9911796707
TMI Blog1960 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... filed a return under protest. The assessment was completed by the Income-tax Officer on November 30, 1953. Against this order the respondent took an appeal to the Appellate Assistant Commissioner on the ground that the respondent was not liable to business profits tax because it was beyond the period of four years limitation under section 14 of the Act. This plea was upheld by the Appellate Assistant Commissioner. The Income-tax Officer then appealed to the Appellate Tribunal and it confirmed the order of the Appellate Assistant Commissioner. At the instance of the appellant a case was stated to the High Court of Bombay on the following two questions of law : "(1) Whether the Income-tax Officer had jurisdiction to assess the assessee firm under the Business Profits Tax Act by issue of a notice under section 11(1) of the Business Profits Tax Act on January 12,1953, in respect of the chargeable accounting period November 13, 1947, to October 31, 1948, without having recourse to section 14 of the Business Profits Tax Act ? (2) If the answer to question No. 1 is in the negative whether the business profits tax assessment could be considered to have been validly made ?" The High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return in regard to any chargeable accounting period but if such notice was given and a return was made and for any reason whatsoever the profits were not assessed or were under-assessed etc. then section 14 comes into operation and notice has to be served within four years of the end of the chargeable accounting period in question. The provisions of the Act which arise for consideration are sections 2,4,5, 11 and 14. Section 2 is the definition section ; section 4 the charging section and section 5 deals with the applicability of the Act. Section 11 provides for the "issue of notice for assessment" and section 14 is headed "profits escaping assessment". Section 2(2) defines accounting period and section 2(4) chargeable accounting period. Section 4 provides that in respect of any business to which the Act applies there shall be charged, levied and paid on the amount of taxable profit during any chargeable accounting period a tax equal to sixteen and two-thirds per cent. of the taxable profits, which in later years was fixed at a lower figure by the Finance Acts of 1948 and 1949. Under section 5 the Act applies to every business of which any part of the profits made during the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scaping of assessment in the two statutes, i.e., in section 14 of the former and in section 34(1) of the latter as it existed after the amendment of 1939, employ the same language, they must receive the same interpretation and not be construed differently. Section 34(1) of the Indian Income-tax Act as amended in 1939 provided : "34. (1) If in consequence of definite information which has come into his possession the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under-assessed, or have been assessed or too low a rate, or have been the subject of excessive relief under this Act the Income-tax Officer may, in any case in which he has reason to believe that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars thereof, at any time within eight years, and in any other case at any time within four years of the end of that year, serve on the person liable to pay tax on such income, profits or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "escaping assessment" apply equally to cases where a notice was received by the assessee but resulted in no assessment at all and to cases where due to any reason no notice was issued to the assessee and, therefore, there was no assessment of his income. It is also clear from the language of section 14 of the Act that when a notice is issued under that section all the requirements of the notice under section 11 apply and the Income-tax Officer has to proceed in the manner as if the notice was issued under section 11. Therefore, any advantage or relief which was available to the assessee under section 11 as to allowable deductions, deficiency etc., would be equally available, if the notice is issued under section 14. The Legislature has adopted the language of section 34(1) of the Income-tax Act in section 14 of the Act and it must therefore be considered to have adopted the construction of that section applied by the courts. Secondly this court has construed the words "escaping assessment" as used in section 34(1) of the Income-tax Act. The same words in the same context as employed in section 114 of the Act must have the same meaning. It was submitted that in the present case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the financial year 1947-48. Keeping this in view we may now see what changes were made by the Finance Act of 1948. By that Act the Act was continued for another one year and for the figure "1947" in the definition of chargeable accounting period in section 2(4)(a) the figure "1948" was substituted and the following proviso was added : "Provided that where an accounting period falls partly before, and partly after, the end of March, 1947, so much of that accounting period as falls before, and so much of that accounting period as falls after, the end of March, 1947, shall be deemed each to be a separate chargeable accounting period." By this proviso the accounting