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Hungerford Investment Trust Ltd. Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 1 of 1962
Judge
Reported in[1976]102ITR314(Cal)
ActsIncome Tax Act, 1922 - Section 34 and 34(3)
AppellantHungerford Investment Trust Ltd.
Respondentincome-tax Officer and ors.
Appellant AdvocateDebiprosad Pal and ;P.T. Sanyal, Advs.
Respondent AdvocateAmiya Basu, Adv.
Cases ReferredS. C. Prashar v. Vasantsen Dwarkadas
Excerpt:
- .....various reasons discussed above the assessment for 1949-50 made by the income-tax officer on the resident company, m/s. turner morrison & co., as agents of the non-resident company, m/s. hungerford investment trust ltd., in order to tax the deemed dividend under section 23a is set aside and the income-tax officer is directed to make a direct assessment on the non-resident company. the assessee is the non-resident company and the income-tax officer has wrongly adopted the alternative machinery of assessment on the resident company as agents of the non-resident company which machinery was barred by limitation and hence the income-tax officer had no alternative but to make the direct assessment on the non-resident company and, therefore, the income-tax officer is directed to make the.....
Judgment:

P.K. Banerjee, J.

1. This Rule is directed against the notice under Section 34 of the Indian Income-tax Act, 1922, under Section 23(2) for the assessment years 1949-50, 1950-51 and 1951-52. The petitioner, Messrs. Hungerford Investment Trust Ltd., having its registered office at Singapore, Malaya, holds all the shares of Messrs. Turner Morrison and Company Ltd. The Income-tax Officer passed an order under Section 23A before its amendment in 1955 in the case of Messrs. Turner Morrison & Co. Ltd. and proceedings were taken under Section 34 by the Income-tax Officer in order to tax the dividend deemed to have been declared under Section 23A in favour of M/s. Hungerford Investment Trust Ltd. for the assessment yours 1949-50, 1950-51 and 1951-52. The Hungerford Investment Trust Ltd. filed its return. It appears that the Income-tax Officer obtained approval of the Commissioner of Income-tax on 24th March, 1954, and thereafter issued the notice under Section 34 in the name of M/s. Turner Morrison & Co. Ltd., agents of M/s. Hungerford Investment Trust Ltd., for the year1949-50. Though the approval was made as aforesaid, the notice under Section 34 was issued against Hungerford Investment Trust Ltd. Return was filed by Turner Morrison & Co. Ltd. as agents of Hungerford Investment Ltd. and the status was shown as non-resident. For the year1950-51, the notices were issued on Hungerford Investment Trust Ltd. for the income in respect of tax dividend deemed to have been declared under Section 23A. Similarly, in 1951-52 also notice was served on the Hunger-ford Investment Trust Ltd. The petitioner's agent, M/s. Turner Morrison Co. Ltd., filed return mentioning the name of the assessee as M/s. Hungerford Investment Trust Ltd. and the address given was of Singapore. Thereafter, it appears that the petitioner was not finally assessed. TurnerMorrison & Co. Ltd. was, however, assessed. The Income-tax Officer assessed M/s. Turner Morrison & Co. Ltd. as agents of Hungerford Investment Trust Ltd. and taking the status as non-resident. Being aggrieved by the said assessment order, M/s. Turner Morrison & Co. Ltd. preferred an appeal to the Appellate Assistant Commissioner who disposed of the same in favour of M/s. Turner Morrison & Co. Ltd. In so far as the assessment for the years 1949-50, 1950-51 and 1951-52 were concerned the Appellate Assistant Commissioner set aside the assessments against M/s. Turner Morrison & Co. Ltd. with the following observations and directions:

'9. In view of the various reasons discussed above the assessment for 1949-50 made by the Income-tax Officer on the resident company, M/s. Turner Morrison & Co., as agents of the non-resident company, M/s. Hungerford Investment Trust Ltd., in order to tax the deemed dividend under Section 23A is set aside and the Income-tax Officer is directed to make a direct assessment on the non-resident company. The assessee is the non-resident company and the Income-tax Officer has wrongly adopted the alternative machinery of assessment on the resident company as agents of the non-resident company which machinery was barred by limitation and hence the Income-tax Officer had no alternative but to make the direct assessment on the non-resident company and, therefore, the Income-tax Officer is directed to make the assessment direct on the non-resident company to tax the deemed dividend under Section 23A. In connection with the assessments for 1950-51 and 1951-52 as stated earlier, the notices under Section 34 were validly issued taking the assessee as non-resident company directly and the returns of income were also submitted showing the assessee as non-resident company and, therefore, the proceedings are set aside from the date of issue of notice under Section 23(2) and the Income-tax Officer is directed to make the assessments on the non-resident company after giving fresh opportunity to the assessee under Section 23(2).'

