Skip to content


Premier Cable Co. Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Judge
Reported in(1982)1ITD1064(Coch.)
AppellantPremier Cable Co. Ltd.
Respondentincome-tax Officer
Excerpt:
1. this appeal is by the assessee against the order of the commissioner, cochin, passed under section 263 of the income-tax act, 1961 ("the act"). the assessment year is 1976-77. for this assessment year, the ito completed the assessment on 22-9-1979. up to the assessment year 1974-75, the assessee had been following the financial year as its previous year. after 31-3-1974, the assessee changed the previous year to the year ending 30th september. the ito, while allowing the change in the previous year asked for by the assessee, laid down the condition that the first previous year after the change should be the period of 18 months, i.e., from 1-4-1974 to 30-9-1975.this previous year of 18 months became the previous year for the assessment year 1976-77. this previous year is for the income.....
Judgment:
1. This appeal is by the assessee against the order of the Commissioner, Cochin, passed under Section 263 of the Income-tax Act, 1961 ("the Act"). The assessment year is 1976-77. For this assessment year, the ITO completed the assessment on 22-9-1979. Up to the assessment year 1974-75, the assessee had been following the financial year as its previous year. After 31-3-1974, the assessee changed the previous year to the year ending 30th September. The ITO, while allowing the change in the previous year asked for by the assessee, laid down the condition that the first previous year after the change should be the period of 18 months, i.e., from 1-4-1974 to 30-9-1975.

This previous year of 18 months became the previous year for the assessment year 1976-77. This previous year is for the income of the assessee under the head "Profits and gains of business or profession".

The assessee manufactures cables.

2. For this assessment year, in the assessment made by the ITO, the total income was computed at the figure of Rs. 1,12,23,424. The ITO adjusted against this income the losses and depreciaation carried forward from the earlier years. He also adjusted the outstanding development rebate. There was a further adjustment by way of a deduction under Section 80J of the Act. The bone of contention between the department and the assessee in this appeal is regarding the entitlement of the assessee to a part of the development rebate and the relief under Section 80J. The dispute arises in this manner.

3. The development rebate that was adjusted by the ITO in the assessment order was a sum of Rs. 35,67,073. This was described in the assessment order as development rebate carried forward from 1967-68 to 1971-72. The records of the assessee with the ITO indicated that the figure of Rs. 35,67,073 included a sum of Rs. 33,16,297 representing the development rebate relating to the assessment year 1967-68 which had not been allowed as a deduction for that assessment year because that assessment had resulted in a loss. In fact, there is no dispute that the assessee had been incurring losses in all the subsequent assessment years and only in the assessment year under appeal, the assessee had made profits.

4. The relief under Section 80J allowed by the ITO for this assessment year was in respect of a new winding wire and strip unit. It was considered by the ITO as a new industrial undertaking. It was so mentioned by him in the assessment order, but because the details of the liabilities and the profits from the unit were not furnished by the assessee, the ITO stated that the question of granting deduction under Section 80J would be considered on the assessee furnishing the details.

The assessment was modified by an order dated 7-1-1980 granting deduction under Section 80J in respect of this unit. The relief so granted was Rs. 99,102. This figure was modified by another order dated 23-10-1980 whereby it was raised to Rs. 1,48,653. This particular undertaking started manufacturing during the previous year relevant to the assessment year 1971-72. The assessment year 1971-72 was the initial assessment year for the purpose of Section 80J(2).

5. Another point that has been considered by the Commissioner in his order under revision was the allowance by the ITO of a sum of Rs. 2,54,452 as provision for payment of gratuity. Admittedly, there was no approved gratuity fund in existence during the previous year for this assessment year, namely, the 18 months ending on 30-9-1975.

