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Commissioner of Income-tax Vs. Southern Bank Ltd. (Since Amalgamated with United Industrial Bank Ltd.) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 489 of 1971
Judge
Reported in[1979]120ITR92(Cal)
ActsIncome Tax Act, 1961 - Section 2(7); ;Income Tax Rules, 1962 - Rule 45(2); ;Banking Companies Act, 1949 - Section 45; ;Income Tax Act, 1922 - Section 2(2)
AppellantCommissioner of Income-tax
RespondentSouthern Bank Ltd. (Since Amalgamated with United Industrial Bank Ltd.)
Appellant AdvocateB.L. Pal and ;Ajit Sengupta, Advs.
Respondent AdvocateDebi Pal, ;P.K. Pal and ;R.N. Dutta, Advs.
Excerpt:
- .....by a notification dated the 19th august, 1964, the southern bank ltd, was amalgamated with the united industrial bank ltd. and was required to close its books of account on the 22nd april, 1964.2. the relevant provisions of the said scheme were, inter alia :(a) from the prescribed date all rights, powers, claims, demands, interests, authorities, privileges, benefits, assets and properties of the southern bank ltd., movable and immovable, including property, rights and assets of every description including all rights of action would stand transferred to and become the properties and assets of the united industrial bank ltd.(b) from such prescribed date all liabilities, duties and obligations of the southern bank ltd. would be and become the liabilities, duties and obligations of the.....
Judgment:

Dipak Kumar Sen, J.

1. The unusual facts which have led up to the present reference are shortly as follows I The Southern Bank Ltd., a banking company, had filed three returns of its income in respect of assessment years 1961-62, 1962-63 and 1963-64, respectively, dated the 11th September, 1961, 25th September, 1962, and the 26th June, 1963. The previous years relevant to the said assessment years were the respective calendar years 1960, 1961 and 1962. Under a scheme prepared under Section 45 of the Banking Companies Act, 1949, by the Reserve Bank of India and sanctioned by the Central Government by a notification dated the 19th August, 1964, the Southern Bank Ltd, was amalgamated with the United Industrial Bank Ltd. and was required to close its books of account on the 22nd April, 1964.

2. The relevant provisions of the said scheme were, inter alia :

(a) From the prescribed date all rights, powers, claims, demands, interests, authorities, privileges, benefits, assets and properties of the Southern Bank Ltd., movable and immovable, including property, rights and assets of every description including all rights of action would stand transferred to and become the properties and assets of the United Industrial Bank Ltd.

(b) From such prescribed date all liabilities, duties and obligations of the Southern Bank Ltd. would be and become the liabilities, duties and obligations of the United Industrial Bank Ltd.

(c) All contracts, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature subsisting or having effect immediately before the prescribed date would be effective to the extent as if instead of the Southern Bank Ltd. the United Industrial Bank Ltd. had been a party thereto or as if they had been issued in favour of the United Industrial Bank Ltd.

(d) If on the prescribed date any suit, appeal or other legal proceedings of whatever nature by or against the Southern Bank Ltd. would be pending the same would not abate, or be discontinued or be in any way prejudicially affected but would subject to the other provisions of this scheme be prosecuted and enforced by or against the United Industrial Bank Ltd.

3. On the 30th January, 1965, the ITO disposed of the pending assessments of the Southern Bank Ltd. by making an order as follows :

'It is learnt that the assessee's business was completely taken over by the United Industrial Bank from 24th August, 1964. Therefore, the assessments for the Acct. year 63 (assessment year 64-65) and for the period from 1st January, 1964, to 23rd August, 1964 (assessment year 1965-66), can only be completed on the successor-bank.

As the assessee cannot be found, the assessments for the assessment years 1962-63 and 1963-64 are dropped.'

