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imperial Chemical Industries Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 411 of 1975
Judge
Reported in[1979]116ITR516(Cal)
ActsIncome Tax Act, 1961 - Sections 154 and 297(2); ;Income Tax Act, 1922 - Section 35
Appellantimperial Chemical Industries Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal, ;P.K. Pal and ;M. Seal, Advs.
Respondent AdvocateBalai Pal and ;B.K. Naha, Advs.
Cases ReferredGanpatrai Hiralal v. Aggarwal Chamber of Commerce Ltd.
Excerpt:
- .....rate of 10% while the dividends which were exempt under section 15c(4) and section 56a of the indian income-tax act, 1922, were given rebate at the rate of average rate of super-tax at 26.178% which was much higher than the rate at which the dividend income actually suffered super-tax. it is also pointed out in the order under section 154 that the actual amount of super-tax charged on the amount of rs. 5,68,206 representing dividends exempt under section 15c(4) was rs. 56,82060 whereas the rebate allowed on the amount was rs. 1,48,74497. it is also pointed out that the actual amount of super-tax charged on rs. 24,95,480 representing dividends exempt under section 56a was rs. 2,49,158 whereas the rebate allowed was rs. 6,53,266. the income-tax officer sought to rectify the order u/s......
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in dismissing the appeal filed by the assessee before it on the ground that no competent appeal lay before the AAC ?'

2. In order to appreciate the question posed, a few facts will have to be stated. The question arises with reference to the action of the ITO under Section 154 of the I.T. Act, 1961, for the assessment year 1961-62, whereby he had withdrawn super-tax rebate which, according to him, was allowed in excess at the time of the original assessment. The ITO passed the order on 31st August, 1968. The action of passing the order-under Section 154 was due to the order of the AAC. The assessee went up in appeal to the AAC, who observed, inter alia, as follows :

'The revision has been made for the reason that the income from dividends suffered super-tax at the effective rate of 10% while the dividends which were exempt under Section 15C(4) and Section 56A of the Indian Income-tax Act, 1922, were given rebate at the rate of average rate of super-tax at 26.178% which was much higher than the rate at which the dividend income actually suffered super-tax. It is also pointed out in the order under Section 154 that the actual amount of super-tax charged on the amount of Rs. 5,68,206 representing dividends exempt under Section 15C(4) was Rs. 56,82060 whereas the rebate allowed on the amount was Rs. 1,48,74497. It is also pointed out that the actual amount of super-tax charged on Rs. 24,95,480 representing dividends exempt under Section 56A was Rs. 2,49,158 whereas the rebate allowed was Rs. 6,53,266. The Income-tax Officer sought to rectify the order u/s. 154 but the appellant had objected to the proposed rectification on the ground that the rebate was correctly allowed in the original order and that the mistake, even there be any, is not rectifiable under Section 154. The Income-tax Officer, for the reasons mentioned in his order, which are considered later, rejected the objection and rectified the order.'

3. For the purpose of answering the question it has to be noted that the AAC was of the view that the ITO was on the whole right though the working had to be done differently. He, therefore, worked out the supertax payable by the assessee in a particular way. It is not necessary for our present purpose to refer to how he worked out the net super-tax payable.

4. Aggrieved by the decision of the AAC the assessee went up in appeal before the Tribunal and it was contended that the method adopted by the revenue authorities was erroneous and that the working resorted to by the ITO in the original assessment was sound and reasonable. It is also not necessary for us to refer to the said points in detail. But it was further urged before the Tribunal on behalf of the revenue that the return of income for the relevant assessment year 1961-62 was filed in January, 1962, and, therefore, the ITO should have rectified the assessment order under Section 35 of the Indian I.T. Act, 1922, though erroneously he had made the assessment itself under Section 143(3) of the I.T. Act, 1961, which was, according to the revenue, clearly contrary to the provisions of Section 297(2)(a) of the I.T. Act, 1961. It was further contended that the mere fact that the ITO had committed one error in passing the order under a wrong section did not give him further liberty to continue committing such errors. The ITO should have, therefore, rectified the order under Section 35 of the Indian I.T. Act, 1922, and, therefore, though the order was purported to have been passed under Section 154 of the I.T. Act, 1961, it should be treated to have been passed under Section 35 of the Indian I.T. Act, 1922, on the principle that the order should be treated in such a manner as to make it valid, if possible.

