My assessment was cut in appeal — can the department keep going with the recovery certificate it issued on the original demand?
No. By majority the Supreme Court held that when the appellate authority reduces an assessment, the original order is replaced, and the notice of demand, the default and every recovery step founded on that default fall with it. The Income-tax Officer had to serve a fresh notice of demand for the reduced sum and give the assessee time to pay before treating him as in default again. The certificates sent to the Collector under section 46(2) of the 1922 Act, and the attachments made under them, could not simply be carried on. The department's appeals were dismissed and the High Court's order quashing the recovery proceedings stood.
Decided by the Supreme Court (Supreme Court of India — A.K. Sarkar, M. Hidayatullah and J.C. Shah JJ; Sarkar and Hidayatullah JJ delivering separate opinions dismissing the appeals, Shah J dissenting) on 1964-03-11, reported as 1964 AIR 1473; 1964 SCR (7) 148; AIR 1964 SUPREME COURT 1473. It bears on section 156, section 220, section 222 of the Income Tax Act 1961, in Demand, Recovery & Stay and Appeals matters.
This is the authority for the proposition that recovery machinery does not survive the order it rests on. The revenue's argument was that the Act nowhere says a default ends when the assessment is revised, so the certificate and the attachment continue. The Court answered from the structure of the Act: there is one liability, so there cannot be two defaults, and section 45 of the 1922 Act plainly contemplated a default arising from an appellate order as well. It matters because the department's instinct in a reduced-assessment case is to carry on with an existing certificate and adjust the figure. Hidayatullah J's practical route out is worth noting — issue a fresh notice, and on a fresh default recall the old certificate, amend it to the tax now demandable and return it for the recovery to continue. Shah J dissented, holding that the original notice remained enforceable subject to adjustment.
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The assessee was assessed on estimated incomes of Rs 61,000 for 1953-54 and Rs 1,21,000 for 1954-55 by orders of 23 March 1955, creating tax liabilities of Rs 19,808 and Rs 66,601. Notices of demand under section 29 of the Indian Income-tax Act 1922 were served. He appealed but did not pay. In September 1955 the Income-tax Officer sent certificates to the Deputy Commissioner, Kolar under section 46(2) for recovery as arrears of land revenue, and the Deputy Commissioner attached his properties under the Revenue Recovery Act. On 17 December 1955 the Appellate Assistant Commissioner reduced the assessable income to Rs 27,000 and Rs 45,000, directed a recomputation and ordered any excess collected to be refunded. The Income-tax Officer did not issue fresh notices of demand; by a letter of February 1956 he told the assessee the reduced amounts and called on him to pay at once. The assessee moved the Mysore High Court under Article 226 to quash the recovery proceedings. The High Court quashed them and the revenue appealed.
The appeals were dismissed by majority. The crux is the effect of the appellate order on the original order. Where the original order has been destroyed or replaced by the appellate order, the notice of demand and every step based on the original order become ineffective, the earlier default disappears and it cannot support further recovery. Section 31(3) of the 1922 Act let the Appellate Assistant Commissioner confirm, reduce, enhance, annul or set aside the assessment; on annulment or setting aside, the default plainly goes, and on a reduction the position is the same, because there is one liability and there cannot be two defaults in respect of it. Section 45 itself contemplated an appellate order specifying an amount payable and a default arising from non-compliance with that order. A fresh notice of demand under section 29 therefore had to issue for the sum found due under the appellate order. Hidayatullah J added that a fresh notice had in fact issued here, and on default under it the officer could recall the existing certificate, amend it to the tax now demandable and return it for recovery to continue. Shah J dissented.
Sarkar J worked from the scheme of the Act. Tax becomes due on an order; a notice of demand under section 29 follows; failure to comply makes the assessee a defaulter under section 45; and only then does the coercive machinery of section 46 start. The revenue said the Act nowhere provides that a default ends when the underlying order is revised. The answer was that the Act says enough by implication. Section 45 attaches the consequence of default not only to a section 29 notice but also to orders under sections 31 and 33. If an appellate order under section 31 specified an amount, the time and the place of payment, non-compliance with it would itself create a default; since one liability cannot carry two defaults, the earlier default must be taken to be superseded. The revenue's contention that only an annulment ends a default was therefore unfounded. Nor was the discretion in section 45 to treat an appealing assessee as not in default rendered useless: filing an appeal does not stay the original order, so recovery completed before the appellate order stands, and where the appellate order merely confirms the assessment the earlier default may survive. On an enhancement it was conceded a fresh notice must go; Sarkar J doubted the view that it need cover only the enhanced amount, since a notice can only issue for the amount due in consequence of an order.