6. One fact that has to be mentioned in connection with this appeal is that the ITO, while completing the assessment, had to send a draft assessment order to the assessee under Section 144B(1) of the Act because the variation between the returned income and the income that was proposed to be assessed was more than Rs. 1 lakh. The assessee made certain objections and, therefore, the matter was referred by the 110 to the IAC under Section 144B(4). The IAC heard the assessee and then gave directions to the ITO under the provisions of Section 144B(4), and the assessment was completed by giving effect to the directions of the IAC.7. The Commissioner considered that the assessment which was passed by the ITO was erroneous and that such errors on the part of the ITO had caused prejudice to the revenue. The first item that he considered was the allowance of the development rebate of Rs. 33,16,297, representing the development rebate for the assessment year 1967-68. Under Section 33(2) of the Act the development rebate of a particular year which is not adjusted against the profits of that year in view of the insufficiency of profits is to be carried forward to the next assessment year and if it is not fully adjusted, to the subsequent assessment years and so on. Such carry forward is permitted only for eight assessment years. Since this part of the development rebate allowed by the ITO related to the assessment year 1967-68, it could have been carried forward only up to the assessment year 1975-76. The Commissioner considered that the ITO had committed an error in allowing the development rebate of Rs. 33,16,297 relating to the assessment year 1967-68 in this assessment. Similarly, he considered that the adjustment of the relief under Section 80J, relating to the assessment year 1971-72 in respect of the new winding wire and strip unit, was also not in order in that the relief under Section 80J can be carried forward only for the four assessment years succeeding the initial assessment year. This was with reference to the provisions of Section 80J(2). The fourth assessment year would be the assessment year 1975-76 and, therefore, he considered that the ITO had erred in allowing this relief under Section 80J for the present assessment year. The third item he considered as an error was the allowance of the provision of Rs. 2,54,452 as payment of gratuity on the ground that there was no approved gratuity fund in existence during the previous year. In addition to these three items, the Commissioner also considered that the salary and perquisites to some of the employees exceeded the monetary limit prescribed by Section 40A(5) of the Act and the ITO had allowed the full amount without restricting the deduction under Section 40A(5). The Commissioner, therefore, issued a notice under Section 263.

8. In response to this notice, on behalf of the assessee, objections were made. The first, in the nature of a preliminary objection, was that the Commissioner had no jurisdiction to revise this assessment of the ITO under Section 263, inasmuch as the assessment has been processed under Section 144B, and the subsisting order, as a result of the directions given by the IAC under Section 144B, is the order of the IAC and not that of the ITO. Since under Section 263, the Commissioner can revise only the order of the ITO and not that of the IAC, the Commissioner did not have jurisdiction. The preliminary objection was not accepted by the Commissioner for the reasons given by him in para 2, sub-paras (ii), (iii) and (IV).

9. In respect of the adjustment of the development rebate relating to the assessment year 1967-68 and in respect of the adjustment of the relief under Section 80J relating to the assessment year 1971-72, it was the contention of the assessee, before the Commissioner, that the eight or four assessment years need not be a period of eight or four unbroken, continuous series of the assessment years, that the definition of the "assessment year" given in Section 2(9) of the Act is capable of modification in the context, if so required, and that there are several justifications for inferring that there was no assessment year by way of the assessment year 1975-76 in the case of the assessee and, therefore, the eighth or the fourth succeeding assessment year in the case of the assessee is the assessment year 1976-77. This contention was also rejected by the Commissioner for the reasons detailed by him in sub-paras (ii) and (iii) of paragraph 3 and paragraph 4.

