1. The assesses company's assessment to income-tax for the assessment year 1949-50 which corresponds to the previous year S. Y. 2004 (13-11-1947 to 31-10-1948) was 'completed by the Income-tax Officer on 17-2-1953. On 12-1-1953 the Income-tax Officer issued a notice under Section 11(1), Business Profits Tax Act, 1947, against the assessee company In respect of the chargeable accounting period. 13-11-1947 to 31-10-1948.
The assessee company filed a return under protest. The protest was overruled by the Income-tax Officer and he completed the assessment. On, appeal by the assessee company, the Appellate Assistant Commissioner held that the assessment was invalid in view of Section 14(1), Business Profits Tax Act. The Income-tax Officer appealed to the Appellate Tribunal and the Appellate Tribunal took the same view as the Appellate Assistant Commissioner. The Commissioner of Income-tax has now come on this reference.
2. Section 11(1) which deals with the issue of notice for assessment under the Business Profits Tax Act, 1947, provides:
'The Income-tax Officer may for the purposes of this Act; require any person whom he believes to be engaged in any business to which this Act applies, or to have 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 daya from the date of the service of the notice, as may be specified 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, the profits, taxable profits of the business or the amount of deficiency, if any, available for relief under Section 6.'
The whole of Mr. Joshi's argument on behalf of the Commissioner is that the Legislature has not provided any limitation of time with regard to the Issue of this notice. It is pointed out that the notice may be issued with regard to any chargeable accounting period and the notice may be issued at any time, and what is urged is that if Section 11 does not limit the jurisdiction of the Income-tax Officer to issue such a notice for any specific period of time, the Court cannot import into the section a provision which the Legislature did not think fit to incorporate.
It is perfectly true that if we were to read Section 11 by itself, it would be difficult to resist the point of view put forward by Mr. Joshi. The notice is issued on the 12-1-1953, it is for' the chargeable accounting period 13-11-1947 to 31-10-1948, and there is no reason why on a construction of Section 11 by itself we should take the view that the notice which has been issued more than four years after the end of the chargeable accounting period is not a proper or valid notice.
It is also pointed out by Mr. Joshi, and that isa proposition to which Mr. Palkhivala also subscribes,that the liability to pay tax arises not by reasonof any notice issued under Section 11 but by reason of6. 4 which is the charging section. Therefore, atthe close of the chargeable accounting period if theassessee company had made any business profitswhich were liable to tax, then the liability to paythat tax arose by reason of the provisions of Section 4,and what Mr. Joshi urges is that if there was aliability that liability could be enforced at anytime under Section 11.
It is also pointed out that it is not helpful to consider the provisions of the Income-tax Act because the provisions of that Act and the Business Profits Tax Act are not in pari materia. It Is said that under Section 22(2), Income-tax Act by reason of the language used by the Legislature a notice has to be issued before the close of the assessment year and if a notice is not issued then the assessment would be bad if the Income-tax Officer wishes to assess the assessee to tax under that section. If the notice is not issued within time, then resort would have to be made to the provisions of Section 34, Income-tax Act.
But it is pointed out that under Section 11 there is no obligation to make a return as there is under Section 22, Income-tax Act by reason of the public notice under Sub-section (1) and therefore there being no obligation, to make a return the obligation to make a return only arises when a notice is served by the Income-tax Officer under Section 11, and therefore it is said that the scheme of Section 22, Income-tax Act and the scheme of Section 11, Business Profits Tax Act are entirely different and Section 11 must be construed in the light of the language used by the Legislature in that section and not in the light of the provisions of Section 23, Income-tax Act and the authorities which are based upon the language used in that section.
3. In our opinion, every Act must be construed as a whole and the duty of the Court must be as far as possible to reconcile the various provisions of a statute. This obligation, in our opinion, is alt the greater in the case of a taxing statute.
Therefore, we must look at the various provisions of the Business Profits Tax Act in order to decide what is the true effect to be given to the language used in Section 11, and in this connection the most relevant section which must come up for our consideration is Section 14. That section deals with profits escaping assessment or profits which have been under assessed or cases where the assessee has obtained excessive relief, and the Income-tax Officer has been given the jurisdiction to issue a notice in respect of these profits provided the notice is issued within four years of the end of the chargeable accounting period.
