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Petitioner: COMMISSIONER OF INCOME-TAX, BOMBAY CITY VS Respondent: NARSEE NAGSEE & CO.
Court Name: Supreme Court of India Judge(s): M. Hidayatullah, Kapur, S. K. Dass Title: COMMISSIONER OF INCOME-TAX, BOMBAY CITY vs NARSEE NAGSEE & CO. Case No.: Civil Appeal No.319 of 1958 Date of Judgment:1960-05-06 Reported As: 1991 PTD 415 Result: Appeal dismissed
JUDGMENT
JUDGMENT KAPUR, J.---This is an appeal against the judgment and order of the High Court of Bombay passed in Income-tax Reference No. 31 of 1956. The appellant is the Commissioner of Income-tax and the respondent is a firm carrying on business in Bombay and the question for decision arises under the Business Profits Tax Act (XXI of 1947) hereinafter referred to as the Act. The assessm ent relates to the year of assessment 1949-50 and the chargeable accounting period was from November 13, 1947, to October 31. 1948. On January 12, 1953, the Income-tax' Officer issued a notice on the respondent under section 11(l) of the Act in respect of the abovementioned chargeable accounting period which was served on the respondent on January 21, 1953. The respondent 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?"
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The High Court modified the first question by deleting the words "without having recourse to section 14 of the Business Profits Tax Act" and answered both the questions in the negative. The Income-tax Appellate Tribunal had held that as under section 14 of the Act the period of limitation commenced from the end of the chargeable accounting period in question the notice under section 11(1) had to be issued before that period. The High Court did not accept this view. It held that both sections 11 and 14 had to be read together and the mention of four years in section 14 was an important indication of the period of limitation in regard to the issue of notice under section 11 also and further if profits which escaped assessm ent, as in the present case, could only be taxed within four years of the end of the chargeable accounting period because of section 14 of the Act, then inferentially the escape of assessm ent must be at some time anterior to the period mentioned in section 14 and as on the present case the notice had been issued for four years after the close of the chargeable accounting period the notice under section 11 was not valid. Against this order the appellant has come in appeal to this Court on a certificate of the High Court. It is submitted by the appellant that though sections 11 and 14 may have to be read together, they apply to different sets of circumstances ; section 11 applies to a case where the Income-tax Officer requires any person whom he believes to be engaged in any business to which the Act applies or to have been so engaged during any chargeable accounting period and calls upon him to furnish a return with respect to such chargeable accounting period; and section 14 applies to a case where, in consequence of definite information possessed by him, the Income-tax Officer discovers in regard to any chargeable accounting period that the profits of any business have escaped assessm ent. In other words section 11 applies to original assessments after the first notice calling upon an assessee to make a return in regard to the profits of any chargeable accounting period and section 14 applies where such notice was issued, and it either ended in no assessment at all or there was under-assessm ent etc. According to the argument of the appellant therefore there is no period of limitation prescribed by the Act for the first notice to furnish a 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 the chargeable accounting period in question. The provisions of the Act which arise for consideration are sections 2, 4, 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 assessm ent ". 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 chargeable accounting period is chargeable to income-tax under sections 4(1)(b)(i) and (ii) or sub-clause (c) of that subsection. Sections 11(1) and 14 of the Act may now be quoted:--- "11. (1) The Income-tax Officer may, for the purposes of this Act, require any person whom he believes to be engaged in any business to which this Act applies, or to have been so engaged during any chargeable accounting period, or to be otherwise liable to pay business profits tax, to furnish within such period, not being less than forty-five days from the date of the service of the notice, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) with respect to any chargeable accounting period specified in the notice the profits and
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taxable profits of the business or the amount of deficiency, if any, available for relief under section G." "14. If in consequence of definite information which has come into his possession, the Income-tax Officer discovers that profits of any chargeable accounting period chargeable to business profits tax have escaped assessm ent, or have been under-assessed, or have been the subject of excessive relief, he may at any time within four years of the end of the chargeable accounting period in question serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section 11, and may proceed to assess or reassess the amount of such profits liable to business profits tax, and the provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section." These sections lead to the conclusion that every business to which the Act applies is liable to the risk of being assessed to business profits tax and it is well settled that income escapes assessment when the process of assessm ent has trot been initiated as also in a case where it has, resulted in no assessm ent after impletion of the process of assessment. In our opinion, the High Court was right when it held that sections 11 and 14 of the Act have to be read together. The Act and the Indian Income-tax Act are both taxing statutes operating on the same source, i.e., profits of business which is similarly defined in the two statutes. If the provisions relating to escaping