TMI Blog1960 (5) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... e(s) : HIDAYATULLAH., KAPUR., S. K. DAS JUDGMENT [The judgment of S. K. DAS and KAPUR JJ. was delivered by KAPUR, J. HIDAYATULLAH, J., delivered a separate judgment.] KAPUR, J.--This is an appeal against the judgment and order of the High Court of Bombay passed in Income-tax Reference No. 31 of 1956. The appellant is the Commissioner of Income-tax and the respondent is a firm carrying on business in Bombay and the question for decision arises under the Business Profits Tax Act (XXI of 1947) hereinafter referred to as the Act. The assessment relates to the year of assessment 1949-50 and the chargeable accounting period was from November 13, 1947, to October 31, 1948. On January 12, 1953, the Income-tax Officer issued a notice on the respondent under section 11(1) of the Act in respect of the abovementioned chargeable accounting period which was served on the respondent on January 21, 1953. The respondent filed a return under protest. The assessment was completed by the Income-tax Officer on November 30, 1953. Against this order the respondent took an appeal to the Appellate Assistant Commissioner on the ground that the respondent was not liable to business profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires any person whom he believes to be engaged in any business to which the Act applies or to have been so engaged during any chargeable accounting period and calls upon him to furnish a return with respect to such chargeable accounting period ; and section 14 applies to a case where, in consequence of definite information possessed by him, the Income-tax Officer discovers in regard to any chargeable accounting period that the profits of any business have escaped assessment. In other words section 11 applies to original assessments after the first notice calling upon an assessee to make a return in regard to the profits of any chargeable accounting period and section 14 applies where such notice was issued, and it either ended in no assessment at all or there was under-assessment etc. According to the argument of the appellant therefore there is no period of limitation prescribed by the Act for the first notice to furnish a return in regard to any chargeable accounting period but if such notice was given and a return was made and for any reason whatsoever the profits were not assessed or were under-assessed etc. then section 14 comes into operation and notice has to be served withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be included in a notice under section 11, and may proceed to assess or reassess the amount of such profits liable to business profits tax, and the provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section." These sections lead to the conclusion that every business to which the Act applies is liable to the risk of being assessed to business profits tax and it is well settled that income escapes assessment when the process of assessment has not been initiated as also in a case where it has resulted in no assessment after completion of the process of assessment. In our opinion, the High Court was right when it held that sections 11 and 14 of the Act have to be read together. The Act and the Indian Income-tax Act are both taxing statutes operating on the same source, i.e., profits of business which is similarly defined in the two statutes. If the provisions relating to escaping of assessment in the two statutes, i.e., in section 14 of the former and in section 34(1) of the latter as it existed after the amendment of 1939, employ the same language, they must receive the same interpretation and not be construed differently. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted. In our opinion, even in a case where a return has been submitted, if the Income-tax Officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment. The appellant's attempt to put a very narrow and artificial limitation on the meaning of the word 'escape' in section 34(1)(b) cannot therefore succeed." This passage was quoted with approval in another case by this court in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar (per Hidayatullah, J.). Chatturam Horilram Ltd. v Commissioner of Income-tax was a somewhat different case. There assessment proceedings had been taken but had failed to result in a valid assessment owing to some lacuna other than that attributable to the assessing authorities and it was held to be a case of chargeable income escaping assessment and not a case of mere non-assessment of income-tax. All these cases show that the words "escaping assessment" apply equally to cases where a notice was received by the assessee but resulted in no assessment at all and to cases where due to any reason no notice was issued to the assessee and, therefore, there was no assessment of his inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 ; but if the previous year was the calendar year or the Diwali year the accounting periods of nine months in the former case, i.e., April 1, 1946, to December 31, 1946, and 7 months in the latter, i.e., April 1, 1946, to November 1, 1946, would be the chargeable accounting periods for the purposes of the Act. The extent of the periods, will vary according to the determination of the previous year under the Income-tax Act. It might be a full year or less which appears to be the reason for adopting the nomenclature which has been adopted in the Act instead of the previous year. It would be incongruous to call a period of less than a year as the previous year. For the chargeable accounting periods mentioned above, the business profits tax would be charged, levied and paid in the financial year 1947-48 at the rate mentioned in section 4 of the Act on every business falling under section 5. But for all these periods the assessment year would be the financial year 1947-48. Keeping this in view we may now see what changes were made by the Finance Act of 1948. By that Act the Act was continued for another one year and for the figure "1947" in the definition of chargeable accounting perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 accounting period would be the nine months period from April 1, 1946, to December 31, 1946, and notice under section 11(1) of the Act must issue in the financial year because the tax is leviable and assessment is made for the year beginning April 1, 1947, when the Act came into force and remained operative during the year 1947-48. After the Finance Act of 1948 the accounting year, if it was a calendar year, became divided into two parts and both were assessable in the assessment year beginning with April 1, 