10. In respect of the deduction of the provisions of gratuity amounting to Rs. 2,54,452, it was urged, on behalf of the assessee, before the Commissioner, that although only a provision was made in the accounts for the year ended 30-9-1975, subsequently the amount has been transferred to an approved gratuity fund. It is pointed out that the gratuity fund had been created before 31-12-1975 and the approval had also been obtained within a short time thereof and, therefore, taking into account the spirit of Section 40A(7), it must be held that the assessee had an approved gratuity fund in existence during the previous year for this assessment year. This was also not accepted by the Commissioner who pointed out that the provisions of Sub-clause (ii) of Clause (b) of Section 40A(7) applied only to the assessment years 1973-74 to 1975-76 and not to the assessment year 1976-77. The Commissioner also considered that the disallowance under Section 40A(5) should be Rs. 47,170 in respect of some of the employees and directed the ITO to make this disallowance. The Commissioner in paragraph 7 of his order set out the directions given by him under Section 263(2) to the ITO. The directions were that the carry forward and set off of allowance of the development rebate in respect of the assessment year 1967-68, amounting to Rs. 33,16,297, is withdrawn, that the deduction under Section 80J allowed in respect of the new winding wire and strip unit is withdrawn, that the allowance of the provision for gratuity amounting to Rs. 2,54,452 is also withdrawn and that a sum of Rs. 47,170 relating to the salary and other allowances to the two employees shall not be allowed as a deduction, in view of the provisions of Section 40A(5). It is against this order of the Commissioner that the assessee has filed this appeal before us.

11. The assessee has raised objections only to the directions of the Commissioner in respect of the development rebate for the assessment year 1967-68, Section 80J relief for the assessment year 1971-72 and disallowance of the gratuity provision of Rs. 2,54,452. On these the assessee has reiterated the contentions that were made before the Commissioner.

12. The assessee has raised, firstly, the question of jurisdiction of the Commissioner under Section 263. It is pointed out that the ITO has passed the assessment order in pursuance of the directions of the IAC.It is submitted that there is a distinction between the orders of the ITO suo motu and the order passed by him in pursuance of the directions of the IAC under Section 144B. A reference is made in this connection to the provisions of Sub-sections (1) and (2) of Section 246, especially to Clause (i). It is submitted that Section 263 gives a power to the Commissioner only to revise an order of the ITO. Since this is not an order of the ITO suo motu, it is beyond the competence of the Commissioner to revise this order under Section 263. In this connection the order of the Tribunal, Madras, "C" Bench, in IT Appeal No. 993 (Mad.) of 1979 dated 29-11-1979, is referred to.

13. On the question of adjustment of the development rebate for the assessment year 1967-68 and the relief under Section 80J of 1971-72, it is submitted that the assessee has applied for a change in the previous year from financial year to the year ending 30th September. This approval was granted subject to only one condition, namely, that the first previous year after this change would be the period extending from 1-4-1974 to 30-9-1975. The ITO had issued a notice under Section 139(2) of the Act, to the assessee for the assessment year 1975-76, and has closed the proceedings as "N.A." on the ground that there was no previous year for that assessment year, namely, 1975-76. It is submitted that under Section 33(2)(ii), there is a bar to the carry forward of the unadjusted development rebate of a particular assessment year to a period for more than eight assessment years, immediately succeeding the assessment year relevant to the previous year in which the machinery was installed. It is submitted that in the facts of the assessee's case, since there was no previous year for the assessment year 1975-76 and, therefore, there was no assessment year 1975-76, the eighth assessment year immediately succeeding the initial assessment year, namely, 1967-68, is the assessment year 1976-77 and, therefore, the assessee is entitled to the adjustment of the development rebate for the assessment year 1967-68 in the assessment for 1976-77. It is submitted that the concept of "eight assessment years immediately succeeding" should not be considered out of context because it is not an abstract concept. In the context of the assessee's case, it is the assessment year 1976-77 that has immediately succeeded the assessment year 1974-75 because there was no assessment for the assessment year 1975-76. The provisions of Section 80J(2) are the same where the words used are "immediately succeeding" as in Section 33(2)(ii). It is submitted that the same interpretation should be given even in respect of Section 80J(2).

14. The order passed by the ITO, in the order sheet, for the assessment year 1975-76, closing the assessment as ''N.A." is not an assessment at all. It is submitted that the ITO could not have made an assessment for this year. It is pointed out that the ITO has closed the proceedings as "N.A." on the ground that the assessee had no previous year for this assessment year, which, according to the assessee, would indicate that the assessee had also no assessment year 1975-76.

