9911796707
TMI Blog1959 (4) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... s were not given by the Income Tax Appellate Tribunal. In fact, the whole statement of the case consists of a discussion of the points involved but does not at any stage narrate all the facts on account of which these points arose. Consequently, in order to decide this reference, we had to look at the copies of documents which were produced before us by learned counsel for the Income Tax Department. The facts that we could gather show that, for the chargeable accounting period October 29, 1944, to October 13, 1944, the order of assessment by the Excess Profits Tax Officer was passed on March 13, 1946. In those proceedings for assessment, the assessee had shown a sum of ₹ 5,921 as his income in accordance with the profit and loss account. The Excess Profits Tax Officer added back a sum of ₹ 4,421, in respect of inadmissible expenditure or in respect of other items which should have been included for computation of income such as an amount which the assessee had shown as loss. In addition a sum of ₹ 30,675 was added back on the basis of two cash credit entries on the finding that the amounts shown in these entries were concealed income of the assessee. The Excess Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, 1949, i.e., the same day on which the second appeal against the assessment of the excess profits tax was decided by the Tribunal. The Tribunal upheld the finding of fact that there had been concealment of particulars of income by the assessee so that he was liable to pay penalty under section 16 of the Excess Profits Tax Act. It was further held that in case the return, which had originally been filed in respect of this chargeable accounting period by the assessee, had been accepted by the Excess Profit Tax officer. The assessee would have avoided excess profits tax to the extent of ₹ 2,947-5-0 for the chargeable accounting period in question and in addition he would have avoided a sum of ₹ 3,355-5-0 for the chargeable accounting period November 6, 1942, to October 28, 1944, and another sum of ₹ 6,108-11-0 for the chargeable accounting period September 29, 1941, to November 5, 1942. The Tribunals finding thus was that the total amount of excess profits tax which would have been avoided by the assessee if his incorrect return had been accepted would have been the sum of ₹ 12,411-5-0. Considering the circumstances of the case, the Tribunal was of the opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er chargeable accounting periods and had to be determined on the basis of the excess profits tax which would have been a voided as a result of the incorrect return in the proceedings for assessment for the chargeable accounting period in respect of which the return was filed and should include even those amounts of excess profits tax which would have become non-payable by the assessee for the earlier chargeable accounting periods. This view of the Excess Profits Tax Officer was upheld in the appeals by the Appellate Assistant Commissioner as well as the Tribunal. Thereupon the assessee moved an application under section 21 of the Excess Profits Tax Act read with section 66 of the Income Tax Act and it is on that application that the two questions mentioned above have been referred to us by the Income Tax Appellate Tribunal for our opinion. The facts given above clearly indicate that, in preparing the statement of the case as well as in passing their appellate order, the Income Tax Appellate Tribunal committed a very obvious error in calculations. In the statement of the case as well as in their appellate order, the Tribunal has mentioned that the assessee had shown a profit of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1943, to October 13, 1944. In the view that we are taking on the questions of law referred to us, however, this error in calculation becomes immaterial and consequently we now pass on to the two points that have been referred to us for our decision. In this reference the contention on behalf of the Department has been that, when proceedings for imposition of penalty under section 16 of the Excess Profits Tax Act are taken, the effect of the concealment of income or incorrectness in the return must be considered with reference to the result that would follow if an assessment order is made for the chargeable accounting period in question so that the amount of tax avoided would be the amount of tax which would have been payable for the chargeable accounting period in question on the basis of the correct figures minus the amount of tax payable on the basis of the correct return and should further include the amount of excess profits tax which might become refundable to the assessee for earlier chargeable accounting periods as a result of determination of a deficiency in the chargeable accounting period in question. The two provisions of law that have to be examined for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and thereafter lays down what the maximum amount of penalty can be in cases where the penalty is imposed for failure to furnish the return required in sub-section (1) of section 13. The penalty cannot exceed the amount of excess profits tax payable and in all other cases the penalty cannot exceed the amount of excess profits tax which would have been avoided if the return made had been accepted as correct. The questions which are before us for opinion involve the interpretation of the expressions the amount of excess profits tax payable and the amount of excess profits tax which would have been avoided if the return made had been accepted as correct. It has been contended on behalf of the Department that, in applying this provision of law, the excess profits tax payable or the amount of excess profits tax which would have been avoided should be determined with reference to the order of assessment made in the assessment proceedings for the chargeable accounting period in question only. If this is done, it would lead to the interpretation that the maximum penalty can be, in the case of failure to furnish the return, the amount of excess profits tax payable for the chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of proceedings for a chargeable accounting period but must depend on the fact whether, ultimately, the assessee was or was not in fact liable to pay any excess profits tax or would have or would not have actually avoided the payment of excess profits tax. The question thus boils down to the point whether the expressions excess profits tax payable and excess profits tax which would have been avoided have to be interpreted to mean the amounts as determined in respect of separate