4. As refunds had become due to the Southern Bank Ltd. in the said assessment years an appeal was preferred from the order dropping the assessment proceedings to the AAC. The AAC found, inter alia, that the returns in respect of the said years had been signed by the general manager of the Southern Bank Ltd. and that the representatives of the Southern Bank Ltd. had attended before the ITO at the said proceedings. He also found that the name of the appellant in the memoranda of appeals was given as the Southern Bank Ltd. and the address was also shown as that of the said bank. The memoranda had, however, been signed on behalf of the United Industrial Bank Ltd. After construing the scheme, the AAC found that though Southern Bank Ltd. had been succeeded by the United Industrial Bank Ltd. with effect from the prescribed date, yet the Southern Bank Ltd. had neither been completely merged with the United Industrial Bank Ltd. nor had been dissolved. He did not accept the finding of the ITO that the Southern Bank Ltd. was an assessee who could not be found. He, however, held that the United Industrial Bank Ltd. was not competent to file the said appeals inasmuch as it was not an assessee for that purpose within the meaning of the I.T. Act. Though under the scheme the assets and liabilities of the Southern Bank Ltd. were taken over by the United Industrial Bank Ltd. it did not affect their respective rights and obligations under the I.T. Act. Following a decision of this court in CEPT v. RamnathBajoria : [1951]19ITR79(Cal) , he dismissed the appeals. From this order of the AAC, a further appeal was preferred to the Income-tax Appellate Tribunal.

5. It was contended on behalf of the assessee before the Tribunal that the order of the AAC was erroneous inasmuch as the United Industrial Bank Ltd. having become responsible for all the liabilities including the tax liabilities of the Southern Bank Ltd. came within the ambit of the expression 'assessee' and that the said United Industrial Bank Ltd. was competent to prosecute the appeals.

6. The Tribunal, inter alia, found as follows :

(a) The Southern Bank Ltd. was the assessee.

(b) It had become eligible for some refunds.

(c) The order passed by the ITO on the 30th January, 1965, was an assessment order.

(d) As a result of the merger, the Southern Bank Ltd. did not lose its existence, though it was denuded of all its assets and liabilities. It continued to be an assessee within the meaning of the expression in the I.T. Acts of 1922 and 1961.

(e) The Southern Bank Ltd. had preferred the appeals to the AAC.

(f) The transfer of the liabilities of the Southern Bank Ltd. to the United Industrial Bank Ltd. and the vesting of the assets of the Southern Bank Ltd. in favour of the United Industrial Bank Ltd. had the effect of enabling the latter to continue the proceedings in appeal by reason of the overriding nature of Section 45 of the Banking Companies Act.

(g) With reference to any undischarged liability of the Southern Bank Ltd. including that of income-tax only the United Industrial Bank Ltd. could be proceeded against. Therefore, the United Industrial Bank Ltd. was an assessee within the meaning of Section 2(2) of the Indian I.T. Act, 1922, or Section 2(7) of the later Act of 1961.

7. Accordingly, the Tribunal set aside the order of the AAC, restored the appeals to his file and directed him to decide the appeals de novo.

8. On an application under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred for opinion of this court the following question as a question of law arising out of its aforesaid order :

'Whether, on the facts and in the circumstances of the case, and having regard to the scheme of merger. United Industrial Bank Ltd. was an assessee within the meaning of Section 2(2) of the Indian Income-tax Act of 1922 for the assessment year 1961-62, and Section 2(7) of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64, so as to be in a position to file appeals before the Appellate Assistant Commissioner andthe Tribunal for securing the refunds (if any) due to :Southern Bank Ltd. until its merger?'

9. In order to appreciate the controversy in this reference it is necessary to refer to the sections involved. The relevant sections of the Indian I.T. Act, 1922, are the following :

Section 2(2)

' 'assessee' means a person by whom income-tax or any other sum of money is payable under this Act, and includes every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the loss sustained by him or of the amount of refund due to him.'

Section 26(2)

'Where a person carrying on any business, profession or vocation has been succeeded in such capacity by another person, such person and such other person shall, subject to the provisions of Sub-section (4) of Section 25, each be assessed in respect of his actual share, if any, of the income, profits and gains of the previous year :

Provided that, when the person succeeded in the business, profession or vocation cannot be found, the assessment of the profits of the year in which the succession took place up to the date of succession, and for the year preceding that year shall be made on the person succeeding him in like manner and to the same amount as it would have been made on the person succeeded or when the tax in respect of the assessment made for either of such years assessed on the person succeeded cannot be recovered from him, it shall be payable by and recoverable from the person succeed^ ing, and such person shall be entitled to recover from the person succeeded the amount of any tax so paid.'

Section 30(1)

'Any assessee...objecting to a refusal of an Income-tax Officer to allow a claim to a refund under Section 48, 49 or 49F, or to the amount of the refund allowed by the Income-tax Officer under any of those sections.., may appeal to the Appellate Assistant Commissioner against...such refusal or order:.....'

