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TMI Blog1961 (4) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of income from India. It has also income which accrued or arose outside India from dividends from companies outside India having income accruing or arising in India. Dividends from India were returned in Section A of the return under section 22(2), whereas other dividends were returned in Section C of the said return as not being chargeable in India. The assessments were made in the first instance for the year 1940-41 and 1941-42 on the 16th December, 1943, for the year 1942-43 on the 17th December, 1943, and for the year 1943-44 on the 20th January, 1944. In such assessments the Income-tax Officer did not include the income accruing outside India in the total income of the company. This was made because of the then decision of the Calcutta High Court in Raleigh Investment Company Ltd [1943] 11 I.T.R. 393 ; [1943] 13 Comp. Cas. 265. The calendar of the history of the Raleigh Investment case [1943] 11 I.T.R. 393 has a bearing on the assessments under consideration in this reference. On the 9th April, 1943, a Special Bench of the Calcutta High Court of Derbyshire C.J.,0 Mitter and Lodge JJ. in Raleigh Investment Co. Ltd. v. Governor-General in Council [1943] 11 I.T.R. 393, held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department as a "provisional claim" for relief from double income-tax for the four years mentioned there in those letters--1940-41, 1941-42, 1942-43 and 1943-44. Then the records of this case were transferred to Bombay where the Calcutta decision of the Raleigh Investment case [1943] 11 I.T.R. 393 was not binding on the Income- tax Officer. Notices under section 34 of the Income-tax Act were issued upon the assessee on the 28th September, 1944, for all the above years by the Income-tax Officer for assessment of what was then regarded as the escaped income from the dividends, which could not be taxed under the Calcutta decision in Raleigh Investment case [1943] 11 I.T.R. 393. Now these revised assessments under section 34 were completed on the 29th March, 1945, the 28th March, 1946, the 27th March, 1947, and the 19th January, 1948, for the respective years 1940-41, 1941-42, 1942-43 and 1943-44. The communications of the orders of assessment of these respective years were made on the 7th April, 1945, the 9th April, 1946, 9th April, 1947, and the 3rd February, 1948. For the proceedings under section 34 of the Income-tax Act on the escaped assessment, the assessee's whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be made in the prescribed form. Therefore, the Tribunal constructed the word "shall" in rule 4(2) of the Rules prescribed under section 49A of the Act to be not mandatory but directory. It thus got over the difficulty of limitation and granted relief to the assessee. It further held that the "provisional claim" for relief made on the 24th December, 1943, and the 25th January, 1944, although it arose at a time when this question of relief from double taxation by virtue of assessment under section 34 of the Income-tax Act on the escaped income had not arisen, nevertheless was not limited to the claim for the original assessment, but covered such claims as they arose in future relating to the escaped assessment. It will thus appear from this record that while the Income-tax Officer refused the assessee's claim as time-barred, the Appellate Assistant Commissioner held that it was not so in the first instance. He also drew attention to the departmental instructions published in the Income-tax Bulletin (C.B.R. Bulletin, volume 1, No. 1, June Quarter, 1955, page 25), where it is laid down in rule 3 as follows: "Officers of the department must not take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the relative rule using the word "shall" must be construed as directory and not mandatory and, secondly, the provisional claim related to the relief on account of double income assessed in the relevant assessment years and it was not a limited claim only for the original assessment made by the department. On these facts, the first question can be answered straightaway. As will be seen from the question set out before, it relates to section 49A of the Income-tax Act. Section 49A of the Income-tax Act appeared in the statute book in 1939. Originally it was not applicable at all to the United Kingdom because it provided in material part as follows: "49A. (1) The Central Government may, by notification in the Official Gazette, make provision for the granting of relief in respect of income on which has been paid both income-tax (including super-tax) under this Act and Dominion income tax. (2) For the purpose of this section 'Dominion income-tax' means any income-tax or super-tax charged under any law in force in any Indian State or in any part of His Majesty's Dominions (other than the United Kingdom) where the laws of that State or part provide for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 1920, is less than the Indian rate of tax charged in respect of that part of his income, he shall be entitled to a refund of a sum calculated on that part of his income at a rate equal to the difference between the Indian rate of tax or the appropriate rate of United Kingdom income-tax whichever is less, and the rate at which he was entitled to, and obtained relief under that section." It is followed by certain provisions and provisos which are not material for our purposes. On a plain reading of this section it emphasises (1) that the person must have paid Indian income-tax, (2) that he has also paid the United Kingdom income-tax, and the rate at which he has paid the United Kingdom income-tax, (3) has obtained relief under the provisions of section 27 of the English Finance Act of 1920 and (4) that such relief is less than the Indian rate of tax charged in respect of that part of his income. It is only when he satisfies these four conditions that he qualifies for a refund of the prescribed amount mentioned in section 49. It does not deal at all with the form or manner of making a claim for refund and only specifies the conditions which an assessee must satisfy before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Manual of 1945, the following procedure is laid down: "Provisional claim.