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Maharaja Shree Umaid Mills Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberS.B. Civil Writ Petition Nos. 1286, 1287, 1292 and 1293 of 1974
Judge
Reported in[1984]147ITR458(Raj)
ActsIncome Tax Act, 1961 - Sections 240, 244 and 297(2)
AppellantMaharaja Shree Umaid Mills Ltd.
Respondentincome-tax Officer
Appellant Advocate S.L. Chaudhary and; Rajesh Balia, Advs.
Respondent Advocate J.P. Joshi, Adv.
Cases ReferredJain Bros. v. Union of India
Excerpt:
.....central government on refund shall apply. it was held by their lordships of the supreme court that assessment was completed before the new act came into force and the assessee was entitled to claim interest on the refund, which became due to him on the strength of the judgment of the supreme court, and, as such, the case clearly fell within the scope of section 297(2)(i) of the new act and not under section 66(7) of the old act. 11. thus, it is well settled that in cases where an assessment was factually completed before the commencement of the new act, but the refund fell due to the assessee after the coming into force of the new act, on account of an order passed on appeal or in any other proceedings, the requisites of section 297(2)(i) of the new act are fulfilled and the provisions..........has challenged the notices for rectification, issued by the ito in respect of the orders for refund passed by him relating to the aforesaid four assessment years and it has been urged by the learned counsel for the petitioner-company that although the assessment proceedings were completed before the new act come into force on april 1, 1962, yet the appeals were decided after the aforesaid date under section 297(2)(e) of the new act, and the provisions of section 297(2)(i) were attracted and interest was rightly paid to the assessee under section 244 of the new act. learned counsel for the company submitted that as the assessment proceedings were completed in respect of each one of the four assessment years before the coming into force of the new act and as a refund in respect of.....
Judgment:

Dwarka Prasad Gupta, J.

1. These four writ petitions arise in similar circumstances and as such they are disposed of by a common order.

2. The petitioner, in all these four writ petitions, is a public limited company known as the Maharaja Shree Umaid Mills Ltd., Pali (hereinafter called ' the company '), and the questions which have been raised in these writ petitions relate to the validity of the notices for rectification issued under Section 35 of the Indian I.T. Act, 1922 (hereinafter referred to as the old Act). These four writ petition relate to the assessment years 1953-54, 1954-55, 1956-57 and 1957-58. The undisputed facts are that returns were filed by the petitioner-company in respect of the aforesaid assessment years on various dates under the old Act and the assessment orders in respect thereof were also passed by the ITO on various dates before the I.T. Act, 1961 (hereinafter referred to as ' the new Act, ') came into force. The last assessment order, relating to the assessment year 1957-58, was passed on March 24, 1962. Thus, the assessment proceedings in respect of all the four assessment years were completed before the new Act came into force with effect from April 1, 1962. Appeals were preferred by the company in respect of the assessment orders relating to each one of the aforesaid assessment years before the AAC. Against the orders passed by the AAC, further appeals were filed before the Tribunal in respect of all the four assessment orders. The Tribunal decided all the four appeals, relating to the four assessment years referred to above, by its order dated March 31, 1969.

3. As the company was found to be entitled to a refund consequent upon the order passed by the Tribunal dated March 31, 1969, in respect of each of the four assessment years, the ITO passed consequential orders of refund. The ITO also allowed interest to the company on the amount of refund, in accordance with the provisions of Section 244 of the new Act, by different orders passed during the year 1971. After the amount allowed by way of refund along with interest thereon was paid to the company, the ITO issued notices for rectification under Section 35, of the old Act. Two grounds were mentioned in the notices on account of which, in the opinion of the ITO, there was a mistake apparent on the face of the record of the orders for refund and they required to be rectified. The first ground was that as the assessments for the years in question were completed in accordance with the provisions of the old Act, Section 297(2)(i) of the new Act was not applicable. The other ground which was referred to in the notices for rectification was that as the appeals against the assessment orders were decided under the old Act, Section 240 of the new Act could not apply, and, assuch, interest could not have been allowed to the assessee under Section 244 of the new Act.