Section 33(1)

'Any assessee objecting to an order passed by an Appellate Assistant Commissioner under Section 28 or Section 31 may appeal to the Appellate Tribunal within sixty days of the date on which such order is communicated to him.'

10. The corresponding sections in the I.T. Act, 1961, are as follows :

Section 2(7)

' 'assessee' means a person by whom any tax or any other sum of money is payable under this Act, and includes--

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;

(b) every person who is deemed to be an assessee under any provision of this Act;

(c) every person who is deemed to be an assessee in default under any provision of this Act.'

Section 170(1):

'Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession,--

(a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession;

(b) the successor shall be assessed in respect of the income of the previous year after the date of succession.

(2) Notwithstanding anything contained in Sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.

(3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assessed on the predecessor, cannot be recovered from him, the Income-tax Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor, and the successor shall be entitled to recover from the predecessor any sum so paid....'

Section 237 :

'If any person satisfies the Income-tax Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly charge-able under this Act for that year, he shall be entitled to a refund of the excess.'

Section 246 :

'Any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order--...

(h) an order under Sub-section (2) or Sub-section (3)of Section 170 ;...

(n) an order under Section 237 ;...'

Section 253:

'Appeals to the Appellate Tribunal.--(1) Any assessee aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order--...'

11. Mr. B. L. Pal, learned counsel for the revenue, contended at the hearing that the AAC has found that it is the United Industrial Bank Ltd, who had preferred the appeals from the order of assessment. The assessments having been made on the Southern Bank Ltd., the United Industrial Bank Ltd, was not competent to prefer the appeal as the assessee and, therefore, the appeal to the AAC was incompetent.

12. Mr. Pal further contended that the United Industrial Bank Ltd. did not come within the definition of 'assessee' within the meaning of the said expression under the I.T. Acts inasmuch as, (a) nothing was payable by the United Industrial Bank Ltd. in respect of assessments on the Southern Bank Ltd, under the I.T. Act, or (b) no proceeding had been taken in respect of the United Industrial Bank Ltd. for assessment of its income or in respect of any amount of refund due, or (c) no proceeding had been taken for the assessment of Southern Bank Ltd. for which the United Industrial Bank Ltd. was liable.

13. Lastly, Mr. Pal submitted that the clear finding of the AAC was that the memoranda of appeal had been signed by the United Industrial Bank Ltd. This has also been confirmed by the Tribunal. Therefore, the United Industrial Bank Ltd. was and claimed to be the appellant and proceeded accordingly. It was the Southern Bank Ltd. and not the United Industrial Bank Ltd. who was entitled to the refunds and, therefore, the appeals could have been preferred only by the Southern Bank Ltd.

14. In support of his contentions Mr. Pal cited the following decisions :

(a) Seth Badridas Daga v. CIT [1949] 17 ITR 209. This decision was cited for the following observations of the Judicial Committee (p. 211):

'It will be convenient to begin with Section 23 which deals with assessment. Some confusion arises from the fact that in the Act the words 'assessment' and 'assessee' are used in different places with different meanings. Section 2(2) defines 'assessee' 'as a person by whom income-tax is payable', but the context in Section 23 makes it clear that down at least to the middle of Sub-section (5)(a) 'assess' and 'assessment' refer primarilyto the computation of the amount of income and 'assessee' means primarily a person the amount of whose income is being computed.'

(b) CEPT v. Ramnath Bajoria : [1951]19ITR79(Cal) . The facts of this case are, inter alia, as follows: An unregistered firm was assessed to excess profits tax for the period ending on the 31st April, 1945. On the 23rd July, 1946, the business of the firm was sold. Under clause 7 of the agreement of sale outstanding excess profits tax was put to the account of the purchaser who undertook to meet the liability. A notice of demand for realisation of the said tax was served on the purchaser. On a reference, it was held by a Division Bench of this court that even if the purchaser was liable under Clause 7 of the agreement, the income-tax authorities could not take advantage thereof. The statute did not make the purchaser liable and, therefore, he could not be made chargeable for the payment of this amount.

