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A. Arpudaswami Chettiar Vs. Deputy Commercial Tax Officer - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberWrit Petition Nos. 1942 to 1945 of 1964
Judge
Reported in[1969]24STC459(Mad)
AppellantA. Arpudaswami Chettiar
RespondentDeputy Commercial Tax Officer
Appellant AdvocateK. Parasaran, Adv.
Respondent AdvocateN. Thiagarajan, Adv. for ;Special Government Pleader
DispositionPetition dismissed
Cases ReferredHaji J. A. Kareem Sait v. Deputy Commercial Tax Officer
Excerpt:
.....was of the opinion that sales of the same description should have been really assessed under the central sales tax act because the transactions occasioned the movement of the goods from one state to another thereby attracting the definition of a sale in the course of inter-state trade or commerce given in section 3 of the central sales tax act, 1956. not merely did he make the assessment thus under the central sales tax act on the corresponding turnover for 1963-64, but he also felt called upon to reassess the corresponding turnovers already assessed as stated above under the madras general sales tax act for the four years above-mentioned and issued on 9th june, 1964, a notice to the assessee relying upon rule 5(7) of the central sales tax (madras) rules, which is in the following..........madras general sales tax act. the relevant assessment orders for four years mentioned under the madras sales tax act were passed on 15th january, 1961, 15th july, 1961, 19th december, 1962, and 3rd december, 1963. the assessee is a candle merchant and he supplies candles to churches and other institutions both in madras state and outside. regarding the turnovers in dispute, the factual position was that they represented sales of candles to purchasers outside the madras state and despatched by the petitioner himself through lorries and trains. in the railway receipt or the lorry receipt the assessee noted his name as the consignor and the buyer's name as the consignee. the sales tax department in the orders mentioned above concluded that the transactions were sales completed in the.....
Judgment:
ORDER

Ramakrishnan, J.

1. These writ petitions involve a common question for consideration and therefore they are heard together. They relate to assessments made on the petitioner under the Central Sales Tax Act respectively for 1959-60, 1960-61, 1961-62 and 1962-63. It is not necessary to mention the figures of turnover for the purpose of these writ petitions. What is important to be noticed is that for the several years mentioned above and in respect of the items of turnover now in dispute, the assessing authority made assessments on the footing that they were local sales assessable under the Madras General Sales Tax Act. The relevant assessment orders for four years mentioned under the Madras Sales Tax Act were passed on 15th January, 1961, 15th July, 1961, 19th December, 1962, and 3rd December, 1963. The assessee is a candle merchant and he supplies candles to churches and other institutions both in Madras State and outside. Regarding the turnovers in dispute, the factual position was that they represented sales of candles to purchasers outside the Madras State and despatched by the petitioner himself through lorries and trains. In the railway receipt or the lorry receipt the assessee noted his name as the consignor and the buyer's name as the consignee. The sales tax department in the orders mentioned above concluded that the transactions were sales completed in the Madras State and assessed them under the Madras General Sales Tax Act of 1959. The officer who made these assessments was the Deputy Commercial Tax Officer at Nagapattinam. But when it came to the corresponding turnover in 1963-64, the Deputy Commercial Tax Officer was of the opinion that sales of the same description should have been really assessed under the Central Sales Tax Act because the transactions occasioned the movement of the goods from one State to another thereby attracting the definition of a sale in the course of inter-State trade or commerce given in Section 3 of the Central Sales Tax Act, 1956. Not merely did he make the assessment thus under the Central Sales Tax Act on the corresponding turnover for 1963-64, but he also felt called upon to reassess the corresponding turnovers already assessed as stated above under the Madras General Sales Tax Act for the four years above-mentioned and issued on 9th June, 1964, a notice to the assessee relying upon Rule 5(7) of the Central Sales Tax (Madras) Rules, which is in the following terms :

If, for any reason, the whole or any part of the turnover of business of a dealer has escaped assessment to tax in any year, the assessing authority may, at any time within five years next succeeding that to which the tax relates, determine to the best of his judgment the turnover which has escaped assessment and assess the tax payable on such turnover after issuing a notice to the dealer and after making such enquiries as he considers necessary.

2. After hearing the representations of the assessee, he decided that in so far as the turnovers above-mentioned were not assessed to Central sales tax, but only to the local sales tax of the Madras State, there was an escape of assessment within the meaning of the above rule and therefore he reassessed them to Central sales tax by assessment made on 23rd November, 1964. The petitioner has filed these writ petitions challenging the above-mentioned reassessments.

