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Waldies Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 268 of 1975
Judge
Reported in[1978]115ITR286(Cal)
ActsCompanies (Profits) Surtax Act, 1964 - Section 13; ;Income Tax Act, 1961 - Section 147
AppellantWaldies Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal and ;P.K. Pal, Advs.
Respondent AdvocateAjit Sengupta and ;P. Mazumdar, Advs.
Cases ReferredKanumarlapudi Lakshminarayana Chetty v. Ist Addl.
Excerpt:
- .....revenue that the aac's order under the income-tax act passed in november, 1970, formed part of the surtax assessment records for the purpose of sections 13 and 14 of the surtax act.9. as section 13 enables the ito to rectify any order passed by him or to correct a mistake apparent from the record we are of the opinion that the ito had every jurisdiction to do so. it should again be remembered that the rectification was made under section 13 of the surtax act.10. in view of the foregoing finding we answer the question in the affirmative and in favour of the revenue. each party to pay and bear its own costs.sabyasachi mukharji, j.11. i agree that the question referred to this court should be answered in the affirmative and in favour of the revenue on the view i have taken of section 13 of.....
Judgment:

Sudhindra Mohan Guha, J.

1. This is a reference under Section 256(1) of the Income-tax Act, 1961. The facts of the case are as follows:

The ITO completed the income-tax assessment for the assessment year 1964-65 on March 29, 1965, and determined the tax payable by Messrs. Waldies Ltd., at about Rs. 1,68,000. The assessment under the Surtax Act was made on March 30, 1965. Later on, the ITO thought that he had wrongly held the assessee-company to be a widely held company and, therefore, resorted to Section 147 for the purpose of withdrawing the concession granted to it on the basis that it was a widely-held company. This order under Section 147 was passed in September, 1968. The AAC cancelled this order under Section 147 in November, 1970. In March, 1971, the ITO gave effect to the AAC's order under the Income-tax Act. In April, 1971, the ITO thought of rectifying the order under Section 13 of the Companies Profits (Surtax) Act, 1964, passed in September, 1968. The order under Section 13 of the Surtax Act passed by the ITO gave relief to the assessee under the Surtax Act by allowing the additional tax liability arising from the order under Section 147 to be deducted from the chargeable profits. After the passing of the AAC's order in November, 1970, the order under Section 13 passed in September, 1968,by the ITO under the Surtax Act needed revision. The order passed in September, 1968, had given relief to the assessee under the Surtax Act as stated above and the same was required to be withdrawn. The ITO, therefore, passed the order under Section 13 of the Surtax Act in April, 1971, modifying or amending the order under Section 13 passed in September, 1968, and giving effect to the AAC's order passed in November, 1970, under the Income-tax Act.

2. An appeal was preferred by the assessee to the AAC. It was contended that the order under Section 13 was bad in law because there was no mistake apparent from the record. The next contention was that the order under Section 13 was barred by limitation. Both the objections were overruled and the appeal was dismissed.

3. Being aggrieved by the order of the AAC, the assessee came up in appeal before the Tribunal. The Tribunal held that the ITO's action was justified both in law and in equity. Accordingly, the appeal was dismissed.

4. From and out of the aforesaid facts the following question of law was referred to the High Court by the Tribunal:

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the ITO's action in rectifying his order passed in September, 1968, under Section 13 of the Surtax Act was in order both in law and in equity ?'

5. It is pointed out by the learned counsel for the assessee that the order under Section 13 of the Companies (Profits): Surtax Act, 1964, was bad in law because there was no mistake apparent from the record. We were taken through the relevant provisions of the Surtax Act along with the First Schedule. Our attention is drawn to the definition of 'chargeable profits' in Section 2(5) of the Act. He also makes reference to Section 4, which lays down how the tax is to be charged. As for the modification of the order the ITO resorted to Section 147 of the Income-tax Act. The learned counsel for the assessee also refers to that section which gives out how the assessment is to be made in case of income escaping assessment.

