Full Judgment Text & Judicial Ruling

1964 P T D 406

1964 P T D 406

[Supreme Court India]

Present : S. K. Das, Actg. C. J., K. Subba Rao, Raghubar Dayal, N. Rajagopala Ayyangar and J. R. Mudholkar, JJ

GHANSHYAMDAS

Versus

REGIONAL ASSISTANT COMMISSIONER OF SALES TAX NAGPUR AND OTHERS

Civil Appeals Nos. 101 and 102 of 1961, decided on 16th August 1963.

Re‑assessment‑"Escaped assessment"‑Whether income. escapes assessment where no assessment was made at all, or assessment pro ceedings are pending‑C. P. & Berar Sales Tax Act (XXI of 1947), Ss. 11 (1) to (4) & 11‑A‑[Indian Income‑tax Act, 1922, S. 34].

The rule laid down in judgments relating to income‑tax that the words "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, is applicable to assessments of turnover under the C. P. & Berar Sales Tax Act, 1947.

If assessment proceedings have been initiated, income cannot be said to have escaped assessment until a final order of assess ment is passed on the pending proceedings.

Regional Assistant Commissioner of Sales‑tax, Nagpur Region v. Ghanshyamdas Chhotelal (1958) 9 S T C 179 reversed.

Bisesar House v. State of Bombay (1958) 9 S T C 654; Commis sioner of Income‑tax v. Narsee Nagsee & Co. (1960) 40 I T R 307; Commissioner of Income‑tax v. Pirojbal N. Contractor (1937) 5 I T R 338; Firm Sheonarayan Matadin v. Sales‑tax Officer, Raipur (1956) 7 S T C 623; In re Lachhiram Basantlal, (1931) I L R 58 Cal. 909; Maharajadhiraj Sir Kameshwar Singh v. State of Bihar (1959) 37 I T R 388; Maharaj Kumar Kamal Singh v. Commissioner of Income‑tax (1959) 35 I T R 1; Rajendranath Mukherjee v. Commis sioner of Income‑tax (1934) 2 1 T R 71 (P C) ; Ramkrishna Ramnath v. Sales‑tax Officer, Nagpur (1960) 11 S T C 811 and State of Madras v. S. Balu Chettiar (1956) 7 S T C 519 ref.

J. M. Thakar, H. M. Thakar O. C. Mathur, J. B. Dadachanji and Ravinder Narain of M/s. J. B. Dadachanji & Co. for Appellant (in both the appeals.)

B. Sen, Senior Advocate (I. N. Shrof with him) for Respon dents (in both the appeals.)

JUDGMENT

SUBBA RAO J.‑-----These two appeals by certificate raise the question of the true interpretation of the meaning of the expression "escaped assessment" in section 11‑A of the Central Provinces and Berar Sales Tax Act, 1947 (XXI of 1947), herein after called the Act.

The facts in Civil Appeal No. 101 of 1961 are as follows The appellant is the manager of a joint Hindu family firm carrying on business in Bidis. He is registered as a dealer under section 8 of the Act. Every registered dealer under the Act is required to furnish quarterly returns of his turnover within one month from the end of the quarter. For the year 1949‑50, i. e., for the period from October 22, 1949, to November 9, 1950, he submitted a return of his turnover on October 5, 1950, for one quarter only and made a default in respect of the other quarters. The Assistant Commissioner of Sales Tax, Nagpur, issued a notice to the appellant on August 13, 1954, in Form No. XI under section 11 (1) and (2) of the Act in respect of the turnover of the firm for the said period. The appellant thereafter filed the returns for the three quarters in respect of which he had made default, but in the assessment proceedings he contended, inter alia, that the Assistant Commissioner could not assess his escaped turnover as he could only do so within three years from the expiry of the period in respect whereof his turnover had escaped assessment. The Sales Tax Commissioner rejected the said contention, proceeded with the assessment and determined the tax liability at Rs. 15,846. Aggrieved by the said order, the appellant filed a petition under Article 226 of the Constitution in the High Court of Judicature at Nagpur mainly on the ground that the proceedings before the Sales Tax Commissioner were barred by time under section 11‑A of the Act.