15. It is submitted that the assessee is only asking for the legitimate relief that is granted to it under the provisions of the Act, that the profits that would normally have been assessed for the assessment year 1975-76 have been assessed in the assessment year 1976-77 and, therefore, if there had been no change in the previous year, the assessee would, in the normal course, have been entitled to the set off of these items of development rebate and relief under Section 80J brought forward from earlier assessment years. The provisions of Section 80J and Section 33 are sections intended to give relief to the assessee and these sections should not be interpreted in such a manner so as to defeat the intention behind the provisions. The idea of providing set off of the unadjusted development rebate and the relief under Section 80J is to provide these reliefs to the assessee, sooner or later, and not to deny them altogether, as would be the effect of the order of the Commissioner. It is also urged that the interpretation submitted on behalf of the assessee on all the aspects of these two provisions cannot be considered to be implausible and would, therefore, constitute one view, as valid as the view taken by the Commissioner. If two views are possible, it is the view that is favourable to the assessee that should be taken.

16. In respect of the gratuity liability, it is admitted that the gratuity trust was created on 30-12-1975. The application was also made on 30-12-1975 for approval and the Commissioner has approved it on 1-1-1976. It is submitted that in the spirit of the provisions of Section 40A(7)(b)(ii) the assessee would be entitled to the provision being allowed in this assessment year and, therefore, there is no error in the assessment order by the ITO so as to bring into operation Section 263.

17. On behalf of the department, the standing counsel made the following submissions. Replying first to the contention of the assessee that the Commissioner had no jurisdiction under Section 263 to revise the assessment order of the ITO as it was an order processed under Section 144B of the Act, it is pointed out that in the provision of Section 144B, as originally introduced by the Taxation Laws (Amendment) Bill, 1973, the power to make an assessment was given to the IAC and the heading itself read as "Power of Inspecting Assistant Commissioner to make orders of assessment in certain cases". The Select Committee had suggested amendments to this provision, as originally introduced, which has been adopted as Section 144B in the statute. It is pointed out that instead of the IAC making the assessment, as originally intended, the duty of making the assessment continued to be vested in the ITO, but subject to the direction of the IAC in such a category of cases. It is submitted that this makes it clear that even after the introduction of Section 144B and even in a case which is processed under Section 144B by the ITO, the assessment is continued to be made by the ITO as only the power to give directions is given to the IAC.The heading as contained in the original Bill, and even in the Bill as reported by the Select Committee continued to read as "Power of the Inspecting Assistant Commissioner to make orders of assessment", but this has been modified when the provision was finally passed as "Reference to the Inspecting Assistant Commissioner in certain cases".

The course which the introduction of this provision in the statute has taken and the change in the heading to this section should be taken into account for the purpose of ascertaining the intention of the Legislature. If these are taken into account, it is submitted that even in a case where the IAC gives direction under Section 144B, the assessment order is still continued to be passed by the ITO and, therefore, the Commissioner has jurisdiction over such orders under Section 263. It is further pointed out that Sub-section (1) of Section 144B refers to an assessment to be made under Section 143(3), that Sub-section (4) deals with the purpose of the directions of the IAC as for the guidance of the ITO to enable him to complete the assessment and, therefore, the assessment order passed after the IAC has given the direction under Section 144B is primarily the order of the ITO. The provisions of Sub-section (7) of Section 144B excludes from the purview of the section cases where the IAC exercises the powers or performs the function of the ITO in pursuance of an order made under Section 125 or Section 125A of the Act. Further, reference is also made to Section 125(2) and Section 125(4), and it is pointed out that the jurisdiction of the Commissioner under Section 263 is extended even to the orders of the IAC which are passed in cases referred to under Section 125(2) and Section 125A(4). Finally, it is submitted that Sub-section (2) of Section 246, which defines the jurisdiction of the Commissioner (Appeals), refers to the assessment order passed by the ITO after obtaining the direction of the IAC, as orders of assessment under Sub-section (3) of Section 143 or Section 144 made on the basis of directions issued by the IAC under Section 144B. This is in Section 246(2)(f). Similarly a provision is contained in Clause (g) of Section 246(2) which provides for an appeal being made to the Commissioner (Appeals) against an order imposing penalty under Section 271(1)(c) of the Act, which has been levied with the prior approval of the IAC under the proviso to item (iii) of Section 271(1)(c), while under Clause (h) of Section 246(2) a penalty levied by the IAC under Section 272A of the Act is also brought within the purview of Section 246. It is submitted, that the fact that appeals against such orders lie to the Commissioner (Appeals) as distinguished from the appeals lying to the AAC where Section 144B is not employed, is not a material distinction. Both orders are assessment orders passed by the ITO. It is further submitted that before the introduction of Section 246(2) appeals against the orders of the ITO passed after obtaining the direction from the IAC under Section 144B also lay only to the AAC because the institution of the Commissioner (Appeals) had not come into being at the time when Section 144B was introduced.