4. The petitioner-company has challenged the notices for rectification, issued by the ITO in respect of the orders for refund passed by him relating to the aforesaid four assessment years and it has been urged by the learned counsel for the petitioner-company that although the assessment proceedings were completed before the new Act come into force on April 1, 1962, yet the appeals were decided after the aforesaid date under Section 297(2)(e) of the new Act, and the provisions of Section 297(2)(i) were attracted and interest was rightly paid to the assessee under Section 244 of the new Act. Learned counsel for the company submitted that as the assessment proceedings were completed in respect of each one of the four assessment years before the coming into force of the new Act and as a refund in respect of the four assessment years in question fell due after the commencement of the new Act, the provisions of Section 297(2)(i) of the new Act were squarely applicable and interest was payable by the Central Govt. on the amount of refund, in accordance with the provisions of Section 244 of the new Act. On the other hand, learned counsel for the Revenue argued that as the appeals were heard and disposed of in accordance with the provisions of the old Act, as if the new Act had not been passed, as provided in Section 297(2)(c) of the new Act, the disposal of the appeals was relatable to the respective dates on which the assessment proceedings were completed by the ITO concerned and as the assessments for all the four years were admittedly completed before the commencement of the new Act, refund was also payable to the petitioner-company under the provisions of the old act and as such no interest was payable on the amount of refund.

5. It would be useful at this stage to extract the relevant provisions of Section 297(2)(i) of the new Act, which required to be interpreted in the present case :

' 297(2)(i). Where, in respect of any assessment completed before the commencement of this Act, a refund falls due after such commencement or default is made after such commencement in the payment of any sum due under such competed assessment, the provisions of this Act relating to interest payable by the Central Government on refunds and interest payable by the assessee for default shall apply.'

6. The question, as to whether interest was payable under the new Act in such circumstances, where the assessee became entitled to a refund consequent to the orders passed on appeal or in other proceedings after the new Act came into force, came up for consideration before the Madras High Court in Pandyan Insurance Co. Ltd. v. CIT : [1969]73ITR12(Mad) . In that case, the assessment was completed before the commencement of thenew Act and ultimately the matter went to the Supreme Court and consequent upon the decision of the Supreme Court, after the coming into force of the new Act, the assessee became entitled to a refund and the consequential order of refund was also passed, naturally, after the coming into force of the new Act. The assessee, in that case, claimed interest under Sub-section (7) of Section 66 of the old Act, from the date when the order entitling the assessee for refund was passed up to the date when the amount was actually paid to the assessee. The learned judges of the Madras High Court held in the aforesaid case that the pre-requisites for the application of Section 297(2)(i) of the new Act were satisfied and, as such, the provisions of the new Act relating to payment of interest by the Central Government on refund shall apply. Their Lordships of the Madras High Court observed as under in the aforesaid case (p. 13):

' In view of this provision, the intention of which appears to be that the interest on refund in respect of the assessment completed before the commencement of the new Act and on refund which fell due after its commencement, should entirely be governed by the provisions of the new Act, the words ' other proceedings under this Act' in Section 240 and the following should be understood accordingly. That is because this group of sections is designed to apply under the scheme of the Act to appeals or proceedings under the provisions of the new Act, but where the matter relates to an assessment completed before the commencement of the new Act, and the refund became due after the commencement of the Act, those provisions are qualified by Section 297(2)(i), so as to make them apply to such a situation. On that view, since the refund indisputably had been made within six months of the order which directed it, there is no liability on the part of the department to pay interest'.