Therefore, it is clear from Section 14 that the Legislature did not intend to put an assessee to the peril of an indefinite apprehension with regard to the payment of tax in respect of profits made under the Business Profits Tax Act. The Intention of the Legislature was clear that after four years of the end of the chargeable accounting period the assessee should not be proceeded against even if profits had escaped assessment or his profits had been under assessed or he had obtained a relief to which he was not entitled.
Inasmuch as Section 11 does not indicate any period of time with regard to the issuing of a notice, would it or would it not be right for us to import into Section 11 the consideration which led the Legislature to fix a limitation of time for the purpose of issuing a notice under Section 14? If we were not to do that we would arrive at this rather extra, ordinary conclusion that the Legislature while saving the subject from harassment of proceedings with regard to escaped assessment or under-assessment, permitted that harassment with regard to the very initiation of proceedings after the lapse of four years.
It is contended that the period of four years mentioned in Section 14 supplies an1 important indication of what the period of limitation should be with regard to the issue of a notice under s. 11- If income which has escaped assessment can be taxed within four years by reason of Section 14, then it must inferentially follow that income must escape assessment at some point of time anterior to the period of lour years mentioned in Section 14.
4. Now, it is well settled that income escapes assessment when the process of assessment has not been initiated with regard to the taxing of that income. The liability having arisen by reason of the charging section, the next stage under the taxing statute is to assess that income to tax or to quantify the tax which that income is liable to bear, and if for any reason the income has not been assessed to tax then that income has escaped; assessment.
In one sense it may be said that as soon as the liability arises and there is no assessment, the income has escaped assessment because no proceedings have been taken for the purpose of assessing that income to tax and the Legislature under Section 14 has provided that when income has escaped assessment that income should not be brought to tax four years after the end of the chargeable accounting period.
According to Mr. Joshi, if the liability arises then proceedings can be initiated under Section 11 at any time and it is not necessary to characterise the income which has not been brought to tax as income' which has escaped assessment. Mr. Joshi says that whether the notice under Section 11 is issued after four years or 20 years or 50 years, it is still initiation of proceedings and assessment of the income to tax.
In our opinion, looking to the provisions of Section 14 there must be some point of time with regard to the income of an assessee when it could be Said of that Income that it has escaped assessment, and whatever the inner limit of time may be there can be no doubt that the outer limit of time as suggested by the Legislature in Section 14 must be four years. Therefore, when four years elapsed after the close of the chargeable accounting period, it could certainly be said of the income of the assessee that it had escaped assessment.
It is possible logically to take the view, as has been attempted to be taken by the Tribunal, that as the period of limitation under Section 14 commenced from the end of the chargeable accounting period, the notice under Section 11 should be issued before that period, & the argument is this that just as limitation in the ordinary sense does not commence before the cause of action has accrued, similarly under Section 14 limitation with regard to escaped assessment or under-assessment cannot commence unless 1t could be said that the income has escaped assessment or there has been an under-assessment.
There are difficulties in taking this logical view because in the first place Section 11 itself provides that the notice must be with regard to the return to be made for the chargeable accounting period, and looking to the clear language of Section 11 the view taken by the Tribunal cannot be justified because if the return has to be made of the chargeable accounting period, obviously the notice cannot be served before the end of the chargeable accounting period.
If this logical view were to be present (sic), it might also be said that not only the notice must be issued at least within four years mentioned in Section 14, but the assessment order itself must be completed within four years, because it may well be said that as Section 14 does not merely refer to escaped assessment but also to under-assessment or the assessee obtaining relief to which he is not entitled, that question cannot possibly arise unless the order of assessment has been made within the four years contemplated by Section 14.
But on this reference we do not propose to enter into this more interesting field and decide the larger question as to what is the proper period of time within which the notice must be issued under 8. 11. We wish to confirm our decision to the facts of this case and on the facts of the case the most significant and salient fact is that the notice has been issued four years after the close of the chargeable accounting period and as that notice is beyond the time mentioned in Section 14, in our opinion the notice is not a valid notice under s. 11.
