TMI Blog1996 (3) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings without the issue of notice under section 148 in each case was invalid. Reference to Explanation 2(a) to section 147 was also made wherein income chargeable to tax is deemed to have escaped assessment if no return was furnished by the assessee. According to the assessees, the provisions of section 148, being special provisions, would override the general provisions of section 142(1). It was further contended that the notices under section 142(1) were issued after the end of the assessment year and were, therefore, invalid and in that context our attention was invited to the provisions of section 139(2) before their deletion by Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989, requiring such a notice to be issued before the end of the assessment year. As the notice under section 142(1) is a substitution of the requirement under section 139(2), the time limit for its issuance in the assessment year is inbuilt. 3. The revenue's case, on the other hand, is that no such time limit, up to what time the notice could be issued, is prescribed under section 142(1). As no outer limit is prescribed for its issuance, such a limit cannot, therefore, be inferred or read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d their rival submissions. A notice under section 148 has to be issued when an assessment, reassessment or recomputation is made under section 147 to tax income which has escaped assessment. This is not a case of reassessment nor a case of recomputation. This is a case of an assessment without there being an earlier assessment. As long back as in 1932, the Privy Council in the case of Sir Rajendranath Mukerjee v. CIT [1934] 2 ITR 71, held that the provisions of section 34 of the Indian Income-tax Act, 1922 [equivalent to sections 147 and 148 of the Income-tax Act, 1961], are to tax income that escaped assessment and not to tax income which was not assessed, that there is a difference in the expressions "has escaped assessment" and "has not been assessed". In that case, the return was filed but the assessment was pending. The assessee's contention was that no assessment was made within the assessment year and therefore, it was a case of reassessment. This was not accepted by the Privy Council and it was held that "if no assessment was made in tax year (assessment year) it would be a case of not assessed and not escaped assessment as assessment can be made at any time". It was, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act includes non-filing of return in the expression "escaped assessment". The said Explanation reads : "Explanation 2 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :---- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;" The scope of this Explanation, in our opinion, has to be restricted to the failure of the assessee to file a return suo moto or a voluntary return under section 139(1) or section 139(4) within the prescribed time limit and not to cases where a notice under section 142(1) requiring the assessee to file return has already been issued. Say, for example, an assessee is obliged to file a return on or before 31-12-1991 under section 139(1), or before 31-3-1992 under section 139(4). Can it be said that before expiry of either of the periods, notice under section 148 is to be issued ? The requirement of "where no return of income has been furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 148. This limit comes into play when the proceedings for assessment have been initiated by filing a return suo moto under section 139(1) or by issuance of a valid notice under section 142(1). 12. Next section is section 239 dealing with refund of tax. Sub-section (2) of section 239 states that no claim for refund shall be allowed unless it is made within 2 years (one year w.e.f. 1-4-1993) from the last day of the assessment year in which the income was assessable. This also gives the outer limit for issuing the notice under section 142(1)(i). Section 239 prescribes the starting point of limitation for claiming refund as the day following the last day of the assessment year. This has been stated to be the key by the Supreme Court in the case of Narsee Nagsee Co. and it was held that the notice calling for a return from an assessee for initiating the proceedings is to be given during the assessment year itself. It was a case under the provisions of the Business Profits Tax Act, 1947. Under that Act, there was no provision for suo moto filing of return and the Income-tax Officer was to issue a notice under section 11 to furnish return in the prescribed form in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because of section 14 of that Act, then, inferentially, the escapement of income must be at some time anterior to the period mentioned in section 14 and as the notice was issued four years after the close of the chargeable accounting period, the notice under section 11 was not valid. The Supreme Court, by majority decision, held at pp. 315, 316 and 317 as under :--- " As the tax under the Act is charged, levied and paid on the taxable profits of a chargeable accounting period but assessment 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, ie., 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ie., 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, as introduced into the Act by the rules, means this that the refund, if any, can only be allowed within four years of the financial year which commences after the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the Indian Income-tax Act as per minority decision. 15. Let us see whether there is any change brought about on this aspect by deleting section 139(2) of the Income-tax Act, 1961, and retaining the provision in the amended provisions of section 142(1)(i). Prior to 1-4-1989, an assessee was to be issued a notice under section 139(2) calling upon him to file return. If he fails to so file or has not made a return under section 139(4), an assessment could be made ex parte under section 144. This made the Assessing Officer to wait till the issue of notice under section 139(2) and the statutory period of 30 days was over. In order to eliminate the time taken on these legal formalities and also to enforce voluntary compliance on the part of the assessee, the Direct Tax Laws (Amendment) Act 1987, deleted section 139(2) and simultaneously empowered the Assessing Officer to make ex parte assessment if the assessee fails to make the return under section 139(1) itself. This was the object of deleting section 139(2) as stated in para 4.4 of the Circular No. 549 dated 31-10-1989 as an explanatory note on the provisions of Direct Tax Laws (Amendment) Act, 1987. As a substitute to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions for charging tax or as per the bill pending in the Parliament, whichever is more favourable to an assessee. The procedure for levying the tax is laid down in the Income-tax Act by casting a statutory obligation upon the assessee to file a return voluntarily under section 139(1) on or before the due date within the assessment year or by issuing a notice to the assessee calling upon him to file it. Such a notice was also to be issued before the close of the assessment year as was prescribed under section 139(2) prior to 1-4-1989. Some action within the assessment year was a must. Though the provisions of section 139(2) were deleted by Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989 and this requirement was inserted in section 142(1) instead, the requirement of issuing notice to initiate proceedings was not taken away. As aforesaid, under the general scheme of the Act, the proceeding to assess income of the previous year must start in the assessment year itself. This can be either by the assessee filing a suo moto return or by the Assessing Officer issuing notice before the end of the relevant assessment year. If no such initiation has taken place during the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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