2. Shri P. T. Sanyal, on behalf of the appellant, contends that the Appellate Assistant Commissioner cannot give any direction to make fresh assessments directly on the non-resident company merely because the present assessment made on the resident company as agents of the nonresident company are invalid and it is stated that according to Section 34(3) the direction can be given only in respect of the same assessee and not in respect of another assessee. In view of the reasons stated above, the assessee is the non-resident company, M/s. Hungerford Investment Trust Ltd., and in connection with the assessments for 1950-51 and 1951-52, the Income-tax Officer initiated proceedings for direct reassessment on the non-resident company, but inadvertently in the assessment order the machinery was shown as the resident company as agents of the nonresident company and, therefore, in my opinion the Appellate AssistantCommissioner is justified in giving a direction to make fresh direct assessment on the non-resident company as the assessee all throughout remains the non-resident company and the direction visualises only a change in the machinery for the assessment. Similarly, in connection with the assessment of 1949-50, though the Income-tax Officer sought to adopt the machinery of assessment on the non-resident company through the resident-agent, the Appellate Assistant Commissioner is justified in giving direction to make a direct assessment on the non-resident company as the assessee remains the non-resident company and only the machinery of assessment is sought to be changed.'

3. Thereafter, the respondent by letter dated October 26, 1961, issued notice on the Hungerford Investment Trust Ltd. (in liquidation). Being aggrieved by the said notice the petitioner moved this court and obtained the present Rule. The notice was said to have been served on 28th March, 1961.

4. On behalf of the respondent affidavit has been filed challenging the allegation made in the petition. The relevant portion of the affidavit is to be found in paragraphs 4 and 6. In paragraph 4 it had been stated that the notice was issued in pursuance of the specific direction given by the Appellate Assistant Commissioner dated 29th November, 1960. This appeal was made against an order of assessment made on M/s . Turner Morrison & Co. Ltd. as agents of M/s. Hungerford Investment Trust Ltd. It is further stated that M/s. Turner Morrison & Co. Ltd. was a natural agent at all material times of the Hungerford Investment Trust Ltd. and used to manage and look after the affairs of Hungerford Investment Trust Ltd., and it is submitted that both principal and agent, namely, M/s. Hungerford Investment Trust Ltd. and Turner Morrison and Company Ltd. were parties to the said assessment proceedings. In paragraph 6 it is stated that the direction and order of the Appellate Assistant Commissioner are binding both on the Hungerford Investment Trust Ltd. as well as Turner Morrison & Co. Ltd. The said Turner Morrison & Co. Ltd. is the agent of the Hungerford Investment Trust Ltd. In view of the provisions of Section 40(2) of the Indian Income-tax Act, 1922, the liability of both Hungerford Investment Trust Ltd. and Turner Morrison & Co. Ltd. are co-extensive. It is, therefore, submitted by the respondent that the proceedings or the notice dated 29th October, 1961, are maintainable and the notices are valid.

5. Mr. Amiya Basu, on behalf of the revenue, contended that the notice is not time barred in view of the fact that the notice was issued in pursuance of a direction made by the Appellate Assistant Commissioner in reassessment proceeding and, therefore, there is no time limit under Section 34(3), second proviso.

6. Dr. Pal, on behalf of the petitioner, elaborated his argument that the proceeding is time barred with reference to Section 23A before the amendment of 1955. It is stated that the petitioner, M/s. Hungerford Investment Trust Ltd., having its registered office in Singapore is a non-resident company. He may be assessed in the hands of his agents as non-resident company. Under Section 23A of the Indian Income-tax Act, 1922, the Income-tax Officer has a power to treat undistributed dividend as deemed income of the non-resident company. Under Section 43 of the Act the agent of a person residing outside the taxable territory may be deemed to be an agent in respect of the non-resident company and if the agent is assessed, the nonresident company cannot be assessed for the same assessment year in respect of tax of deemed income under Section 23A of the Income-tax Act. It is argued by Dr. Pal that, though in this case notice was served on the Hungerford Investment Trust Ltd., the assessment was made on Turner Morrison & Co. Ltd. In an appeal by Turner Morrison & Co. Ltd. challenging the assessment, the Appellate Assistant Commissioner set aside the assessment. In the said appeal Hungerford Investment Trust Ltd. was not a party. It is, therefore, argued that the direction to serve the notice under Section 34 against Hungerford Investment Trust Ltd. cannot bind the petitioner, Hungerford Investment Trust Ltd. If at all, Section 34(3), second proviso, will apply in respect of the assessee only but as soon as it is sought to be applied to any other person it must be held to be ultra vires. Dr. Pal referred to the judgment of the Supreme Court in S. C. Prashar v. Vasantsen Dwarkadas : [1963]49ITR1(SC) . It has been held by the Supreme Court that the provisions of the second proviso to Section 34(3) of the Indian Income-tax Act, 1922, are ultra vires of article 4 of the Constitution of India, in so far as they authorised the assessment or reassessment of any person other than the assessee after the period of limitation specified in Section 34 in consequence of or to give effect to a finding or direction given in an appeal. It appears that in a later case the words 'any person' were explained in Income-tax Officer, 'A' Ward, Sitapur v. Murlidhar Bhagwan Das : [1964]52ITR335(SC) . The Supreme Court explained the connotation of the expression 'any person' as follows :