7. In C. G. Krishnaswami Naidu v. CIT : [1975]100ITR33(Mad) the Madras High Court again reiterated its earlier view taken in Pandyan Insurance Co.'s case : [1969]73ITR12(Mad) . It was urged before the Madras High Court in that case that the assessment proceedings can be said to be completed only when the assessment became final, after the pronouncement of the order of the highest authority in the hierarchy of authorities constituted under the Act, and thus the assessment could be held to have been completed only when the High Court passed its ultimate order, on a reference made to it under Section 66 of the old Act, and thus one of the pre-requisites for the application of Section 297(2)(i) was lacking. This contention, which is identical to the one advanced before me by the learned counsel for the Revenue, was rejected by their Lordships of the Madras High Court and it was observed that finality of an assessment has nothing to do with the factual conclusion of an assessment, and although the assessment was completed before the new Act came into force, yet it may not haveacquired finality on account of appeal or other proceedings and so one should not confuse between the finality of an assessment and the completion of an assessment.

8. The same view was taken 'by the Allahabad High Court in Hira Lal Jagarnath Prasad v. CTT : [1969]74ITR732(All) where the assessment was completed before the commencement of the new Act, but the assessee became entitled to a refund by virtue of the answer given by the High Court on a reference and the consequential order passed by the Appellate Tribunal under Section 66(5) of the old Act. It was observed by the learned judges of the Allahabad High Court that so far as the refund was concerned, Section 297(2)(i) was a self-contained provision, which made the provisions of the new Act applicable to the question of refund in such a situation, where the assessment was completed before the commencement of the new Act but the entitlement for refund accrued to the assessee after the new Act came into force.

9. In Raja Jagadambika Pratap Narain Singh v. ITO : [1970]76ITR619(All) the facts were that the assessment was completed before the commencement of the new Act, but the assessee became entitled to a refund as a result of the decision of the High Court on a reference. The Allahabad High Court expressed some doubt as to whether the assessment could be said to have been completed while proceedings in respect thereof were pending, but no final decision was given on the question as the writ petition was disposed of on a different ground.

10. However, the question is no longer open to doubt after the decision of their Lordships of the Supreme Court in the case of (O. RM. M. SP. SV. P.) Panchanatham Chettiar v. CIT : [1975]99ITR579(SC) wherein the decision of the Madras High Court in Pandyan Insurance Co.'s case : [1969]73ITR12(Mad) was approved. It was held by their Lordships of the Supreme Court that assessment was completed before the new Act came into force and the assessee was entitled to claim interest on the refund, which became due to him on the strength of the judgment of the Supreme Court, and, as such, the case clearly fell within the scope of Section 297(2)(i) of the new Act and not under Section 66(7) of the old Act. It was observed that as the assessee was not entitled to payment of interest under the provisions of the new Act, his claim for interest was rightly rejected. The obvious reason for refusal to award interest to the assessee in the aforesaid case was, as given by the learned judges of the Madras High Court in Pandyan Insurance Company's case : [1969]73ITR12(Mad) that the amount found to be refundable to the assessee was allowed to be paid within the period of six months and no interest was payable in such circumstances under the provisions of the new Act.

11. Thus, it is well settled that in cases where an assessment was factually completed before the commencement of the new Act, but the refund fell due to the assessee after the coming into force of the new Act, on account of an order passed on appeal or in any other proceedings, the requisites of Section 297(2)(i) of the new Act are fulfilled and the provisions of the new Act relating to payment of interest on refund would be applicable.

12. A further argument was advanced by the learned counsel for the Revenue that interest could become payable to the assessee under Section 244 of the new Act only when a refund is due to the assessee in pursuance of an order referred to in Section 240 of the new Act and if the refund is not allowed within the period of six months from the end of the month in which such order was passed. Now, Section 244 has been amended and in place of ' six months ' the period has been reduced to 3 months. The argument proceeds on the basis that an order of refund under Section 240 of the new Act could only be passed as a result of an order passed in appeal or in any other proceedings under this Act.