period or the previous year was split up in cases where it was not the preceding financial year or 1947-48. Thus the calendar year 1947 became two chargeable accounting periods of 3 months and 9 months, i.e., from January 1, 1947, to March 31, 1947, and April 1, 1947, to December 31 1947, and the same would apply to accounting period from Diwali to Diwali, i.e., 5 months and 7 months. In effect the whole year's profits thus became chargeable to business profits tax instead of only of a part of the year as was the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting period. In this view of the matter the contention that there is no provision in section 11(1) of the Act as to the chargeable accounting period as there is for the previous year in section 22(2) of the Income-tax Act is not well-founded. That the notion of the previous year of the accounting period is as much applicable to the Act as to the Indian Income-tax Act is shown by reference to Computation of Profits Rules in the Schedule to the Act. There the computation is related to the accounting periods. The previous year is shown applicable by reference to the rules under the Act by which some of the rules of the Income-tax Act are made applicable to the Act ; and some of the sections of that Act are made applicable by section 19 and by the rules under the Act. Amongst the rules applicable is rule 8 which inter alia related to allowances under section 10(2)(vi) of the Indian Income-tax Act. The first and the second provisos to this rule are as follows : "Provided that if the buildings, machinery, plant or furniture have been used by the assessee in his business for not less than two months during the previous year, the percentage shall be increased proportionately acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he refund within the period specified by section 50 : Adam Haji Dawood & Co. Ltd. v. Commissioner of Income-tax. The language of section 14 and particularly the words "may proceed to assess or reassess the amount of such profits to business profits tax" support the contention of the respondent that it applies to cases of no assessment due to notice not being given as to cases of no assessment after notice was given and proceedings proved ineffective. The words "assess" and "reassess" do not mean the same thing and signify two different cases. The former applies to cases where there was no assessment to tax due to notice not being given and the process has to commence with the issuing of such notice and the latter to cases where the assessment process is recommenced by issuing a second notice, the previous notice having proved abortive or resulting in under-assessment etc. Construing in this manner effect is given to the words "profits of any chargeable accounting period . . . have escaped assessment" and it also avoids the anomaly that some cases where there was no assessment can be dealt with under one section with a time limit as under section 14 but other equally clear cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escaped assessment for four years from the end of the chargeable accounting period in question. It was argued for the appellant that section 11(1) construed according to the plain meaning of the words used therein applies to original assessments and section 14 to assessments in which notice was given but due to any cause whatsoever the proceedings resulted in no assessment or in under-assessment. He referred to the words "require any person whom he believes to be engaged in any business . . . or to have been engaged during any chargeable accounting period or to be otherwise liable", and submitted that these words mean that if an Income-tax Officer has such belief in regard to a person who is engaged in any business or was engaged in any business during any chargeable accounting period in question he can issue a notice at any time without limitation of time requiring a return to be filed etc. In support counsel for the appellant relied upon two judgments, Gokuldas Ratanji Mandavia v. Commissioner of Income-tax, which was an appeal from East Africa, and on Telu Ram Jain & Co. v. Commissioner of Income-tax, a case decided by the Punjab High Court. In the former case a notice was iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is different from that of sections 11 and 14 of the Act. Section 72 was held not applicable because there would be two concurrent jurisdictions, one providing reasonable protection for the taxpayer and the other providing no protection which would be contrary to the provisions of section 71. According to the Privy Council it was necessary to restrict the words of section 72 to cases in which the machinery of section 59(1) having been operated no assessment resulted. The words of section 14 are entirely different. It applies to cases of profits escaping assessment and the words "escaping assessment" have already been interpreted under section 34 of the Income-tax Act and there is no reason why the same words occurring in a statute which is in pari materia should be given a different meaning in the two Acts. Further the difficulty which the Privy Council felt in regard to there being two jurisdictions, one giving protection to the assessee and the other not giving such protection, does not exist in the present case because the process of assessment under section 14 of the Act is exactly the same as it is where notice is given