TMI Blog1986 (6) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The assessments under the Act have been completed up to the assessment year 1982-83. The assessee-company has also filed all returns up to the assessment year 1984-85. The assessee-company used to maintain accounts from 1st July of each year to 30th June of the next year. The assessee-company, however, had to change, under certain compelling circumstances, the accounting period to the financial year with effect from 1983. Therefore, the assessee-company sought permission of the Income-tax Authorities to vary the meaning of the expression " previous year " under section 3(4) of the Act and the assessee-company was allowed to change its " previous year " from 30th June to 31st March effective from the assessment year 1983-84. The assessee-company then submitted an application on 28th June, 1985, seeking permission for the change of " previous year " under section 3(4) of the Act from 31st March to 30th June. It was stated in the application that tea being a seasonal product, the closing stock had to be valued at the subsequently realised price and that on 31st March, a substantial quantity of the old season's tea remained unsold even at the time of finalising the accounts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsent could be given subject to conditions to safeguard losses of revenue, if any, attendant on the consent for change in the " previous year ". The second submission is this : The rejection of the application without giving any reasons and without even affording an opportunity of being heard to the assessee-company is opposed to the principles of natural justice. The discretion conferred under section 3(4) of the Act is coupled with a duty to exercise it judicially and therefore, failure to have taken into consideration the objective factors placed before him has resulted in grave injustice to the assessee. Learned standing counsel for the Revenue, on the other hand, submits that consent under section 3(4) of the Act is an administrative action, that it is not necessary to record reasons or afford an opportunity of being heard to the assessee for the exercise of the discretion under section 3(4) of the Act, that the change if allowed would occasion loss to the revenue and that the request for change was, therefore, rightly rejected. The first question is whether the Income-tax Officer has absolute power to refuse consent and reject an application of the assessee for change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions as he may deem fit for permitting the assessee to change the " previous year ". The expression employed in the section is that the assessee shall not be entitled to vary the meaning of the expression " previous year " except with the consent of the Income-tax Officer. Therefore, if consent is not given to change the " previous year ", the assessee cannot change the " previous year ". But the sub-section empowers the authority to impose such conditions as it thinks fit to impose having regard to the circumstances in giving his consent for the change of the CC previous year ". The legislative intent or policy underlying the provision appears to be clearly to give consent save in exceptional cases with or without conditions. The sub-section no doubt vests with the authority discretion to withhold consent. But that discretion must be exercised in conformity with the policy or legislative intent to effectuate which the discretionary power is vested. But the more important question is, should the order passed by the Income-tax Officer be a speaking order? In other words, should he give reasons if consent is not given ? The discretion vested in him is judicial in nature and is couple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cement (Bharat) Ltd. v. ITO [1973] 88 ITR 21, in which Rajindar Sachar J. (as he then was) he Id that while exercising the discretion under section 3(4) of the Act, it was not obligatory on the part of the Income-tax Officer to record reason is for refusing to accord his approval for the change in the " previous year " of the assessee. However, we find it difficult to agree with the opinion expressed by the learned single judge for the reasons already recorded above. The next submission of learned counsel for the Revenue is that the assessee had preferred a revision before the Commissioner of Income-tax, North Eastern Region, and the Commissioner had passed a speaking order giving reasons, for rejecting the prayer of the assessee for change of the " previous year " and so no prejudice is caused to the assessee. A look at the order discloses that the Commissioner was somewhat prejudiced against the assessee by the fact that in case of change in the " previous year " from the financial year to the period ended June 30, 1985, the previous year of the assessee would be for a period of 15 months from April 1, 1984, to June 30, 1985, and that there would be no " previous year " for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latter. When the aid of the High Court is invoked on the revisional side, it is done because it is superior court and it can interfere for the purpose of rectifying the error of the court below. Section 115 of the Code of Civil Procedure circumscribes the limits of that jurisdiction but the jurisdiction which is being exercised is a part of the general appellate jurisdiction of the High Court as a superior court it is only one of the modes of exercising power conferred by the statute ; basically and fundamentally it is the