Civil Appeal No. 102 of 1961 is in respect of assessement of sales‑tax on the turnover of the appellant for the year 1950‑51. The appellant had not filed any return for the whole year. The Assistant Commissioner of Sales Tax, Nagpur, served a notice on the appellant on October 15, 1954, under section 11 (4) of the Act. The appellant filed his returns and produced the account books under protest and also raised objections that the assessment proceedings were barred by limitation under section 11‑A of the Act. The Assistant Commissioner rejected his plea of limitation and determined his tax liability at Rs. 16,537‑5‑0. The appellant filed another petition under Article 226 of the Constitution in the said High Court for a similar relief.

Both the petitions were heard together by Kotval J. The learned Judge, following the decision of a Division Bench of that Court in Firm Sheonarayan Matadin v. Sales Tax Officer, Raipur ((1956) 7 S T C 623), held that, as the notices were issued beyond three years from the expiry of the relevant periods, the Sales Tax Commissioner had no jurisdiction to make the assessments. On that ground he quashed the said assessments.

The respondent filed Letters Patent Appeals to a Division Bench of the said High Court. On the formation of the State of Madhya Pradesh, the above appeals were transferred to the Madhya Pradesh High Court and were heard by a Division Bench consisting of Hidayatullah C. J. and Choudhuri J. The Division Bench held that section 11‑A of the Act could apply only to a case where there was a final assessment and that in the instant cases the first assessment proceedings were pending and, therefore, the said section had no application thereto. In the result, by a common judgment, they set aside the orders of Kotval, J. Hence the present appeals.

Mr. J. M. Thakar, learned counsel for the appellant, raised before us the following four points : (1) The expression "escaped assessment" in section 11‑A of the Act would apply also to a case where there was no assessment at all. (2) Even if the first assess ment proceedings were pending before the appropriate authority the said authority could only make the assessment within three years from the date of the commencement of the said proceedings, which, according to him, would start from the date of issue of notice by the said authority in the manner prescribed by the Central Pro vinces and Berar Sales Tax Rules, 1947, hereinafter called the Rules. (3) In the present case no proceedings in respect of the said assessments were pending before the said authority. And (4) as only a part of the fourth quarter in Civil Appeal No. 102 of 1961, falls within three years, the proceedings in respect of the said entire quarter would be barred under section 11‑A of the Act and, in any view, only the turnover escaped in respect of the period between October 16, 1951, and October 31, 1951, could be assessed.

Mr. B. Sen, learned counsel for the respondent, controverted the said arguments and contended that in the case of registered dealers there was a statutory obligation to make a return and, therefore, the proceedings must be deemed to be pending from the date an assessee was bound to make his return and that as the proceedings in the present case were pending by statutory force, there was no scope for invoking the provisions of section 11‑A of the Act. In Civil Appeal No. 10 2 of 1961 he raised the point that a calendar year in section 11‑A must be calculated from January to December and if so calculated no part of the fourth quarter would be beyond three years, but he did not pursue the line of argument.

The main question in the appeals is the true construction of the provisions of section 11‑A of the Act. The material provisions thereof may be set out. They read:

"Section 11‑A‑(1) If in consequence of any information which has come into his possession, the Commissioner is satisfied that any turnover of a dealer during any period .... has escaped assessment .the commissioner may at any time within three calendar years from the expiry of such period proceed in such manner as may be prescribed to assess . the tax payable on any such turnover ..".

Under this section if the turnover of a dealer during any period has escaped assessment, the Commissioner may at any time within three calendar years from the expiry of such period proceed in the manner prescribed to assess the tax payable on the said turnover. The crucial expression for the present purpose is "escaped assessment". What does it mean ? Does it include, as learned counsel for the appellant contends, a case where no assessment has been made at all or, as learned counsel for the respondent contends, take in only the post‑assessment detection of evasion of tax? This problem has received the attention of Courts in different contexts.

