K.S. Puttaswamy, J.
1. As the parties and the questions that arise for determination in these cases are common, I propose to dispose of them by a common order.
2. M/s. Smith Kline & French (India) Limited, a foreign company incorporated in England with limited liability, which had a manufacturing unit for manufacture of drug and pharmaceuticals and a branch office at Bangalore City, was the original petitioner in these cases and under a scheme of amalgamation sanctioned by this court, has merged in an Indian company called M/s. Eskey Ltd., which has now come on record as the petitioner in the place of the original petitioner. But in order to appreciate the questions raised, these cases will be examined as if there was no amalgamation and the foreign company-will hereafter be referred to as the assessee.
3. For the assessment year 1979-80 relevant to the accounting year ending on November 30, 1978, the assessee company filed its return under section 5 of the Companies (Profits) Surtax Act, 1964 (Central Act No. VII of 1964) ('the Act'), before the Income-tax Officer, Company Circle-I, Bangalore (Income-tax Officer) (annexure A), inter alia, disclosing that it was not liable to pay any tax under the said Act. But, the Income-tax Officer without accepting the same and on the basis of other materials available with him like the assessment order for the year preceding the assessment year, issued a notice on January 24, 1980 (annexure B), to the assessee proposing to make a provisional assessment for the aforesaid year determining its liability for a sum of Rs. 34,69,552 as set out in a detailed computation statement annexed to the same. In response to the said notice of the Income-tax Officer, the assessee filed its objections before the Income-tax Officer on February, 1980 (annexure C), reiterating that it was not assessable to tax under the Act and even if it was so assessable, it was assessable for a sum of Rs. 10,69,234 only as against a sum of Rs. 34,69,552 detailed in the computation statement. On an examination of the return and the objections filed by the assessee, the Income-tax Officer on November 30, 1980 (annexure E), made his provisional assessment order under section 7(2) of the Act determining a sum of Rs. 18,18,646 as surtax payable by the assessee for the aforesaid assessment year and also issued a consequent demand notice for the aforesaid sum (annexure E-1). In Writ Petition No. 4849 of 1980, the assessee has challenged the constitutional validity of section 7 of the Act, the consequent assessment order and the demand notice issued by the Income-tax Officer. On March 29, 1980, this court while issuing rule nisi made an interim order on terms. But, during the pendency of this petition, the Income-tax Officer on June 29, 1980, made his regular assessment for the aforesaid assessment year under section 6 of the Act which has been separately challenged in an appeal by the assessee under the Act.
4. For the succeeding assessment year 1980-81, the assessee filed its returns before the Income-tax Officer under the Act. But, the Income-tax Officer, as in the past, issued a notice on February 26, 1981 (annexure A), to the assessee proposing to make a provisional assessment for the aforesaid year on the basis of the computation detailed therein. In Writ Petition No. 3959 of 1981, the assessee, challenging the constitutional validity of section 7 of the Act, has challenged the said notice also. On March 10, 1981, this court has stayed the operation of the said notice, which has continued ever since then.
5. The assessee has urged that section 7 of the Act does not empower the Income-tax Officer to adjudicate disputes and he was bound to accept every plea urged before him. Secondly, the assessee has urged that if that construction of section 7 of the Act did not find favour with this court, then that section conferring unguided, uncanalised, uncontrolled and arbitrary powers, was violative of article 14 of the Constitution.
6. The respondents, to be hereinafter referred to as the 'Revenue', have resisted these writ petitions.
7. In order to appreciate the challenge of the assessee to section 7 of the Act, based on article 14 of the Constitution and otherwise also, it is first necessary to ascertain its true scope and ambit.
8. Sri G. Sarangan, learned counsel for the assessee, contends that section 7 of the Act does not empower the Income-tax Officer to adjudicate on any of the objections raised before him and that he was bound to accept them without any adjudication on any of them. In support of his contention Sri Sarangan strongly relies on the ruling of the Supreme Court in Jaipur Udyog Ltd. v. CIT : 71ITR799(SC) .
9. Sri K. Srinivasan, learned senior standing counsel for the Income-tax Department, appearing for the Revenue, refuting the contentions of Sri Sarangan, contends that section 7 of the Act empowers the Income-tax Officer to provisionally determine every one of the objections and the principles enunciated in Jaipur Udyog Ltd.'s. case : 71ITR799(SC) have no application.
10. The Act has been enacted to impose a special tax called 'surtax' on the profits of certain companies. Section 2 of the Act defines certain terms that generally occur in the Act. Section 3 deals with tax authorities who administer the Act. Section 4 is the charging section of the Act. Section 4 provides for levy of surtax on the chargeable profits of the previous year of the companies subject to various deductions at the rates specified in the Third Schedule to the Act.
11. Section 5 of the Act requires the companies governed by the Act to file their returns under the Act. Section 6 provides for making regular assessment on the returns filed or otherwise. But even before a regular assessment under section 6 of the Act is made, section 7 empowers the Income-tax Officer to make a provisional assessment and collect the taxes found due thereon from a company. Section 7 which is material, the true construction of which as also its validity arises, reads thus :
'Section 7. provisional assessment. - (1) The Income-tax Officer, before proceeding to make an assessment under section 6 (in this section referred to as the regular assessment) may, at any time after the expiry of the period allowed under sub-section (1) or sub-section (2) of section 5 for the furnishing of the return and whether the return has or has not been furnished, proceed to make in a summary manner a provisional assessment of the chargeable profits and the amount of the surtax payable thereon.