--The time-limit for making a claim for refund under section 49 is mentioned in section 50. Since, however, there is often very great delay in settling assessments and claims to relief in the United Kingdom, provisional claims for double income-tax relief unsupported by proof that relief has actually been obtained in the United Kingdom will be accepted if presented within the limitation period if the assessee definitely undertakes to produce such proof as soon as relief in the United Kingdom has been actually obtained. When this undertaking is punctually fulfilled the claim will be treated as one presented in due time." This was the almost uniform practice followed throughout by the department. Today it is challenged by the department itself on the ground that this practice, sanctified by long adoption for years and embodying commonsense and fairness, does not alter the strict limitation of four years enjoined by section 50 of the Act. No doubt, if the practice is ultra vires or is against the statute, then it must go; but the question remains how did the practice, if it was so obviously ultra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f limitation of four years under section 50 of the Act. But then this must be confined only to the relief in respect of the original assessment and not in respect of the escaped income. This point is, of course, without any merit at all and is a point of pure technicality. If the relief from double income-tax is given on the original assessment, there is no question that the assessee is also entitled to the same relief with regard to the escape income under section 34 of the Act. The only ground on which the income-tax authorities are resisting the claim for refund is again limitation. For this purpose reference now to rule 40 of the Income-tax Rules is necessary. Rule 40 was made under section 59 of the Income-tax Act which provides for rule-making power by the Central Board of Revenue subject to the control of the Central Government for carrying out the purposes of the Act and especially for prescribing the procedure to be followed on applications for refund under section 49 of the Act. It is provided by sub-section (5) of section 59 that "Rules made under this section shall be published in the Official Gazette, and shall thereupon have effect as if enacted in this Act.&quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an eventuality as has happened in this case. Therefore, we are thrown on the system of allowing provisional claims which was wisely and properly and with good sense introduced by the income-tax department. Therefore, it follows again that the letters of the 24th December, 1943, and 25th January, 1944, must be treated as sufficient demand within the meaning of section 50 of the Income-tax Act which prescribes no particular method or manner of making the application. In that view of the matter the language of rule 40 saying that an application of refund shall be in the following form is no longer of any importance because this rule has no application to the particular event in the facts of this case. Secondly, of course, the reason put forward by the Tribunal is also compelling and sound that in such a case the word "shall" and the word "form" are directory and not mandatory so that a breach of form will not vitiate the act of making claims by barring it with limitation. To do so will result in manifest injustice and great hardship. This is supported also by high authorities which it is unnecessary to discuss in detail. I shall, however, make a brief reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich had escaped assessment and for which proceedings were subsequently taken under section 34 of the Act. In fact, it is said on this branch of the argument that it is impossible to hold that the general claims made in those letters could be stretched to include dividend income brought to tax under section 34 much later, claims for which had not arisen at the time when the letters had been written. There is a good deal of force in that objection. The facts on this point have already been stated earlier. Now the actual language used in the letter of the 24th December, 1943, is as follows: "Will you please treat this letter as a formal notice of claim under section 49 for 1940-41, 1941-42 and 1942-43 and confirm that you have done so." It was so confirmed by the Income-tax Officer's letter of the 3rd January, 1944. To the same effect was the letter of the 25th January, 1944, in respect of the year 1943-44, which was also confirmed by the Income-tax Officer's letter of the 26th January, 1944. The words of these letters are unqualified. They do not in terms restrict the claim only to the original assessments. It is no doubt true that at those dates when these lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, is that of the Division Bench of the High Court in Krishna Hydraulic Press Ltd. v. Commissioner of Income-tax [1943] 11 I.T.R. 504, consisting of Derbyshire C.J. and Gentle J. Gentle J., who delivered the judgment of the Division Bench, at page 512 of the report made the following observation on the construction of section 34 of the Income-tax Act: "The words which require particular attention are 'have escaped assessment in any year'. The assessment which was made in August, 1940, was in respect of the year 1938-39 and it was made because in the year of assessment the company escaped assessment in that year and the provisions of the section can only be called into effect when, as is material, the Income-tax Officer has reason to believe the assessee has concealed the particulars of his income. This section enables an assessment to be made in a subsequent year when the assessee has escaped from being assessed. From what has he escaped? He has escaped from an assessment which would have been made upon the him during an earlier year. The object of the section is to overcome the result of an assessee escaping from an assessment which should have been made upon him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which might arise even subsequent as, in fact, they did, to those dates on the ground that such further proceedings under section 34 relate to the same assessee for the same year and to the same assessment, with this difference only that the escaped income is being assessed with no right of objection by the assessee to question the original assessment or to reopen it. Taking that view of the matter, it must be held that on those two dates, the 24th December, 1943, and the 25th January, 1944, the claims were within the period of four years as required by section 50 of the Income-tax Act and, therefore, the claim for refund of the assessee was not barred. Therefore, the answer to the second question must be in the affirmative and the claim for refund must be held to have been made within the period prescribed under Indian Income-tax Act and the Rules thereunder. We think that in fairness the Commissioner of Income-tax should pay the costs of this reference to the assessee in this case because not only did he lose both before the Appellate Commissioner and before the Tribunal but also because he had the Income-tax Manual and the directions and practice all against him on this point, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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