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Commissioner of Income-tax, Karnataka-ii, Bangalore Vs. Mysore Iron and Steel Limited - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Reference Case No. 171 of 1980
Judge
Reported in(1985)46CTR(Kar)93; ILR1985KAR1499; [1986]157ITR531(KAR); [1986]157ITR531(Karn)
ActsIncome Tax Act, 1961 - Sections 84, 143(3), 147, 154(7) and 256(2)
AppellantCommissioner of Income-tax, Karnataka-ii, Bangalore
RespondentMysore Iron and Steel Limited
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateG. Sarangan, Adv.
Excerpt:
.....entry will not confer any ownership rights on plaintiffs. - the case of the revenue before the tribunal was that the order under section 154 passed on june 29, 1974, rectified the assessment order under section 147 dated march 15, 1973, and, therefore, was well within the period of limitation. there being no such authority under the law for denying the assessee the rebate which had become final, the order passed by the income-tax officer on june 29, 1974, is clearly barred by time. it held that, in any event, the rebate allowed to the assessee had become final and the rectification order passed on june 29, 1974, was clearly barred by time. 10. these principles are now well-settled by at least four decisions of the supreme court both under the income-tax act and also under the sales..........after an original assessment, an order of rectification has been made and subsequently there is a reassessment under section 147 of the income-tax act, 1961, whether the time-limit provided under section 154 of the act should be computed from the date of the earlier order of rectification or from the date of the order of reassessment ?' 2. the facts behind the legal formulation are as follows : the assessee is a company and the assessment for the year 1963-64 was completed under section 143(3) on march 23, 1965. in that order, the rebate under section 84 was worked out as admissible to the extent of rs. 7,69,233. the assessee by a letter dated june 16, 1965, invited the attention of the income-tax officer (i.t.o.) that there was a mistake in the calculation of the average capital and.....
Judgment:

K. Jagannatha Shetty, J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following question under section 256(2) of the Income-tax Act, 1961 (the Act) :

'Whether after an original assessment, an order of rectification has been made and subsequently there is a reassessment under section 147 of the Income-tax Act, 1961, whether the time-limit provided under section 154 of the Act should be computed from the date of the earlier order of rectification or from the date of the order of reassessment ?'

2. The facts behind the legal formulation are as follows :

The assessee is a company and the assessment for the year 1963-64 was completed under section 143(3) on March 23, 1965. In that order, the rebate under section 84 was worked out as admissible to the extent of Rs. 7,69,233. The assessee by a letter dated June 16, 1965, invited the attention of the Income-tax Officer (I.T.O.) that there was a mistake in the calculation of the average capital and the rebate should be restricted to Rs. 6,59,368 against the larger amount allowed in the assessment. Consequently, the Income-tax Officer made an order of rectification under section 154 on February 25, 1967, restricting the rebate under section 84 to Rs. 6,59,368.

3. Subsequently, the above assessment was reopened under section 147(a) and the reopened assessment was completed on March 15, 1973. In this assessment also, the rebate allowed under section 84 was taken as Rs. 6,59,368 as determined finally in the order of rectification under section 154 made on February 25, 1967.

4. Subsequently by yet another order under section 154 dated June 29, 1974, the Income-tax Officer reduced the quantum of rebate under section 84 to Rs. 5,15,368 from Rs. 6,59,368.

5. The assessee appealed to the Appellate Assistant Commissioner (AAC) who held that the order under section 154 made on June 29, 1974, was barred by time, since the subsequent orders after February 25, 1967, could not be considered for limitation. He accordingly cancelled the said order passed under section 154.

6. As against the order of the Appellant Assistant Commissioner, the Revenue appealed to the Tribunal. The case of the Revenue before the Tribunal was that the order under section 154 passed on June 29, 1974, rectified the assessment order under section 147 dated March 15, 1973, and, therefore, was well within the period of limitation. It was further argued that when a reassessment is made under section 147, the original assessment order disappears and the entire assessment is reopened. The Tribunal did not agree with these submissions. It observed :

'... In this case, even taking the first order under section 154 dated February 25, 1967, as the starting point for limitation, the determination of the rebate at Rs. 6,59,368 had become final within four years from that date and the assessee had got a vested right to that relief which could not be taken away except by authority of law thereafter. There being no such authority under the law for denying the assessee the rebate which had become final, the order passed by the Income-tax Officer on June 29, 1974, is clearly barred by time....'

7. Section 154(7) provides a period of four years for rectification of a mistake from the date of the order sought to be amended. The question now for consideration is whether that four years should be reckoned from the original assessment order dated March 23, 1965, or from the rectification order dated February 25, 1967, or from the reassessment order dated March 15, 1973. The impugned rectification order was made on June 29, 1974. It would be barred by time if four years is to be computed from the original assessment order or from the earlier rectification order. It would be within time only if the limitation starts from the reassessment order dated March 15, 1973.

8. According to the Appellate Assistant Commissioner, the mistake had occurred in the original order of assessment and, therefore, the limitation should commence from the said date. The Tribunal on a slightly different ground has reached the same conclusion. It held that, in any event, the rebate allowed to the assessee had become final and the rectification order passed on June 29, 1974, was clearly barred by time.