13. The emphasis of the learned counsel for the Revenue is that as the order passed on appeal was not passed under the new Act, as such, no order for refund could be passed under Section 240 of the new Act and consequently no interest was payable on such amount of refund under Section 244 of the new Act.

14. There can be no doubt that the proceedings pending at the commencement of the new Act by way of appeal, reference or revision shall be continued and disposed of by the concerned authorities, in accordance with the provisions of the old Act, as if the new Act had not been passed, by virtue of the provisions of Section 297(2)(c) of the new Act. But it cannot be lost sight of that such an order passed on appeal or in other proceedings, pending at the commencement of the new Act, shall be an order passed under Section 297(2)(c) of the new Act and as such it should be considered to be an order passed under the new Act, for purposes of Section 240 of the new Act, and, therefore, the provisions of Section 244 regarding payment of interest on the amount of refund would be attracted. The mere fact that the pending proceedings are continued and disposed of in accordance with the previsions of the old Act and are decided ' as if the new Act had not been passed' could not lead to the conclusion that orders in respect of such proceedings were passed under the old Act, because the mandate for the disposal of such pending proceedings according to the provisions of the old Act emerges from the provisions of Section 297(2)(c)of the new Act.

15. Similar provisions of the new Act such as Sections 156 and 271(1), in which the expression ' under this Act' has been employed, were the subject-matter of judicial decisions with reference to the provisions of Sections 297(2)(g) and 297(2)(j) of the new Act and the view has been consistentlyexpressed that a harmonious construction should be placed on the provisions of the new Act and a mere literal interpretation, which would render the provisions of various clauses of Section 297(2) virtually nugatory, should not be adopted.

16. The Mysore High Court in M. Damodar Bhat v. Third ITO, AIR 1968 Mys 258 held that the notice issued under Section 156 of the new Act, upon the very wordings of the section, could possibly be issued only in respect of an order made under the new Act, and, as such, in the case of an assessment made under the old Act, no notice under Section 156 of the new Act could be issued and the provisions for recovery and collection of tax, contained in Sections 220 to 224 of the new Act, could not be taken advantage of. It may be pointed out that Section 156 of the new Act also employed the expression 'under this Act' and because of that expression, the learned judges of the Mysore High Court expressed the view that on account of the very wordings of the section, it was not possible to issue a notice under Section 156 of the new Act, in respect of an assessment completed under the old Act. However, the aforesaid decision of the Mysore High Court was reversed on appeal by their Lordships of the Supreme Court in Third ITO v. M. Damodar Bhat : [1969]71ITR806(SC) with the following observations (p. 812):

' The High Court has expressed the view that ' in the case of an assessment under the old Act no notice under Section 156 of the new Act was possible ', and ' there was no way of taking advantage of the provisions for recovery and collection of tax contained in Sections 220 to 234 of the new Act'. The High Court has based its opinion on the premises that all recoveries are possible ' only when the stage mentioned in Section 220(4) was reached, namely, that the assessee had become or deemed to have been an assessee in default' and the action under Section 226 could be taken only when an assessee was in default. In our opinion, the reasoning adopted by the High Court and the conclusion reached by it is not correct in law. The effect of the judgment of the High Court on this point is that the provisions of Section 297(2)(j) of the new Act are nullified and declared to be of no consequence. An interpretation of Section 226(3) of the new Act which leads to such a startling result should be avoided as it is opposed to all sound canons of interpretation. As we have already stated, there is nothing in the language of Section 226(3):of the new Act to warrant the conclusion that the assessee should be in defualt or should be in deemed to be in default before the issue of the notice under that sub-section, It is true that the group of sections from Sections 220 to Section 232 of the new Act are placed under the heading ' Collection and recovery'. But in a case falling within Section 297(2)(j) of the new Act, for example, in a proceeding for recovery of tax and penalty imposed under the old Act, it is not required that all the sections of the new Act relating to recovery and collection should beliterally applied but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to the cases contemplated by Section 297(2)(j) of the new Act mutatis mutandis.......

