1. This is an income-tax reference pertaining to the assessment year 1960-61 corresponding to the previous year ending on March 31, 1960.
2. For the above assessment year, Shri O. P. Malhotra, the assessed, filed a return showing an income of Rs. 1,720 (which was below the taxable limit) on March 30, 1965. On March 28, 1966, he filed a revised return declaring an income of Rs. 4,295. The assessment was completed by the ITO on March 29, 1966, under s. 143(3) of the I. T. Act, 1961, on a total income of Rs. 20,000.
3. The ITO observed that the assessed had filed a return of income under s. 139(4) of the I. T. Act, 1961, on March 30, 1965. The revised return purportedly filed by the assessed was, according to the ITO, an invalid return because s. 139(5) of the 1961 Act enabled the assessed to file a revised return only in cases where a return had been furnished by him under sub-s. (1) or (2) of s. 139 of the Act, and as the assessed had not filed the return dated March 30, 1965, under either of the above-mentioned sub-sections, the return dated March 28, 1966, could not be supported by reference to s. 139(5) of the Act.
4. The assessed preferred on appeal to the AAC. He objected to the finding of the ITO that the return dated March 28, 1966, was an invalid return and claimed that the assessment made by discarding the said return was bad in law. There were also other grounds raised regarding the merits of the assessment.
5. The AAC observed that the assessment order in question was for the assessment year 1960-61, that at the relevant time the Indian I. T. Act, 1922, was in force and that the procedure regarding the filing of the returns in this case would be governed by the said Act. According to the AAC, the revised return filed by the assessed was a valid return in terms of s. 22(3) of the 1922 Act. He was, thereforee, of the opinion that the ITO had erred in ignoring the revised return and that the assessment completed by him was not in order. He, thereforee, set aside the assessment and directed the ITO to take note of the revised return, examine the case properly by giving the assessed necessary opportunity to represent his case the thereafter complete the assessment afresh.
6. The assessed preferred a further appeal to the Tribunal, contending that, having found that the assessment had not been properly, made the AAC should have annulled or cancelled the assessment and not set it aside for being redone after making a necessary inquiries. The Tribunal pointed out that, in view of s. 297(2)(b) of the new Act of 1961, the assessment of the assessed, though for the assessment year 1960-61, had to be completed in accordance with the procedure outlined in the new Act. It was pointed out that under the provisions of the 1961 Act, the return dated March 30, 1965, had been correctly treated as a return filed under s. 139(4) of the 1961 Act. The subsequent return dated March 28, 1966, could not be treated as a revised return under s. 139(5) as the assessed had not furnished a return under sub-s.(1) or (2) of s. 139 of the 1961 Act. It could not also be treated as a voluntary return under s. 139(4) as it had been filed after the expiry of four years from the end of the assessment year. The Tribunal, thereforee, come to the conclusion that the ITO had acted legally ignoring the second return filed by the assessed and that, thereforee, the order of assessment could not be canceled. Having arrived at this conclusion, the Tribunal should have modified the order of the AAC setting aside the assessment and directed him, instead, to deal with the grounds of appeal raised by the assessed regarding the merits of the assessment, for the direction of the AAC to the ITO to redo the assessment on the basis of the return of 1966 could no longer survive. However, the Tribunal only observed that it would not cancel the order of assessment by the ITO and dismissed the appeal filed by the assessed.
7. At the request of the assessed, the Tribunal has referred the following question to the High Court for its decision :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in not cancelling the order of assessment passed by the Income-tax Officer when he processed the return dated March 30, 1965, by ignoring the return dated March 28, 1966, filed by him ?'