3. The argument initially urged by Sri Parasaran, who appears for the petitioner, is that the Deputy Commercial Tax Officer in making the reassessments was really sitting in appeal over the assessments made earlier by the then Deputy Commercial Tax Officer. The Deputy Commercial Tax Officer who made the assessment on the earlier occasion under the Madras General Sales Tax Act must be presumed to have been fully aware of the relevant provisions of the Central Sales Tax Act which were in force at the time also. In fact it is urged that in the year that preceded the present set of four years, viz., 1958-59, with regard to the return of the corresponding turnover representing sales outside the Madras State, the assessment officer held that they were local sales and completed the assessment accordingly and that assessment became final. It is urged by the learned counsel, that the jurisdiction under Rule 5(7) to make an assessment of escaped turnover does not involve the exercise of what is plainly an appellate jurisdiction, involving the correction of erroneous decisions by assessing authorities on prior occasions, which should be properly the function of the higher appellate authorities who have been provided by the Act itself for that purpose. He referred in this connection to decisions under the provisions of Section 34 of the Indian Income-tax Act of 1922. Section 34(1) is in the following terms:

Section 34(1): If-(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or

(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,

he may in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that Sub-section.

4. But one crucial point of distinction between Section 34(1) of the Indian Income-tax Act and Rule 5(7) of the Central Sales Tax Rules extracted above may be straightaway mentioned at this stage. Section 34(1) refers to definite information which has come into possession of the Income-tax Officer leading to a discovery of escape of assessment; but Rule 5(7) is wider in scope and uses the words 'if for any reason'. A provision similar to that found in Rule 5(7) was also found in Rule 17 of the Rules framed under the Madras General Sales Tax Act, 1939, and this rule was later on incorporated in the body of the Act itself as Section 16 when the Madras General Sales Tax Act was amended in 1959. Therefore it is clear that the Sales Tax Act deals with a situation where the authority empowered to assess escaped turnover can exercise that power 'for any reason' which leads him to the conclusion of turnover having escaped assessment, whereas Section 34(1) narrows down the situation to the extent that it refers to information reaching possession of the Income-tax Officer after the earlier assessment and leading to the discovery of escaped assessment. I will briefly refer to the decisions cited in this connection at the Bar.

5. The decision of a Full Bench of this Court in State of Madras v. Louis Dreyfus and CompanyLimited [1955] 6 S.T.C. 318 held the field for a long time. That decision was given in connection with Rule 17 of the Madras General Sales Tax Rules, 1939, and it defined 'escape' for the purpose of this rule, in the following terms:

The 'escape' that serves as the foundation of the jurisdiction to re-open an assessment is that of 'turnover' and not, be it noted, an assessment. 'Turnover' escapes when it is not noticed by the officer either because it is not before him by reason of an inadvertence, omission or deliberate concealment on the part of the assessee, or because of want of care on the part of the officer, the turnover though in the books has not been taken notice of. This would be the natural and normal meaning of the expression 'turnover which has escaped' in Rule 17(1).

There is no real analogy between Rule 17(1) of the Madras General Sales Tax Rules, 1939, and the provisions of Section 34 of the Indian Income-tax Act, 1922.

6. Relying upon these observations learned counsel contended that the turnover now assessed was before the assessing officer on the earlier occasion, that he took it into account, but decided according to the best of his reasoning, that it should be assessed only under the Madras Act; but what we have here is an alteration of opinion by a subsequent Deputy Commercial Tax Officer leading to a reassessment and not any of the situations mentioned in the Full Bench decision, such as failure to notice the turnover in question by reason of inadvertence, deliberate concealment, or want of care, etc.

7. In N. Naganatha Iyer v. Commissioner of Income-tax : [1966]60ITR647(Mad) a Bench of this court dealing with assessment to income-tax under Section 34 observed that when a return had been filed but no assessment had been made, it could not be said that income escaped assessment so as to justify action under Section 34.

8. In Sankaralinga Nadar v. Commissioner of Income-tax : [1963]48ITR314(Mad) again a case which arose under Section 34 of the Indian Income-tax Act, a Bench of this court held that an action under Section 34 of the Act cannot be justified on the ground of a mere change of opinion regarding the chargeability of income on the part of the reassessing officer different from his own previous opinion or from that of his predecessor-in-office. But the court qualified the remark by saying that income which escapes assessment as a result of the lack of vigilance of the Income-tax Officer or due to inadvertence or negligence or to the perfunctory performance of his duties without due care and caution can well be within the ambit of Section 34(1)(b) provided the requirements of that section are satisfied.