18. It is next submitted that the Act contains a definition of the term "assessment year" in Section 2(9). A similar definition was not there in the 1922 Act, which defines only the "previous year". It is pointed out that the definition in the Act is "the period of 12 months commencing on the first day of April every year". The use of the word "every" before the word "year", at the end of this definition, clearly indicates that there is an assessment year commencing on the first day of April of every calendar year. The occurrence of an assessment year without any break in the continuity, and irrespective of the circumstances whether an assessment is made on any particular person or not, is clearly postulated by the use of the words "every year" in the definition of the term "assessment year". Thus, the assessment year that succeeds the assessment year 1974-75 is the assessment year 1975-76 in all cases and for every purpose. The fact that no assessment is made on a particular person for a particular assessment year, in this case 1975-76, cannot lead to the conclusion that the assessment year which succeeds the assessment year 1974-75 is 1976-77. Referring to the opening words of Section 2, "Unless the context otherwise requires", it is submitted, that the context that is referred to here is not with reference to any particular individual assessee or any particular proceedings in an individual case but with reference to the various provisions of the Act. It is also submitted that it cannot be said that there has been no assessment on the assessee for the assessment year 1975-76. The ITO has initiated proceedings for the assessment year 1975-76 and has closed the proceedings as "N.A.".

19. Referring to Section 33(2) and Section 80J(2), it is pointed out that the material words appearing in these two provisions are "immediately succeeding" which would only mean "immediately occurring or done" without separation. "Succeeds", it is pointed out, means "following in an order or series". It would follow from this that "eight assessment years immediately succeeding" referred to in Section 33(2) and the "four assessment years immediately succeeding" referred to in Section 80J(2) would be the sequence of the assessment years which follow from year to year and independently of the question whether or not, in any particular assessment year, an assessment has been made on the assessee.

20. On the question regarding the allowability of the provision for gratuity, it is pointed out that Sub-clause (ii) of Clause (b) of Section 40A(7) is applicable only to the assessment years 1973-74, 1974-75 and 1975-76 and not to the assessment year 1976-77 and, therefore, it becomes material whether a trust has been created within the previous year for the assessment year as the claim of the assessee can only be considered under Sub-clause (i) of Clause (b) of Section 40A(7).