8. Before dealing with the arguments put forward by M. L. Verma on behalf of the assessed-applicant, the relevant provisions of the 1922 Act and the 1961 Act may be briefly referred to. Under the 1922 Act, a general notice had to be published by the ITO on or before the 1st of May every year requiring all persons whose total income during the previous year exceeded the maximum amount not chargeable to income-tax to file a return within the specified period. Any assessed falling within the above description had to file such a return either within the time prescribed in the notice or such time as may be granted by way of extension by the ITO. Section 22(2) provided for an individual notice by the ITO to any person whose total income, in the officer's opinion, would render him liable to income-tax. This individual notice again called upon the specific assessed to file a return within a period specified in the notice and such period again could be extended by the ITO. Sub-s. (2A) permitted a person, who had not been served with a notice under sub_s.(2) and who had incurred any business loss during the pervious year which could be carried forward to subsequent years, to furnish 'within the time specified in the general notice given under sub-section (1) or within such further time as the Income-tax Officer, in any case, may allow' a return showing the amount of loss which he claims he is entitled to carry forward and the sub-section further directs that 'the provisions of this Act shall apply as if it was a return under sub-section (1) '. Section 22(3) is very relevant for the present case and it was in the following words :
'If any person has not furnished a return within the time allowed by or under sub-section (1) or sub-section (2), or having furnished a return under either of those sub-sections, discovers any omission or wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made.'
9. Section 139, the corresponding section of the Act of 1961, also runs more or less on the same lines but with some differences. Section 139(1) dispenses with the general notice which had to be put up by the ITO and substitutes it by an obligation on the part of any person, whole total income during the previous year exceeded the maximum amount not chargeable to income-tax, to furnish a return on or before the date specified in the sub-section. The provision also empowers the ITO to extend the date for the furnishing of the return. Section 139(2), which corresponds to s. 22(2), requires the assessed, on receipt of notice from the ITO, to file a return within 30 days from the date of service of the notice. This sub-section also empowers the ITO to extend the date for the furnishing of the return. Sub-s. (3) of s. 139 corresponds to s. 22(2A) of the 1922 Act. Sub-ss. (4) and (5) of s. 139 corresponds to s. 22(3) of the 1922 Act. Sub-s. (4), as it stood at the relevant time enabled any person 'who has not furnished a return within the time, allowed to him under sub-s. (1) or (2) ' to furnish a return but the said return had to be filed before the assessment was made and before the end of four years from the end of the assessment year to which the return related. Sub-section (5) is in the following terms :
'(5) If any person having furnished a return under sub-section (1) or sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.'
10. The question of validity or otherwise of the return filed by the assessed has to be determined in terms of the above statutory provisions. The first question that has to be considered is as to whether the assessment procedure in this case is to be governed by the provisions of the 1922 Act or those of the 1961 Act. As has been mentioned earlier, the AAC took the view that the provisions of the 1922 Act were applicable but the Appellate Tribunal took a contrary view. The view taken by the Tribunal is clearly the correct one. Section 297(2)(b) of the 1961 Act lays down that, where a return of income has been filed by any person, after the commencement of the 1961 Act (otherwise than in pursuance of a notice under s. 34 of the 1922 Act), for the assessment year 1961-62, or any earlier year. the assessment of that person for that year shall be made in accordance with the procedure specified in the 1961 Act. Indeed, this position is not contested by Shri M. L. Verma, learned counsel for the applicant.
11. In view of the above provision, the return filed on March 30, 1965, has to be fitted against the provisions of one or other of the sub-sections of s. 139. Since the return had not been filed within the time contemplated under s. 139(1) or 139(2) or 22(1) or 22(2), and since no extension of time had been asked for or granted, the return dated March 30, 1965, can be treated only as a return filed voluntarily by the assessed under s. 139(4) of the 1961 Act. That sub-section enabled the assessed to file a return within four years from the end of the assessment year provided the assessment was not completed by that time. In the present case, thereforee, the return filed on March 30, 1965, was clearly a valid return filed under the provisions of s. 139(4) of the 1961 Act.
12. We now come to the return dated March 28, 1966. It will be seen that if, for any reason, it is contended that the return dated March 30, 1965, could not at all be treated as a valid return, the return dated March 28, 1966, could not also be treated as a voluntary return under s. 139(4) as it had been filed after the expiry of four years from the end of the assessment year. The attempt of Shri M. L. Verma, learned counsel for the applicant, was, thereforee, to concede the validity of the return dated march 30 1965, as one under s. 139(4) to bring the return dated March 28, 1966, within the four corners of s. 139(5) of the Act, which enables a revised return to be filed at any time before the assessment is made. This argument, however, meets with initial difficulty because the provisions of sub-s. (5) apply only in a case where a person ,having furnished a return under sub-s. (1) or sub-s. (2), discovers any omission or wrong statement therein.