9. The decision in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax : [1959]35ITR1(SC) is an important landmark in the case law under Section 34, wherein the Judges of the Supreme Court laid down certain important principles for applying Section 34. They held:

(i) that the word 'information' in Section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to the relevant judicial decisions;

(ii) that 'escape' in Section 34(1)(b) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities ; even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment ;

(iii) that, therefore, the decision of the Privy Council was 'information' within the meaning of Section 34(1)(b) and that their decision justified the belief of the Income-tax Officer that part of the appellant's income had escaped assessment for the relevant year.

10. In that case at the time of the original assessment an item of income was excluded from the scope of income-tax assessment because the law laid down by the Patna High Court treated such income as agricultural income, but subsequently the Privy Council reversed that decision holding that such an income was not agricultural income. Thereupon the Income-tax Officer initiated reassessment proceedings and the Supreme Court held that the correct view of the law as laid down subsequently by the Privy Council should be treated as 'information' giving jurisdiction to reassess under Section 34(1)(b). It was urged by the learned counsel Sri Parasaran that the present is not a case where the law had altered, and one earlier authoritative view of the law had been replaced by another view. What has happened is that the subsequent assessment officer considered that the view taken by his predecessors-in-office was wrong without any fresh information or without any fresh authoritative decision of a court of law about the correct position of the law. He contended that this point was left open by the Supreme Court in the concluding portion of their judgment in the report above-mentioned. He therefore urged that, in this state of the law, it cannot be held that the assessing officer in the present case acted properly within the jurisdiction conferred under Rule 5(7) to assess the escaped turnover.

11. But the learned counsel appearing for the respondent-assessing authority urges that whatever may be the view in regard to Section 34(1) of the Income-tax Act, there cannot be any more doubt at the present moment, in regard to the interpretation of a provision like the one found in Rule 5(7), in view of a subsequent decision of the Supreme Court as well as a decision of this court. In Maharajadhiraj Sir Kameshwar Singh v. State of Bihar : [1959]37ITR388(SC) the Supreme Court had to consider Section 26 of the Bihar Agricultural Income-tax Act which contains a clause 'if for any reason any agricultural income...has escaped assessment for any financial year or' etc., etc., and is therefore in pari materia with the clause in Rule 5(7). In that case an earlier assessment under the Agricultural Income-tax Act had been made and confirmed. Later on the same Agricultural Income-tax Officer reinterpreted the terms of a lease deed relied upon on the earlier occasion and came to the conclusion that the rent under that lease deed ought to have been assessed as income of the assessee and to that extent it had escaped assessment on the earlier occasion and reassessed it under Section 26. When the attention of Hidayatullah, J., who delivered the judgment of the Supreme Court, was drawn to the issue which was left open in the earlier Supreme Court decision cited above, he observed at page 394 :

The use of the words 'any reason' which are of wide import dispenses with those conditions by which Section 34 of the Indian Income-tax Act is circumscribed. The point which was thus left over by Gajendragadkar, J., cannot arise in the context of the Act we are dealing with.

12. The Supreme Court concluded that

the Agricultural Income-tax Officer was competent under Section 26 of the Act to assess an item of income which he had omitted to tax earlier, even though in the return that income was included and the Agricultural Income-tax Officer then thought that it was exempt.

13. In an unreported decision of a Bench of this court in The Deputy Commissioner (C.T.), Coimbatore v. D. Srinivasa Iyer, T.C. No. 85 of 1962 Venkatadri, J., who delivered the judgment of the Bench relied upon Maharajadhiraj Sir Kameshwar Singh v. State of Bihar : [1959]37ITR388(SC) and held that the Joint Commercial Tax Officer had jurisdiction under the Madras General Sales Tax Act to revise his own original order and by a subsequent order refix the turnover at an enhanced amount and assess the tax on the revised turnover, relying for that purpose on Section 16(1) of the Madras General Sales Tax Act, 1959, which, as observed earlier, is in part materia, with Rule 5(7) of the Central Sales Tax Rules. In view of these authoritative statements on the interpretation to be given to the terms of Rule 5(7) of the Central Sales Tax Rules as well as Section 16(1) of the Madras General Sales Tax Act, 1959, it will not be proper to hold that the Deputy Commercial Tax Officer in this case had. no jurisdiction to reassess the earlier assessment which had been made under the Madras General Sales Tax Act, on the ground that the earlier assessment did not properly interpret the provisions of the Central Sales Tax Act regarding the inter-State sales, and that, on the correct view of the relevant provisions, the turnover should have been assessed only under the Central Sales Tax Act and not under the Madras General Sales Tax Act. I may incidentally observe that there was no attack at the time of the hearing about the correctness of the legal position about the assessability of the turnover in question under the Central Sales Tax Act.

