TaxTMI 
TaxTMI 
1984 (8) TMI 44
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the Tribunal was right in holding that the facts and the law pertaining to assessment year 1962-63 were vitally and in essential respects different from those pertaining to assessment years 1960-61 and 1961-62 and, therefore, the ratio of the decision of their Lordships of the Rajasthan High Court in regard to assessment years 1960-61 and 1961-62 did not govern the application of law with regard to assessment year 1962-63 ? (v) Whether the Tribunal was right in holding that notice under section 156 of the Income-tax Act, 1961, could validly be issued for giving effect to the order under section 201(1) of the Income-tax Act, 1961 ? (vi) Whether, on the facts and in the circumstances of the case, the Income-tax Officer could pass the order under section 201(1) of the Income-tax Act, 1961, even though he discharges the statutory duty cast upon him of issuing the statutory certificate under section 197(3) of the Income-tax Act, 1961 ? (vii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the order of the Income-tax Officer even though it was passed after a lapse of about 6 years from the date of the distribution of the dividends ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t laid down that if the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under the Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax. The assessee addressed a letter (annex. " A ") dated July 17, 1962, to the ITO, Income-tax-cum-Estate Duty Circle, Jaipur, wherein it mentioned that the third and fourth plants were installed after March 31, 1957, and under ss. 84 and 101 of the Act, the profits from these plants were exempted from income-tax and super-tax for a period of 5 years and that, therefore, the profits on the said plants were exempt from income-tax and super-tax for the assessment year 1962-63. In the said letter, it was also stated that the assessee intended to pay dividend to the shareholders for the accounting year ending March 31, 1262, and, therefore, they were filing this application under s. 197(3) of the Act with a request to determine the appropriate portion of the dividend on which tax was not payable by the recipients under the provisions of ss. 85 and 101 of the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax was not payable by the shareholder. After issuing the aforesaid dividend certificates, the assessee by letter (annexure " D ") dated October 13, 1962, sent a cheque for Rs. 87,859.94 to the ITO towards payment of the tax deducted at source from the dividend paid for the year ended March 31, 1962. The assessment of the assessee for the assessment year 1962-63 was made by the ITO, Central Circle II, Jaipur, by the assessment order (annex. " E ") dated March 30, 1967. In the said assessment order, the ITO determined the net income of the assessee at Rs. 4,38,049 out of which he held that the business income arising from plants Nos. 1 and 2 was Rs. 1,96,675 and the balance income of Rs. 2,41,374 was the business income which was entitled to rebate under s. 84 of the Act. After the aforesaid assessment order had been passed, the ITO, by his letter (annex. " F ") dated April 24, 1967, informed the assessee that the total profit exempt from tax within the meaning of ss. 84 and 101 of the Act for the year, i.e., assessment year 1962-63, had been determined at Rs. 2,41,734 only as against the amount of Rs. 17,08,440 and that in view of the aforesaid revised figure, the percentage of divi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duction of tax was to the extent of Rs. 1,67,542. The ITO directed that demand notice be issued for the said amount. The assessee filed an appeal against the aforesaid order of the ITO dated April 30, 1969. During the pendency of this appeal, the ITO passed another order (annex. " J ") dated March 20, 1970, under s. 154 of the Act whereby rectification was made of the earlier order (annex. " I") dated January 30, 1969, and it was held that the correct amount of short deduction was Rs. 5,22,278 instead of Rs. 1,67,542 determined earlier and that further demand of Rs. 3,54,735 be raised and demand notice be issued for the additional demand. The assessee filed another appeal against the aforesaid order dated March 20, 1970. The appeal of the assessee against the order dated January 30, 1969, was disposed of by the AAC, Central Circle, New Delhi, by order dated October 11, 1972, whereby the said appeal was dismissed. The appeal of the assessee against the order dated March 20, 1979, was also dismissed by the AAC, Central Circle, New Delhi, by order dated October 13, 1972. Feeling aggrieved by the aforesaid orders of the AAC, the assessee filed appeals before the Tribunal. At this sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her it could be said that it was a certificate under s. 197(3) as claimed by the assessee. The Tribunal was of the view that if it was held that the said letter was such a certificate, the action of the ITO in invoking the provisions of s. 201 of the Act would be improper, that if, on the other hand, the Tribunal took a contrary view, the action of the ITO would be quite in order. After examining the facts of the case and the law on the subject, the Tribunal held that the letter dated July 28, 