of assessm ent 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 assessm ent 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, an m 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 under subsection (2) of section 22, and may proceed to assess or reassess such income, profits or gains and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection.." The words "escaping income" in the Indian Income-tax Act were interpreted as being applicable to a case where person received notice under section 22(2) of the Income-tax Act but the process ended in no assessm ent as to a case where there was no assessment at all because no notice was issued under section 22(2) of the Income-tax Act; in other words it includes' cases where the process of assessm ent did not commence because no notice was given under section 22(2) of the Income-tax Act due to inadvertence, oversight, negligence or any other cause as to cases where such notice proved abortive or ineffective. Both are cases of escaped assessment: Commissioner of Income-tax v. Pirojbai N. Contractor ((1937) 5 I T R 3381. In this Court these words were considered and interpreted in Maharaj Kumar Kamal Singh Commissioner of Income-tax[(1959) 35 I T R 8]. They were interpreted to cot prise a case of no notice being given for the assessment and notice being given and resulting in no assessment. Gajendragadkar, J. Observed:-- "We see no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted. In our opinion, even in a case where a return has been submitted, if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case
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where the said part of the income has escaped assessment. The appellant's attempt to put a very narrow and artificial limitation on the meaning of the word 'escape' in section 34(l)(b) cannot therefore succeed." This passage was quoted with approval in another case by this Court in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar ((1959) 37 ITR 3881 (per Hidayatullah, J.). Chatturam Horilram Ltd. v. Commissioner of Income-tax ((1955) 27 ITR 7091 was a somewhat different case. There assessm ent proceedings had been taken but had failed to result in a valid assessment owing to some lacuna other than that attributable to the assessing authorities and it was held to be a case of chargeable income escaping assessment and not a case of mere non-assessment of income- tax. 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 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 it section 14 of the Act must have the same meaning. It wits submitted that in the present case a different meaning should be given because, although in section 34 of the Indian Income-tax Act and section 14 of the Act, the words "escaping assessment" are used, the language of section 11(1) of the Act and of section 22(2) of the Indian Income-tax Act is different in so far as in the former the notice requires an assessee to furnish a return of the income of the previous year and in the later, he has to furnish the particulars with respect to any chargeable accounting period of the profits of the business. It becomes necessary therefore to examine the provisions of the Act as to the chargeable accounting periods and other provisions relevant thereto. In section 2(2) of the Act "accounting period" in relation to any business means any period which is or has been determined as the previous year for the purpose of the Indian Income-tax Act. Under section 2(4) of the Act "chargeable accounting period" means:-- "(a.) any accounting period falling wholly within the term beginning on the first day of April, 1946, and ending on the thirty-first day of March, 1947; (b) where any accounting period falls partly within and partly without the said term, such part of that accounting period as falls within the said term." According to this definition, therefore where the previous year was the financial year 1946-47 then the accounting period and the chargeable accounting period would be coincident, i.e., they would both be 1946-47; but if the previous year was the calendar year or the Diwali year the accounting periods of nine months in the former case, i.e., April 1, 1946, to December 31, 1946 and 7 months in the latter, i.e. April 1, 1946, to November 1, 1946, would be the chargeable accounting periods for the purposes of the Act. The extent of the periods will vary according to the determination of the previous year under the Income-tax Act. It might be a full year or less which appears to be the reason for adopting the nomenclature which has been adopted in the Act instead of the previous year. It would be incongruous to call a period of less than a year as the previous year. For the chargeable accounting periods mentioned above, the business profits tax would be charged, levied and paid in the financial year 1947-48 at the rate mentioned in section 4 of the Act on every
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business falling under section 5. But for all these periods the assessment year would 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 of the previous year was split up in cases where it was not the preceding financial year or 19.17-48. 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 case for the financial year 1947-48. Other changes made by the Finance Act of 1948 were in section 4 where under section 10 of the Finance Act the rate of tax for the chargeable accounting period up to the end of March, 1947, remained at 16-2/3 percent., but for the chargeable accounting period after that date was to be fixed by the annual Finance Act and by section 11(1) of that Act the rate was fixed ten percent. Thus business profits tax rates also were to be fixed by the annual Finance Act as were the income-tax rates. Then came the Finance Act of 1949 which continued the Act for another year and under section 4 fused the rate chargeable in respect of any chargeable accounting period after March 31, 1948. The Finance Act of 1950 did not continue the Act and it thus came to an end except for liabilities which had already arisen or accrued under the Act. As the tax under the Act is