13. Shri Verma tries to meet the above difficulty by arguing that there are only two types of returns-one filed voluntarily and one filed in response to a notice issued by the officer, and that, a return filed voluntarily is a return within the meaning of sub-s. (1), whether it is filed within the time specified in that sub-section or the extended time permitted under that sub-section or even sub-s. (4) For this argument, he places reliance on CIT v. Kulu Valley Transport Co. P. Ltd. : 77ITR518(SC) . In that case the assessed-company had filed in January, 1956, voluntary returns showing losses from business for the assessment years 1953-54 and 1954-55. The ITO took the view that, as the returns had not been filed within the time prescribed under s. 22(1) of the 1922 Act, they had not been validly filed under s. 22(2A) of the Act, and, thereforee, the assessed could not claim that the losses should be determined and carried forward. The High Court of Punjab took the view that s. 22(3) applied to all returns, whether disclosing profit or loss and whether made voluntarily or pursuant to a notice under s. 22(2) and that even if the return was filed beyond the period prescribed by s. 22(1) and disclosed a loss, the ITO was bound to determine the loss so that it could be carried forward to the following year. The decision of the High Court was affirmed by a three judge Bench of the Supreme Court, Shah J. dissenting. At page 527, the arguments on behalf of the assessed are set out in the following words :
'The argument on behalf of the assessed is that section 24(2) confers the right to carry forward the loss to the following year provided the conditions contained in the sub-section are satisfied. There is no further requirement that has to be fulfillled so far as the substantive law is concerned. Section 22(2A) is merely a procedural provision and it also provides that once a return has been furnished in accordance therewith all the provisions of the Act become applicable as if it were a return under sub-section (1). That would attract section 22(3) and, thereforee, a voluntary return can be filed even after the period mentioned in sub-section (2A) has expired so long as the assessment has not taken place.'
14. This argument appears to have been accepted by the court. Grover J., who delivered the majority judgment, said at page 529 :
'Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in section 22 under which losses have to be determined for the purpose of section 24(2). The question which immediately arises is, whether section 22(2A) places any limitation on that right. This ub-section which has been reproduced before simply says that in order to get benefit of section 24(2) the assessed must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which a return has to be submitted. It can well be said the section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within time sub-section (1) of section 22 must be read along with sub-section (3) of that section. A return whether it is a return of income, profits gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3). In other words, if section 22(3) is complied with, section 22(1) also must be held to have been complied with. It compliance has been made with the latter provision, the requirements of section 22(2A) would stand satisfied.'
15. Shri Verma strongly relies on the above observations. He points out that though the above decision had been rendered under the 1922 Act, it is equally applicable under the provisions of the new Act which correspond to those of the earlier sections in all material particulars. He also draws our attention to a circular of the CBDT to the above effect. His argument, on the basis of the above decision, is that s. 139(4) should be treated as in the nature of a proviso to s. 139(1) and that the return filed under s. 139(4) should be equated to a return filed under s. 139(1) for the purpose of applying the provisions of sub-s. (5). He says that this contention is borne out by the fact that s. 271 (the penalty section) refers only to delays in filing returns under sub-s. (1) of 139 and not to sub-s. (4) of s. 139. He urges that, if an assessed could make a return under sub-s. (1) or (2) and then revise it at any time before the assessment is made, there is no logical reason why the right of filing a revised return should not also be available where the first return has been filed by the assessed voluntarily under the provisions of sub-s. (4).
16. The argument put forward by the learned counsel is a plausible one but, in our opinion, it cannot be accepted. Taking first the language of the provision, it is seen that s. 139(5) in terms allows an assessed to revise only a return which has been furnished under sub-s. (1) or sub-s. (2). It carefully avoids a reference to s. 139(4) which, it seems to us, is significant considering that the purpose of the Legislature is to permit the assessed to revise a return which he has already filed and the Legislature has just out lined in sub-s. (4) one of the circumstances, in addition to those set out is sub-ss. (1) and (2) in which the assessed could have filed a return. The reference to s. 271 (1) (a) does not help because that section deals with the delay in the filing of the return beyond the period contemplated by s. 139(1) or (2) and there can be no question of delay under s. 139(4). Section 139(3) (which permits the filing of a return of loss) and s. 139(4A) (introduced subsequently) specifically provide that the returns filed under those sub-sections would attract all the provisions of the Act as if they were returns filed under sub-s.(1) while sub-s. (4) does not use any such language. It is, thereforee, difficult to accept the argument that s. 139(5) entitles an assessed to rectify or revise a return filed by him under sub-s. (4) unless the return so filed can be fully equated to a return under sub-s. (1) or sub-s. (2).