1962, sent by the ITO could not be regarded as a certificate issued under s. 197(3) of the Act. In this connection, the Tribunal has observed that in view of the provisions contained in ss. 84 and 101 of the Act and rule 20 of the rules, the ITO in order to issue a certificate under s. 197(3) of the Act, must first of all know whether there was any profit and gain of the company on which tax is not payable under s. 84 during the previous year and also whether there was such profit during the previous years preceding the previous year and that if there are no such profits, the application of rule 20 would not arise. The Tribunal further held that the ITO should also have information with him a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... general body meeting and that the application dated July 17, 1962, submitted by the assessee was premature. The Tribunal, therefore, held that the letter of the ITO dated July 28, 1962, was not a certificate as contemplated under s. 197(3) of the Act and that neither the principal officer nor any other person properly instructed could have construed the said letter of the ITO as laying down the appropriate proportion of the dividend on which no tax was payable by the recipients under s. 85/101 of the Act, and the said letter could not absolve the principal officer of the company from his legal liability under s. 194 of the Act. The Tribunal distinguished the decision of this court given in relation to the assessment years 1960-61 and 1961-62. Feeling aggrieved by the aforesaid decision of the Tribunal, the assessee moved an application before the Tribunal for referring the questions of law arising out the of the Tribunal to this court under s. 256(1) of the Act and thereupon the Tribunal has referred the questions mentioned above. We have heard Shri K. K. Jain, the learned counsel for the assessee, and Shri R. N. Surolia, the learned counsel for the Revenue. Shri Jain has assa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Tribunal has rightly distinguished the decision of this court in relation to the assessment years 1960-61 and 1961-62. Shri Surolia has also submitted that the question as to whether the demand notice was barred by s. 231 of the Act cannot be agitated inasmuch as it does not arise out of the order of the Tribunal and is not covered by the reference. The principal question which needs to be determined in this case is as to whether the letter (annex. " B ") dated July 28, 1962, sent by the ITO to the assessee can be regarded as a certificate under s. 197(3) of the Act. Section 197(3) of the Act, as it stood at the relevant time, provided that : " Where the principal officer of a company considers that, by reason of the provisions of sections 84 and 101, no tax will be payable by the recipient on the whole or any portion of the dividend referred to in section 85 and sub-section (2) of section 101, he may, before paying the dividend to the shareholder or issuing any cheque or warrant in respect thereof, make an application to the Income-tax Officer to determine the appropriate proportion of the dividend on which tax is not payable by the recipient under the provisions of section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting year ending March 31, 1962, are, therefore, exempt from income-tax and super-tax. As we intend paying the dividend at an early date, we request you to kindly determine the proportionate portion of the profit exempt under sections 84 and 101 in accordance with the provisions of section 197(3) of the Income-tax Act. " The aforesaid letter dated July 17, 1962, was accompanied by statement of capital employed under ss. 84 and IO 1 of the Act. In the said statement, the assessee had mentioned that the profit earned in the previous year was Rs. 54,93,718.. It may be mentioned that in relation to the earlier assessment years 1960-61 and 1961-62, the assessee had followed the same practice. In respect of the assessment year 1960-61, the assessee had addressed a letter (annex. L-1) dated October 10, 1960, to the ITO indicating its desire to declare the dividend for the year ending March 31, 1960, and requesting the ITO to intimate appropriate portion of the dividends on which income-tax and super-tax was not payable so that deduction under s. 18(3D) of the Indian I.T. Act, 1922, could be made. In the said letter, the assessee had indicated the sum which, according to the assessee, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted as dividend to the shareholders. This court held that in issuing the said letters, the ITO fell into an error and did not understand the law, but the Department could not take advantage of the default of its officer to impose liability on the assessee and that it was not open to the ITO to modify his earlier order after the assessee had distributed the dividends and was not in a position to fulfil its obligation under s. 18(3D) of the Indian I.T. Act, 1922. The main ground that has been given by the Tribunal for holding that the letter (annex. " B ") dated July 28, 1962, sent by the ITO to the assessee cannot be regarded as a certificate under s. 197(3) of the Act was that before issuing a certificate under s. 197(3) of the Act, it was necessary for the ITO to know whether there was any profit and gain of the company on which tax