21. We consider that the jurisdiction of the Commissioner under Section 263 cannot be denied on the ground that the assessment order passed by the ITO has been subject to the provisions of Section 144B. The distinction that has been attempted by the learned counsel for the assessee, based upon the provisions of Section 246(1) and (2), does not really lead to the conclusion that the assessment order passed after obtaining the directions of the IAC is not an assessment order passed by the ITO. It still continues to be an order passed by the ITO even though it was subject to the directions given by the IAC. The assessee has brought to our notice the order of the Appellate Tribunal, Madras Bench "C", in IT Appeal No. 993 (Mad.) of 1979 dated 29-11-1979. It should be mentioned that in that case the IAC had given directions under Section 144B. On the other hand, Section 246(2)(i), providing for the appeal against the orders passed by the ITO after obtaining the directions from the IAC under Section 144B to the Commissioner (Appeals), itself describes such an order as an order of assessment only, without describing it as an order of assessment passed by the IAC. In this connection, as pointed out by the learned counsel for the revenue, the provision, as originally envisaged was for the assessment to be made by the IAC but this was subsequently modified so that the assessment continued to be made by the ITO but, subject to the directions that will be issued by the IAC which are made binding on the ITO. Section 144B cannot be considered as a provision vesting the IAC with jurisdiction to make assessment in any specified case. This should be compared with the provisions of Section 125 and Section 125A where specifically powers could be given to the IAC for making an assessment.

A separate sub-clause in Section 246 provides for an appeal against the orders that may be passed by the IAC who is vested with the powers and functions of an ITO under Section 125 or Section 125A. This is in Clause (b) of Section 246(2). The wording of Clause (b) of Section 246(2) should be compared with the wording of Clause (i) of the same sub-section. This would clearly show that the order of assessment contemplated in Clause (i) is an order of assessment passed by the ITO.The order of assessment contemplated in this clause is an order of assessment made on the basis of directions issued by the IAC. We, therefore, hold that the assessment order in question is an order passed by the ITO, and the Commissioner cannot be denied the jurisdiction under Section 263 on the ground that this assessment order was made on the basis of directions issued by the IAC under Section 144B.22. The questions regarding the claims of the assessee for the adjustment of the development rebate relating to the assessment year 1967-68 and the relief under Section 80.1 relating to the assessment year 1971-72 may be considered together. The material words that would determine the claim of the assessee for both these reliefs, appearing in Section 33(2)(ii) and Section 80J(2), are the same, namely, "immediately succeeding". In Section 33(2)(ii), the development rebate that is to be carried forward should not be carried forward for more than eight assessment years immediately succeeding the relevant assessment year ; while under Section 80J(2) the relief unabsorbed or unadjusted cannot be carried forward for more than four assessment years immediately succeeding the relevant assessment year, which is described in this provision as the initial assessment year. The question that arises for consideration in this case, in respect of these two claims, is whether 1975-76 would be the eighth/fourth immediately succeeding assessment year or 1976-77 would be the eighth/ fourth immediately succeeding assessment year. If the matter is to be worked out purely on an arithmetical basis, it is only the 1975-76 assessment year that would be the last assessment year in which such unabsorbed development rebate and relief under Section 80J can be adjusted against the profits of the assessee. It is the contention of the assessee that this arithmetical rule should not be applied because there was no assessment for the assessment year 1975-76 in the case of the assessee. There is no dispute about the, circumstances which led to such a position in the case of the assessee. The ITO, while allowing a change in the previous year, had imposed the condition that the income for the 18 months from 1-4-1974 to 30-9-1975 would be assessed taking that entire period as one accounting year, as the first accounting year after the change in the previous year is allowed. This naturally came to be assessed only for the assessment year 1976-77. Can it then be said that for 1975-76 year there was no assessment year at all It has been pointed out by the learned counsel for the revenue that the occurrence of the assessment year is just a matter occurring in point of time without reference to any other circumstance. He has pointed out the definition of the term "assessment year" as contained in Section 2(9). We are of the opinion that the mere fact that there was no income assessed in the hands of the assessee for the assessment year 1975-76 would not mean that there was no assessment year 1975-76 for the assessee here. The term "assessment year" is of primary importance with reference to the charging section in the Act, namely, Section 4.