5. Reliance was placed on the observations of the Supreme Court in the case of Hazarimal Kuthiala : [1961]41ITR12(SC) . On the merits, the Tribunal agreed with the submissions of the assessee and was of the opinion that the ITO was not within his rights in rectifying the assessment as he did because the question did not involve any obvious or apparent mistake of fact or law. But treating the order passed by the ITO on 31st August, 1968, as an order under Section 35 of the Indian I.T, Act, 1922, the Tribunal came to the conclusion that no appeal lay from such an order passed under Section 35 of the Indian I.T. Act, 1922, and, therefore, the appeal before the Tribunal was incompetent. The Tribunal observed, inter alia, in its order as follows:

'Before parting with the case we wish to place on record the peculiar circumstances in which the assessee has failed before us. It was the Income-tax Officer who led the assessee up the garden path of the provi--sions of the new Act. The assessee, therefore, lost the chance of filing a revision petition before the Commissioner of Income-tax in time. It would be, however for the Commissioner of Income-tax to consider, if and when the assessee files the revision petition, as to whether the delay in filing the petition is condonable in the circumstances mentioned above. We express no opinion on it.'

6. The Tribunal accordingly dismissed the appeal of the assessee. Upon this, the question as mentioned hereinbefore has been referred to this court.

7. On behalf of the assessee it was contended that under Section 297(2)(a) of the I.T. Act, 1961, it was not mandatory to complete the assessment in the instant case under the provisions of the Indian I.T. Act, 1922. It was submitted that under Section 297(2)(a) only an option or a right has been given to the revenue to complete the assessment under the 1922 Act. The ITO has also the right to take recourse to the provisions of the new Act which has come into effect after the repeal of the 1922 Act. Counsel drew our attention to the use of the expression 'may' in Clause (a) of Sub-section (2) of Section 297 in contradistinction to the expression 'shall' in Clause (b) of Sub-section (2) of Section 297. It was urged that where the legislature has used two different expressions, that is to say, 'shall' and 'may', in contradistinction to each other in different clauses of one sub-section of a section, it was not right to construe the words in such a manner that the same meaning was intended to be conveyed by the said two different expressions or words. The expression 'may', it was contended, used in contradistinction to the expression 'shall' in the same sub-section of a statute indicated that the legislature intended to convey different powers to the revenue authorities by the different clauses of the said sub-section. Counsel drew our attention to various other clauses of Sub-section (2) of Section 297 from where it was apparent that two different expressions have been used in several places. It is plainknowledge that the expression 'may' in contradistinction to 'shall' conveys different meaning. But before we deal with this aspect of the matter we must mention that in several decisions the Supreme Court and the different High Courts have held that under Clause (a) of Sub-section (2) of Section 297 of the I.T. Act, 1961, the ITO was bound to proceed under the provisions of the Indian I.T. Act, 1922, in respect of returns filed before the commencement of the 1961 Act. We may refer to the decision of the Supreme Court in the case of Kalawati Devi Harlalka v. CIT : [1967]66ITR680(SC) , where the Supreme Court observed that Section 297 was meant to provide as far as possible for all contingencies which might arise out of the repeal of the 1922 Act, and Section 6 of the General Clauses Act would not apply because Section 297(2) evidenced an intention to the contrary. There what had happened was that the assessments were made on 7th February, 1961, on the assessee for the assessment years 1952-53 to 1960-61, under the Indian I.T. Act, 1922, and on 24th January, 1963, after the repeal of that Act, the Commissioner issued a notice under Section 33B of the Act of 1922 to revise those assessments. It was held that the Commissioner had jurisdiction to issue the notice under Section 33B of the Act of 1922 in view of Section 297(2) of the Act of 1961 and Clause (a) of Sub-section (2) of Section 297 of the I.T. Act, 1961, included within its scope a proceeding under Section 33B of the Indian I.T. Act, 1922. At page 690 of the report the Supreme Court observed as follows :