For these reasons we are of the' opinion that the Income-tax Officer had authority to issue the notices under Section 156 and Section 226(3) of the new Act with respect to the liability of the respondent under the old Act. ' (emphasis is mine)

17. Thus, it was clearly held by their Lordships of the Supreme Court in the aforesaid case that an interpretation which would lead to such a startling result so as to nullify the provisions of Section 297(2)(j) and declare them to be of no consequence should be avoided, as it was opposed to all sound canons of interpretation. Their Lordships expressed the view that provisions of the new Act should be applied as may be appropriate to the particular case and subject if necessary to suitable modifications.

18. The very same expression ' under this Act ' occurring in Section 271(1) of the new Act came up for consideration before a Bench of the Madhya Pradesh High Court in Kishanlal v. CIT : [1967]64ITR285(MP) and it was observed that Section 271(1) has to be construed in harmony with Section 297(2)(g) and not in a manner so as to render Clause (g) of Section 297(2) of the new Act meaningless or redundant. The aforesaid decision was affirmed by the Madhya Pradesh High Court in CIT v. Champalal Sukhram : [1969]72ITR417(MP) and again in Gopichand Sarju Prasad v. Union of India : [1969]73ITR263(MP) . In Champalal Sukhram's case [1969] 12 ITR 417 the assessment proceedings, though began under the old Act, were completed after the coming into force of the new Act and proceedings for imposition or levy of penalty were initiated under the new Act, but the Appellate Tribunal held that no penalty could be imposed under Section 271(1) of the new Act, because of the expression ' in the course of any proceedings under this Act' occurring therein; and as the assessment proceedings in the case had begun under the old Act, their Lordships of the Madhya Pradesh High Court reversed the view taken by the Tribunal and held as under (p. 419) :

' Under Clause (g) of Section 297(2), the initiation of proceedings for imposition of penalty and the levy of penalty under the Act of 1961, is not with reference to the fact whether the assessment was made under the. 1961 Act or the 1922 Act. That apart, in this case, the return having been filed on 19th October, 1961, that is, before the commencement of the 1961 Act, the assessment under the 1922 Act was by virtue of the provisions of Section 297(2)(a) of the Act of 1961. The proceedings for assessment under the Act of 1922 were thus proceedings under the 1961 Act itself,'

19. Thus, the Bench of the Madhya Pradesh High Court expressed the same view as has been taken by me above that after the commencement of the new Act, the assessment proceedings completed under the old Act by virtue of the provisions of Section 297(2)(a) of the new Act and as such proceedings must be held to be under the new Act. The order passed under the old Act in such circumstances must be deemed to be an order passed under the new Act for the purposes of initiation of penalty proceedings under Section 271(1) of the new Act.

20. A Bench of this court also expressed the same view in respect of the interpretation of Section 297(2)(g) of the new Act in CIT v. Shankerlal Naraindas dissenting from the view taken by the Gujarat High Court in CIT v. Hiralal Mohanlal Shah : [1968]69ITR312(Guj) and agreeing with the view taken by the Madhya Pradesh High Court in Gopichand Sarju Prasad's case : [1969]73ITR263(MP) . Bhandari C.J., as he then was, observed as under in the aforesaid case (p. 650-651):