5. We may also point out that although the Legislature has not imposed any limitation of time with regard to the issue of a notice under Section 11 and although as a canon of construction it may be said that if the Legislature has not imposed any limitation it is not' for the Court to restrict the power conferred by the Legislature upon the Income-tax Officer, it is well settled that if statutory powers are conferred upon an authority, the Court must hold that those statutory powers must be exercised reasonably, and in our opinion if statutory power is conferred upon the Income-tax Officer to issue a notice for the purpose of assessment under Section 11, that power must be exercised reasonably, and looking to the provisions of Section 14 it could not be said that when the Income-tax Officer issued this notice four years after the close of the chargeable accounting period he was exercising his statutory authority in a reasonable manner.
6. Mr. Joshi suggested that as the Income-tax assessment was not completed till 17-2-1953; the Income-tax Officer could not know what the business profits were and therefore he could not issue the notice till the time when the income-tax assessment was completed.
As a matter of fact the notice here is issued about a month before the completion of the income-tax assessment. But what Mr. Joshi overlooks to that under Section 11 it is not necessary that the Income-tax Officer should have reason to believe that a business has made profits, it is sufficient if he believes that an assessee is engaged in any business. Therefore, on the return being made by the assessee the Income-tax Officer came to know, as he must come to know, that the assessee was carrying on a business and there was nothing to prevent the Income-tax Officer from issuing a notice under Section 11.
We find it difficult to accept the view that by reason of the inaction of the Income-tax Officer and by reason of the want of 'diligence on the part of the Income-tax Officer to issue a notice under Section 11 within reasonable time, the assessee should be penalised, and although he would be entitled to the protection under Section 14, that protection should, be taken away from him by holding that although proceedings for escaped assessment cannot be taken under Section 14, proceedings for the first time can be initiated under Section 11.
6a. Another aspect of the case might also be loosed at. There is analogous legislation in the Excess Profits Tax Act and Section 13 corresponds to Section 11 and Section 15 corresponds to Section 14. Now, originally in the Excess Profits Tax Act there was a period of five years set out in Section 15 corresponding to the period of four years in Section 14, Business Profits Tax Act.
By Act 22 of 1947 Section 15, Excess Profits Tax Act was amended by Parliament and the period of five years was deleted from Section 15, with the result that a notice with regard to escaped assessment could be issued under Section 15 without any limitation of time. The Business Profits Tax Act was passed in the same year and as a matter of fact it was Act 21 of 1947.
It was a statute which preceded the amendment of the Excess Profits Tax Act. Therefore, while the Legislature in the Business Profits Tax Act kept a limit of time under Section 14, that very Legislature in an analogous legislation removed the limitation of time which originally was formed in Section 15, Excess Profits Tax Act.
In our opinion, this clearly indicates that as far as the Business Profits Tax Act was concerned the Legislature was anxious that business profits should not be brought to tax at any point of time without any limitation and that some protection should be given to the assessee, and the protection should be that after the lapse of a certain period of time the profits should not be liable to tax if the Taxing Authorities were not diligent enough to take the necessary proceedings.
7. Whichever way one looks at it, the position is not free from difficulty. But as this is a taxing statute, if we can reconcile Section 11 and Section 14 and reconcile it in a manner which is beneficial to the subject, then it is our duty to do so. We do not and cannot accept the argument of Mr. Joshi that we must construe Section 11 independently of any other section of the Act.
After all Section 11 is only one section of the Business Profits Tax Act. We cannot ignore or shut our eyes to the other sections, and if the other sections help us to construe Section 11 in a reasonable manner, it is our duty to do so. it is in this light that we have come to the conclusion that the Tribunal was right in coming to the conclusion that it did,
8. We will therefore answer question (1) in the negative, after deleting the words 'without having recourse to Section 14, Business Profits Tax Act' from it. We will also answer question (2) in the negative. The Commissioner to pay the cost of the reference.
9. Answer accordingly.