'It is quite clear from the authorities cited above that the word 'assessment' can bear a very comprehensive meaning ; it can comprehend the whole procedure for ascertaining and imposing liability upon the taxpayer. Is there then anything in the context of section 297 which compels us to give to the expression 'procedure for the assessment' the narrower meaning suggested by the learned counsel for the assessee In our view, the answer to this question must be in the negative. It seems to us that section 297 is meant to provide as far as possible for all contingencies which, may arise out of the repeal of the 1922 Act. It deals with pending appeals, revisions, etc. It deals with non-completed assessments pending at the commencement of the 1961 Act, and assessments to be 'made after the commencement of the 1961 Act, as a result of returns of income filed after the commencement of the 1961 Act. Then in Clause (d) it deals with assessments in respect of escaped income ; in Clauses (f) and (g) it deals with levy of penalties ; Clause (h) continues the effect of elections or declarations made under the 1922 Act; Clause (i) deals with refunds ; Clause (j) deals with recovery; Clause (k) deals generally with all agreements, notifications, orders issued under the 1922 Act; Clause (1) continues the notifications issued under section 60(1) of the 1922 Act, and Clause (m) guards against the application of a longer period of limitation prescribed under the 1961 Act to certain applications, appeals, etc. It is hardly believable in thiscontext that Parliament did not think of appeals and revisions in respect of assessment orders already made or which it had authorised to be made under Clause (a) of section 297(2).'

8. But the controversy whether Clause (a) merely gives an option to the ITO to proceed in accordance with the Indian I.T. Act, 1922, in respect of the returns filed before the commencement of the 1961 Act and has not made such an option mandatory on the part of the income-tax authorities was not adverted to by the Supreme Court as the same was not in issue before it in the decision referred to hereinbefore.

9. Similarly, in the case of Adaikkappa Chettiar v. CIT : [1970]78ITR285(Mad) the Division Bench of the Madras High Court had to consider this question but not from this point of view. There what had happened was that under an agreement of service dated 2nd January, 1957, entered into with M, the assessee was entitled to a fixed salary of Rs. 1,000 per month plus one-fourth share of the profit earned by M from a partnership business in which he was a partner. For the assessment year 1959-60, the assessee got Rs. 25,233 towards his one-fourth share in the profits earned by M, besides Rs. 12,000 as salary. The ITO treated this sum of Rs. 25,233 as business income but subsequently initiated proceedings under Section 154 of the I.T. Act, 1961, to rectify the assessment and treat the said amount as salary income. Appeals to the AAC and the Tribunal questioning the jurisdiction of the officer under Section 154 of the I.T. Act were dismissed. The question that by reason of Section 297(2)(a) of the Act the officer could pass the order only under Section 35 of the 1922 Act and not under Section 154 of the 1961 Act, was not specifically raised before the Tribunal. On a reference it was held by the Division Bench that a remuneration received under the service agreement was assessable as salary income and, secondly, that the officer had jurisdiction to rectify the assessment and though by reason of Section 297(2)(a), the correct section to be invoked was Section 35 of the Indian I.T. Act, 1922, merely because he had mentioned the corresponding Section 154 of the new Act of 1961, his jurisdiction was not taken away, and as there was no appeal provided under the old Act of 1922 against an order under Section 35, the appeals to the AAC and the Tribunal as well as the consequential reference to the High Court were incompetent and hence the reference had to be returned unanswered. The facts of that case are more or less similar to the facts with which we are concerned in this reference. If the conclusions arrived at by the Division Bench of the Madras High Court are to be accepted then this reference is incompetent. It was held in that Division Bench judgment of the Madras High Court, as we have noticed before, that an order of this nature should be treated as an order passed under Section 35 of the Indian I.T. Act, 1922, and as there was no appeal from such an order, the appeal tothe Tribunal did not lie. The court proceeded on the basis that under Clause (a) of Sub-section (2) of Section 297 the ITO had to proceed under the provisions of the Indian I.T. Act, 1922, and he had no option to choose. The contention that Clause (a) of Sub-section (2) of Section 297 merely gave him a right and did not make it obligatory on him to proceed under the repealed Act was neither canvassed nor decided.

10. In the case of CIT v. Ram Dayal Varma : [1973]90ITR426(All) , it was held that where an assessment had been made under the provisions of the Indian I.T. Act, 1922, the assessment order could not be rectified under Section 154 of the I.T. Act, 1961, because the proceedings taken for rectification of an assessment were proceedings in an assessment. However, as the provisions of Section 35 of the Indian I.T. Act, 1922, and Section 154 of the 1961 Act were substantially the same, the ITO, it was held by the Division Bench of the Allahabad High Court, had the jurisdiction under the Indian I.T. Act, 1922, to pass a rectification order which he did and the order could not become null and void simply because he made an order under Section 154 of the 1961 Act. In this case also the contention that Clause (a) of Sub-section (2) of Section 297 of the I.T. Act, 1961, merely gave an option or a right to the ITO and did not make it obligatory on his part to proceed under the provision of repealed 1922 Act, was not adverted to or decided.