6. In this case, the order under Section 147 of the Income-tax Act levying additional tax was passed in September, 1968. Thereafter, an order under Section 13 of the Surtax Act for the purpose of giving relief to the assessee in consequence of the order passed under Section 147 of the Income-tax Act was passed on September 16, 1968. By the said order, the assessee was allowed additional tax liability arising from the income-tax assessment order under Section 147 to be deducted from the chargeable profits. But, thereafter, on November 2, 1970, the AAC cancelled the order of the ITO under Section 147. In March, 1971, the ITO passed an order giving effect to the order of the AAC cancelling the assessment under Section 147, On April 21, 1971, the ITOpassed an order under Section 13 of the Surtax Act modifying and/or amending the order dated September 16, 1968. This order was passed consequent upon the order passed in March, 1971, in the income-tax proceeding giving effect to the order of the AAC cancelling the reassessment under Section 147. According to the revenue by the said order the assessee was allowed additional tax liability arising from the tax assessment order under Section 147 to be deducted from the chargeable profits. In this connection, it would be better to go through the Relevant sections, viz., 13 and 14 of the Surtax Act, which are as follows :

'13. (1) With a view to rectifying any mistake apparent from the record, the Commissioner, the ITO, the AAC and the Appellate Tribunal may, of his, or its own motion or on an application by the assessee in this behalf, amend any order passed by him or it in any proceeding under this Act, within four years of the date on which such order was passed.

(2) An amendment which has the effect of enhancing the assessment or reducing a refund or otherwise increasing the liability of the assessee shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

(3) Where an amendment is made under this section, the order shall be passed in writing by the authority concerned.

(4) Subject to the other provisions of this Act, where any such amendment has the effect of reducing the assessment, the ITO shall make any refund which may be due to such assessee.

(5) Where any such amendment has the effect of enhancing the assessment or reducing the refund already made, the ITO shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable.'

'14. Where as a result of any order made under Section 154, 155, 250, 254, 260, 262, 263 or 264 of the Income-tax Act, it is necessary to recompute the chargeable profits determined in any assessment under this Act, the ITO may proceed to recompute the chargeable profits and determine the surtax payable or refundable on the basis of such recomputation and make the necessary amendment and the provisions of Section 13 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (1) of that section being reckoned from the date of the order passed under the aforesaid sections of the Income-tax Act.'

7. It is pointed out that Section 254 was introduced into Section 14 by Section 73 of the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971. It is accordingly contended that the ITO cannot invoke Section 14 of the Companies (Profits) Surtax Act, 1964, as amended with effect from April 1, 1971, by Section 73 of the Taxation Laws (Amendment) Act, 1970, to recompute chargeable profits in a case where the order under Section 254 of the Income-tax Act, 1961, as a result of which order it became necessary to recompute the chargeable profits, was passed prior to April 1, 1971. A statute affecting vested rights is prima facie prospective unless the statute expressly or by necessary implication indicates to the contrary. The observation made by the Andhra Pradesh High Court in Kanumarlapudi Lakshminarayana Chetty v. Ist Addl. ITO : [1956]29ITR419(AP) at 423 is referred to. Lastly, the decision of the Kerala High Court in CIT v. Marikar Motors Ltd. [1978] 111 ITR 36 is relied upon. It is held therein that the ITO cannot invoke Section 14 of the Companies (Profits) Surtax Act, 1964, as amended with effect from April 1, 1971, by the Taxation Laws (Amendment) Act, 1970, to recompute chargeable profits in a case where the order of the Appellate Tribunal under Section 254 of the Income-tax Act, 1961, as a result of which order it became necessary to recompute the chargeable profits, was passed prior to April 1, 1971.

8. In reply Mr. Ajit Sengupta, the learned counsel for the revenue, emphasises that in the present case Section 14 of the Companies (Profits) Surtax Act, 1964, could not be invoked. The mistake under Section 13 is said to have been rectified. According to him Sections 154 and 155 of the Income-tax Act read with Section 13 of the Surtax Act enable the ITO to pass the order rectifying the mistake allowing the additional tax liability. It transpired that the ITO gave relief to the assessee in September, 1968, on his passing the order under Section 147 of the Income-tax Act. But, in appeal, the order was cancelled, and as a result the relief given under the Surtax Act by the ITO in September, 1968, had to be withdrawn. In doing so, the ITO had taken into account the order passed by him giving effect to the AAC's action in March, 1971, and withdrew the relief given in September, 1968. According to the assessing authorities the order of the Assistant Commissioner in 1970 constituted information 'obtained and collected for the purpose of that Act' within the meaning of Section 19. Having taken this or treated that as an information available for the purpose of the Surtax Act the officer proceeded under Section 13 to rectify the order passed by him in September, 1968. In this connection, it may be taken into consideration, the argument on behalf of the assessee that there was absolutely no mistake in the record of the proceeding under the Surtax Act, as the order under Section 13 was passed consequent to vacating the order of assessment under Section 147. It is contended that it is not a mistake 'apparent from the record' discovered in view of the finding in another proceeding. On behalf of the assessee, the decision of the Supreme Court in ITO v. S.K. Habibullah : [1962]44ITR809(SC) is referred to. There is nothing in the wording of Section 13 to suggest that the mistake should be one which was on the record at the time when the order sought to be rectified was made. Again, consequent to the order passed in the assessment proceeding, mistake in the proceeding under the Surtax Act was apparent. It was pointed out on behalf of the revenue that the AAC's order under the Income-tax Act passed in November, 1970, formed part of the surtax assessment records for the purpose of Sections 13 and 14 of the Surtax Act.