1948, and therefore, notice had to be given in the financial year 1948-49. Similarly in the financial year 1949-50 notice would have to be given in that year for the preceding chargeable accounting period. In this view of the matter the contention that there is no provision in section 11(1) of the Act as to the chargeable accounting period as there is for the previous year in section 22(2) of the Income-tax Act is not well-found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be wholly otiose where the assessment is levied after say 10 years from the end of the chargeable accounting period because by no method of calculation will a refund of tax in that circumstance be claimable under section 50. This furnishes a key to when a notice under section 11(1) has to be given. It must be given within the financial year which commences next after the expiry of the accounting period or the previous year which is by itself or includes the chargeable accounting period in question. Section 48 of the Income-tax Act, as amended and applied to the Act, does not affect the operation of section 50 because the two sections have to be read together and the assessee must apply for the refund within the period specified by section 50 : Adam Haji Dawood Co. Ltd. v. Commissioner of Income-tax. The language of section 14 and particularly the words "may proceed to assess or reassess the amount of such profits to bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax and Excess Profits Tax (Amendment) Act, 1947 (XXII of 1947), there was a 5 years period of limitation prescribed in section 15 in the following terms : "within five years of the end of the chargeable accounting period in question". By the aforesaid amendment these words were deleted. The Act, being Act XXI of 1947, as well as the Amendment Act above referred to were enacted about the same time one after the other. The Legislature thought it necessary to remove the period of limitation and thereby made profits escaping assessment liable to taxation under the Excess Profits Tax Act without any period of limitation but in the Act the Legislature thought it expedient to prescribe the period of limitation of four years in section 14. It cannot be said that this was without any purpose and the argument that prescribing, the period of limitation in section 14 of the Act was deliberate and was intended to prevent taxing under the Act of profits which had escaped assessment for four years from the end of the chargeable accounting period in question. It was argued for the appellant that section 11(1) construed according to the plain meaning of the words used therein applies to origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee Lord Somervell of Harrow observed : " If the power to make an assessment under section 72 applies to the making of an original assessment their Lordships are unable to imply a term restricting it to back cases or making it ultra vires to operate it at any time. One would expect an opportunity to make a return to be a condition precedent to assessment. This is supported by the provisions for personal allowances in Part VI of the Act. If the respondent is right any person can be assessed without having any such opportunity. There would be two concurrent jurisdictions one providing reasonable protection for the taxpayer and the other providing no protection quoad the original assessment, apart from a right to appeal. Such a construction seems to their Lordships inconsistent with the general and mandatory provisions of section 71. That section is providing how all original assessments are to be made." The language of these sections 59(1), 71 and 72 is different from that of sections 11 and 14 of the Act. Section 72 was held not applicable because there would be two concurrent jurisdictions, one providing reasonable protection for the taxpayer and the other providing no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the High Court granted under section 19 of the Business Profits Tax Act, 1947 (hereinafter called the Act) read with section 66(1) of the Indian Income-tax Act, 1922. Messrs. Narsee Nagsee Co., Bombay (hereinafter referred to as the assessee firm) are the respondents. The assessee firm, at all material times, was doing business in Bombay. For the chargeable accounting period, November 13, 1947, to October 31, 1948, a notice was issued on January 12, 1953, by the Income-tax Officer under section 11(1) of the Act calling upon the assessee firm to submit its return. This notice was served on the assessee firm on January 21, 1953, and it filed a return under protest, stating that the notice was barred under section 14 of the Act. It may be mentioned that the assessment for purposes of income-tax for the same year was completed on February 17, 1953. The objection of the assessee firm was overruled by the Income-tax Officer, who completed the assessment under section 12(1) of the Act on November 30, 1953. The assessee firm then appealed to the Appellate Assistant Commissioner, who upheld the objection that the notice was invalid under section 14(1) of the Act. On appeal taken by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or have been the subject of excessive relief, he may at any time within four years of the end of the chargeable accounting period in question serve on the person liable to such tax a notice containing all or any of the requirements which may be included in a notice under section 11, and may proceed to assess or reassess the amount of such profits liable to business profits tax, and the provisions of this Act shall, so far as may be, apply as if the notice were a notice issued under that section." The Tribunal construed both these sections together, and expressed the opinion that the notice under section 11 in respect of a chargeable accounting period should issue before the commencement of the next chargeable accounting period, and that if the notice was not so issued, profits must be considered to have escaped assessment, and that action could only be taken under section 14 within four years of the close of the chargeable accounting period in respect of which it was sought to tax the assessee. The Tribunal, therefore, held that inasmuch as the notice in this case was issued in January, 1953, more than four years after October 31, 1948, when the chargeable accounting period ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner has contended that section 11 deals with the issuance of a notice for the first time before any income has been returned or brought to tax. The notice under section 11, it is submitted next, is without any limit of time, and a limitation cannot