This section uses the words "any assessment year", and provides that where any Central Act enacts that income-tax shall be charged for any assessment year at the rates to be specified in that Act, income-tax, etc., shall be charged in accordance with, and subject to the provisions of, the Act in respect of the total income of the previous year or previous years, as the case may be, of every person. The use of the word "any" before the term "assessment year" in this provision indicates that this is for every assessment year, pointing to a continuity in time in the recurrence of the assessment year. Taking this provision with the definition of the term "assessment year" in Section 2(9), which reads "the period of twelve months commencing on the first day of April every year" it is clear that for every person, whether he is assessed to tax or not, there is an assessment year commencing on the first day of April of every year. The definition of the term "assessee" in Section 2(7) would also support this view. This term includes "every person in" respect of whom any proceeding under this Act has been taken for the assessment of his income". In this case, proceedings have been taken by the ITO against the assessee for the assessment year 1975-76 though they have been closed as "N.A." for that assessment year.

23. It has been held by the Supreme Court in Esthuri Aswathiah v. CIT [1961] 41 ITR 539 that the closing of the proceedings as "N.A." by the ITO would amount to an assessment order. In the instant case, the ITO has issued a notice under Section 139(2) to the assessee and has, subsequently, closed the proceedings as "N.A.", on the ground that the assessee has no previous year. Shri S.P. Mehta, the learned counsel for the assessee, has questioned the correctness or validity of this order of the ITO closing the assessment proceedings as "N.A." on the ground that there was no previous year for the assessee. But we feel that this order of the ITO should not be read in isolation but in the context in which it has been passed, namely, the change in the previous year that has been allowed to the assessee and the further fact, that the assessee's known source of income is only under the head "business" for which there was no previous year for this assessment year. It cannot be said that because the proceedings have been so closed there has, in fact, been no assessment on the assessee for the assessment year 1975-76. This order of the ITO is a valid assessment order in the light of the decision of the Supreme Court cited above. We may point out here that the Calcutta High Court has held that even in a case where no return has been filed in response to a notice under Section 139(2) and where the proceedings have been closed as "N.A.", the ITO could validly initiate action under Section 147(a) of the Act on the ground that the assessee has failed to furnish the return of income-Amarnath Mehra v.ITO [1977] 110 ITR 376 (Cal.). If, for the sake of argument, it comes to light that the assessee has some income not coming under the head, "business", for which the previous year would be the financial year, and the income related to the previous year ended on 31-3-1975, then the ITO would be well within the law in reopening the assessment under Section 147(a) for the assessment year 1975-76, on the basis of his order closing the assessment proceedings as "N.A.". It cannot, therefore, be said that, as far as the assessee is concerned, the assessment year 1975-76 did not exist or was not there.

24. We consider that this recurrence of the assessment year without any break in series is the mechanism to effectuate the incidence of income-tax as an annual tax. The definition of the assessment year in Section 2(9) thus lays down that it is a period of 12 months that begins on every first day of April. On the other hand, the previous year could vary from person to person, and from source to source. There may not be a previous year for an assessment year but it cannot be said that there was no assessment year in any year.

25. It is, therefore, clear that even for the assessee here the last assessment year, in which the unadjusted development rebate and the unadjusted relief under Section 80J relating to the assessment years 1967-68 and 1970-71, respectively, could be absorbed is the assessment year 1975-76 and not 1976-77, In fact, the words "immediately succeeding" occurring in both these provisions, namely, Section 33(2) and Section 80J(2), should be given their natural meaning. If it is merely the word "succeeding", then the position might be different. The use of the word "immediately" before the word "succeeding" clearly shows that the succession of the assessment year should be without any break or discontinuity.

26. It has been submitted that both these provisions are intended to afford relief to the assessee and, therefore, should be interpreted liberally. While we agree with this general proposition, we do not see how the specific restrictions that are placed against the carry forward of the unadjusted portions of the development rebate and relief under Section 80J beyond a certain period can be interpreted so liberally as to allow relief beyond the period specified in these provisions.