charged, levied and paid on the taxable profits of a chargeable accounting period but assessm ent is in respect of the financial year in which the Act operates it is not an unreasonable inference that notice for the chargeable accounting period must issue in the financial year following that period. No difficulty would arise in regard to accounting periods which coincide with previous years, i.e., 1946-47, 1947-48 and 1948-49. For these years the notice will issue in the following chargeable accounting period which again will be the financial year in which the Act would be operative. But the question is how the proviso to section 2(4) added by the Finance Act of 1948 would affect this rule. Taking a calendar year 1946 as the accounting period, for the financial year 1947-48 the chargeable accounting period would be the nine months period from April 1, 1946 to December 31, 1946, and notice under section 11(1) of the Act must issue in the financial year because the tax is leviable and assessment is made for the year beginning April 1, 1947 when the Act came into force and remained operative during the year 1947-48. After the Finance Act of 1948 the accounting year, if it was a calendar year, became divided into two parts and both were assessable in the assessm ent year beginning with April 1, 1948, and therefore, notice had to be given in the financial year 1948-49. Similarly in the financial year 1949-50 notice would have to be given in that year for the preceding chargeable 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 Profit 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
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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 according to the number of complete months of user by the assessee: Provided further that in the case of a seasonal factory worked by the assessee during all the working seasons of the previous year, the percentage shall be increased as if the buildings, machinery, plant or furniture had been in use throughout the period the assessee was the owner thereof during the previous year:" Both these provisos use the word previous year which is same as the accounting year under the Act. By rule 4-A of the rules made under the Act certain sections of the Indian Income-tax Act have been adapted with modifications therein mentioned Of those section 50 of the Income-tax Act is one. In the Act it has been substituted by the following:-- "No claim to any refund of tax under the Act shall be allowed unless it is made within four years from the last day of the financial year commencing next after the expiry of the accounting period which constitutes or includes the chargeable accounting period in respect of which the claim to such refund arises." All these sections show not only that the two statutes, i.e., the Act and the Indian Income-tax Act, have to be read together but also that the notion of the previous year has been inducted into the Act. The modified section 50, a, introduced into tic Act by the rule;, means this that the refund, if any, call only he allowed within four years of the financial year which commences after tile expiry of the accounting period which itself constitutes the chargeable accounting period or includes in it the chargeable accounting period in respect of which the refund is claimed. If the contention of the appellant is correct then this section will he wholly otiose where the assessment is levied after say 10 years from the end of the chargeable accounting period because by no method of calculation will a refund of tax in that circumstance be claimable under section 50. This furnishes a key to when a notice under section 11(1) has to be given. It must be given within the financial year which commences next after the expiry of the accounting period or tile previous year which is by itself or includes the chargeable accounting period in question. Section 48 of the Income-tax Act, as amended and applied to the Act, does not affect the operation of section 50 because the two sections have to be read together and the assessee must apply for tile refund within the period specified by; section 50: Adam Haji Dawood & Co. Ltd. v. Commissioner of Income-tax [(1936) 4 I T R 100]. The language of section 14 and particularly tile words "may proceed to assess or reassessthe amount of such profits to business profits tax" support the contention of the respondent that it applies to cases of no assessm ent due to' notice not being given His to cases of' no assessment alter 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 assessm ent to tax due to notice not being given and the process hits 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 orresulting in under- assessm ent etc. Construing in this manner effect is given to the words "profits of any chargeable accounting period have escaped assessm ent" and it also avoids the anomaly that some cases where there was no assessm ent can be dealt withunder one section with a time limit as under section 14 but other equally clear cases of non-assessm ent are dealt with under section 11 without there being any
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limitation of time. If the contention of the appellant is accepted then it would come to this that it would depend upon the Income-tax Officer as to which of the two sections he uses for the purposes of assessm ent and would lead to this absurdity that in a case of definite information of profits having escaped assessm ent there will be a limitation of four years and in cases where there is no such information but only belief there will be no such limitation. If the words "profits escaping assessment" are applicable to original assessments, i.e., where the process of assessm ent did not commence, as also to assessments where the process of assessm ent was commenced but proved wholly abortive or partially so, then section 14 would apply to both such cases. Thus construed section 11 would apply to normal original assessments and section 14 to profits escaping assessment as construed above whether the assessment is an original…
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