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Commissioner of Income-tax, U.P. Vs. Gurbux Rai Harbux Rai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtSupreme Court of India
Decided On
Case NumberCivil Appeal Nos. 1225 and 1226 of 1967
Judge
Reported inAIR1971SC726; [1971]81ITR476(SC); (1972)4SCC133
ActsExcess Profits Tax Act, 1940 - Sections 10A and 15
AppellantCommissioner of Income-tax, U.P.
RespondentGurbux Rai Harbux Rai
Appellant Advocate S.T. Desai,; B.B. Ahuja,; R.N. Sachthey and;
Respondent Advocate M.C. Chagla and ; A.N. Goyal, Advs.
Cases ReferredC) Gurbux Rai Harbux Rai v. Commr. of Income
Excerpt:
direct taxation - excess profit sections 10, 10a and 15 of excess profits tax act, 1940 - whether there was pending proceeding under section 15 in course of which order under section 10a could be made - no material available to decide question - tribunal directed to submit supplementary statement. - indian penal code, 1890 section 300 :[dr. arijit pasayat & dr. mukundakam sharma, jj] murder involvement of one of accused in crime was not totally free from doubt acquittal of accused on analysing factual scenario in detail by high court held, no interference. sections 300 & 120-b: murder - except suspicion which informant was having in her mind about their involvement, there was neither any direct or circumstantial evidence to fasten charge of criminal conspiracy against four accused..........assessees with equal shares in the profit and loss. in proceedings for assessment of tax under the excess profits tax act, 1940 for the two chargeable accounting periods the assessee informed the tax officer that the joint family of gurbux rai had been dissolved and there was a reconstitution of the business of the partnership with effect from july 4, 1943. according to the assessee the constitution of the firm after partition was that in the firm at kanpur the former two partners were interested, their share being equal, but. in the business of the firm at farrukhabad there were three partners - harbux rai with /8/-share, chameli devi with /4/-share and gopaldas with /4/-share.2. in assessing tax under the indian income-tax act, 1922 for the assessment year 1944-45 relevant to the.....
Judgment:

J.C. Shah, J.

1. Gurbux Rai Harbux Rai - hereinafter called 'the assessee' - is a registered firm carrying on business in piece goods and commission agents. It has its head office at Kanpur and a branch office at Farrukhabad. During the chargeable accounting periods July 4, 1943 to June 21, 1944 and June 22, 1944 to July 10, 1945 Gurbux Rai and Harbux Rai (each representing his joint family) were the two partners of the assessees with equal shares in the profit and loss. In proceedings for assessment of tax under the Excess Profits Tax Act, 1940 for the two chargeable accounting periods the assessee informed the Tax Officer that the joint family of Gurbux Rai had been dissolved and there was a reconstitution of the business of the partnership with effect from July 4, 1943. According to the assessee the Constitution of the firm after partition was that in the firm at Kanpur the former two partners were interested, their share being equal, but. in the business of the firm at Farrukhabad there were three partners - Harbux Rai with /8/-share, Chameli Devi with /4/-share and Gopaldas with /4/-share.

2. In assessing tax under the Indian Income-tax Act, 1922 for the assessment year 1944-45 relevant to the account year ending June 21, 1944 the Income-tax Officer held that the case set up by the assessee that there was partition amongst the members of the family of Gurbux Rai could not be accepted. In the view of the Income-tax Officer, an attempt was made 'to avoid proper incidence of taxation as an afterthought to create evidence for camouflaging the Farrukhabad business as a separate unit of assessment'. The Income-tax Officer directed that the income be assessed as the income of the assessee and not as the income of a separate firm. The excess profits tax assessment being consequential upon the income-tax assessment, the Excess Profits Tax Officer assessed the entire income of the two businesses at Kanpur and at Farrukhabad, in the hands of the assessee firm.