27. It has also been submitted by the learned counsel for the assessee that the assessee is only asking for what is due to it under the provisions of the statute and nothing more. It has been stated that if the assessee had not asked for changing the previous year and this change had not been granted by the ITO, the assessee would have naturally in the normal course got the benefit of the carry forward of unabsorbed development rebate and the relief under Section 80J. This submission has been made to support the plea that the assessee should be allowed such benefit in the assessment for 1976-77 as has, in fact, been done by the ITO in the assessment proceedings. We do not think that this point is really germane to the issues arising in this appeal, but, nevertheless, the factual position does not provide much support for this submission made on behalf of the assessee. In the papers that have been filed by the assessee, a copy of the order of the ITO passed by him consequent on the revision of assessment by the Commissioner has been provided. The total income for the period of 18 months, according to the order passed by the ITO, dated 23-10-1980 (for the purpose of giving effect to the revision of the assessment for the assessment years 1973-74 and 1974-75) is Rs. 1,28,80,572. This figure is before the adjustment of depreciation and brought forward allowances as narrated in this order. The brought forward allowances which have been mentioned in the order are the business loss, the brought forward unabsorbed depreciation and the development rebate brought forward from the assessment year 1968-69. In giving effect to the order of the Commissioner under Section 263, the ITO had added the provision for gratuity of Rs. 2,54,452 and an amount not allowable under Section 40A(5) of Rs. 47,170 resulting in a total income of Rs. 1,31,82,194.

The depreciation for the year was Rs. 14,78,496. If this is adjusted, the balance income comes to Rs. 1,17,03,698. Now this is the income for a period of 18 months. If there had been no change in the previous year, the proper-donate income for the first 12 months would be 2/3rd of Rs. 1,17,03,698, that is, Rs. 78,02,466. The first two items to be adjusted against this out of the brought forward allowances would be (i) brought forward business loss of Rs. 14,05,450, and (ii) brought forward unabsorbed depreciation of Rs. 62,62,621, totalling Rs. 76,68,071, leaving a balance of only Rs. 1,34,395. This may be compared with the development rebate, relevant for the assessment year 1967-68, of Rs. 33,16,297 and the relief under Section 80J, for the assessment year 1970-71, of the sum of Rs. 99,102. We may point out that in taking the proportionate income for the first 12 months out of the balance of Rs. 1,17,03,698, we have assumed that the profit of the assessee had accrued uniformly throughout the period of 18 months. In actuality, the assessee had been sustaining losses up to the assessment year 1974-75 and it may not be even correct to assume that the profits in the first 12 months of the 18 months had accrued at the same rate as the profits in the last months of the period. The position would then be is that there may not be any available income for the assessment year 1975-76 (if no change has been made in the accounting year) to be adjusted against the development rebate brought forward and the relief under Section 80J.28. We may reiterate, once again, that the point considered in the foregoing paragraph is not really germane to the issue before us but we are mentioning this only to place these submissions of the assessee in the proper perspective. We, therefore, hold that the Commissioner was justified in directing the withdrawal of the development rebate relating to the assessment year 1967-68 and the relief under Section 80J, relating to the assessment year 1970-71, by his order under Section 263 which is under appeal before us.

29. The only other question that remains for consideration is the claim for the deduction of the provisions of gratuity of the sum of Rs. 2,54,452. The assessment year under appeal is 1976-77. The provisions of Section 40A.(7)(b)(ii) would be relevant only for the assessment years 1973-74, 1974-75 and 1975-76. The claim of the assessee, if it had been for the assessment year 1975-76, would have been quite valid even though the trust had not been created before the end of the previous year for that assessment year. But the assessment year being 1976-77, the claim can only be considered under Sub-clause (i) of Clause (b) of Section 40A(7). Under that provision, it is necessary that the gratuity trust was in existence during the previous year in order to enable the assessee to the claim of deduction of the provision made. Since this primary condition is not satisfied, the assessee is not entitled to the claim for the deduction of the sum of Rs. 2,54,452.

The Commissioner was, therefore, justified in passing this order under Section 263, withdrawing this allowance, originally granted by the ITO.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //