1982 (7) TMI 43 - HC - Income Tax

Income Tax Act, Notice U/S 7, Practice, Precedents, Provisional Assessment, Provisional Assessment Under Surtax Act, Reserves, Surtax

Issues Involved:
1. Application of mind and whether the provisional assessment order is a speaking order.
2. Requirement of prior assessment of total income under the Income-tax Act for provisional assessment under the Surtax Act.
3. Basis for making a provisional assessment under Section 7 of the Surtax Act.
4. Nature and extent of the powers of the Income-tax Officer (ITO) in making a provisional assessment.
5. Constitutionality of Section 7 of the Surtax Act if it allows adjudication of complicated issues.

Detailed Analysis:

1. Application of Mind and Speaking Order:
The petitioners argued that the impugned order of provisional assessment was made without proper application of mind and was not a speaking order. The court held that the fact that the order was made over a weekend does not per se show non-application of mind. The order, although brief, referred to various objections raised by Siemens and dealt with each of them. The court concluded that the order was indeed a speaking order as it showed that the ITO had taken into account the objections of Siemens and provided reasons for rejecting them.

2. Requirement of Prior Assessment of Total Income:
The petitioners contended that a provisional assessment under Section 7 of the Surtax Act could not be made unless the total income under the Income-tax Act had been ascertained. The court rejected this argument, stating that the very object of making a provisional assessment is the expeditious collection of tax. Section 7 does not contain any restriction on the power of the ITO to make a provisional assessment before the total income is assessed under the Income-tax Act. The court held that the ITO is empowered to make a provisional assessment at any time after the expiry of the period for the furnishing of the return.

3. Basis for Making a Provisional Assessment:
The petitioners argued that a provisional assessment should only be made on the basis of the return filed by the assessee. The court held that under Section 7(1) of the Surtax Act, the ITO has the power to make a provisional assessment whether the return has been furnished or not. The issuance of a notice under Section 7(2) before making a provisional assessment is mandatory and applies to both cases where a return has been filed and where it has not been filed.

4. Nature and Extent of Powers of the ITO:
The court examined whether the ITO could decide complicated and debatable issues of fact or law while making a provisional assessment. It concluded that the ITO should not decide such issues in a provisional assessment, which is to be made in a summary manner. The ITO is bound by decisions of the Supreme Court and the High Court within whose jurisdiction he is, and should not take a view contrary to decisions of the Income-tax Appellate Tribunal if it would prejudice the assessee. The court held that the ITO exceeded his jurisdiction by excluding certain items from the computation of capital and by taking a view contrary to existing judicial decisions.

5. Constitutionality of Section 7:
The petitioners challenged the constitutionality of Section 7 of the Surtax Act, arguing that if it allowed the ITO to adjudicate upon complicated issues of fact or law, it would be unconstitutional. The court did not find it necessary to decide this issue as it had already held that the ITO does not have such power while making a provisional assessment.

Conclusion:
The court quashed and set aside the provisional assessment order dated December 30, 1974, and the notice of demand dated January 14, 1975. The court held that the ITO had exceeded his jurisdiction and acted contrary to law. The respondents were ordered to pay the petitioners' costs fixed at Rs. 1,000.

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