In Commissioner of Income‑tax, Bombay v. Pirojbal N. Contractor ((1937) 5 I T R 338) the words "escaped assessment" in the Indian Income‑tax Act were defined. It was held therein that the said words were wide enough to include cases where no notice under section 22 (2) of the Income‑tax Act had been issued to the assessee and therefore his income had not been assessed at all under section 23 thereof. The said view has been assumed to be correct by this Court in Maharaj Kumar Kamal Singly v. Commis sioner of Income‑tax ((1959) 35 I T R 1 (S C)) and Maharajadhiraj Sir Kameshwar Singh v. State of Bihar ((1959) 37 I T R 388) and extended to cover a case where the first assessment was made in due course but a part of the income escaped therefrom. This Court in Commissioner of Income‑tax v. Narsee Nagsee & Co. ((1960) 40 I T R 307, 313 (S C)) construing the provisions of section 14 of the Business Profits Tax Act, 1947, reviewed the law on the subject and came to the following conclusion:

"All these cases show that the words 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 true that the said decisions were given with reference to either section 34 (1) of the Income‑tax Act or section 14 of the Business Profits Tax Act, but so far as the present enquiry is concerned the said sections are in pari materia with section 11‑A of the Act. In construing the meaning of the expression "escaped assessment" to section 11‑A of the Act there is no reason why the said expression should bear a more limited meaning than what it bears under the said two Acts. All the three Acts are taxing statutes and the three relevant sections therein are intended to gather the revenue which has improperly escaped. A Division Bench of the Madras High Court in State of Madras v. Balu Chettiar ((1956) 7 S T C 519, 522), following the decision of a Full Bench of that Court, held that where an assessee did not file at any time a return of of his turnover for a year, and, therefore, there was no assessment made, the turnover escaped assessment. It was observed therein :‑

"Whether it was a case of omission or of deliberate conceal ment on the part of the assessee, he did not submit any return. It was his default that led to the escape of the turnover for 1951‑52 from assessment to the tax lawfully due. It was the whole of the turnover for that year that escaped assessment."

It is not necessary to multiply citations. We, therefore, hold that the expression "escaped assessment" in section 11‑A of the Act includes that of a turnover which has not been assessed at all, because for one reason or other no assessment proceedings were initiated and therefore no assessment was made in respect thereof.

The next question is whether a turnover could be said to escape assessment if proceedings in respect of the first assessment were pending and no final order of assessment was made therein.

In In re : Lachhiram Basantlal ((1930) I L R 58 Cal. 909), Rankin C. J. tersely observed:

"Income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessee's income which have not yet terminated in a final assessment thereof."

This dictum laid down a clearly understandable principle. How can an escape of a turnover from assessment be predicated before the assessment is completed ? The Judicial Committee in Rajendranath Mukherjee v. Commissioner of Income tax ((1934) 2 I T R 71) relied upon his dictum in rejecting the contention to the contrary raised by the assessee before them, and endorsed the said view. That decision turned upon the interpretation of section 34 of the Indian Income‑tax Act. There, Burn & Co., an unregistered firm, made a return of their total income on January 13, 1928. On February 25, 1928, the Income‑tax Officer made an assessment on Martin & Co., the partners whereof purchased the business of Burn & Co., in respect, of the combined incomes returned by Martin & Co. and Burn & Co. The High Court held that under the Income‑tax Act the income of the said firm could not be aggregated and that the income of each must be separately assessed. Thereafter, on November 8, 1930, an assessment was made on Burn & Co. on their income as returned by them on January 13, 1928. It was contended that under the Income‑tax Act it was not competent to make any assessment to tax after the expiry of the year for which the tax was charged except in the cases provided for under section 34 of the Income‑tax Act. It was held by the Judicial Committee that the Income of Burn & Co. had not escaped assessment within the meaning of section 34 of of the Income‑tax Act. It was observed therein:

"If an assessment is not made on income within the tax year then that income, they submit, has escaped assessment within that year, and can be subsequently assessed only under section 34 with its time limitation. This involves reading the expression `has escaped assessment' as equivalent to `has not been assessed.' Their Lordships cannot assent to this reading. It gives too narrow a meaning to the word `assessment' and too wide a meaning to the word `escaped'. That the word `assess ment' is not confined in the statute to the definite act of making an order of assessment appears from section 66, which refers to `the course of any assessment.' To say that the income of Burn & Co., which in January 1928, was returned for assessment and which was accepted as correctly returned, though it was erroneously included in the assessment of Martin & Co has `escaped' assessment in 1927‑28 seems to their Lordships an inadmissible reading. The fact that section 34 requires a notice to be served calling for a return of income which has escaped assessment strongly suggests that income which has already been duly returned for assessment cannot be said to have `escaped' assessment within the statutory meaning."

