The Commissioner 0]' Income Tax, Bombay City I, Bombay v. M/S. Narsee Nagsee And Co., Bombay

Jai i<aur v. Sher Singh Das Gttpta J. Ig60 May 6. 988 SUPREME COURT REPORTS [1960] dJ.ughters in posses~ion, would not become full owners under s. 14. We do not think it would be proper to consider these questions in the present suit in this haphazard manner when on the all-important question of possession, the appellants themselves do not wish to say whether the mother was in possession actually or constructively, whether the danghters' possession was merely permissive, or whether the daughters were in independent possession, on their own behalf. These and other questions of fact, and the questions of law that have to be considered in deciding a claim by tho first appellant or the other two appellants under s. 14 of the Hindu Succession Act, should properly be considered in any suit that they may bring in future, if so advised. We express no opinion on any of these questions. For the reasons which have been mentioned earlier, we hold that the High Court rightly decreed the snit in favonr of the plaintiffs in respect of the non-ancestral property also, and dismiss the appeal. In the circumstances of the case, we order that the parties will bear their own costs throughout. Appeal dismissed. THE COMMISSIONER 0]' INCOME TAX, BOMBAY CITY I, BOMBAY M/S. NARSEE NAGSEE AND CO., BOMBAY. (S. K. DAS, J. L. KAPUR and M. HrnAYATUI,LAH, JJ.) Business Profits Tax-Limitation for assessment-Notice under Business Profits Tax Act issued beyond four years-Validity-,, Profits escaping assessm-ent ", meaning of-Excess JYrofits Tax Act, 1940 (15 of 1940), ss.13, 15-Indian Income-tax Act,1922 (II of 1922), ss. 22(2), 34(1)-Income Tax and Excess Profits Tax Amendment Act, 1947 (22 of 1947)-Business Profits Tax Act, 1947 (21 of 1947), SS. II(I), 14. The assessee firm which was doing business in Bombay \vas served with a notice on January 21, 1953, by the Income-tax Officer under s. n(1) of the Business Profits Tax Act, 1947· in respect of the chargeable accounting period from November 13, 1947, to October 31, 1948, calling upon it to submit its return. It filed the return under protest stating that the notice was barred under s. 14 of the Act as it was served beyond the period of four years. The question was whether in s. II of the Act a limitation 1960 corresponding to the limitation contained in s. 14 must be neces-sarily read and whether in a case where the profits were not Commissioner of brought to assessment because notice under s. II was not issued Income Ta" in time, they must be deemed to have escaped assessment and v. action could only be taken under s. 14 within the time specified N""" N,,gsee therein ; &- Co. Held (per S. K. Das and Kapur, J]., Hidayatullah, J., dissenting), (r) that the words "profits escaping assessment" in s. 14 of the Business Profits Tax Act, 1947, apply equally to cases where a notice was received by the assessee but resulted in no assessment, under-assessment or excessive relief, and to cases where due to any reason no notice was issued to the assessee and therefore there was no assessment of his income ; (2) that ss. II and 14 of the Act have to be read together and ·that a notice under s. II cannot be issued against an assessee beyond the period of four years indicated in s. I4· Kamal Singh v. Commissioner of Income-tax, [1959] Supp. I S.C.R. IO and Maharajadhiraj Sir Kameshwar Singh v. Stqt,e of Bihar, [1960) r S.C.R. 332, relied on. Gokuldas Ratanji Mandavia v. Commissioner of Income-tax, [1959] A.C. rr4, distinguished. 989 128 990 Per Hidayatullah, ].-Section II of the Business Profits Tax Act, 1947, is confined to cases where there has been no prior assessment, while s. I4 is applicable to cases where after an assessment there is discovery that profits have escaped assess-ment due to one reason or another. The use of the words " escaped assessment " in the context of the Act has reference only to those cases where profits of a business were brought to process once but for some reason some profits escaped assessment or were µnder-assessed or received excessive relief. For the subsequent and re-openert assessment there is a limit of four years, but for the assessment for the first time there is no limit. C1vu, APPELLATE JURISDICTION: No. 319 of 1958. Civil Appeal Appeal from the judgment, and order dated September 5, 1956, of the Bombity High Court in Income-tax Reference No. 31 of 1956. Ii. N. Sanyal, Additional Solicilor-General of India, K. N. Rajagopal Sastri and D. Gupta, for the appel-lant. N. A. Palkhivala, S. N. Andley, J. B. Da<lachanji and Rameshwar Nath, for the respondents. N. A. Palkhivala, S. S. Shukla and Mrs. Eluri U dayaratnam, for the intervener {The Punjab National Bank Ltd.) r960 Commissioner of Income lax v. Nar~ee ]\iogsee &Co. J\apur ]. 990 SUPREME COURT REPORTS 1960. May 6. The Judgment of S. K. Das and J.L. Kapur, ,JJ"., was delivered by Kapur, J. Hidaya-tullah, J., delivered a separate Judgment. KAPUR, J.