SRINIVASAN J. - The question that stands referred to us for decision i :
'Was the assessee entitled to relief from double taxation with reference to the assessment for the year 1946-47?'
For the previous year ending with December 31, 1945, the Indian assessment of the assessee was completed in 1947. It included the foreign income, that is to say, income from business carried on in Colombo of Rs. 1,73,964. Upon the total income, the tax was computed at Rs. 1,20,346. On appeal, however, the total foreign business income was reduced somewhat, and the tax liability was also reduced to Rs. 1,07,678-8-0. After giving effect to various payments made by the assessee, it was determined that a refund of Rs. 12,667-8-0 was due to the assessee.
It appears that the first Ceylon assessment was also made in 1947, and a tax of Rs. 2,21,756 was levied and paid. There was an additional assessment made some time later and the tax computed as due was also paid. The final assessment was, however, made by the Ceylon authorities only on May 23, 1955. The income was determined as Rs. 2,93,247, and the tax as Rs. 1,45,828. The Ceylon authorities granted double taxation relief of Rs. 53,616.50 nP. This was computed on the basis of the Indian Income-tax of Rs. 1,07,678-8-0 less a sum of Rs. 455-8-0 being Indian tax on Indian income not assessed in Ceylon. The net figure of tax computed for the purpose of granting double tax relief was Rs. 1,07,223, half of the above was granted as double taxation relief by the Ceylon authorities.
From 1948 onwards, correspondence had been going on between the assessee on the one hand and the Income-tax Officer, Special Circle, Madurai, on the other. In a letter dated May 26, 1948, the assessee enclosed a statement giving full particulars of his income and tax liability for the years 1942-46. He pointed out that he had to pay taxes in two countries and that the total taxes payable in both the countries even exceeded the income, unless adjustments were allowed. In a statement accompanying this letter, he furnished details of the incomes assessed, the tax due, the taxes paid by him and the Ceylon income-tax double taxation relief, the balance of tax payable and the refund due. He set out the relevant figures and pointed out that refund was due to him to the extent of Rs. 43,769 on the assessment for the year 1946-47. He urged an early settlement, as he was not in a position to pay the taxes without taking into account the ultimate repayment that would be due to him, and he specifically asked that the amount of such repayments should be held against the taxes due and only the balance should be collected from him. Apparently, in response to this request, in the excess profits tax proceedings against the assessee for the chargeable accounting period ending with the 31st December, 1945, the resulting demand of Rs. 53,306 was held in abeyance for adjustment against the total income-tax refund by the order of the Income-tax Officer. This order is dated July 12, 1948.
There appears to have been subsequent correspondence between the assessee and the department and the department kept asking the assessee to obtain and send certificates of finality for all the assessments to income-tax and excess profits duty made on the assessee in Ceylon and also asked the assessee to prefer claims for double taxation relief. In one of his replies, the assessee wrote to the Income-tax Officer that claims for double taxation relief could be made as soon as the assessments in Ceylon had become final.
On December 4, 1951, the assessee informed the Income-tax Officer that the Ceylon assessment had not yet become final and enclosed a formal application praying for double taxation relief in respect of the assessment for the assessment year 1946-47. Almost two years later, the Income-tax Officer informed the assessee that his application dated December 4, 1951, was rejected as it was time-barred. On appeal, the Appellate Assistant Commissioner thought that the order of the Income-tax Officer related to a provisional claim and not to a final claim and that there could not, therefore, be an order which was appealable under any of the provisions of the Act. He accordingly dismissed the appeal as incompetent. On a further appeal, the Tribunal was apparently inclined to agree with the view taken by the Appellate Assistant Commissioner. It, held, however, that if the letter dated December 4, 1951, was regarded as a regular application for double taxation relief, that application was out of time. It declined to consider the point whether the very first letter of the assessee dated May 26, 1948, would constitute a valid application for relief. It accordingly dismissed the appeal.
On the application of the assessee under section 66(1) of the Act to refer a question to the High Court being dismissed the matter came before this court by way of an application under section 66(2) of the Act. This court pointed out that the letter dated May 26, 1948, was consistent with the form prescribed by the rules to ask for relief from double taxation and that this feature had been overlooked by the authorities and also by the Tribunal. The Tribunal was accordingly directed to refer the question set out above, and in preparing the statement of the case, the Tribunal was asked to record a specific finding whether the application dated May 26, 1948, satisfied the requirements of the rules and whether the subsequent letter was only on application in effect asking for the disposal of the earlier application preferred on May 26, 1948.