As section 34 of the Income‑tax Act had no application and as there was no other time‑limit prescribed or necessarily implied under that Act, it held that the assessment was not out of time. This decision is a clear authority for the position that if a return was duly made, the assessment could be made at any time unless the statute prescribed a time‑limit. This can only be for the reason that the proceeding; duly initiated in time will be pending and can, therefore, be completed without time‑limit. A proceeding is said to be pending as soon as it is commenced, and until it is concluded. On the said analogy, the assessment proceedings under the Sales Tax Act must be held to be pending from the time the said proceedings were initiated until they were terminated by a final order of assessment. Before the final order of assess ment, it could not be said that the entire turnover or a part thereof of a dealer had escaped assessment, for the assessment was not completed and, if completed, it might be that the entire turnover would be caught in the net.

But the more difficult question is, when do the assessment proceedings under the Act in respect of a registered dealer com mence and when do they terminate? While learned counsel for the appellant contends that the said proceedings under the Act start only after the appropriate authority issued a notice under section 10 (1) or section 11 (2) or section 11 (5) of the Act, learned counsel for the respondent contends that whatever may be said in the case of an unregistered dealer, in the case of a registered dealer the proceedings commence from the date fixed in the registration certificate within which the said dealer has a statutory obligation to furnish his return.

To appreciate the rival contentions it is necessary to notice the relevant provisions of the Act and the Rules. Under section 4 of the Act, every dealer whose turnover exceeds the specified limits prescribed under subsection (5) thereof shall be liable to pay tax in accordance with the provisions of the Act on all sales effected by him. Under section 8 no dealer shall, while being liable to pay tax under the Act, carry on business as a dealer unless he has been registered as such and possesses a registration certificate. Part 1V of the Rules prescribes the manner in which a dealer shall get himself registered under the Act. Under section 8. if the dealer satisfies the requirements prescribed in the regard, the Sales Tax Officer grants him a registration in Form II, which specifies the particulars, such as the location off the business, the nature of the business, etc. The said officer enters the name of every dealer registered in a ledger maintained under section 9 and issues copies of registration certificates for exhibition in the places of their business. Under, one of the columns in that Form the period for which and the date on which the return has to be furnished has to be mentioned. A list of such registered dealers is also published under rule 17. Under the Act, no dealer, who is liable to pay tax thereunder, shall carry on business unless he has been registesed as such and possesses a registration certificate. It is therefore, clear that registration is mainly conceived in the. interest of revenue, to facilitate collection of taxes and to prevent the evasion thereof.

Next we come to the provisions dealing with the manner in which a registered dealer will be assessed to tax. Under section 10 every registered dealer shall furnish such returns by such dates to such authority as may be prescribed. Rule 19 prescribes the manner in which such a return has to be furnished. Thereunder every registered dealer shall furnish to the appropriate Sales Tax Officer quarterly returns within one calendar month from the expiry of the quarter to which the return relates and in case if he has more than one place of business in the province, he shall submit a consolidated return for all the places of business and also a return separately for each of the places of business within two calendar months from the said date. It also says that each of such returns submitted shall be accompanied by a treasury receipted chalan in Form V in respect of the tax due according to the return. In short he has to file a return or returns in, the prescribed form within the prescribed time and also pay the tax payable by him along with the returns. Under section 11 (1) if the Commissioner is satisfied, that the return furnished by the dealer in respect of a period is correct and complete, he assesses the dealer on it. If he does not accept it, under clause (2) thereof he shall serve the dealer with a notice appointing the place and date for enquiry and after enquiry he shall assess him to tax under rule 3. Rule 31 prescribes that the notice under section 11 (2) shall be served on the dealer in Form XI. It may be stated that the mention of subsection (1) in that rule appears to be a mistake for no notice is contemplated under that subsection. If the register ed dealer fails to furnish his return under section 10 (1) of the Act in the manner prescribed within the time prescribed under sub section (3) thereof, the Commissioner, after giving a reasonable opportunity of being heard, may impose on him by way of penalty a sum not exceeding one‑fourth of the amount of the tax which may be assessed on him under section 11. Rule 32, which is an omnibus provision, says that in such an event, a notice In Form III has to be issued on him. Under subsection (4) of section 11, if a registered dealer makes the defaults mentioned therein the Commissioner shall, in the prescribed manner, assess him to the best of his judgment. Rule 32 also governs the procedure for making the said assessment. Rule 33 prescribes the maintenance of a register of cases instituted under section 11. Rule 34 gives the form of the order to be made and rule provides for the preparation of assessment record.

