receiver in the same amount as it would be leviable upon and recoverable as against the share of each of the persons, on whose behalf the receiver was conducting the business and making the collection. 37. No doubt, there is also some scope for taking the other view, because of the observations of the learned Chief Justice Chagla and Justice Tendolkor in their earlier decision in Saifudin v I. T. Commissioner, Bombay (A. I. R. 1954 Bombay 219). Ordinarily, it may be necessary for me to go into that matter a little more elaborately ; but it becomes unnecessary, because the learned Chief Justice who was a party to this decision, has modified his views, in the later decision in I. T. Commissioner v M/s. B. J. Wadia (A. I. R. 1959 Bombay 298) where he had to deal with an identical situation, sitting along with Mr. Justice Desai. No doubt, the Income Tax Officer in this case has relied upon the earlier decision of the Bombay High Court as supporting the stand taken by him, namely, that no assessment need be made on the basis of section 41 of the Act. As pointed out by the learned Chief Justice in the later case, no doubt, there are certain observations in the earlier decision in Saifuddin v I. T. Commissioner, Bombay (1954 Bombay 219) wherein a suggestion has been made that the Department has an option of availing itself of the machinery of section 41 or section 10 in assessing a guardian carrying on a business. That aspect has been adverted to by the learned Chief Justice of Bombay High Court in the later decision. 38. In the later decision in Income Tax Commissioner v Mis. B. J. Wadia (A. I. R. 1959 Bombay 298), with great respect, I should say that the learned Chief Justice considers the matter more elaborately. That aspect has been adverted to by the learned Chief Justice of Bombay High Court in the later decision. 38. In the later decision in Income Tax Commissioner v Mis. B. J. Wadia (A. I. R. 1959 Bombay 298), with great respect, I should say that the learned Chief Justice considers the matter more elaborately. The scheme of the Income Tax Act is considered and the learned Chief Justice adverts to section 3 as being the charging section. The learned Chief Justice again refers to the provisions of sections 6 to 12 occurring in Chapter III dealing with computation of the total income of an assessee. Then the learned Chief Justice again refers to the provisions of section 41 of the Act and states that section 41 deals with the liability to pay tax of the trustees, etc. from whom the tax is sought to be recovered. But the learned Chief Justice emphasises that section 41 imposes a vicarious liability upon the trustees and that liability is co-extensive with the liability of the beneficiary. The learned Chief Justice is also of the view that the provisions of section 41 are mandatory. 39. The learned Chief Justice adverts to the contention that has been raised in the case before them on behalf of the Income Tax Department that if a trustee is the owner of property or is carrying on business or is the owner of shares his income can be computed in accordance with section 9, 10 and 12 of the Act and that person can be made to pay tax, without observing the special provisions laid down in section 41 with regard to the liability of trustees. At this stage I may mention that this court, in this case, is not concerned with the application or otherwise of either section 9 or section 12 of the Act. Admittedly, the income, that is sought to be taxed, is the profits stated to have been earned by the receiver when conducting a business and, therefore, the proper provision that will be applicable is section 10. But the learned Chief Justice after adverting to this contention that was raised, and noted above, is of the view that section 41 gives no such option to the taxing department and if the assessment is upon a trustee the tax has to be levied and recovered in the manner provided in section 41. But the learned Chief Justice after adverting to this contention that was raised, and noted above, is of the view that section 41 gives no such option to the taxing department and if the assessment is upon a trustee the tax has to be levied and recovered in the manner provided in section 41. The learned Chief Justice is also of the view that the only option given to an assessing authority, is to be found in sub-section 2 of section 41. After a very elaborate consideration of these aspects the learned Chief Justice is of the view that though the charging section may be section 3 and though the computation of the total income may be under the provisions of Chapter III, in so far as the levy as against the trustee or other persons mentioned in section 41 is concerned, that levy and collection must be strictly in accordance with the provisions of section 41. That is, ultimately the learned Chief Justice is of the view that when the question of payment of tax arises and it is at that stage that section 41 issues a mandate to the Taxing Department that when they are dealing with the income of a trustee they must levy the tax and recover it in the manner laid down in section 41 and therefore there is no inconsistency between the provisions of sections 9, 10 and 12 on the one hand and the provisions of section 41 on the other. After laying down this principle, the learned Chief Justice adverts to the observations made by him in the earlier decision and ultimately the learned Chief Justice is of the view that if any impression was sought to be created by the observations contained in the previous decision, that there was an option in the assessing authority to make an assessment either under section 41 or under section 10, they never intended to lay down any such proposition of law. 40. Therefore, the position in law, according to the latest decision of the Bombay High Court, is that there is no such option when an assessment is to be made against a person referred to in section 41 of the Act. 41. The same question again came up for consideration before a Division Bench of the Assam High Court reported in Saifulla v I. T. Commr. 