The judgment of the court was delivered by
KAN SINGH, J. - We have before us three writ petitions under article 226 of the Constitution questioning the validity of certain provisional assessments made under section 141 of the Income-tax Act, 1961, hereinafter to be referred as the 'Act', and as common questions of law are involved in them they can conveniently be disposed of together. As there is no dispute on facts, it will be sufficient to narrate the facts from Writ Petition No. 51 of 1964 (Jaipur Udhyog Ltd. v. Commissioner of Income-tax).
The petitioner No. 1 is a joint stock company registered under the Companies Act and runs a cement factory at Sawai Madhopur and is engaged in the business of manufacturing and distributing cement. The petitioner No. 2 is a shareholder of the company. They claim that the factory was established by the company in pursuance of an agreement between the company and the erstwhile Jaipur State whereby the company was exempted from the payment of all taxes including taxes on income for a period of 15 years from the date the company started the manufacture of cement from April, 1953. The petitioners proceed to say that in spite of this agreement the Income-tax Officer assessed the company to income-tax. Aggrieved of this the petitioner-company filed a writ petition before this court whereby it challenged the assessment order on the ground that on account of immunity of taxes conferred by the Ruler of the former Jaipur State the income-tax department had no jurisdiction to assess the company. This writ petition was, however, dismissed by this court on November 21, 1963. Against that decision, of course, the petitioner-company has obtained a certificate from this court for appealing to the Supreme Court. The company continued to file its income-tax returns and the position about the assessment of these years will be clear from the subjoined statemen :
As regards the assessments made up to the assessment year 1958-59, the petitioner-company had filed appeals before the Appellate Assistant Commissioner of Income-tax which are all said to be pending. For the assessment year 1963-64, to which the impugned provisional assessment relates, the company claimed a carried-forward loss of Rs. 1,03,03,935 in its return filed on September 30, 1963. As the company still maintained that there was absolute immunity in its favour from all taxes by virtue of the agreement with the Ruler of ex-Jaipur State, it appended a note in the return that it could not be assessed to income-tax within the period of exemption, in terms of the agreement. The petitioners assert that ignoring the claim of immunity from taxes and also by wrongly denying the claim for carry-forward loss to the tune of Rs. 1,03,03,935 to the company, the Income-tax Officer made the provisional assessment. The Income-tax Officer had allowed losses for the assessment years 1956-57, 1957-58 and 1958-59 as per the assessment orders for regular assessments and for the years 1959-60, 1960-61 and 1961-62, the Income-tax Officer allowed losses the Income-tax Officer found that the net income for the assessment year 1963-64 was Rs. 34,62,671 which led to the demand of income-tax at Rs. 8,73,873. In attacking the provisional assessments it is contended that the Income-tax Officer had acted wholly without jurisdiction in ignoring the carry-forward loss of Rs. 1,03,03,935 claimed by the company in its return and the Income-tax Officer had no warrant for substituting this figure by his own figure of a carry-forward loss of Rs. 39,89,731. Relying on the plain language of section 141 of the Act, it is submitted that the Income-tax Officer was duty bound to compute the tax on basis of the figures given in the return and he had no jurisdiction to travel beyond the return or the documents accompanying it. Thus it is asserted that at the stage of provisional assessment the company was entitled to full allowances for the carry-forward loss claimed by it in computing its total income.
The petitioners submit that the company filed representations to higher authorities against the provisional assessment made by the Income-tax Officer and it also filed a revision application before the Commissioner of Income-tax under section 264 of the Act, but without any success. The order of the Commissioner of Income-tax has also been placed on record. The Commissioner in his order observed that as the claim for carry-forward loss and not been determined in pursuance of the return filed under section 139 of the Act, section 80 of the Act forbade the set-off in respect of such a carry-forward loss under sub-section (1) of section 71 or sub-section (2) of section 73 or sub-section (1) of section 74 of the Act.
The respondents contest the writ petitions and the stand taken by the Commissioner of Income-tax in his order, annexure 'N', is reiterated.
Before we deal with the rival contentions of the parties it will be convenient to refer to the relevant provisions of the Act and the Rules thereunder.