If the original order has been destroyed or replaced by the appellate order, then the notice of demand and all other steps based upon the original order must be deemed to have become ineffective.
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Handle my notice → Ask a CA on WhatsAppNo. By majority the Supreme Court held that when the appellate authority reduces an assessment, the original order is replaced, and the notice of demand, the default and every recovery step founded on that default fall with it. The Income-tax Officer had to serve a fresh notice of demand for the reduced sum and give the assessee time to pay before treating him as in default again. The certificates sent to the Collector under section 46(2) of the 1922 Act, and the attachments made under them, could not simply be carried on. The department's appeals were dismissed and the High Court's order quashing the recovery proceedings stood. This was decided by the Supreme Court (Supreme Court of India — A.K. Sarkar, M. Hidayatullah and J.C. Shah JJ; Sarkar and Hidayatullah JJ delivering separate opinions dismissing the appeals, Shah J dissenting) and bears on section 156, section 220, section 222 of the Income Tax Act 1961. It is reported as 1964 AIR 1473; 1964 SCR (7) 148; AIR 1964 SUPREME COURT 1473. This is the authority for the proposition that recovery machinery does not survive the order it rests on. The revenue's argument was that the Act nowhere says a default ends when the assessment is revised, so the certificate and the attachment continue. The Court answered from the structure of the Act: there is one liability, so there cannot be two defaults, and section 45 of the 1922 Act plainly contemplated a default arising from an appellate order as well. It matters because the department's instinct in a reduced-assessment case is to carry on with an existing certificate and adjust the figure. Hidayatullah J's practical route out is worth noting — issue a fresh notice, and on a fresh default recall the old certificate, amend it to the tax now demandable and return it for the recovery to continue. Shah J dissented, holding that the original notice remained enforceable subject to adjustment. If it applies to you, the first step is this: If an appellate order reduces your assessment, ask the Income-tax Officer for a fresh notice of demand specifying the reduced sum before you accept that any coercive step can go on.
The assessee was assessed on estimated incomes of Rs 61,000 for 1953-54 and Rs 1,21,000 for 1954-55 by orders of 23 March 1955, creating tax liabilities of Rs 19,808 and Rs 66,601. Notices of demand under section 29 of the Indian Income-tax Act 1922 were served. He appealed but did not pay. In September 1955 the Income-tax Officer sent certificates to the Deputy Commissioner, Kolar under section 46(2) for recovery as arrears of land revenue, and the Deputy Commissioner attached his properties under the Revenue Recovery Act. On 17 December 1955 the Appellate Assistant Commissioner reduced the assessable income to Rs 27,000 and Rs 45,000, directed a recomputation and ordered any excess collected to be refunded. The Income-tax Officer did not issue fresh notices of demand; by a letter of February 1956 he told the assessee the reduced amounts and called on him to pay at once. The assessee moved the Mysore High Court under Article 226 to quash the recovery proceedings. The High Court quashed them and the revenue appealed. The matter was decided on 1964-03-11 by the Supreme Court (Supreme Court of India — A.K. Sarkar, M. Hidayatullah and J.C. Shah JJ; Sarkar and Hidayatullah JJ delivering separate opinions dismissing the appeals, Shah J dissenting). On those facts the Supreme Court held as follows. The appeals were dismissed by majority. The crux is the effect of the appellate order on the original order. Where the original order has been destroyed or replaced by the appellate order, the notice of demand and every step based on the original order become ineffective, the earlier default disappears and it cannot support further recovery. Section 31(3) of the 1922 Act let the Appellate Assistant Commissioner confirm, reduce, enhance, annul or set aside the assessment; on annulment or setting aside, the default plainly goes, and on a reduction the position is the same, because there is one liability and there cannot be two defaults in respect of it. Section 45 itself contemplated an appellate order specifying an amount payable and a default arising from non-compliance with that order. A fresh notice of demand under section 29 therefore had to issue for the sum found due under the appellate order. Hidayatullah J added that a fresh notice had in fact issued here, and on default under it the officer could recall the existing certificate, amend it to the tax now demandable and return it for recovery to continue. Shah J dissented.