chargeable accounting periods or must be interpreted so as to take into account the ultimate liability of the assessee to the excess profits tax. It appears to us that, considering the whole scheme of the Act, the interpretation sought to be put on behalf of the assessee is more justified by the language and is in line with the scheme and purpose of this provision of law. The most significant point to be considered is the language of section 7 of the Excess Profits Tax Act. Under that provision, when there is a deficiency in any chargeable accounting period, the profits of the business chargeable with excess profits tax in earlier accounting periods are deemed to be reduced by the amount of the def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reduced amount has to be treated as having been determined. The position would have been different if the expression deemed to be reduced had not been used in this section and it had been laid down that the profits of the previous years and the excess profits tax chargeable for the previous years shall be reduced. When such a fiction of law is introduced by the Legislature, full effect to that fiction of law has to be given as held by the Supreme Court in State of Bombay v. Pandurang Vinayak and Commissioner of Income Tax v. Teja Singh. In the case of State of Bombay v. Pandurang Vinayak their Lordships said : When a statue enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion. The same principle was affirmed in the subsequent decision of their Lordship of the Supreme Court cited above. In order to apply the principle laid down by their Lordships of the Supreme Court, we have to examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits Tax Officer to impose a penalty. For such cases, it appears the Legislature made provision in sections 23 and 24 where the assessee could be prosecuted and convicted for a criminal offence. The act or omission was by these two sections constituted into an offence. This liability for prosecution for an offence is, however, mitigated in cases where section 16 of the Act is applicable and a penalty is actually imposed under that section. This section 16 of the Act is applicable and a penalty is actually imposed under that section, this provision is contained in section 25 where it is laid down that no prosecution for an offence punishable under section 23 or 24 under the Indian Penal Code shall be instituted in respect of the same facts as those in respect of which a penalty has been imposed under this Act. In case where, due to the fact that the assessee was not or would not have been liable to any excess profits tax, the provisions of section 16 of the Act cannot apply to him, it is still open to take corrective measures against the assessee by prosecuting him under section 23 or section 24 of the Act. Even in other cases where section 16 of the Act may be applicable it is op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 as well as in section 16 of the Act, the two must be read together and, if under section 7 of the Act the reduced amount of excess profits tax is deemed to be payable, then under section 16 of the Act the original amount determined can no longer be taken into account as it must be treated as having become non-existent, bringing about the result that the expression the amount of excess profits tax payable in section 16 must be that amount which is deemed to be so under section 7 of the Act. So far as clause (b) is concerned. It does not use the expression the amount of excess profits excess profits tax which would have been avoided. It appears to us that the use of this latter expression in no way changes the interpretation put by us, because the amount of excess profits tax which would have been avoided must inevitably depend upon the amount of excess profits tax payable. If the amount of excess profits tax payable as originally determined is to be deemed to be substituted by another figure, then the amount of excess profits tax avoided must also be calculated on the basis of the figure introduced by substitution and not the figure as originally determined. It seems to us tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 18(1) as meaning ultimately payable. The phraseology might indeed be capable of meaning either the excess profits tax payable on the actual figures appertaining to the particular period, or the reduced amount after deduction the permissible deficiencies. The provision that the deduction allowed is of the excess profits tax payable in respect of any chargeable accounting period might of itself tend to cause a preference for the earlier version, but, as I have already indicated, the provision against alteration of the amount of the deduction allowed is in my view decisive. Reliance was placed on these views expressed by Lord Porter which views were also expressed by the other Law Lords though in slightly different language. It appears to us that this decision given by the House of Lords, when interpreting section 18 of the Finance Act, cannot be properly applied when we are called upon to interpret section 16 of the Excess Profits Tax Act. That interpretation could no doubt have been applied if we had been called upon to express our opinion in respect of the provision contained in section 12(2) of the Excess Profit Tax Act In section 12(2) of the Excess Profit Tax Act as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Porter in his decision expressed the opinion that even in section 15 the word payable used after the expression excess profits tax appeared to refer to the actual and not the reduced figure and that the sum payable remained what it previously was but it was to be deemed reduced for the purpose of giving relief and for that purpose only. However, after expressing that opinion Lord Porter himself subsequently proceeded to hold that the phraseology might indeed be capable of meaning either the excess profits tax payable on the actual figures appertaining to the particular period, or the reduced amount after deducting the permissible deficiencies. This clearly shows that, in giving their decision, the learned Law Lords recognised that the phraseology of section 15 permitted both interpretations and they accepted the one which appeared to he properly applicable in view of section 18 of the Finance Act which they had occasion to consider. In the case before us, we have to consider not section 12(2) of the Excess Profits Tax Act but section 16 of the Excess Profits Tax Act and, as we have held above, the scheme of the Act indicates that the purpose of introducing the fiction of law i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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