be read into a section, when the Legislature has not thought it fit to lay it down. According to the Commissioner, section 14 deals with "escaped assessment", which, under the scheme of the Act, must be given a narrow meaning as indicating the escapement of profits from tax either wholly or partly for any reason, after the process of assessment has taken place. Section 14, it is argued, operates after one set of proceedings for assessment of tax have taken place and applies only where the profits either escape assessment, or are under-assessed or excessive relief has been granted, while section 11, on the other hand, applies to all cases, where the assessee has not been called upon to file a return or has not filed one himself. As against this, the assessee firm adopts the reasons given by the Tribunal and the High Court, and adds that whereas under section 14 some definite information must be possessed by the Income-tax Officer before h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian Income-tax Act must issue before the close of the assessment year and cannot be issued thereafter. The scheme of the Business Profits Tax Act is different. Business profits follow the assessment of income-tax, and are payable for any chargeable accounting period in which, the assessee having carried on business, assessable profits have resulted. Under the Act, the Income-tax Officer, if he has reason to believe that the assessee was engaged in any business to which the Act applied, or to have been so engaged during any chargeable accounting period or to be otherwise liable to pay business profits tax, can call upon the assessee to furnish a return. That is section 11. Then comes section 14, which says that if in consequence of definite information which has come into his possession the Income-tax Officer discovers that profits of any chargeable accounting period chargeable to business profits tax have "escaped assessment", he may at any time within four years from the end of the chargeable accounting period in question serve on the person liable to such tax, a notice. There is no compulsion to file a return except in answer to a notice issued either under section 11 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring any chargeable accounting period, a tax (in this Act referred to as 'business profits tax') which shall, in respect of any chargeable accounting period ending on or before the 31st day of March, 1947, be equal to sixteen and two-thirds per cent. of the taxable profits, and in respect of any chargeable accounting period beginning after that date, be equal to such percentage of the taxable profits as may be fixed by the annual Finance Act." Section 5 deals with the application of the Act. That section, omitting again the provisos that do not affect the present matter provides : This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of sub-clause (i) or sub-clause (ii) of clause (b) of sub-section (1) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section." It will appear from these sections quoted that the business profits tax comes in the wake of the income-tax. That is to say, the assessability to profits tax follows the assessability to income-tax. The tax is laid on the taxable profits accruing within a stated period w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be initiated again after the expiry of four years from the end of any chargeable accounting period. The Commissioner contends that the phrase "profits have escaped assessment" in section 14 must be limited to those cases only. For this purpose, reliance is placed upon a recent decision of the Privy Council in a case from Africa, Gokuldas Ratanji Mandavia v. Commissioner of Income-tax, which will be referred to in some detail. The income-tax authorities in Nairobi in that case wrote on May 26, 1953, asking Mandavia for information and a deposit of pound 2,000 and saying : "As you do not appear at any time to have made a return of total income and claim for allowances, I am sending under separate cover forms covering years of assessment 1943 to 1953. These should be completed and submitted to me along with the accounts of your professional activities and of your property dealings as set out in the preceding paragraphs." Mandavia was at that time in England, and wrote on June 4, asking for time till the end of July. On June 15, 1953, the Regional Commissioner wrote to inform him that he was proceeding to assess him and impose penalties on the basis of such information as h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had a notice and a "time allowed" under sections 59 and 71 or not. The argument on behalf of the taxpayer was that section 72 only dealt with cases where subsequent information led either to an assessment after a prior assessment or to an additional assessment but had no application to cases in which the machinery of section 59(1) had not been operated. The Privy Council accepted the contention of the taxpayer. It held that before assessments could be made, the " time allowed " had to elapse. It, however, gave a narrow meaning to the words as to assessing for the first time in section 72, as restricted to " cases in which, the machinery of section 59(1) having been operated, no assessment has been made ". Their Lordships gave three reasons for this conclusion, which may be set out in their own words : "If the power to make an assessment under section 72 applies to the making of an original assessment their Lordships are unable to imply a term restricting it to back cases or making it ultra vires to operate it at any time. One would expect an opportunity to make a return to be a condition precedent to assessment. This is supported by the provisions for personal allowances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " time allowed " had not expired. The assessee relies upon a decision of the Bombay High Court in Commissioner of Income-tax v. P. N. Contractor, where the previous year ended on March 31, 1934. No notice was served on the assessee under section 22(2) of the Indian Income-tax Act during the year of assessment. Then a notice under section 34 of the Income-tax Act was served on June 26, 1935. It was held by Beaumont, C. J., and Rangnekar, J., that section 34 of the Indian Income-tax Act was wide enough to include those cases in which there was no notice under section 22 or a first assessment. Beaumont, C. J., dissented from the observations of Sir George Rankin in In re Lachhiram Basantlal made obiter that " income cannot be said to have escaped assessment except in the case where an assessment has been made which does not include the income ", and observed : " Under section 34 what must be escaped is assessment and that means the whole process of assessment, which, in the case of individuals, starts with the service of a notice under section 22(2). The liability to assessment is a risk to which every person in British India entitled to income is liable, and I cannot see why t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lp. In Maharaj Kumar Kamal Singh v. Commissioner of Income-tax it was held that the word "information" was wide enough to include information as to the true and correct state of the law and the word "escaped" was wide enough to cover cases of inadvertence or oversight on the part of the assessing authorities. In Commissioner of Income-tax v. Ranchhoddas Karsondas the respondent assessee had submitted a "voluntary" return showing no taxable income, and it was held that the Income-tax Officer could not ignore the return and proceed under section 34 of the Income-tax Act. In Maharajadhiraj Sir Kameshwar Singh v. State of Bihar, the income returned was not brought to tax and later under section 26 of the Bihar Agricultural Income-tax Act, 1938, it was sought to be assessed. Section 26 of that Act was held to cover such a case, and the language of that section was extremely wide. These cases are hardly in point. We are thus thrown back upon the construction of the two sections, and must find out where the compulsion of the language employed and the general scheme of the provisions lead to. Before doing so, I shall discuss one other extraneous consideration called in aid by both the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any assessee and every case of escaped assessment or under-assessment was also well within the time prescribed by section 14 of the Act. There would hardly be any present need for such a drastic provision to start with. It might well have been thought that there would not be cases in which four years could not be considered ample, except those cases where a particular business was never brought to tax at all. For that, it might equally have been thought that section 11, as is contended by the Commissioner, was sufficient. The amendment in section 15 of the Excess Profits Tax Act might have been advisedly made to reach even those cases where though the profits of a business had once been brought to assessment, they needed to be reassessed even though the first assessment resulted in some tax or no tax. For those cases it might have been felt that the limit of five years ought to go. If this is as good an explanation of the intention of the Legislature in amending section 15, then the reason given by the High Court is not the only explanation, and it cannot be accepted. If the intention of the Legislature can be gathered in two different ways, it is sheer speculation to say which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made applicable at all. Section 4 of the Act says that in respect of any business to which the Act applies, there shall be charged, levied and paid a tax referred to as the business profits tax. The liability that is incurred can only be discharged by payment of the tax and the charging and levying are duties laid upon the Income-tax Officers who execute them by issuing a notice under section 11 and by assessing and demanding the tax. For this purpose, any person believed to be engaged in business to which the Act applies, or to have been so engaged or to be otherwise liable can be called upon to make a return. Of course, the proceedings thus initiated may or may not result in tax, but that is another matter. This is the first operation of the Act against a likely taxpayer. For this purpose, it is admitted, on all hands, there is no express limitation in section 11(1) or elsewhere. The question next is whether there is anything in section 14, which impliedly imposes such a limitation. That section deals with " escaped assessment ", "under-assessment" or "excessive relief." The last two categories ex facie refer to an assessment after a prior assessment. The question thus is whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds "escaped assessment" are given a restricted meaning in section 14. In this view of the scheme of the Act and the clear words of section 11(1), it seems difficult to put a limit of time because one is contained in section 14 in respect of profits escaping assessment. No doubt, both the sections must be construed harmoniously ; but as was observed by Sir Lawrence Jenkins in Mohammed Sher Khan v. Raja Sethswami Dayal, the provisions of one section cannot be used to defeat those of another, unless it is impossible to effect reconciliation between them. Equally both sections must not be made to operate in the same field. In the Act with which we are concerned, reconciliation is only possible if the words of section 11(1) and section 14 are given meanings without importing certain implications from one into the other, and the only way different fields can be found is to read them differently. The interpretation of the High Court, if I may figuratively describe it, makes the two sections march hand in hand during the four years which ex facie could not have been intended, as one section depends upon the entertainment of belief and the other section requires definite information lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur years would be the " assessment period ". It would begin at the end of the chargeable accounting period and end after the lapse of four years. It would embrace all the chargeable accounting periods within reach. But then, section 14 also operates in the same manner and for the same time. This construction renders section 14 otiose. Nor do I think that there is any unreasonableness in the construction, which I have indicated above. The Legislature might have been solicitous that persons who have been subjected to the process of assessment once should not be exposed to a second peril except within the reasonable period of four years from the end of the chargeable accounting period ; but it did not view in a similar way those persons who were never troubled before but whose liability to pay tax remained unaltered. The motive with which limitation was introduced in one section cannot be the motive for the courts to introduce the same period in quite another section. To adopt the reasoning of the High Court would be to make no distinction between sections 11 and 14 and to render meaningless the fiction to be found in the last words of section 14. For profits which have never been bro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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