9. The difficulty to answer the question, in our opinion, disappears if we bear in mind the consequences of the reassessment proceedings. It is an accepted canon in tax law that for a given year there can be only one assessment unless the statute expressly provides otherwise. It follows, therefore, that once an assessment is reopened, the initial order of assessment stands automatically cancelled. The order of reassessment will have to take the place of the original order of assessment.

10. These principles are now well-settled by at least four decisions of the Supreme Court both under the Income-tax Act and also under the Sales Tax Act.

11. In V. Jaganmohan Rao v. CIT : [1970]75ITR373(SC) , the scope of section 34(1) (b) of the Indian Income-tax Act, 1922, arose for consideration before the Supreme Court. That section relates to reassessment in the case of income escaping assessment. It was held that once an assessment is reopened, the previous underassessment is set aside and the whole proceedings start afresh. To be more accurate, this is what V. Ramaswami J., speaking for the court, observed (at p. 380) :

'It is, therefore, manifest that once an assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1) (b), the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.'

12. In CST v. H. M. Esufali H. M. Abbulali : [1973]90ITR271(SC) , the opinion expressed by the Supreme Court, speaking through Hegde J., is more distinctive and conspicuous. There, the question that arose was whether in reassessment proceedings initiated under section 19(1) of the M. P. General Sales Tax Act, 1958, the Sales Tax Officer was competent to make a best judgment assessment in the absence of a specific power conferred on him under the said section. It was observed (at page 280 of 90 ITR; p. 85 of 32 STC) :

'What is true of the assessment must also be true of reassessment because reassessment is nothing but a fresh assessment. When reassessment is made under section 19, the former assessment is completely reopened and in its place fresh assessment is made. While reassessing a dealer, the assessing authority does not merely assess him on the escaped turnover but it assesses him on his total estimated turnover.'

13. In international Cotton Corporation (P) Ltd. v. Commercial Tax Officer [1975] 35 STC 1, the question that arose was as to the period of limitation for making further rectification of an assessment order which had already been rectified. Alagiriswamy J., speaking for the court, in this context, observed (at page 12) :

'The other attack that the rectification order is beyond the point of time provided in rule 38 of the Mysore Sales Tax Rules is also without substance. What was sought to be rectified was the assessment order rectified as a consequence of this court's decision in Yaddalam's case : [1965]2SCR129 . After such rectification, the original assessment order was no longer in force and that was not the order sought to be rectified. It is admitted that all the rectification orders would be within time calculated from the original rectification order. Rule 38 itself speaks of 'any order' and there is no doubt that the rectified order is also 'any order' which can be rectified under rule 38.'

14. This statement of the law has been reiterated by the Supreme Court in Deputy Commissioner of Commercial Taxes v. H. R. Sri Ramulu [1977] 39 STC 177. In that case, the question that arose for consideration was as to the starting point for computing the period of limitation for exercising the suo motu powers of revision by the Deputy Commissioner to revise any order passed or proceedings recorded under the provisions of the Karnataka Sales Tax Act (25 of 1957). Khanna J., speaking for the court, observed (at page 180) :

'The reason for that is that once an assessment is reopened, the initial order of assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order of assessment and to substitute in its place the order made on reassessment. The initial order of reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order of reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. As it is, we find that in the present case the assessment orders made under section 12A were comprehensive orders and were not confined merely to matters which had escaped assessment earlier. In the circumstances, the only orders which could be the subject-matter of revision by the appellant were the orders made under section 12A of the Act, and not the initial assessment orders.'

15. The learned judge after referring to the principles enunciated in the International Cotton Corporation's case : [1975]2SCR345 , extended those principles also to the cases of reassessment (at p. 181 of 39 STC) :

'Although the above case related to an order which had been subsequently rectified, the principle laid down therein would, in our opinion, be also applicable in cases where reassessment is made on the ground that certain amounts of turnover had escaped assessment.'

16. It will be clear from these decisions that when a former assessment is reopened though it has become final, the assessing officer is required to assess the assessee on his total income or the turnover, as the case may be, and not merely on his escaped income. To put it in other words, once an assessment is reopened, the Income-tax Officer has not only the jurisdiction, but it is also his duty to determine the total taxable liability of the assessee. For the said purpose, he must take into account not only the escaped income in respect of which a notice under section 147 has been issued, but also the entire income of that year. The resulting position is that the order of reassessment so made will have to take the place of the original order of assessment. There can be no dichotomy of thought in this matter. That being the necessary consequence of reassessment, the period of limitation, in the present case, should be reckoned from the reassessment order dated March 15, 1973, and not from the earlier rectification order or the original assessment order.

17. Mr. Sarangan, learned counsel for the assessee, however, submitted that this principle of law will have a startling result in the scheme of the Act. In support of the submission, the counsel referred us to the various provisions in the Act starting from the assessment and ending with the powers of the Appellate Tribunal.

18. We do not think that we should spend any time over the apprehension of the learned counsel in view of the clear statement of law declared by the Supreme Court in the above cases. If there is any such startling result detrimental to the Revenue or to the assessees, it would be for the Legislature to step in.

19. We may also mention that the Madras High Court in CIT v. Standard Motor Products of India Ltd. : [1983]142ITR877(Mad) and the Allahabad High Court in Saran Engineering Co. Ltd. v. CIT : [1983]143ITR765(All) have taken a similar view as that of ours.

20. In the result, our answer to the question is that the time-limit provided under section 154(7) should be computed from the date of the order of reassessment and not from the earlier order of rectification.


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