41. The same question again came up for consideration before a Division Bench of the Assam High Court reported in Saifulla v I. T. Commr. (A. I. R. 1959 Assam 191) The learned Chief Justice, delivering judgment on behalf of the Division Bench, refers with approval to the earlier decision of the Patna High Court in I. T. Commr. v Habibur Rahman (A. I. R. 1945 Patna 494) and S. C. Mazumdar v I. T. Commr. B. & O. (A. I. R. 1948 Patna 385). The learned Chief Justice refers at page 192: "It appears to us that the real meaning of the expression is that in case there are beneficiaries and the income is received by the Mutwaili on their behalf, the tax would be assessed and recovered from the Mutawalli just in the same manner as it would have been assessed and recovered from the beneficiaries." "In other words, the measure of the liability of the trustee or other representative under this section is the liability of each beneficiary; and the assessment should be at the individual rate of tax applicable separately to the total income of each beneficiary. For instance, where a business is carried on by the Mutwalli of a Wakf Estate comprising of several beneficiaries the Mutwaili is taxable on the basis of the profits falling to the share of each beneficiary, and not on the footing of all the beneficiaries constituting an association of persons." Therefore, it will be seen that the view of the Assam High Court also, is that the measure of liability of the trustee or other representative under section 41 is the liability of each beneficiary and the assessment should be at the individual rate of tax applicable separately to the total income of each such beneficiary. The learned Judges had again to consider the scope of the first proviso to section 41 of the Act. It does not really arise for consideration excepting that Mr. Justice Mehrotra who writes a separate concurring judgment deals with the specific provisions of the first proviso to section 41 of the Act. It is the view of the learned Judge that before the said proviso can be attracted it has got to be established that the amount was not receivable specifically on behalf of any person or persons and secondly that the shares of the beneficiaries were indeterminate. It is the view of the learned Judge that before the said proviso can be attracted it has got to be established that the amount was not receivable specifically on behalf of any person or persons and secondly that the shares of the beneficiaries were indeterminate. I am only referring to these observations because as 1 mentioned earlier, Mr. Rama Iyer learned counsel, urged that in any event in this case the assessment can be only under the first proviso to section 41(1). 42. In the latest decision of the Supreme Court reported in Commr. of Income Tax, Kerala v Puthiya Ponmanichintakam Wakf (1962 K. L. J. 130), Mr. Justice Subba Rao, delivering judgment on behalf of the Bench had to consider the scope of section 41(1) as also the first proviso to section 41(1) of the Income Tax Act. It is not really necessary for me to consider the various other aspects which have been dealt with by the learned Judges but so far as section 41(1) is concerned, the learned Judge observes at page 132 : "Under the substantive part of the section, tax is leviable on the trustee of the Wakf in the like manner and to the same amount as it would be leviable upon and recoverable from the beneficiary, that is, the assessment would be at the individual rates of tax applicable to the beneficiary." It will be seen that it is the view of the learned Judges that under section 41(1) the assessment is to be at individual rate of tax applicable to the beneficiary. 43. No doubt, Mr. Rama Iyer again pressed into service the decision in the earlier judgment of the Bombay High Court in Saifudin v I. T. Commr. Bombay (A. I. R. 1954 Bombay 219). In view of the various other decisions referred to by me, I do not think the earlier decision of the Bombay High Court in Saifudin v. IT Commr. Bombay (A. I. R. 1954 Bombay 219) can render much assistance to the learned Counsel for the Revenue. In fact I have shown earlier, that these principles have been given the go-by in the later Bombay decision. 44. It will be seen that in this case, the assessment is admittedly made as against the receiver who was managing the business on behalf of the various partners under the direction of the Court. In fact I have shown earlier, that these principles have been given the go-by in the later Bombay decision. 44. It will be seen that in this case, the assessment is admittedly made as against the receiver who was managing the business on behalf of the various partners under the direction of the Court. The view of the assessing authority that the assessment, in the special circumstances, can be made treating the petitioner as an individual under section 10 of the Act ignoring Section 41 cannot certainly be accepted. Section 10 may be invoked by the officer for the purpose of computing the total income that has been derived in respect of the business carried on. But the levy of assessment as against the petitioner, as receiver, can be and must be only under the provisions of section 41 of the Act. Respectfully adopting the various principles laid down in the two decisions of the Patna High Court and the later decision of the Bombay High Court as well as the decision of the Assam High Court and the observations of the Supreme Court referred to above, I have no hesitation in coming to the conclusion that the view of the officer that he can totally ignore the provisions of section 41 of the Act, is absolutely erroneous. 