The procedure for assessment is contained in Chapter XIV of the Act. Section 139 provides for the filing of a return and this has to be filed in the prescribed form and verified in the prescribed manner setting forth therein such other particulars as are prescribed. Rule 5 and Form I of Appendix II to the Income-tax Rules, 1962, prescribe the form for giving particulars of income from business. Annexure I in this form lays down the mode of computation of total income and as arguments have been addressed on the mode of computation of total income in the return it will be necessary to reproduce the annexure belo :
(See Part I, Section D)
Computation of total income
Total income is to be computed by making the following adjustments (wherever applicable) to the particular of income shown in sections A and B of Part I of the return, namel :-
(i) Adjustment for the amount of development rebate carried forward from earlier assessment years;
(ii) Set-off of loss from one source of income against income from another source within the same head of income - sections 70, 73(1), 75, 76, 77. Loss from a speculation business shall not be set off except against profits from another speculation business - section 73(1);
(iii) Set-off of loss from one head against income from another head - sections 71, 73(1), 75M, 76 and 77. In this connection please also mention whether you wish to exercise the option given under the proviso to section 71. Loss under the head Capital gains shall not be set off against income under any other head - section 71;
(iv) Set-off of losses carried forward from earlier assessment years - sections 72, 73(2), 74, 75, 76, 77, 78 and 79. Loss from a speculation business or loss under the head Capital gains carried forward from an earlier assessment year can be set off only against income from speculation business or income under the head Capital gains as the case may be - sections 73(2) and 74;
(v) Adjustment for unabsorbed allowance on account of depreciation or capital expenditure on scientific research carried forward from earlier assessment year - sections 32(2) and 35(4) read with sections 72(2) and 73(3).
Details of the adjustments should be indicated in a statement which should be appended to this return.'
Section 141 speaks of provisional assessment and the relevant portions thereof run as unde :
'141. Provisional assessment. - (1) The Income-tax Officer may, at any time after the receipt of a return made under section 139, proceed to make, in a summary manner, a provisional assessment of tax payable by the assessee on the basis of his return and the accounts and documents, if any, accompanying it.
(2) In making any assessment under this section due effect shall be given to -
(a) the allowance referred to in sub-section (2) of section 32; and
(b) any loss carried forward under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74....
(5) After a regular assessment has been made, any amount paid or deemed to have been paid towards the provisional assessment made under sub-section (1) shall be deemed to have been paid towards the regular assessment; and where the amount paid or deemed to have been paid towards the provisional assessment exceeds the amount payable under the regular assessment exceeds shall be refunded to the assessee.
(6) Nothing done or suffered by reason or in consequence of any provisional assessment made under this section shall prejudice the determination, on the merits, of any issue which may arise in the course of the regular assessment.
(7) There shall be no right of appeal against a provisional assessment made under sub-section (1).'
Section 143 lays down the procedure for regular assessment and the relevant portions thereof may also be quoted for the purpose of comparison with the provisions for provisional assessment.
'143. Assessment. - (1) Where a return has been made under section 139 and the Income-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that the return is correct and complete, he shall assess the total income or loss of the assessee, and shall determine the sum payable by him or refundable to him on the basis of such return.
(2) Where a return has been made under section 139 but the Income-tax Officer is not satisfied without requiring the presence of the assessee or the production of evidence that the return is correct and complete, he shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officers office or to produce or to cause to be there produced, any evidence on which the assessee may rely in support of the return.....'
Section 72 deals with carry-forward losses of business and the relevant portions thereof may also be reproduce :
'72. Carry forward and set off of business losses. - (1) Where for any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where the assessee has income only under the head Capital gains and has exercised the option under sub-section (2) of that section or where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and -
(i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment yea :
Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss no so set off shall be carried forward to the following assessment year and so on.'
Section 80 on which reliance was placed for the respondents may also be reproduced hereunde :
'80. Submission of return for losses. - Notwithstanding anything contained in this Chapter no loss which has not been determined is pursuance of a return file under section 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 of sub-section (1) of section 74.'