11. It was said as early as 1880 by the House of Lords in the case of Julius v. Lord Bishop of Oxford ([1880] 5 AC 214), that the words in a statute 'it shall be lawful' of themselves merely make that legal and possible which there would, otherwise, be no right or authority to do. Their natural meaing is always permissive and enabling only. But there might be circumstances which might couple the power with the duty to exercise it. It lies upon those who call for the exercise of the power to show that there was an obligation to exercise it. But Lord Blackburn observed that enabling words in certain context were compulsory where these words were to effectuate the legal right. We must also bear in mind that the expression 'may' in English language does not mean 'must'. Indeed, as was observed by Cotton L.J. in In re Baker : Nichols v. Baker [1890] 44 Ch D 262 of the report, it never could mean 'must' so long as the English language retained its meaning. But we must further remember that the expression 'may' gives a power and then it might be a question in what cases where the donee has power given to him by the word 'may' it becomes his duty to exercise it. Therefore, the position is that the expression 'may' normally must always be construed to mean enabling unless the expression is coupled with a certain duty to the donee of the power that it becomes obligatory for him to exercise the enabling power. In those circumstances the expression 'may' is construed to mean 'must'. Therefore, bearing the aforesaid principles in mind, we must examine that, in theinstant case. Parliament has deliberately chosen to use the expression 'may' in some of the sub-clauses of Sub-section (2) of Section 297 of the I.T. Act, 1961. We must give due significance and weight to the choice of language by Parliament. Secondly, we have to bear in mind that in Clause (a), though a power has been given to the ITO to proceed under the provisions of the Indian I.T. Act, 1922, there is no duty, as such, cast upon him to do in the sense that he must proceed only under the old Act and not under the new Act if the situation in a particular case so warrants. It is not possible to find such a compelling obligation on the revenue authorities to proceed only under the old Act in case a return is filed under the old Act. If that is the position then the expression 'may' in our opinion must be construed, as the language says, as an enabling provision only. The use of the expression 'may' in Clause (a) of Sub-section (2) of Section 297 of the I.T. Act, 1961, is an enabling provision, entitling the ITO to resort to the Indian I.T. Act, 1922, but where he has chosen as in this case to proceed under the I.T. Act, 1961, his action is not illegal and his action under Section 154 of the I.T. Act, 1961, need not be treated as action under Section 35 of the Indian I.T. Act, 1922, to confer validity. If that is the position then an appeal indubitably was competent. There is another aspect of the matter.

12. Our attention was drawn to certain observations of the DivisionBench of this court in Indra Singh & Sons P. Ltd. v. Union of India : [1967]64ITR501(Cal) , where the Division Bench observed that theprocedural law when amended had retrospective operation and thisdoctrine of retrospective operation of procedural law meant that thepending cases, though instituted under the Indian I.T. Act, 1922, wouldbe governed by the new procedure under the Act of 1961. Therefore,the ITO had the power to rectify an error under s, 154 of the I.T. Act, 1961,even if the proceedings were initiated by a notice under Section 35 of the IndianI.T. Act, 1922. On behalf of the revenue it was, however, urged that inview of the decision of the Supreme Court in the case of Kalawati Harlalkav. CIT : [1967]66ITR680(SC) , which we have referred to hereinbefore, theproposition that the powers under Section 35 of the Indian I.T: Act, 1922, or Section 154 of the I.T. Act, 1961, were merely procedural and should be guidedby the law in force at the time when the proceedings had been taken, wasno longer good law. It is, however, difficult to accept this contention urgedon behalf of the revenue. The aforesaid case dealt with entirely a differentcontroversy and it did not deal with the controversy whether Section 35 was aprocedural matter and could be dealt with by the procedural law in forceat the time. Reliance was also placed in the case of S. Sankappa v. ITO : [1968]68ITR760(SC) ; There, at page 765, the court observed asfollows:

'In the present cases, the orders, which have been rectified or are being taken up for rectification, are all orders under which there was assessment of incomes and determination of the charge to tax in accordance with the charging sections. The orders passed under Section 35(1) by the Income-tax Officer on the 20th December, 1966, were all orders altering assessment orders made in the proceedings for assessment of the firms, while under the impugned notices the Income-tax Officer is proposing to rectify orders made for computation of income and imposition of tax under the charging section in the case of individual partners. Clearly, therefore, in these cases, Section 297(2)(a) of the Act of 1961 permits the Income-tax Officer to proceed in accordance with the provisions of the Act of 1922 and he has rightly proposed to take action under Section 35(5) of the Act of 1922 on the basis of rectifications made in the assessments of the firms under Section 35(1) of that Act on 20th December, 1966, in pursuance of the appellate orders granting registration to the firms.'

13. Relying on the said decision it was urged, in the context of this controversy, that powers under Section 35 of the Indian I.T. Act, 1922, or Section 154 of the I.T. Act, 1961, being procedural in nature should be guided by the procedural law at the time in force. It is well settled that while assessment must be in accordance with the substantive law in force in the year of assessment the procedural matters must be according to the law applicable at the time the proceedings are being taken. Our attention was drawn to the observations of the Supreme Court in the case of CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) , where the Supreme Court observed that in income-tax matters the law to be applied was the law in force in the assessment year unless otherwise stated or implied.

14. Reliance was also placed on the observations of this court in the case of CIT v. P. M. Bagchi & Co. [1951] 20 ITR 33 (Cal) where it was observed by this court that in procedural matters retrospective operation could be given. Reliance was also placed on the observations of the Supreme Court in the case of S. Sankappa v. ITO : [1968]68ITR760(SC) , referred to hereinbefore, in aid of his submission that powers under Section 35 of the Indian I.T. Act, 1922, or under Section 154 of the I.T. Act, 1961, being procedural should be guided by the law in force at the time of initiation of the proceedings. But in the view we have taken on the other aspect of the matter as indicated before we need not rest our decision on a consideration of this aspect of the matter.

15. It was further contended that, in any event, even if there was no appeal from the order under Section 35 of the Indian I.T. Act, 1922, Section 35 merely amended the assessment order. Therefore, the order for amendment or rectification even if not appealable, it was urged, the amended order of assessment could be appealed from. Counsel drew our attention to thesaid observation in the case of S. Sankappa v. ITO : [1968]68ITR760(SC) , where the Supreme Court at page 764 of the report expressed the view that Section 35 rectified the order of assessment. It was urged that from the amended order, an appeal would lie. Our attention was also drawn to certain observations of the Supreme Court in the case of Ganpatrai Hiralal v. Aggarwal Chamber of Commerce Ltd., : [1953]4SCR752 , where it was held that no appeal was provided under the Civil Procedure Code from an order amending or refusing to amend the judgment, decree or order, though an appeal would lie from the amended decree or order. It is true that from the amended assessment an appeal would lie but here the controversy was whether the ITO had the power either under Section 35 of the Indian I.T. Act, 1922, or under Section 154 of the I.T. Act, 1961, to amend the order of assessment in view of the nature of the errors alleged. The appeal before the Tribunal was not about the validity of the amended order of assessment but about the validity of the order which made the amended assessment order. The question was, therefore, not whether the amended order of assessment was validly passed but whether the amendment was validly made under the power given either under Section 35 of the Indian I.T. Act, 1922, or under Section 154 of the I.T. Act, 1961. The opinion of the Tribunal would show that two views were possible on the controversy in question. The errors alleged to have been committed were such errors which could not be described to be errors apparent from the face of the records and, therefore, did not come within the purview either of Section 35 of the Indian I.T. Act, 1922, or Section 154 of the I.T. Act, 1961. Therefore, the submission that an appeal would lie from the amended order of assessment would not, in our opinion, affect the position in this case because here the appeal before the Tribunal was not an appeal from the amended order of assessment but from the order amending and questioning the jurisdiction of the order of amendment.

16. But in the view we have taken about the nature of power under Clause (a) of Sub-section (2) of Section 297 of the 1961 Act, we are of the opinion that the ITO had proceeded in this case under the provisions of the new Act which was not illegal on his part and, therefore, in this case an appeal was competent.

17. We will, therefore, answer the question in the negative and in favour of the assessee. In the facts and circumstances the parties would pay and bear their own costs.

Sudhindra Mohan Guha, J.

18. I agree.


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