under section 11(1) of the Act and all the advantages whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 12(1) of the Act on November 30, 1953. The assessee firm then appealed to the Appellate Assistant Commissioner, who upheld the objection that the notice was invalid under section 14(1) of the Act. On appeal taken by the Commissioner of Income-tax, Bombay, the Appellate Tribunal concurred with the Appellate Assistant Commissioner. At the instance of the Commissioner, however, the Tribunal stated a case, and referred two questions for the decision of the Bombay High Court, which were as under : " (1) Whether the Income-tax Officer had jurisdiction to assess the assessee firm under the Business Profits Tax Act by issue of a notice under section 11(1) of the Business Profits Tax Act on January 12, 1953, in respect of the chargeable accounting period, November 13, 1947, to October 31, 1948, without having recourse to section 14 of the Business Profits Tax Act ? (2) If the answer to question No. 1 is in the negative, whether the business profits tax assessment could be considered to have been validly made ?" The High Court modified the first question by deleting its last 12 words. Both the questions were then answered by the High Court in the negative. The Commissioner of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to tax the assessee. The Tribunal, therefore, held that inasmuch as the notice in this case was issued in January, 1953, more than four years after October 31, 1948, when the chargeable accounting period came to an end, the notice and the assessment were barred by time. The Tribunal also pointed out that the intention of the Legislature could be gathered from the fact that though in section 15 of the Excess Profits Tax Act the limitation of five years was deleted by Act 22 of 1947, a similar amendment was not made in section 14 of the Act, which corresponds to section 15 of the Excess Profits Tax Act, though the Act was passed at the same time being Act 21 of 1947. Holding, therefore, that the profits which were not taxed at all and were never brought under assessment must be deemed to have "escaped assessment" because notice under section 11 was not issued in time, the Tribunal was of opinion that action could only be taken under section 14 of the Act within the time specified there. The Bombay High Court did not accept that the notice under section 11 had to be given before the end of the chargeable accounting period, but held that the two sections must be interpreted togeth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst this, the assessee firm adopts the reasons given by the Tribunal and the High Court, and adds that whereas under section 14 some definite information must be possessed by the Income-tax Officer before he can issue the notice, the Income-tax Officer has only to entertain a belief that business was carried on in the chargeable accounting period to enable him to serve the notice under section 11. The assessee firm, therefore, contends that it would be open to the Income-tax Officer to ignore section 14 altogether, and to issue a notice under section 11 in a case even after the expiry of a considerable time. The Commissioner contends that the liability to pay tax arises under section 4 of the Act, and it remains till the liability is discharged by payment of tax, and the Legislature has, therefore, advisedly left the power to the Income-tax Officer to assess the tax where there has been no proceeding to assess it, without imposing any limit as to time. Section 14, on the other hand, has been so framed that persons whose profits have been brought to assessment once should not be exposed to a double peril, except within the stated period. The two sections must be reconciled. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the chargeable accounting period in question serve on the person liable to such tax, a notice. There is no compulsion to file a return except in answer to a notice issued either under section 11 or section 14. There is no period comparable to the assessment year. Mr. Palkhivala attempted to bring in the conception of an "assessment year" into the Act by saying that the next chargeable accounting period could be taken to be the assessment year for the previous chargeable accounting period. When it was pointed out to him that where the chargeable accounting period of a business ended, say, on March 15 every year the last chargeable accounting period would be compressed to 15 days, he had no adequate answer. The Tribunal also stated that the chargeable accounting year was also the "assessment year". This cannot be correct, because section 11(1) speaks of the current as well as the back chargeable accounting periods, as will be explained in detail later. The question thus is whether a narrow meaning should be given to the words "profits which have escaped assessment" as denoting only those profits which by reason of a prior notice under section 11 were sought to be assessed but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes in the wake of the income-tax. That is to say, the assessability to profits tax follows the assessability to income-tax. The tax is laid on the taxable profits accruing within a stated period which may include not more than four accounting periods corresponding either wholly or partly to the previous year under the Income-tax Act. The chargeability to income-tax