At this stage an argument advanced by learned counsel for the appellant, namely, that under section 10 (1) of the Act the Commissioner has to give notice in the prescribed manner to a registered dealer, may be considered. Section 10 (1) reads:

"Every such dealer as may be required so to do by the Commissioner by notice served in the prescribed manner and every registered dealer shall furnish such returns by such dates and to such authority as may be prescribed."

The word "dealer", unless there is anything repugnant in the subject or context, means any person who carries on the business of selling or supplying goods and in its wide meaning it certainly takes in both a registered dealer and a dealer who has not registered himself under the Act. The question, therefore, is whether there is anything repugnant in the subject or context of section 10 to limit the word "dealer" in the first part of sub section (1) to a dealer other than a registered dealer. Sub section (1) is in two parts : the first part speaks of a dealer and the second part of a registered dealer and the subsection says that both of them shall furnish the returns, If the dealer in the first part includes a registered dealer, the mention of "every registered dealer" in the second part will become redundant, for a registered dealer is included in the expression "dealer". A construction which would attribute redundancy to a Legislature shall not be accepted for compelling reasons. This redundancy disappears if the expression "dealer" in the first part excludes a registered dealer mentioned in the second part. This legislative intention further made clear by the provisions of sections 14 and 17 of the Act. Section 14 imposes a duty on every registered dealer or every dealer on whom notice has been served to furnish returns under subsection (1) of section 10 to keep a true account of the value of goods bought and sold by him ; and section 17 imposes a duty on the said two categories of dealers to inform the prescribed authority regarding changes of business. The distinction between the two categories of dealers is maintained not only in section 10 but also in sections 14 and 17. It is, therefore, clear that under subsection (1) of section 10, the Commissioner need not issue a notice to a registered dealer for furnishing the relevant returns, but a statutory obligation is imposed on the said dealer to do so by such dates and to such authority as may be prescribed.

Now coming to the case of a dealer who did not register himself under the Act, the position is different. There is no statutory obligation cast on him by any section to submit a return. His is really a case of evasion from his obligation to get himself registered under the Act. Section 10 (I) enables the Commissioner to issue a notice to him requiring him to furnish a return in the prescribed manner. In his case also the same procedure as prescribed in sections 10 (3), 11 (1) and 11 (2) has to be followed in the matter of assessment. But subsection (5) of section 11 introduces a stringent provision to prevent evasion of tax. Under that subsection if upon information the Commissioner is satisfied that any such dealer, who is liable to pay tax under the Act in respect of any period, has wilfully failed to apply for registration, he shall at any time within three calendar years from the expiry of such period, after giving the dealer a reasonable opportunity of being heard, proceed in the manner as may be prescribed to assess to the best of his judgment the amount of tax due from the dealer in respect of such period and of subsequent periods. He may also direct the dealer to pay, by way of penalty, in addition to the amount of tax so assessed a sum not exceeding 1 times that amount. So in the case of a dealer liable to pay tax, but who has failed to register himself under the Act, the Commissioner may issue a notice to him under rule 22 and assess him under section 11 ; and in the case of evasion, on subsequent information, the Commissioner can assessee him within three calendar years from the expiry of…

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