appellate jurisdiction of the High Court which is being invoked and exercised in wider and larger sense.... If there are two modes of invoking the jurisdiction of the High Court and one of those modes has been chosen and exhausted, it would not be a proper and sound exercise of discretion to grant relief in the other set of proceedings in respect of the same order of the subordinate court. The refusal to grant relief in such circumstances would be in consonance with the anxiety of the court to prevent abuse of process as also to respect and accord finality to its own decisions. " On the other hand, the decisions referred to by learned counsel for the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undoubtedly arbitrary and unsupported by any reasons. Learned counsel for the Revenue, Mr. Saraf, invited our attention to the decision of the Privy Council in Calvin v. Carr [1979] 2 WLR 755, 766; 2 All ER 440. The Privy Council dealing with the decision of Megarry J. in Leary v. National Union Vehicle Builders [1970] 2 All ER 713, said : " In their Lordships' opinion this is too broadly stated. It affirms principle which may be found correct in a category of cases. " The court said that there can be no absolute rule that defects in natural justice appearing at an original hearing, whether administrative or quasi-judicial, cannot be cured through appeal proceedings which had been correctly and fairly conducted. The task of the court was to decide whether at the end of the proceedings there is a fair result reached by fair methods. We have already stated that in this case there had been no such fair result reached by fair methods. The question that still plagues the case is whether under section 3(4) of the Act, an assessee is entitled to a personal hearing before an order prejudicial to the assessee or refusing to allow the assessee a change in the " previous year " is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim as of right an opportunity of being heard before any adverse order is passed by the Income-tax Officer. Rights cannot be conferred by mere implication. There must be clear and unequivocal enactment. Whether or not the rules of natural justice had been contravened should be decided not under any pre-conceived notion but in the light of the statutory provisions and the rules. (See Nagendra Nath Bora v. Commissioner of Hills Division, AIR 1958 SC 398). The last submission that requires to be considered is whether loss of revenue, or that the " previous year " will consist of more than twelve months if the change was allowed are valid grounds for rejection of the prayer for change in the " previous year " by the assessee. Learned counsel for the Revenue placed reliance on the decision of the Supreme Court in Esthuri Aswathiah v. CIT [1966] 60 ITR 411. In that case, for the assessment year 1952-53, the assessee filed a return for 21 months commencing on July 1, 1950, and ending on March 31, 1952. The Income-tax Officer accorded his sanction for the change in the " previous year " and assessed the total income for the period of 21 months at the rate applicable to that total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of the previous year relevant to the assessment year must be assessed at the rate specified in the relevant Finance Act and at no other rate. It is contended by learned counsel that there is a difference in the language employed in the charging sections of the Acts of 1922 and 1961. We are unable to find any difference so far as the main ingredient of the charging section is concerned. The subject of charge is the total income of the previous year and not the income of the assessment year. In other words, the tax is assessed and paid in the next succeeding year on the total income of the previous year at the rate fixed by the Finance Act of the relevant year of assessment. But, should the change in the previous year be allowed even though such permission results in loss of revenue. It is not disputed that there is loss of revenue if the change in the previous year as prayed for by the assessee is permitted . The counter-affidavit filed by the Inspecting Assistant Commissioner of Income-tax, Assessment Range-1, Gauhati, on behalf of the respondents shows that in view of the reduction in the rate of tax applicable for the assessment year 1986-87 to 50% from 55% whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the, transaction is such that the judicial process may accord its approval to it. " But in this case it is stated in the affidavit and also stated by learned counsel from the Bar that in order to protect the loss of revenue occasioned by the change in the previous year, a condition to that effect could be imposed by the Inspecting Assistant Commissioner. Therefore, in view of the express statement contained in the affidavit as well as made from the Bar by learned counsel, we are unable to hold that the application for a change in the previous year is rooted in oblique motives of tax avoidance. The principles that can be discerned from the above discussion and decisions are : (1) Sub-section (4) of section 3 of the Act undoubtedly vests with the Income-tax Officer discretion to give or withhold his consent for the change in the " previous year ". But that discretion must be exercised in conformity with the policy or legislative intent to effectuate which discretionary power is vested. The legislative intent and policy underlying the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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