Sarkar J worked from the scheme of the Act. Tax becomes due on an order; a notice of demand under section 29 follows; failure to comply makes the assessee a defaulter under section 45; and only then does the coercive machinery of section 46 start. The revenue said the Act nowhere provides that a default ends when the underlying order is revised. The answer was that the Act says enough by implication. Section 45 attaches the consequence of default not only to a section 29 notice but also to orders under sections 31 and 33. If an appellate order under section 31 specified an amount, the time and the place of payment, non-compliance with it would itself create a default; since one liability cannot carry two defaults, the earlier default must be taken to be superseded. The revenue's contention that only an annulment ends a default was therefore unfounded. Nor was the discretion in section 45 to treat an appealing assessee as not in default rendered useless: filing an appeal does not stay the original order, so recovery completed before the appellate order stands, and where the appellate order merely confirms the assessment the earlier default may survive. On an enhancement it was conceded a fresh notice must go; Sarkar J doubted the view that it need cover only the enhanced amount, since a notice can only issue for the amount due in consequence of an order. In the words reproduced by the source cited on this page: "If the original order has been destroyed or replaced by the appellate order, then the notice of demand and all other steps based upon the original order must be deemed to have become ineffective."
It was decided by the Supreme Court on 1964-03-11 and is reported as 1964 AIR 1473; 1964 SCR (7) 148; AIR 1964 SUPREME COURT 1473. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 156, section 220, section 222, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed by majority. The crux is the effect of the appellate order on the original order. Where the original order has been destroyed or replaced by the appellate order, the notice of demand and every step based on the original order become ineffective, the earlier default disappears and it cannot support further recovery. Section 31(3) of the 1922 Act let the Appellate Assistant Commissioner confirm, reduce, enhance, annul or set aside the assessment; on annulment or setting aside, the default plainly goes, and on a reduction the position is the same, because there is one liability and there cannot be two defaults in respect of it. Section 45 itself contemplated an appellate order specifying an amount payable and a default arising from non-compliance with that order. A fresh notice of demand under section 29 therefore had to issue for the sum found due under the appellate order. Hidayatullah J added that a fresh notice had in fact issued here, and on default under it the officer could recall the existing certificate, amend it to the tax now demandable and return it for recovery to continue. Shah J dissented. It arises in Demand, Recovery & Stay and Appeals matters, on section 156, section 220, section 222 of the Income Tax Act 1961, and was decided by Supreme Court of India — A.K. Sarkar, M. Hidayatullah and J.C. Shah JJ; Sarkar and Hidayatullah JJ delivering separate opinions dismissing the appeals, Shah J dissenting. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check whether any attachment or certificate now being pressed was issued on a default under the superseded order; if it was, say so in writing to both the Assessing Officer and the recovery officer. Do not assume steps already completed before the appellate order are undone — what was validly done when done stays valid, and the remedy for an excess collection is a refund. Diarise the time allowed by any fresh notice of demand; the protection lasts only until a new default arises.
Validity check could not be completed. I read only this judgment. The harvested page's citator shows it referred to in two later Supreme Court decisions (1975 and 1979), which I did not read. I have not checked how the corresponding provisions of the 1961 Act, or any later amending or validating legislation, affect the position. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
About 27,000 characters from the middle of the harvested text are not reproduced — the closing part of Sarkar J's opinion and almost the whole of Hidayatullah J's concurring opinion. Only the last few paragraphs of Hidayatullah J survive, so his reasoning is not set out here beyond what those paragraphs say. Shah J's dissent is present from its start but I have summarised only its conclusion. Decided under the Indian Income-tax Act 1922 (sections 29, 45, 46 and 31); the section numbers listed are the 1961 Act provisions a reader would look under today, not sections the judgment cites. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed by majority. The crux is the effect of the appellate order on the original order. Where the original order has been destroyed or replaced by the appellate order, the notice of demand and every step based on the original order become ineffective, the earlier default disappears and it cannot support further recovery. Section 31(3) of the 1922 Act let the Appellate Assistant Commissioner confirm, reduce, enhance, annul or set aside the assessment; on annulment or setting aside, the default plainly goes, and on a reduction the position is the same, because there is one liability and there cannot be two defaults in respect of it. Section 45 itself contemplated an appellate order specifying an amount payable and a default arising from non-compliance with that order. A fresh notice of demand under section 29 therefore had to issue for the sum found due under the appellate order. Hidayatullah J added that a fresh notice had in fact issued here, and on default under it the officer could recall the existing certificate, amend it to the tax now demandable and return it for recovery to continue. Shah J dissented.
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