The learned counsel for the petitioner has, as observed above, placed reliance on the plain language of section 141, the sub-section (1), and submitted that a provisional assessment could be made only on the basis of return and the accounts and documents accompanying it. This provision was enacted, submits the learned counsel, with a view to enabling the revenue to collect the tax which was admittedly payable in terms of the returns. It is claimed that even where an assessee has made a wrong return or has put forth wholly untenable claims the provisional assessment has to be made only on the basis of the claims made in the return though subsequently the assessee may be penalised for making a wrong return or for putting forward untenable claims. In justification of this view about the scope of section 141 of the Act, it is pointed out that merely by withholding the determination of losses in the first return the income-tax authorities can prevent the assessee from getting the benefit of such a set-off on account of carry-forward losses in all subsequent returns and thus compel him to pay tax which may not at all be found to be due at the regular assessment. It is maintained that section 141 of the Act does not contemplate any inquiry whatsoever and the tax has to be determined in a summary manner. Attention is also invited to the difference in the frame of section 141 for provisional assessment and section 143 which is for regular assessment. It is pointed out that whereas for the purposes of making a regular assessment the Income-tax Officer is to be satisfied about the correctness of the return, section 141 of the Act does not lay down such a condition of any satisfaction on the part of the Income-tax Officer. Regarding sub-section (2) of section 141 it is pointed out that this is not in the nature of any exception or proviso to sub-section (1). It is also pointed out that a statement for a carry-forward loss is an integral part of the return itself and consequently that is required to be considered in the computation of the income. Even if sub-section (2) were not there, sub-section (1) would in terms take in what is contained in the return. As the statement of carry-forward loss is an integral part of the return, due effect, according to learned counsel, has got to be given to the figures about the set-off of carry-forward loss. It is submitted that sub-section (2) of section 141 of the Act casts a duty on the Income-tax Officer himself to make due allowance for the carry-forward losses or for depreciation allowance and the Income-tax Officer is bound to make these allowances even where the return fails to mention claims about carry-forward losses or for depreciation.
The main argument on behalf of the respondents was based on the language of section 80 of the Act, as already observed above. When the learned counsel for the respondent was faced with the position taken by the Income-tax authorities in allowing losses on the basis of returns for the years 1959-60, 1960-61 and 1961-62, he said that these were allowed out of generosity and contrary to the provisions of law and consequently it did not mean that the petitioners were entitled to the carry-forward loss of Rs. 1,03,03,935 as claimed by the company in the return.
The sole question that falls or consideration, in the facts and circumstances of the present case is whether an undetermined business loss could be carried forward and set off for the benefit of an assessee in the subsequent assessment years. The learned counsel for the petitioner did not dispute the position that section 80 of the Act will have full play so far as regular assessments were concerned, but his main contention was that at the stage of provisional assessment the Income-tax Officer has to proceed on the basis of liability to tax, as has been admitted in the return and it is not open to the Income-tax Officer to travel beyond the return or for that matter to reject the same.
The underlying object in enacting section 141 of the Act is obviously one to secure expedition of the process of realisation of tax dues as regular assessments might take long time. There at a regular assessment, the officer is required to be satisfied about the correctness of the return by calling evidence and other relevant information bearing on the return. It is with a view to avoiding delay that while making provisional assessments the Income-tax Officer is to act in a summary manner without the necessity of being satisfied about the correctness of the return. Since the procedure is a summary one and the investigation about the correctness of the return does not enter into the process, sub-section (6) of section 141 of the Act provides that the provisional assessment shall not prejudice the determination on merits of any issue which may arise in the course of the regular assessment. Then the right of an appeal against a provisional assessment is expressly denied. The question still remains as to how the Income-tax Officer has to deal with claims for carry-forward losses. The basic scheme of charging income-tax is that income-tax is to be charge : (1) at any rate prescribed for the year; (2) it is to be charged subject to the provisions of this Act; and (3) it is to be charged in respect of the total income of the previous year (vide section 4 of the Act). This basic consideration to our mind, will apply both to a provisional assessment as well as a regular assessment. In construing the provisions of section 141 of the Act, therefore, we have to bear in mind that the assessment of tax has to be in accordance with and subject to the provisions of this Act. Therefore, while section 141 contemplates that the necessary facts about the return and the document accompanying it and he is not entitled to travel