1954 (10) TMI 3 - SC - Income Tax

Whether the revised assessments for the chargeable accounting periods 1941, 1942 and 1943 are liable to be cancelled an the ground that the Excess Profits Tax Officer erred in invoking the provisions of section 15 of the Excess Profits Tax Act? Held that - Having regard to the nature and scope of the provisions of the Excess Profits Tax Act and in particular section 26 (3), we are of opinion that the word discovers in section 15 of the Act is of sufficient amplitude to take in subsequent events which have a material bearing on the facts and circumstances on which assessment had been made or relief granted, and that when the Excess Profits Tax Officer finds that an assessee to whom relief had been granted under section 26(3) has utilised the buildings, plant or machinery in business after the termination of the war, he is entitled to proceed under section 15 of the Act. Appeal dismissed.

Issues Involved:
1. Validity of re-assessments made under section 15 of the Excess Profits Tax Act.
2. Interpretation of the term "discovers" in section 15 of the Excess Profits Tax Act.

Detailed Analysis:

1. Validity of Re-assessments Made Under Section 15 of the Excess Profits Tax Act:

The primary issue in this case was the validity of certain re-assessments made under section 15 of the Excess Profits Tax Act (the Act). The appellant company had applied for relief under section 26(3) of the Act for the years 1941, 1942, and 1943, arguing that additional buildings, plant, and machinery provided for war production would not be required post-war. The Central Board of Revenue granted relief based on these representations.

However, during an enquiry into the assessable profits for the period ending 31st March 1946, the Excess Profits Tax Officer discovered that the buildings, plant, and machinery were still being used post-war. Consequently, the Officer decided to take action under section 15 of the Act, issuing notices to reopen the assessments for 1941, 1942, and 1943. The appellant resisted, arguing that the facts discovered did not relate to the years of account and thus could not form the basis for reopening the assessments.

The Excess Profits Tax Officer overruled this contention and revised the assessments, which was confirmed by the Appellate Assistant Commissioner but reversed by the Appellate Tribunal. The Tribunal held that it was not open to the Officer to take action under section 15 based on facts that came into existence subsequently. The High Court, disagreeing with the Tribunal, held that the discovery of the fact that the assessee had used the buildings, plant, or machinery post-war was sufficient to invoke section 15.

2. Interpretation of the Term "Discovers" in Section 15 of the Excess Profits Tax Act:

Section 15 of the Act allows the Excess Profits Tax Officer to reassess if, in consequence of definite information, it is discovered that profits have escaped assessment, been under-assessed, or been the subject of excessive relief. The appellant contended that "discovery" should relate only to facts in existence during the chargeable accounting period and not to subsequent events. The respondent argued that "discovers" meant the Officer could find or satisfy himself of any fact, irrespective of when it came into existence.

The Court held that section 15 is a machinery section intended to effectuate the charging sections. It is meant to empower the Officer to amend assessments when relief has been erroneously granted. The relief under section 26(3) is based on future circumstances (i.e., post-war usage). Therefore, the discovery of facts that arise post-accounting period, which affect the basis on which relief was granted, falls within the scope of section 15.

The Court emphasized that the term "discovers" in its natural and ordinary sense means finding out or bringing to light something previously unknown. It does not necessarily limit discovery to facts existing during the chargeable accounting period. The Court found no support in the language of section 15 for the appellant's contention and noted that the word "discovers" must be interpreted in the context of the Act.

The Court also examined relevant case law, distinguishing between cases where subsequent events did not alter the facts on which relief was originally granted and cases where subsequent events were material to the original facts. The Court concluded that the word "discovers" in section 15 of the Act is broad enough to include subsequent events that materially affect the facts and circumstances on which the assessment or relief was based.

Conclusion:

The Supreme Court upheld the validity of the re-assessments made under section 15 of the Excess Profits Tax Act, dismissing the appeal with costs. The Court concluded that the Excess Profits Tax Officer was entitled to proceed under section 15 of the Act based on the discovery that the appellant continued to use the buildings, plant, and machinery post-war, which materially affected the basis on which relief was originally granted.

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