was not payable under s. 84 during the previous year and also whether there was such profit during the previous years preceding the previous year in question and that the ITO should also have information with him about the aggregate of the amounts of dividend paid or deemed to be paid by the assessee in respect of the previous years preceding the pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s attributable to that part of the profits on which the tax is not payable under section 15C(1). This court, after referring to the decision of the Bombay High Court in All India Groundnut Syndicate Ltd. v. CIT [1954] 25 ITR 90 (Bom), wherein it has been laid down that (at p. 100) "it is an elementary principle of law that no person . ...... can put forward his own default in defence to a right asserted by the other party ", has further held that, " In the present case also the Department is trying to take advantage of the default of its officer, who without understanding the correct position of law determined the proportion by finding out only one figure of exempted profits, and impliedly accepted the total profits as disclosed by the company to calculate the proportion for the purposes of s. 18(3F). The error committed by the ITO in this case is quite obvious and the Department cannot now be permitted to take shelter under this error of the Incometax Officer to impose liability on the company. " Here also all that can be said on the basis of the order of the Tribunal is that the ITO committed an error in sending the letter dated July 28, 1962, without understanding the correc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....purpose of computation does not mean that the decision of this court in relation to the Indian I.T. Act, 1922, would not be applicable to the present case. The provisions that have been made in rule 20 of the Rules only prescribed the method of computation and violation of the said provisions would only affect the validity of the computation, but the said rule has no bearing on the principle of law laid down by this court that the Department cannot take advantage of an erroneous determination made by the ITO if it has been acted upon by the assessee. As regards the facts, the first distinction that has been pointed out by the Tribunal is that in the earlier assessment years 1960-61 and 1961-62, the assessee had furnished both the required variables on the basis of which the fraction was to be worked out and that in its application to the ITO for the assessment year 1962-63, the assessee had not done the same. It is true that in the letters dated October 10, 1960, and September 5, 1961, relating to the assessment years 1960-61 and 1961-62, respectively, the assessee had indicated the total profit earned by it in the relevant previous year and in the letter dated July 17, 1962, rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment year 1960-61, sent by the ITO to the assessee does refer to the request of the chartered accountant of the assessee that the total assessable income for the assessment year 1960-61 should also be determined to find out the percentage of the income exempt under s. 15C of the Indian I.T. Act 1922, and the ITO has observed that it was not necessary nor is it required under the law to determine the total taxable income while considering an application under s. 18(3F). In the subsequent letter (annex. L-4) dated 3/4th October, 1961, relating to the assessment year 1961-62, there is no mention of such request by the chartered accountant for the assessee for determining the assessable income. This shows that after the ITO had indicated in his letter dated November 10, 1960, that it was not necessary nor is it required under the law to determine the total taxable income while considering an application under s. 18(3F). The chartered accountant of the assessee did not repeat his request for determining the assessable income in the assessment year 1961-62 and for the same reason such a request was not made in the assessment year 1962-63. The third distinction pointed out by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The Tribunal has also laid stress on the fact that on July 28, 1962, no certificate under s. 197(3) could be issued because such certificate can only be issued after the dividend has been declared and in the present case, the assessee had not declared any dividend on July 28, 1962, and that the dividend was declared subsequently. In our opinion, this circumstance also has a bearing on the legality of the action of the ITO. It was open to the ITO to have refused to make a determination under s. 197(3) on the ground that such determination can only be made after the dividend has been declared. The ITO did not, however, adopt such a course. He proceeded to make the determination and the assessee acted upon the said determination. After the assessee had acted upon the said determination and had paid the dividends to the shareholders, it is not open to the Department to contend that the determination which was made by the ITO in his letter dated July 28, 1962, could not be acted upon as it was invalid. We are, therefore, of the opinion that the Tribunal was in error in holding that the letter (annex. " B ") dated July 28, 1962, addressed by the ITO to the assessee was not a certif....