-This is an appeal against the judg-ment and order of the High Court of Bombay passed in Income Tax Reference No. 31of1956. The -appel-lant 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 Busi-ness Profits Tax Act (Act 21 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 s. 11(1) of the Act in respect of the above-mentioned chargeable account-ing 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 Busi-ness Profits Tax because it was beyond the period of four years limitation under s. 14 of the Act. This plea was upheld by the Appellate Assistant Commis-sioner. The Income-tax Officer then appealed to the , Appellate Tribunal and it confirmed the order of the Appellate Assistant Commissioner. At the in-stance of the appellant a case was stated to the High Court of Bombay on the following two questions of law:-, (1) "Whether the Income-tax Officer had jurisdic-tion to assess the assessee firm under the Business Profits Tax Act by issue of a notice under Section 11 (1) of the Business Profits Tax Act on 12-1-1953 in respect of the chargeable accounting period 13-11-1947 to 31-10-1948 without having recourse to Section 14 of the Business Profits Tax Act ? (2) If the answer to Question No. 1 is in the negative whether the B. P. T. assessment could be considered to have been validly made ? " 128 990 991 . The High Court modified the first question by deleting the words "without having recourse to Section 14 of the Business Profits Tax Act" and answered both the questions in the negative. The Income-tax Appellate Tribunal had held that as under s. 14 of the Act the period of limitation commenced from the end of the chargeable accounting period in question the notice under s. 11 (1) had to be issued before that period. The High Court did not accept this view. It held that both ss. 11 and 14 had to be read to-gether and the mention of four years in s. 14 was an important indication of the period of limitation in regard to the issue of notice under s. 11 also and further if profits which escaped assessment, as in the present case, could only be taxed within four years of the end of the chargeable accounting period because of s. 14 of the Act, then inferentially the escape of assessment must be at sometime anterior to the period mentioned in s. 14 and as on the facts of the present case the notice had been issued four years after the close of the chargeable accounting period the notice under s. 11 was not valid. .Against this order the appellant has come in appeal to this Court on a certificate of the High Court. It is submitted by the appellant that though ss. 11 and 14 may have to be read together, they apply to different sets of circumstances ; s. 11 applies to a case where the Income-tax Officer requires 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 s. 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, s. 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 s. 14 applies where such notice was issued, and it either ended in no assessment at all or there was under-assessment, Comniissioner of Income Ta-t"" iVarsee Nagsee & c~. Kapur .f• 992 SUPREME COURT REPORTS 6960 etc. According to the argument of the appellant, . . therefore, there is no period oflimitation prescribed by er,:;::;;~··;:;~•! the Act for the first notice to furnish a return in v. regard to any chargeable accounting period but if Narsee Nagsee such notice was given and a return was made and c;. Co. for any reason whatsoever the profits were not assessed or were under-assessed, etc., Lhen s. 14 comes Kapur j. into operation and notice has to be served within four years of the end of the chargeable accounting period in question. 993 994 The provisions of the Act which arise for con-sideration are ss. 2, 4, 5, 11 and 14. Section 2 is the definition section ; s. 4 the charging section and s. 5 deals with the applicability of the Act. Section 11 provides for the " Issue of notice for assessment " and s. 14 is headed "profits escaping assessment". Section 2 (2) defines accounting period and s. 2( 4) chargeable accounting period. Section 4 provides that in respect of any business to which the Act applies there shall be charged, levied and paid on the amount of taxable profit during any chargeable accounting period a tax equal to sixteen and two. third per cent. of the t11xable profits, which in later years was fixed at a lower figure by the Finance Acts of 1948 and 1949. Under s. 5 the Act applies to every business of which any part of the profits made during the clrnrgeable accounting period is charge-able to income-tax under s. 4 (1) (b) (i) and (ii) or sub-cl. (c) of that sub-section. Sections 11(1) and 14 of the Act may now be quoted:- S. 11(1). "The Income-tax Officer may, for the purposes of this Act, require any person whom he believes to be enaged in any business to which this Act applies, or to hav-e been so engaged during any chargeable accounting period, or to be otherwise liable to pay business profits tax, to furnish within such period, not being less than forty-five days from the date of the service of the notice, as may be spe-cified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) with respect to any chargeable accounting period specified in the notice, 3 S.C.R. SUPREME COURT REPORTS the profits (taxable profits) of the business or the amount of deficiency, if any, available for relief under section 6 ". S. 14. "If, in consequence of definite information which has come into his possession, the Income-tax Officer discovers that profits of any chargeable accounLiug period chargeable to business profits tax have escaped assessment, or have been under-assessed, or have been the subject of excessiv~ 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 s. 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 ss. 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 s. 14 of the former and in s. 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. Section 34(1) of the Indian Income-tax Act as amended in 1939 provided:- S. 34(1). "If in consequence of definite information which has come into his possession the Income-tax Officer discovers that income, profits or gains chargeable to income-tax have escaped assessment in any year, or have been under-assessed, or have r960 Commissioner of Income Tax v. Narsee Nugsee &Co. Kapur ]. Comniissioner of Income Tax v lVarsee Nagsee &Cn. Kapur f. 10,18,19 995