14. The next argument that was urged by Sri Parasaran was that Veeraswami, J., delivering the judgment of a Bench of this court in Haji J. A. Kareem Sait v. Deputy Commercial Tax Officer [1966] 18 S.T.C. 370 struck down Rule 5(7) of the Central Sales Tax (Madras) Rules as being ultra vires the rule-making authority and that will be a ground for quashing the assessment in the present case also. But it has to be borne in mind that in Haji J. A. Kareem Sait v. Deputy Commercial Tax Officer [1966] 18 S.T.C. 370 what was attacked was the validity of the assessment under Rule 5(7) made by the assessing authority, just as the petitioner had done in the present case, by means of a writ petition. However, the Bench held that even though the reassessment could not be sustained under Rule 5(7) as that rule was ultra vires, the revenue could maintain and support the reassessment on the ground that Section 9(3) of the Central Sales Tax Act would confer on the assessing authority power to assess turnovers under the Central Sales Tax Act and for that purpose he could exercise all the powers under the Madras General Sales Tax Act. Such powers would include the power under Section 16(1) to reassess escaped turnovers. Therefore the Bench held that even after Rule 5(7) is struck down as ultra vires, there will be no room to quash the reassessment, because in any event Section 9(3) of the Central Sales Tax Act read with Section 16(1) of the Madras General Sales Tax Act would confer jurisdiction to reassess the turnover which had escaped.

15. There was an argument by the learned counsel for the respondent-State that the petitioner ought not to have approached this court for remedy by way of writ proceedings when he had before him, the remedy by way of appeal to the hierarchy of Tribunals under the General Sales Tax Act. As against this, the petitioner's counsel urged that he had an argument to put forward regarding the jurisdiction of the authority to assess the turnovers as escaped turnovers, that in any event he had an argument to put forward about the vires of Rule 5(7), that these contentions he could not urge before the Tribunals constituted under the Act itself, and that this circumstance would give him a right to invoke the powers of this court under Article 226 of the Constitution. I am inclined to accept this argument and hold that, on the pleas put forward, the petitioner was entitled to approach this court for remedy under Article 226 of the Constitution. But, in view of the consideration set out earlier, no relief can be afforded in these writ petitions because the decisions above-cited clearly give jurisdiction to the assessing authority for reassessing the escaped turnovers in this case.

16. The petitions are dismissed.

17. Before parting with the cases, I will refer to a representation made by the learned counsel for the petitioner with, in my opinion, a great deal of justification, that this is an unfortunate case where the assessee who had been made to pay assessment on the concerned turnover under the Madras General Sales Tax Act at a lower rate, is being reassessed on the same turnover under the Central Sales Tax Act at a higher rate, but without any assurance being given to him of the necessary refund where there had been excess realisations, or adjustment as the case may be. In the counter-affidavit of the department in these writ petitions, there is an averment for the purpose of meeting this complaint, that the assessment under the Madras General Sales Tax Act in respect of the turnover involved in these years will be 'revised' by the appropriate authority suitably after the present assessment proceedings are finalised. It is not clear to me what is meant by the statement about 'suitable revision'. It is a vague statement, and the petitioner feels apprehension about his relief. It will be much better for the assessing authorities to give credit to the amounts collected from the assessee under the assessment made under the Madras General Sales Tax Act when making a demand for the assessment at the higher rate levied under the Central Sales Tax Act so that the assessee is not compelled to pay over any part of the sum twice. But if he had already paid any and twice over the simplest way is to give credit to what has already been paid twice over and collect only the balance and make the necessary adjustment between the amounts due to be collected under the Central Sales Tax Act and the Madras General Sales Tax Act under the appropriate heads of account.

No order as to costs.


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