beyond that, at the same time he is not entitled to ignore the other statutory provisions. In other words he is required to apply the law correctly to admitted facts as per return. Thus, it will be within his province to see whether any claim is admissible in accordance with the provisions of the Act or not. Section 80 of the Act, to our mind, lays down a condition about the admissibility of a claim for a set-off in respect of a loss of a previous year. This section begins with a non-obstante clause and to our mind it creates a bar against carrying forward of losses for being set off against the income of subsequent years unless the loss has been first determined in pursuance of the return. Section 72 of the Act also lays down that a loss shall be carried forward to the following assessment year subject to the other provisions of this Chapter, namely, Chapter VI, and section 80 occurs in Chapter VI. The combined effect of the two sections, namely, sections 72 and 80 of the Act, is that a business loss can be carried forward to the subsequent assessment years only when it has been determined in pursuance of the return filed under section 139 of the Act. In these circumstances we are unable to hold that the petitioners are entitled to the benefit of carry-forward losses of previous years merely because they have shown such losses in the returns. It cannot be said that the Income-tax Officer is not acting on the basis of the return, the accounts and documents accompanying it for the purposes of making the provisional assessments merely because he is applying the relevant provisions of the Act to the uncontroverted facts found in the return or the documents accompanying it. Consequently, to our mind, the provisional assessment in the present case cannot be said to be one contrary to law. The argument of the learned counsel for the petitioner was that an over-zealous Income-tax Officer might very well postpone the determination of losses for the first year in the case of an industrial undertaking which may still be in its infancy and may simply by making provisional assessments ignore the claims of carry-forward losses and thereby subject the undertaking to a heavy tax which may not at all be found due at the time the regular assessment is made. This, the learned counsel argues, could not have been contemplated by the legislature and consequently we should construe section 141 of the Act in such a manner that the anomaly of a tax burden as a result of provisional assessment being such higher than what it would be at a regular assessment is avoided. The argument is attractive indeed but, to our mind, that cannot induce us to take a view different from the one that is warranted by the language of section 141 of the Act. If in any particular case it is shown that an Income-tax Officer is delaying the first assessment with the ulterior motive of unnecessarily forcing the assessee to pay income-tax when really it would not be so payable on account of a genuine claim for a carry-forward loss, then it may furnish a ground for invoking the powers of this court for issuing a writ in the nature of mandamus to compel the income-tax authorities to determine the claim of losses, if any, for the previous year. But that will not change the position in law that unless the claim of a loss is first determined in pursuance of the return it cannot be carried forward to subsequent years to be set off against the business income of later years. For the applicability of section 80 it is immaterial whether it is a regular assessment or a provisional assessment under section 141 of the Act, as the requirement of both the assessments if that the tax is to be charged in accordance with and subject to the provisions of the Act.
At the same time, it may be observed that we are quite unable to accept the submission made by the learned counsel for the department that the Income-tax Officer had acted out of generosity and contrary to the provisions of law in allowing the losses for the years 1959-60, 1960-61 and 1961-62, on the basis of returns of those years. It is true that undetermined losses cannot be carried forward in law as held by us, but this does not mean that where the Income-tax Officer has failed to discharge his obvious duty of completing the assessment in time and thereby determining the losses, when the assessee has filed his returns regularly, the Income-tax Officer should take advantage of his own inaction and put the assessee in a difficult position. In the present case, however, for the 3 out of the 6 assessment years, losses were determined, namely, for the years 1956-57, 1957-58 and 1958-59, though the appeals were pending in respect of those assessments. As for the other three assessment years, 1959-60 and 1960-61 and 1961-62, the assessment had not been finalised. In the circumstances we do not think it was improper on the part of the Income-tax Officer to take note of these losses while making provisional assessment for the assessment year 1963-64.
As observed by us, all the three writ petitions present common features and the only difference in them is that they relate to different assessment years. The imposition of the penalty in the assessment was also challenged but the ground for the challenge being the same as for challenging the assessment itself and also for the reason that an appeal could have been filed against the imposition of penalty, we are not inclined to interfere with the orders for the imposition of penalty as well. Thus, whatever we have said regarding the facts of Writ Petition No. 51 of 1964 will mutatis mutandis apply to other writ petitions.
The result is that we do not find force in the writ petitions and hereby dismiss them. In the circumstances of the case, we order parties to bear their own costs.