In its statement of the case, the Tribunal states in paragraph 1 :
'In our opinion, the letter of the assessee dated May 26, 1948, more or less contained all the information required to be filled in the above form. In the absence of any special reference to the letter dated May 26, 1948, and having regard to the various letters addressed by the Income-tax Officer calling for to be filled we consider that the letter dated December 4, 1951, cannot be taken to be an application asking for the disposal of the earlier application preferred on May 26, 1948.'
It is not quite clear what the conclusion of the Tribunal really is. If the letter dated May 26, 1948, was a letter asking for the determination of the quantum of double taxation relief which the assessee would be entitled to, and the particulars furnished in that letter contained all the information necessary to enable the income-tax authorities to determine the quantum of relief, then the letter regarded as an application for refund remained undisposed of. The Tribunal is no doubt right is saying that in the subsequent letter dated December 4, 1951, there was no specific reference to the earlier letter reminding the authorities that that earlier letter constituted an application and that it was still pending before them.
The question does not appear to bring out the specific point in controversy. What really calls for out decision is, whether there was a valid application claiming refund, or whether the application was beyond time. This necessary raises the question whether the letter dated May 26, 1948, is an application contemplated by the rules.
It is not in dispute that the assessee is entitled to refund by virtue of the notification issued by the Government of India under section 49A of the Income-tax Act. This notification purported to make certain rules for the granting of relief in respect of income on which tax had been paid both in British India and in Ceylon. Rule 3 states that if any person proves to the satisfaction of the Income-tax Officer that he has paid by deduction or otherwise, tax for the corresponding year in Ceylon on the same part of this income, he shall be entitled to the refund of a sum computed in a particular manner. Rule 4 requires that the application for refund of income-tax under these rules shall be made to the Income-tax Officer of the district in which he ordinarily resides and that such application may be presented by the applicant in person or by a duly authorised agent or may be sent by post and shall be in Form I appended to the Rules. Rule 5 is word for word the same as section 50 of the Income-tax Act. It enacts a period of limitation, and it lays down that no claim for refund of income-tax or super-tax shall be allowed unless it is made within four years from the last day of the financial year commencing next after the expiry of the previous year in which the income arose, accrued or was received. We may notice in passing that, nowhere in section 50 of the Act is there any insistence upon any particular form in which the claim to refund has to be made. Section 50 enacts only a period of limitation which is embodied in identical terms in rule 5. We have thus the position that by rule 3 a right to refund is created which, in the absence of claim made within four years from a particular date, can no longer be enforced. It is the intermediate rule 4 which prescribes the application for the refund to be made in a particular form, and the question we have to consider is whether this rule is mandatory, in the sense that if the application is not in that particular form, the claim to refund itself can be negatived.
It is not contended by Mr. Ranganathan, learned counsel for the department, that the letter dated May 26, 1948, did not furnish all the necessary particulars for the computation of the amount of refund to which the assessee would be entitled. It was in the form of letter along with which a statement of all the required particulars was furnished. The only defect, if it can be so called, is that it was not couched in the form which is appended to the rules. Generally speaking, we may observe that rules are intended to give effect to the statute, and unless there should be a contrary intention expressed anywhere, failure to comply with what are mere formal requirements of rule cannot be taken to destroy the substantive right created by the provision of the statute. Was it then the intention of these rules that unless the application was made in that particular form, the claim to refund itself could not be maintained? We are exceedingly loath be believe that a substantive right that is created by the statute can be converted into a mere shadowy relief by an insistence upon the observance of a rule, which, as far as we can see, does not affect the substantive right created by the statute. The form prescribed by the rules only requires the applicant to state that he had paid income-tax in Ceylon for the relevant year on a part of his income which had also been assessed to tax under the Indian Income-tax Act, and that he had paid the stated amount as Indian income-tax - he has to satisfy the Income-tax Officer in this regard. Then follows the prayer for relief of a sum computed by the assessee himself to which he would be entitled under the double taxation relief rules. Each and every one of these particulars which are expected to be included in the form prescribed were in the fact given by the assessee in the enclosure to his letter dated May 26, 1948. Unless we can say that the failure to adopt the precise form prescribed in the rule renders the claim an invalid claim, there is not doubt that the letter referred to is a valid application for refund within the rules.
In a decision of the Calcutta High Court in Commissioner of Income-tax v. Burmah Oil Company, a similar question arose. The assessee, a non-resident company, in its return of income showed particulars of both Indian and foreign income. But the foreign income was not included in the total income for the assessments for certain years, as the decision in the Raleigh Investment case held that field. While the matter was pending in the courts, the assessee sent two letter to the Income-tax Officer claiming relief from double taxation in respect of the United Kingdom tax. This was accepted as a provisional claim. Subsequently, the records were transferred to Bombay, where the decision in the Raleigh Investment case was not binding, and proceedings under section 34 of the Indian Income-tax Act were started for all assessments years. Revised returns were submitted along with the claim for double taxation relief. The Income-tax Officer accepted the earlier letters as provisional claims and granted relief thereon. But, in so far as the revised assessments were concerned, he took the view that the claims were time-barred and were not properly made in the prescribed form. On appeal, the Appellate Assistant Commissioner and the Tribunal upheld the claim of the assessee that the claim to refund was in time. The matter came on a reference to the High Court, and the learned judges pointed out that as section 50 of the Indian Income-tax Act did not prescribe how and in what manner the claim was to be made, a claim in any form, if made within four years, would satisfy the requirements of the statute. They further said that even section 49 did not mention how a claim for refund was to be made, but merely laid down the conditions which the assessee must satisfy before he was entitled to refund. The relevant rule which they had to consider is analogous to rule 4 of the Ceylon Double Taxation Relief Rules and that rule also specified that an application for refund shall be made in a specified form. In that case, the letter of the assessee did not conform to the form prescribed. The case before the Calcutta High Court was further complicated by the fact that even the assessments in those cases were made under section 34 beyond the period of four years specified in section 50 of the Income-tax Act. The learned judge took the view that the word 'shall' and the word 'form' appearing in the relevant rule are only directory and not mandatory, for, to hold otherwise, would result in manifest injustice and great hardship. With respect, we adopt the same view, and the circumstances of the case, we are of opinion that the letter of May 26, 1948, in which in claim was made, complies with the requirements of the law and cannot be regarded as invalid. The letter of the assessee in 1951, which the assessee submitted in formal compliance with the request of the Income-tax Officer is a superfluous one and on the basis of that letter the department is not entitled to say that the claim was made beyond the period of limitation.
Though the point does not directly arise, we may refer to one other aspect. It appears that the Ceylon assessments were made final in about 1955. While it is true that the precise quantum of the refund due to the assessee would depend upon such final assessment and it is common knowledge that assessments in foreign countries take much longer than four years to be completed, section 50 of the Income-tax Act, however, fixes a period of limitation of four years within which the claim to refund has to be made. Normally, well within the period of four years at least provisional assessments are made in foreign countries, and it is only on the basis of those provisional assessments that an assessee can make an application for refund. We have pointed out that at this stage he has to specify the income or that part of it which has suffered double taxation, the amounts of tax that he has paid to the foreign Government and the amounts of tax that have also been paid under the Indian Income-tax Act. In one of his letters, the Income-tax Officer asked that certificates of finality for all the assessments of the income-tax and excess profits duty made on the assessee in Ceylon should be obtained and forwarded along with the claims for double tax relief. The assessee repeatedly pointed out that the foreign assessments had not become final. Nevertheless, the law does require that an application for refund should be made on the basis of taxes paid both in India and abroad. Notwithstanding that the foreign assessments had not become final, the application for refund made on the basis of such provisional assessments if not opposed to the provision of law or the rules thereunder. We are only referring to this aspect of the matter so that any misapprehension that may exist in the minds of the taxing authorities that a claim for refund could not be validly entertained unless certificates of finality were produced is not in consonance with the provisions of the Act.
In the light of what we have stated, the question is answered in favour of the assessee who will be entitled to his costs. Counsels fee Rs. 250.
Two writ petitions have been filed by the assessee. In W.P. 532 of 1959, a writ of certiorari is prayed for to quash the order of the concerned authorities leading to the order of the Appellate Tribunal rejecting the claim to refund. In W.P. No. 533 of 1959, a writ of mandamus has been prayed for to direct the Income-tax Officer to entertain and dispose of the application for refund. In the light of our decision in Tax Case No. 72 of 1962, the reliefs prayed for in these writ petitions have already been granted therein. It is unnecessary to pass pay orders in these writ petitions. They are dismissed. No costs in these petitions.