is a condition precedent to the chargeability to profits tax, but not every business which pays income-tax necessarily pays business profits tax. The Act, however, does not prescribe a period comparable to the assessment year under the Indian Income-tax Act. It does not lay down any term within which the assessment should be completed. The short question thus is whether in section 11 of the Act a limitation corresponding to the limitation contained in section 14 must necessarily be read. It seems to be agreed on all hands, and it was not denied at the Bar before us that if section 11 is to be interpreted according to its own terms, then no such limitation can be read in it. The Tribunal and the High Court resort to section 14 to do so. It is always a serious matter to read into a section what the Legislature has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for time till the end of July. On June 15, 1953, the Regional Commissioner wrote to inform him that he was proceeding to assess him and impose penalties on the basis of such information as had been submitted. These assessments were made on June 18, but were dated June 26 apparently to give the taxpayer more time in which to pay. Under section 59 of the East African Income-tax (Management) Act, 1952, it was provided : "59. (1) The Commissioner may, by notice in writing, require any person to furnish him within a reasonable time, not being less than thirty days from the date of service of such notice, with a return of income and of such particulars as may be required for the purposes of this Act with respect to the income upon which such person appears to, be chargeable." Under the third sub-section of that section, a duty was laid upon every person to give notice to the Commissioner before October 15 in the year following the year of income that he was so chargeable, where no notice had been served under sub-section (1) and no return had been furnished within nine months of the close of the year of account. Then followed two sections, which need to be quoted partly. Section 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires to operate it at any time. One would expect an opportunity to make a return to be a condition precedent to assessment. This is supported by the provisions for personal allowances in Part VI of the Act. If the respondent is right any person can be assessed without having any such opportunity. There would be two concurrent jurisdictions, one providing reasonable protection for the taxpayer and the other providing no protection quoad the original assessment, apart from a right to appeal. Such a construction seems to their Lordships inconsistent with the general and mandatory provisions of section 71. That section is providing how all original assessments are to be made. Section 72 deals, inter alia, with additional assessments, with cases in which, owing presumably to subsequent information, the Revenue desires to reopen what had apart from section 72 been settled. Having regard to the wording of section 71 it seems to their Lordships necessary to restrict the words as to assessing for the first time in section 72 to cases in which, the machinery of section 59(1) having been operated, no assessment has been made. So, far as the taxpayer is concerned, after he had made his retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the service of a notice under section 22(2). The liability to assessment is a risk to which every person in British India entitled to income is liable, and I cannot see why the process of assessment has not been just as much escaped by a person who receives no notice under section 22(2) as by a person who receives such a notice which proves in fact ineffective. It seems to me that a person who receives no notice under section 22(2) has escaped assessment, although, through no fault of his own, the process of assessment has never been set in motion. " The assessee also relied upon Commissioner of Income-tax v. Ved Nath Singh, where Roberts, C. J., Mya Bu and Dunkley, JJ., observed : " We are of opinion that section 34 is applicable to cases in which either no assessment at all has been made upon the person who received the income, profits or gains liable to assessment, or, where an assessment has been made in the course of the year, but some portion of the income, profits or gains of such assessee for some reason or other has not been included in the order of assessment ; such income is income which has 'escaped assessment' in the year, and falls within the ambit of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the language employed and the general scheme of the provisions lead to. Before doing so, I shall discuss one other extraneous consideration called in aid by both the Tribunal and the High Court. The Act followed the Excess Profits Tax Act, 1940, which provided for the levy of tax on excess profits made during the chargeable accounting periods within the term beginning on the first day of September, 1939, and ending on the thirty-first day of March, 1941. By succeeding Finance Acts, the year 1941 was changed to 1942, 1943, 1944, 1945 and 1946. Thereafter came the Act. Sections 13 and 15 of the Excess Profits Tax Act correspond respectively to sections 11 and 14 of the Act with the difference that the limitation in section 15 was five years. By Act 21 of 1947 (which immediately preceded the Act) this period of limitation was removed, by deleting retrospectively the words "within five years of the end of the chargeable accounting period in question" from section 15 of the Excess Profits Tax Act. Thus, by the amendment there was no limitation for bringing to tax profits which had escaped assessment, and it was so held by Falshaw and Kapur, JJ., in Telu Ram Jain & Co. v. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt is not the only explanation, and it cannot be accepted. If the intention of the Legislature can be gathered in two different ways, it is sheer speculation to say which is the true intention. As said earlier, it is always inadvisable to go by a supposed intention of the Legislature and construe the words of the statute in the light of that supposed intention. The intention must be gathered from the words of the section in which the Legislature has chosen to express its intention and not vice versa. I am accordingly of the view that this ground is not valid. The High Court and the Tribunal read section 11(1) somewhat differently. According to the Tribunal, the notice under that section must issue before the end of the chargeable accounting period, and according to the High Court, within four years from the end thereof. There is nothing in the section which justifies any of these two readings. Three classes of persons are there mentioned. They are (a) persons believed to be engaged in any business, (b) persons believed to have been so engaged in any chargeable accounting period, and (c) persons believed to be otherwise liable to business profits tax. The first two categories clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped assessment ", "under-assessment" or "excessive relief." The last two categories ex facie refer to an assessment after a prior assessment. The question thus is whether the words "escaped assessment" refer also to an assessment after a prior assessment. The word "assessment" was explained by the Judicial Committee in Commissioner of Income-tax v. Khemchand Ramdas. It sometimes means the computation of income or profits, sometimes the determination of the amount of tax payable, and, sometimes, the whole procedure laid down in a taxing Act for imposing the liability on an assessee. In section 14 where the words "escaped assessment" are used, it means that there was a determination of the amount of the tax payable but some profits escaped that process either wholly or partly. Profits cannot be said to have escaped assessment when there are proceedings afoot and assessment is being made. In my opinion, they cannot be said to have escaped assessment when they are exposed to assessment and assessment has yet to be done. It is to be noticed that section 14 requires "definite information" in the possession of the Income-tax Officer and to "discovery" by him of the fact of escaped asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur years which ex facie could not have been intended, as one section depends upon the entertainment of belief and the other section requires definite information leading to a positive discovery. Read in this way, it is clear that section 11 effectuates the assessment, levy and collection of tax from persons believed to be liable, while section 14 enables a reopening of cases where after an assessment there is discovery that profits have escaped assessment due to one reason or another. The use of the words "escaped assessment" in the context of the Act has reference only to those cases where profits of a business were brought to process once but for some reason some profits escaped assessment or were under-assessed or received excessive relief. The insistence upon definite information leading to such a discovery before action is taken under section 14, also points in the same direction. " Definite information " denotes that there is something discovered which can demonstrate the falsity of something done previously. The existence of belief shows the possibility of there existing some profits which need to be taxed. Whereas " definite information " points to a state of affairs in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no distinction between sections 11 and 14 and to render meaningless the fiction to be found in the last words of section 14. For profits which have never been brought to assessment, there would be two notices possible in some cases, one under section 11(1) and the other under section 14, one requiring only the entertainment of a belief as to a certain state of things and the other requiring definite information and discovery that profits have escaped assessment. These two conditions cannot co-exist in the same case. Harmonious construction requires that there should arise no impossible situations. Such situations are avoided if the operation of section 11 is confined to those cases where there has been no prior assessment and the operation of section 14 to those cases where after a prior assessment there is an escaped assessment, under-assessment or excessive relief. For the subsequent and reopened assessment there is a limit of four years, but for the assessment for the first time there is no limit. I have looked into the rules framed under the Act. No doubt, rule 50 speaks of a period during which refunds can be claimed, and it may be argued that this rule has to be interprete ..... X X X X Extracts X X X X X X X X Extracts X X X X
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