' The Gujarat High Court has taken the view that under Section 271(1) it has been provided that for imposing penalty, the Income-tax Officer or the Appellate Assistant Commissioner should be acting ' in the course of any proceedings under the new Act' and that the proceedings for imposing penalty in respect of any assessment for the year ending on 31st March, 1962, or for any earlier year was not a proceeding under the new Act and, therefore, Section 271(1) was inapplicable1 for imposing a penalty for that year. But, such proceedings become proceedings under the new Act by virtue of Clause (g) of Sub-section (2) of Section 297 of the new Act. Had this sub-section been not on the statute book, then perhaps,-on the repeal of the old Act, no proceedings for the imposition of a penalty for these years could be taken under the new Act. But Clause (g) of Sub-section (2) of Section 297 lays down that proceedings for penalty is to be initiated under the new Act and penalty is to be imposed under that Act. The expression 'in the course of any proceedings' under Section 271(1) of this Act is to be construed in the light that proceedings became proceedings under the new Act even if they are taken (sic) (under the old Act ?) by virtue of Section 297(2)(g). This view was taken by the Madhya Pradesh High Court in [1969] 75 ITR 263. We are in respectful agreement with this view, '

21. It is not necessary to consider the matter any further because the view taken by the Madhya Pradesh High Court and by a Division Bench of this court in Shankerlal Naraindas' case in respect of the interpretation of Section 297(2)(g) of the new Act, has also been taken by their Lordships of the Supreme Court in Jain Bros. v. Union of India : [1970]77ITR107(SC) wherein their Lordships observed as under (p. 117):

' We are further unable to agree that the language of Section 271 does not warrant the taking of proceedings under that section when a default has been committed by failure to comply with a notice issued under Section 22(2) of the Act of 1922, It is true that Clause (a) of Sub-section (1) of Section 271 mentions the corresponding provisions of the Act of 1961, but that will not make the part relating to payment of penalty inapplicable once at is held that Section 297(2)(g) governs the case. Both Section 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year, which is completed after first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of Section 271 of the Act of 1961. Thus the assessee would be liable to a penalty as provided by Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922 if his case falls within the terms of Section 297(2)(g). '

22. Thus, it is amply clear that in spite of the use of the expression ' in the course of any proceedings under this Act ', occurring in Section 271(1) of the new Act, proceedings for imposition of penalty can be initiated for default made under the old Act, if the provisions of Section 297(2)(g) are satisfied, because the provisions of Sections 271(1) and 297(2)(g) have to be read together and in harmony, as held by their Lordships of the Supreme Court in the aforesaid case.

23. Similar considerations should apply, in my view, to the interpretation of Sections 240 and 244 of the new Act and the provisions thereof ought to be read in harmony with the provisions of Section 297(2)(i) of the new Act and in cases where the return was filed and the assessment was completed before the coming into force of the new Act, but proceedings by way of appeal, revision or reference continued thereafter and were disposed of after the commencement of the new Act, then the order passed by the concerned authority in such pending appeal or other proceedings in accordance with the provisions of the old Act, by virtue of the provisions of Section 297(2)(c) of the new Act, should be considered to have been passed under the new Act for the purposes of Section 240 as the provisions' of that section will have to be read along with and in harmony with the provisions of Section 297(2)(i). Thus the orders passed in such pending proceedings by virtue of Section 297(2)(c) of the new Act would be deemed to have been passed under the new Act for the purposes of Section 240 of the new Act and, therefore, the provisions of Section 244 regarding payment of interest would be applicable in such cases where the assessment proceedings were completed before the commencement of the new Act, but the assessee became entitled to a refund by virtue of an order passed after the commencement of the new Act under Section 297(2)(c) and the requisitesconditions for the application of the provisions of Section 240 read with Section 297(2)(i) would thus be fulfilled. I am, therefore, of the view that interest was rightly paid tinder the provisions of Section 244(1) of the new Act to the petitioner-company for the four assessment years under consideration and no question of rectification could arise in such circumstances. The proceedings for rectification initiated by the ITO, by giving a notice under Section 35 of the Indian I.T. Act of 1922, are not maintainable.

24. All the four writ petitions are accordingly allowed and the notices issued by the ITO, ' B ' Ward, Jodhpur, under Section 35 of the Indian I.T. Act, 1922, for rectification are quashed and for the reasons given above, it is declared that the rectification proceedings are not maintainable. However, the parties are left to bear their own costs.


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