3. Against the order passed by the Income Tax Officer the assessee appealed to the Appellate Assistant Commissioner who by his order dated October 10, 1947 observed: .that partial partition in respect of moveable property of Gurbux Rai was effected on a date some where near Asadh Samvat 2000, from which date Farrukhabad was conducted by a separate firm consisting of Harbux rai, Mst. Chameli and Gopaldas'. Pursuant to this order the Income-tax Officer modified the assessment with respect to the Income-tax assessment of the assessee for the assessment years 1944-45 and 1945-46. The Excess Profits Tax Officer however started proceedings under Section 10-A by notice dated February 6, 1951 calling upon the assessee to show cause why appropriate adjustments should not be made in the assessment, and passed orders in that behalf for both the chargeable accounting periods holding that the main purpose of the partial partition of the family business of Gurbux Rai was avoidance of excess profits tax liability. By order dated February 21, 1951 passed under Section 15 of the Excess Profits Tax Act the Excess Profits Tax Officer modified the original excess profits tax assessment. In the revised assessment in pursuance of orders under Section 10-A he included the income of the branch shop at Farrukhabad in the total income of the assessee for purposes of excess profits tax assessment. The assessee appealed against the order of additional assessment contending that the Excess Profits Tax Officer was not competent to re-open the case under Section 15 as he had no definite information coming into his possession to enable him to discover that the profits of the chargeable accounting period had escaped assessment. The assessee contended that all the materials in the case were before the Excess Profits Tax Officer at the time of his original assessment and no new information came into his possession thereafter. The assessee also contended that the Excess Profits Tax Officer was not competent to pass any order under Section 10-A merely to make an adjustment in the revised assessment under Section 15. The Income-tax Appellate Tribunal held that the Excess Profits Tax Officer had received definite information regarding the state of the law in pursuance of the appellate order of the Appellate Assistant Commissioner who had held that the family of Gurbux Rai was partially partitioned. The Tribunal also held that the Excess Profits Tax Officer was competent to pass an order under Section 10-A, of the Excess Profits Tax Act.

4. The Tribunal thereafter referred the following questions to the High Court of Allahabad under Section 21 of the Excess Profits Tax Act read with Section 66(1) of the income-tax Act, 1922:

(1) Whether on the facts and In the circumstances of this case there was any definite information within the meaning of Section 15 by virtue of which the Excess Profits Tax Officer was competent to re-open the excess profits tax assessment?

(2) Whether in the circumstances of this case, the Excess Profits Tax Officer was competent to apply the provisions of Section 10-A and make necessary adjustments in pursuance thereto in the revised assessment under Section 15?

The High Court of Allahabad held that since the Excess Profits Tax Officer purported to re-open the assessment under Section 15 of the Excess Profits Tax Act 'only because of the order of the Appellate Assistant Commissioner of Income-tax holding that the Farrukhabad business was no longer the business of the assessee and that the family of Gurbux Rai had partitioned its movable property, all of which proceeded upon material which was already initially before the Excess Profits Tax Officer and to which he had applied his mind when he made the original assessment, it was not a case where the Excess Profits Tax Officer can be said to have discovered'' in consequence of definite information which had come into his possession, that profits chargeable to excess profits tax had escaped assessment. The High Court accordingly answered the first question in the negative.

5. The High Court then ob served that if the Excess Profits Tax Officer was not competent to lake proceedings under Section 15 of the Excess Profits Tax Act, it was not open to him to apply the provisions of Section 10-A in the proceedings upon re opening the assessment under Section 15, for, in the view of the High Court an order under Section 10-A may be passed only where the Excess Profits Tax Officer is seized of jurisdiction in a pending assessment proceeding. As the proceedings initiated by the Excess Profits Tax Officer under Section 15 were void, he had no power in him to make an order under Section 10-A of the Act. The High Court accordingly answered the second question also in the negative.

6. Against the order passed by the High Court, with certificate granted by the High Court these two ap peals are preferred.

