TMI Blog1969 (2) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... id this amount to the U. K. company in instalments. During the relevant previous year for the assessment year 1956-57, the assessee paid a sum of Rs. 32,500 to the U. K. company. The Income-tax Officer was of the view that the assessee would be deemed to be an assessee in default under section 18(7) of the Indian Income-tax Act, 1922, inasmuch as the assessee had not deducted income-tax and super-tax at the time of payment of the said sum of Rs. 32,500. The Income-tax Officer directed the assessee to pay an amount of Rs. 26,000 after allowing an estimated expense of Rs. 6,500. The Appellate Assistant Commissioner annulled the order under section 18(7) of the Act. His reason was that the amount which the assessee had paid to the non-resident company was in the nature of rental ; it was a gross earning in the hands of the non-resident company ; and such earning was not a profit from trading receipts taxable under the provisions of the Income-tax Act. The Tribunal was of opinion that the Appellate Assistant Commissioner's view was erroneous by reason of the decision of this court in P. C. Ray Co. (India) Private Ltd. v. A. C. Mukherjee. In this reference we are not concerned w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-section (3B). Then comes section 18(7), which says, inter alia, that if any such person does not deduct or after deducting fails to pay the tax as required by or under this section, he shall, without prejudice to any other consequences which be may incur, be deemed to be an assessee in default in respect of the tax. Mr. Debi Pal has urged that if section 18(7) be read in the context of section 18(3C), it would be apparent that under section 18(7) an order is made by which the income chargeable is computed and the tax leviable at the rate prescribed by the annual Finance Act in respect of such income is determined. And by virtue of that very order the assessee is treated as an assessee in default in respect of the tax payable. In other words, an order under section 18(7) is a composite order. That order involves (a) computation of income ; and (b) determination of tax, that is, an assessment, in the first instance, and, thereafter, the assessee is treated as an assessee in default with respect to the very amount that is assessed by reason of a legal fiction. Reliance is placed on the observation of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council, at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of limitation prescribed by sub-section (3) of section 34 applies to an order of assessment or an order of reassessment. The question is whether an order under section 18(7) comes within any of these categories. In M. M. Parikh v. Navanagar Transport and Industries Ltd., at page 670, the Supreme Court observes : " Every order which contemplates computation of income for determination of the amount of tax payable is not an order of assessment within the meaning of the Act : nor does prescribing of procedure for determining and imposing tax liability make it an order of assessment. The Income-tax Act contemplates making of diverse orders by Income-tax Officers directing payments of sums of money by taxpayers which are of the nature of orders for payment of tax, but which are still not orders of assessment. For instance, under section 18A(1) the Income-tax Officer is entitled to direct advance payment of tax. An order may also be made under section 35(9) where the Income-tax Officer is satisfied that the income-tax payable by a company on its profits and gains out of which the company has declared a dividend has not been paid within three years after the financial year in which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There are three well-known stages of imposition of tax, namely, (a) liability to pay tax ; (b) computation of tax payable ; and (c) recovery of tax. Keeping these three stages in view, when we come to the expression, " deemed to be an assessee in default ", we have to assume that the following stages are over : 1. Fixation of liability. 2. Assessment, or computation of income and the tax payable thereon ; and 3.. Service of a notice of demand on the assessee calling upon him to make payment. It is only when all these three stages have passed and the assessee fails to comply with the notice of demand that he can become an assessee in default. When, therefore, we are dealing with the legal fiction introduced by the expression, " deemed to be an assessee in default ", it would be necessary to assume all those facts on which alone the fiction can operate : vide Commissioner of Income-tax v. S. Teja Singh. We have to assume that all the three stages mentioned above are over, and there has been a failure on the part of the assessee to comply with a notice of demand. In these premises, an order pursuant to section 18(7) made by the Income-tax Officer cannot be said to be an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of appeal under section 30(1A), the right of appeal under section 18(7) was implied in the sub-section itself ; and what was implied in the Act of 1922 had been expressly provided for when the 1961 Act came to be enacted. We do not wish to enter into this controversy in the present reference. Whether an order under section 18(7) shall be regarded as an order of assessment cannot, in our opinion, be judged purely from the standpoint of the appealability of such an order. In order to appreciate section 18(7) in its proper context, we may usefully compare the relevant provisions of section 42 with those of section 18(7). Section 42, inter alia, provides that all income, profits or gains accruing or arising, whether directly or indirectly through or from any business connection in the taxable territories, shall be deemed to be the income accruing or arising within the taxable territories, and where the person entitled to the income, profits or gains is not resident in the taxable territories, shall be chargeable to income-tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all these purposes of the Act, the assessee in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment " has a comprehensive meaning ; it includes the entire procedure for imposing liability on the taxpayer ; and in this comprehensive sense an order under section 18(7) is an order of assessment. The short answer to this point is that the Supreme Court in this very judgment in Kalawati Devi's case has said, at page 687 : " There is no doubt that the word 'assessment' does have, subject to the context, a very wide meaning. " As we have already stated the context of section 18(7) does not suggest to us that an order under this sub-section is an order of assessment at all. It would be useful to quote in this connection the Supreme Court's observations in C. A. Abraham v. Income-tax Officer, Kottayam. The Supreme Court has said : " A review of the provisions of Chapter IV of the Act sufficiently discloses that the word 'assessment' has been used in its widest connotation in that chapter. The title of the chapter is 'Deductions and assessment'. The section which deals with assessment merely as computation of income is section 23 : but several sections deal not with computation of income, but determination of liability, machinery for imposing liability and the procedure in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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