15. Mr. Pranab Pal, learned counsel for the assessee, has contended on the other hand, that the United Industrial Bank Ltd. was an assessee under the provisions of the I.T. Acts. Under the scheme, the United Industrial Bank Ltd. stood substituted in the place and stead of Southern Bank Ltd. in respect of all rights and liabilities of the Southern Bank Ltd., including all pending proceedings, which must be held to include proceedings under the I.T. Act. Sub-section (14) of Section 45 of the Banking Companies Act provided as follows:

'(14) The provisions of this section and of any scheme made under it shall have effect notwithstanding anything to the contrary contained in any other provisions of this Act or in any other law or any agreement, award or other instrument for the time being in force.'

16. Mr. Pranab Pal submitted further that under the scheme it was only the United Industrial Bank Ltd. which could claim refund, and, accordingly, the United Industrial Bank Ltd. came within the meaning 'assessee' as given in Section 2(2) of the Indian I.T. Act, 1922, or Section 2(7) of the I.T. Act, 1961. He also submitted that under Section 26(2) of the earlier Act, corresponding to Section 170(1) of the later Act, by reason of the succession effected by the scheme, tax assessed on Southern Bank Ltd. would, in certain circumstances, be payable by its successors. United Industrial Bank Ltd., in the event Southern Bank Ltd. could not be found.

17. Mr. Pranab Pal finally submitted that the decisions cited on behalf of the revenue had no application in the facts and circumstances of the instant case. In Ram Nath Bajoria : [1951]19ITR79(Cal) , this court held that the revenue could not charge a person with tax liability even if he has assumed such liability under a private agreement. In the instant case the liability as also all rights vested in the successor under a statutory scheme.

18. The decision of the Privy Council in Seth Badridas Daga [1949] 17 ITR 209 laid down that an assessee was primarily a person the amount of whose income is being computed, but this observation did not preclude other persons also being considered as assessees. The Privy Council was concerned only with Section 23 of the Act of 1922 and had no occasion to consider the effect of a succession.

19. In our opinion, the contentions of the revenue have no merit whatsoever. The Tribunal has found as a fact that it was the Southern Bank Ltd. which was entitled to a refund and had preferred the appeals. One of the questions suggested by the revenue in the reference application was as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in view of the amalgamation of the assessee with United Industrial Bank Ltd. under Section 45 of the Banking Companies Act, 1949, the said United Industrial Bank and not the assessee was competent to continue the appeal before the Appellate Assistant Commissioner and to file further appeal before the Tribunal as a successor company by virtue of Section 26(2) of the Indian Income-tax Act, 1922 ?'

20. This suggested question indicates that it was understood that Southern Bank Ltd. was the assessee and that this assessee had filed the appeals before the AAC, the only question being whether by reason of the succession by the United Industrial Bank Ltd., the Southern Bank Ltd. was competent to continue to proceed with the appeals thereafter.

21. Apart from that, we find from the records that it was clearly stated that Southern Bank Ltd. was the appellant before the AAC. Memoranda of the appeals might have been signed by the general manager of the United Industrial Bank Ltd. but under the I.T. Rules, 1962, the form of appeal can be signed under Sub-rule (2)(f) of Rule 45 by any person competent to act on behalf of the assessee. In our opinion, the United Industrial Bank Ltd. in law became competent to act on behalf of the Southern Bank Ltd. after the amalgamation. Therefore, the memoranda of appeals were properly signed by the United Industrial Bank Ltd.

22. The findings of the Tribunal that it was the Southern Bank Ltd. who had filed the appeals and that it was the United Industrial Bank Ltd. which continued to proceed with the appeals have not been challenged by the revenue. We also note that the assessment proceedings of Southern Bank Ltd. were pending till the 30th January, 1965, when they were disposed of by the ITO. On that date under the scheme it was the United Industrial Bank Ltd. which could continue the proceedings and necessarily had the right to file appeals therefrom.

23. We are not at all impressed by the hyper-technical objections as have been pressed by the revenue in this case. We also note that the questionwhich has been drawn up by the Tribunal and referred does not arise from the order of the Tribunal. The question which was asked for by the revenue was rejected and no steps were taken by the revenue to have the proper question or questions referred. Strictly speaking, it would not have been necessary for us to answer the question at all. However, in view of the fact that the matter has been gone into in some detail, we do answer the same. The question is answered in the affirmative and in favour of the assessee. In the facts and circumstances, the assessee will be entitled to the costs of this reference. Certified for two counsel.

C. K. Banerji, J.

24. I agree.


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