7. A parallel proceeding which had come before this Court in Civil Appeals Nos. 741-743 of 1966 (SC) Gurbux Rai Harbux Rai v. Commr. of Income-tax, U. P., D/-2-8-1968, may also be referred to. It may be recall ed that the Excess Profits Tax Officer at Kanpur had served a notice under Section 10-A of the Excess Profits Tax Act requiring the assessee to show cause why appropriate adjustments as respects liability to excess profits tax should not be made so as to counter act the avoidance or reduction of liability to excess profits tax by converting the business in the name of Pussulal Jangalal-the Farrukhabad firm- into a separate business. The contention of the assessee that the disruption of the family was a genuine and bona fide transaction was rejected by the Excess Profits Tax Officer. The case was then taken to the Income-tax Appellate Tribunal, The Tribunal confirmed the order of the Excess Profits Tax Officer. But at the instance of the assessee the Tribunal referred the following question to the High Court of Allahabad:

Whether on the facts and circumstances of this case, the transaction in question was one which could be avoided under Section 10-A of the Excess Profits Tax Act?

The High Court by order dated July 31, 1969 answered the question in the affirmative. Against the order passed by the High Court no further proceedings has been taken by the assessee challenging the conclusion of the High Court and that order has become final.

8. The High Court has held in the judgment under appeal that action taken under Section 15 of the Excess Profits Tax Act was not competent and on that account the Excess Profits Tax Officer had no jurisdiction in the matter. But in the judgment of the High Court in Income-tax Reference No. 118 of 1962, D/-31-7-1969 (All) no question of jurisdiction arose. The Court had only answered the question whether the transaction of partial partition was one which could be avoided under Section 10-A of the Excess Profits Tax Act. The decision of the High Court (which had become final) about the authority of the Excess Profits Tax Officer to take action under Section 10-A does not affect the maintainability of the present appeal.

9. Section 10-A of the Excess Profits Tax Act, insofar as it is relevant provides:

(1) Where the Excess Profits Tax Officer is of opinion that the main purpose for which any transaction x x x was x x effected x x was the avoidance or reduction of liability to excess profits tax, he may, x x x make such adjustments as respects liability to excess profits tax as he considers appropriate so as to counteract the avoidance or reduction of liability to excess profits tax which would otherwise be effected by the transaction x x x.

10. Section 15, insofar as It Is relevant provides:

If in consequence of definite Information which has come into his possession, the Excess Profits Tax Officer discovers that profits of any chargeable accounting period chargeable to excess profits tax have escaped assessment, or have been under-assessed, or have been the subject of excessive relief, he may at any time 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 Section 13, and may proceed to assess or re-assess the amount of such profits liable to excess profits tax x x x.

The High Court in the judgment under appeal held that proceeding under Section 10-A may be commenced only if there be a valid proceeding under the Excess Profits Tax Act which was pending for assessment or re-assessment of excess profits which had escaped assessment and not otherwise. In our opinion the High Court was right in so holding. Section 10-A does not contemplate an independent proceeding. Section 10-A merely confers power upon the Excess Profits Tax Officer to make adjustments with respect to liability to excess profits tax: it confers power which the Excess Profits Tax Officer may exercise in the course of the original assessment or in the course of re-assessment.

11. It is necessary therefore to determine whether an order was made under Section 10-A in a pending proceeding for assessment of Excess Profits Tax. But the question whether there was a pending proceeding under Section 15 in the course of which an order under Section 10-A could be made cannot be ascertained on the materials available before us. The High Court has decided that the proceeding under Section 15 was not valid, because there was no definite information with the Excess Profits Tax Officer and on that account proceeding under Section 10-A was not valid. It has been assumed that there was a pending proceeding under Section 15 in the course of which an order under Section 10-A was made. Expression of that opinion of the High Court is challenged. We are of the view that in the interests of justice, it is necessary that a supplementary statement of the case should be called for on the question whether there was any proceeding pending under Section 15. On the question whether the proceeding under Section 15 if pending was valid, we express no opinion at this stage.

12. We direct the Tribunal to submit a supplementary statement of the case on the question whether the proceeding under Section 10-A was started in the course of assessment or re-assessment proceeding commenced under Section 15. The supplementary statement to be submitted to this Court within three months from the date on which the papers reach the Tribunal. At this stage we express no opinion on the question whether the High Court was right in holding that the proceeding under Section 15 was not competent.


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