'The words 'any person', it is said, conclude the matter in favour of the department. The expression 'any person' in its widest connotation may take in any person, whether connected or not with the assessee, whose income for any year has escaped assessment; but this construction cannot be accepted, for the said expression is necessarily circumscribed by the scope of the subject-matter of the appeal or revision, as the case may be. That is to say, that person must be one who would be liable to be assessed for the whole or a part of the income that went into the assessment of theyear under appeal or revision. If so construed, we must turn to Section 31 to ascertain who is that person other than the appealing assessee who can be liable to be assessed for the income of the said assessment year A combined reading of Section 30(1) and Section 31(3)of the Act indicates the cases where persons other than the appealing assessees might be affected by orders passed by the Appellate Commissioner. Modification or setting aside of assessment made on a firm, joint Hindu family, association of persons, for a particular year may affect the assessment for the said year on a partner or partners of the firm, member or members of the Hindu undivided family or the individual, as the case may be. In such cases though the latter are not eo nomine parties to the appeal, their assessments depend upon the assessments on the former. The said instances are only illustrative. It is not necessary to pursue the matter further. We would, therefore, hold that the expression 'any parson' in the setting in which it appears must be confined to a person intimately connected in the aforesaid sense with the assessments of the year under appeal.'

7. The expression 'any person', therefore, cannot be read to mean 'any person' in its widest connotation. If it is so read then the case decided in S. C. Prashar v. Vasantsen Dwarkadas will come into play. But, otherwise, the expression 'any person' is necessarily circumscribed as held by the Supreme Court by the scope and subject-matter of the appeal or revision or that person must be one who would be liable to be assessed for the whole or the part of the income that went into the assessment for the year under appeal. There cannot be any doubt in the present case that M/s. Hungerford Investment Trust Ltd. being a non-resident company is liable to be assessed through its agent, M/s. Turner Morrison & Co, Ltd. If that is so, it cannot be stated that M/s. Hungerford Investment Trust Ltd. comes within the mischief of the words.'any person.'in its widest connotation. In other words, in my opinion, M/s. Hungerford Investment Trust Ltd. comes within the mischief of the words.'any person.'meaning thereby a person intimately connected with the assessment for the year under appeal. It appears that the matter argued by Dr. Pal is not now open and has been set at rest by a decision of the Supreme Court in Commissioner of Income-tax v. Ambala Flour Mills : [1970]78ITR256(SC) .

8. Dr. Debi Pal, however, contended that the decision rendered in Commissioner of Income-lax v. Ambala Flour Mills applies only to an association of persons and not a company. It is argued by Dr. Pal that the company is a different legal entity and the Turner Morrison Company was deemed to he an agent of Hungerford Investment Trust Ltd. and, therefore, it is argued Unit Hungerford Investment Trust Ltd. comes within the meaning of 'any person' in its widest connotation and as such no direction canbe given while disposing of an appeal preferred by Turner Morrison & Company Ltd. In my opinion, Dr. Pal is not correct in his submission. It goes without saying that 'company' as used in the Income-tax Act has a much wider connotation. In the particular case the Hungerford Investment Trust Ltd. is not an Indian company but a company incorporated in Singapore and it comes within the mischief of the words 'association of persons'. Looking from that angle it is quite clear that Turner Morrison and Company Ltd. and Hungerford Investment Trust Ltd. are intimately connected with the assessment of the year under appeal. The Hungerford Investment Trust Ltd. filed the return and the matter was being proceeded with but in the subsequent stage the assessment was made on Turner Morrison. It further appears that Turner Morrison preferred appeals against the appellate order to the Tribunal as agent of the Hungerford Investment Trust Ltd. which was subsequently withdrawn. In the premises I am of the opinion that the direction given by the Assistant Commissioner while setting aside the assessment against the Turner Morrison Company cannot be said to be a direction to any persons in its widest connotation. In the circumstances as aforesaid, the point raised by Dr. Pal must fail and the Rule is hereby discharged.

9. There will be no order as to costs. All interim orders are vacated. Operation of the order is stayed for eight weeks.


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