17. In principle also, we do not find any incongruity in the above construction. It will not create any hardship, injustice or illogicality as suggested by Shri Verma. Sub-s. (5) was intended to provide a locus penitentiae to assessed, who had filed their returns of income in compliance with the requirements of sub-ss. (1), (2) and (3) and within the time allowed there under to revise the same when they discovered an omission or wrong statement therein. But where a person has not filed such a return and is availing himself of the provisions of sub-s. (4) which enable him to file a return after a delay which might extend up to four years, it could well be that the Legislature thought that no such opportunity of revision was needed to be provided for. In this context, it should be remembered that such an assessed can within the period of four years provided for in s. 139(4) (which has been reduced subsequently to two years conformably to amendments in s. 153 reducing the time-limit for completion of assessments) file as many returns as he wants. In view of this also, there was no necessity to provide a further opportunity to such an assessed to revise a return filed already after considerable delay by taking advantage of the fact that the assessment has not been completed by then. On these considerations, we are not impressed by the argument of Shri Verma that it would not be logical to hold that a person who has originally filed a return could revise it as many times as he likes before the assessment is made but that such an opportunity would not be available to a person who files his first return only under s. 139(4).
18. It remains to be considered, however, whether the decision of the Supreme Court, referred to earlier, has propounded an equation of a return filed under sub-s. (4) to one filed under sub-s. (1) or (2). We think not. The Supreme Court had to consider the interpretation of s. 22(2A) which was a procedural section. It required the return of loss filed 'within the time specified in the general notice under sub-s. (1) or within such further time as the Income-tax Officer in any case may allow'. The Supreme Court pointed out that s. 24 (2) which was the substantive section that granted the right of set-off was unqualified and that the words used in s. 22(2A) should not be given a narrow and restricted meaning confining them only to returns filed within the time mentioned in sub-s. (1). It was in that context that the court observed that sub-s. (1) and sub-s. (3) of s. 22 had to be read together and that for the purposes of s. 22(2A) a return filed under s. 22(3) can be taken as having been filed within the time prescribed in sub-s. (1). If we bear in mind that it is the old s. 22(3) that has now been split up into s. 139(4) and (5), it should be clear that the observations made by the Supreme Court cannot apply in the context of s. 139(5). We are, thereforee, unable to accept the contention of Shri Verma which involves an extension of the principle laid down by the Supreme Court and to evolve a general proposition that a return filed under s. 22(3)/139(4) is, for all purposes, a return filed under s. 22(1)/139(1).
19. We have, thereforee, come to the conclusion that the view taken by the Income-tax Appellate Tribunal was the correct view and that the question referred to us has to be answered in the affirmative and against the assessed.
20. Shri Verma also outlined before us an argument that, in case the return dated March 28, 1966, was treated as a valid return, the proper order for the AAC to have passed would have been to annul the assessment and not to set it aside with a direction to the ITO to make a fresh assessment. Since we have agreed with the view taken by the Appellate Tribunal this question does not arise nor has it been referred to us. If we had agreed with the principal contention of Shri Verma, we may have had to restore this matter for consideration by the Tribunal but, in the view we have taken, this question does not arise. Again, as pointed out earlier, the Tribunal should perhaps have restored the appeal to the file of the AAC and directed him to deal with the assessed's contentions on the merits of the assessment. But such a plea does not appear to have been taken before the Tribunal nor has there been any consideration by the Tribunal of that aspect not has any question been raised or referred in that regard. We, thereforee, express no opinion on that aspect of the case.
21. The reference is, thereforee, answered, as stated already, in the affirmative. The Commissioner will be entitled to his costs in the reference. Counsel's fee Rs. 200.