45. Therefore, it follows that the assessment made as against the petitioner under section 10 of the Act must be held to be erroneous and has to be set aside. In consequence it follows that the levy of penalty under Ext. P. 2 as against the petitioner mainly on the basis that the petitioner has not complied with the illegal demand under Ext. P. 1 cannot also be sustained. 46. No doubt, Mr. Rama Iyer, learned counsel for the Revenue, very strenuously urged that this Court should not exercise its jurisdiction under Article 226 of the Constitution. He relied also upon the statements contained in the assessing order, Ext. P. 1. wherein the assessing authority refers to the previous decisions in certain appeals taken before the Appellate Assistant Commissioner. It may be that all these circumstances may show that the assessing authority had a justification for committing a mistake that he has done in these proceedings. He relied also upon the statements contained in the assessing order, Ext. P. 1. wherein the assessing authority refers to the previous decisions in certain appeals taken before the Appellate Assistant Commissioner. It may be that all these circumstances may show that the assessing authority had a justification for committing a mistake that he has done in these proceedings. But in my view, that is no ground whatsoever for this court not exercising its jurisdiction under Article 226, when once it comes to the conclusion that in making the assessment ignoring the provisions of section 41 there is a manifest error apparent on the face of the record and therefore the assessment order will have to be set aside. 47. The last contention that was urged by Mr. Rama Iyer and which I have already noted is one of delay. Prima facie it may appear that the party challenges the order of assessment which has been passed on 13-7-1959 in a writ petition filed on 13-10-1960. But if the matter is looked into a little more closely, it will be seen that the petitioner has not been keeping idle at all. After the communication of the assessment order on 27-7-1959, the petitioner, has stated in his affidavit that he sent a communication to the officer again setting out the various circumstances and drawing his attention to the fact that he is no longer a receiver of the court and that he is not in possession of any funds and therefore he is not liable to meet the claim under the order of assessment. The petitioner can certainly be considered to have a real grievance when the officer pursued the previous order by levying penalty under Ext. P. 2 on 20-9-1960. I have already mentioned in considering the legality and validity of the order levying penalty under Ext. P. 2 on 20-9-1960, that it becomes absolutely necessary for this court to investigate the legality and validity of the order of assessment under Ext. P. 1 and that takes us to the assessment itself. Therefore, the levy of penalty cannot be dissociated from the original order of assessment made. Admittedly, immediately after the levy of penalty was made, the petitioner has come to this Court on 13-10-1960 asking for relief in respect of these orders. Therefore, this objection raised on the ground of delay cannot be accepted in this case. 48. Therefore, the levy of penalty cannot be dissociated from the original order of assessment made. Admittedly, immediately after the levy of penalty was made, the petitioner has come to this Court on 13-10-1960 asking for relief in respect of these orders. Therefore, this objection raised on the ground of delay cannot be accepted in this case. 48. No doubt, Mr. Rama Iyer, learned counsel for the revenue, has as I have already mentioned, urged another aspect, namely, that he will be able to satisfy this court that even if an assessment is to be made under section 41(1) the assessment will come under the first proviso to section 41 because the shares which the receiver was collecting at the relevant time are indeterminate and, therefore, the levy at a maximum rate was justified. This really turns again upon the question as to the nature of the assessment to be made on the Receiver and this question can be more satisfactorily gone into when an assessment is made by the officer on the basis of the provisions contained in section 41. The officer, as I have indicated earlier, had no occasion to consider this aspect because he has totally ignored the provisions of section 41. 49. The order levying penalty, Ext. P. 2, will stand cancelled. The order of assessment, Ext. P. 1, will also stand cancelled but the assessing authority is entitled to continue the proceedings and pass an order of assessment afresh in the light of the directions and observations contained in this judgment, and on the basis of the provisions contained in section 41 of the Act. The question as to whether the first proviso to section 41 applies or not is a matter which can also be considered by him after an investigation into the relevant facts. 50. In making an assessment under Section 41 of the Act, I can also point out that the officer will be exercising a proper discretion under sub-section 2 of section 41, if he continues the proceedings for purposes of levy and assessment as against the persons themselves on whose behalf the income, profits or gains were received by the receiver in question. 51. The writ petition is allowed subject to the directions and observations contained in this judgment and there will be no order as to costs.