(2) Before making such provisional assessment, the Income-tax Officer shall give notice in the prescribed form to the person on whom the provisional assessment is to be made of his intention to do so, and shall with the notice forward a statement of the amount of the proposed assessment, and the said person shall be entitled to deliver to the Income-tax Officer at any time within fourteen days of the service of the said notice a statement of his objections, if any, to the amount of the proposed assessment.
(3) On expiry of the said fourteen days from the date of service of the notice referred to in sub-section (2), or earlier, if the assessee agrees to the proposed provisional assessment, the Income-tax Officer may, after taking into account the objections, if any, made under sub-section (2), make a provisional assessment, and shall furnish a copy of the order of assessment to the assessee :
Provided that assent to the amount of the provisional assessment, or failure to make objection to it, shall in no way prejudice the assessee in relation to the regular assessment. (4) There shall be no right of appeal against a provisional assessment made under this section.
(5) After a regular assessment has been made, any amount paid or deemed to have been paid towards the provisional assessment made under this section shall be deemed to have been paid towards the regular assessment; and where the amount paid or deemed to have been paid towards the provisional assessment exceeds the amount payable under the regular assessment, the excess shall be refunded to the assessee.'
12. In very clear and unambiguous language, this section confers power to make a provisional assessment in a summary manner on the chargeable profits of a company, demand the amounts found due and recover them also.
13. But before making his provisional assessment in a summary manner, the Income-tax Officer is required to give notice to the assessee in the prescribed form enclosing a statement of particulars on the basis of which he proposes to make his assessment giving it not less than 14 days' time from the date of service of such notice to file all such objections as are available to it with reference to such Proposed assessment. On receipt of such notice, it is open to the assessee to accept or not to accept the same and file all such objections as are available to it within a period of 14 days from the date of service of such notice. When objections are filed, section 7 empowers the Income-tax Officer to make a determination and serve a copy of his order on the assessee. The very power to consider objections and make a provisional assessment comprehends in itself the power to accept all or any of them or reject all or any of them. Section 7 of the Act nowhere provides for a mechanical or automatic acceptance of the objections filed by an assessee. If one were to read any such limitation in section 7 of the Act, then the same will be opposed to the language of that provision and defeat the very scheme and object of the Act. Sub-section (4) of section 7, which expressly prohibits an appeal, cannot be relied upon to restrict the power conferred in the preceding sub-sections of that section.
14. Every provisional assessment and every payment made thereon is subject to final assessment to be made under section 6 of the Act.
15. In Jaipur Udyog Ltd.'s case : 71ITR799(SC) , the Supreme Court interpreting section 141 of the Income-tax Act, 1961 (I.T. Act), that was then in force, had expressed that the language of that provision did not permit an Income-tax Officer to make an adjudication in making a provisional assessment under the Act. The language, its scheme and object of that provision are entirely different from the language, scheme and object of section 7 of the Act. Hence, the ratio of Jaipur Udyog Ltd.'s case : 71ITR799(SC) , does not bear on the construction of section 7 of the Act.
16. On the foregoing discussion, I see no merit in this contention of Sri Sarangan and I reject the same.
17. Sri Sarangan next contends that section 7 of the Act, on the construction placed by me, confers unguided, uncanalised, uncontrolled and arbitrary powers and is violative of article 14 of the Constitution.
18. Sri Srinivasan, refuting the contentions of Sri Sarangan, contends that section 7 of the Act was not violative of article 14 of the Constitution.
19. Section 7 has been enacted to subserve the main purposes of the Act. When one reads section 7 along with the Schedules, there are sufficient guidelines in every aspect of provisional assessment to be made under the Act. When the provisional assessment is subject to a final assessment and refunds thereon, the mere absence of an appeal against the former, cannot be construed as conferring arbitrary powers on the Income-tax Officer. When one examines this Provision in the light of the numerous rulings of the Supreme Court, in particular, in two of its later rulings in In re Special Courts Bill, : 2SCR476 , and R. K. Garg v. Union of India, AIR 1981 SC 2138, there is hardly any merit in this challenge of the assessee to section 7 of the Act. I, therefore, reject the contention of Sri Sarangan.
20. An examination of the proceedings culminating in the provisional assessment challenged in Writ Petition No. 4849 of 1980 shows that the same is in conformity with section 7 of the Act. Even otherwise, when a final assessment has been made, there is hardly any ground to interfere with the same.
21. In Writ Petition No. 3959 of 1981, the petitioner has only challenged the validity of the notice issued by the Income-tax Officer proposing to make a provisional assessment under section 7(2) of the Act. Earlier, I have held that it is open to the assessee to raise all such objections as are open to it under the Act which the authority is bound to examine and decide on. But before that, there is no justification to interfere with the same.
22. As all the contentions urged for the petitioner fail, these writ petitions are liable to be dismissed. I, therefore, dismiss these writ petitions and discharge the rule issued in these cases. But in the circumstances of the case, I direct the parties to bear their own costs.