9. As Section 13 enables the ITO to rectify any order passed by him or to correct a mistake apparent from the record we are of the opinion that the ITO had every jurisdiction to do so. It should again be remembered that the rectification was made under Section 13 of the Surtax Act.

10. In view of the foregoing finding we answer the question in the affirmative and in favour of the revenue. Each party to pay and bear its own costs.

Sabyasachi Mukharji, J.

11. I agree that the question referred to this court should be answered in the affirmative and in favour of the revenue on the view I have taken of Section 13 of the relevant Act. The question challanges the authority of the ITO to pass the order dated 21st of April, 1971. It appears that on the 29th of March, 1965, income-tax assessment under Section 143(3) of the Income-tax Act, 1961, for the assessment year 1964-65 was made. Consequent thereto under Section 6(2) of the Companies (Profits) Surtax Act, 1964, assessment was made for the self-same year under the provisions of the said Act. It appears that the income-tax assessment for the aforesaid year was modified in September, 1968, by virtue of reopening under Section 147 of the Income-tax Act, 1961. There was consequently charge of additional levy of income-tax. It, therefore, became necessary to deduct this additional income-tax liability from the 'chargeable profits' under the Companies (Profits) Surtax Act, 1964. Accordingly, on J6th of September, 1968, an order was passed under Section 13 of the Companies (Profits) Surtax Act, 1964, giving relief to the assessee in consequence of the order passed under Section 147 of the Income-tax Act, 1961. Thereafter, however, on 2nd of November, 1970, the AAC cancelled the subsequent income-tax assessment made under Section 147 of the Income-tax Act, 1961, and the ITO in March, 1971, gave effect to the order of the AAC in cancelling the subsequent assessment and thereby restoring the original assessment under the Income-tax Act, 1961. Thereafter, on the 21st of April, 1971, the impugned order was passed under Section 13 modifying the order dated 16th of September, 1968.

12. The present order had to be passed because the subsequent order under the Income-tax Act, 1961, imposing additional tax liability had been set aside and, therefore, the 'chargeable profits' under the Companies (Profits) Surtax Act, 1964, became larger. It is the jurisdiction to pass this order that is under challenge in this reference under Section 256(1). of the Income-tax Act, 1961, read with Section 18 of the Companies (Profits) Surtax Act, 1964.

13. In my opinion, Section 13 of the Companies (Profits) Surtax Act, 1964, gives jurisdiction and authority to the ITO to pass the impugned order. It is apparent that after the subsequent assessment, under the Income-tax Act, 1961, made by virtue of Section 147 of the Income-tax Act, 1961, was cancelled by the AAC, the income-tax liability of the assessee got reduced. The ITO has, therefore, given effect to that order. Accordingly, the 'chargeable profits' under the Companies (Profits) Surtax Act, 1964, got larger, because the chargeable profits mean the total income of the assessee computed under the Income-tax Act, 1961, for any previous year or years as the case may be and adjusted in accordance with the provisions of the First Schedule of the said Act, and Rule 2 of the First Schedule allows deduction from that total income as computed under Rule 1 any amount of income-tax paid by the assessee. Therefore, after the subsequent income-tax assessment order, the order of the ITO under the Companies (Profits) Surtax Act, 1964, contained an obvious mistake which was apparent from the record. As the order in question was passed within 4 years, the earlier order which was rectified had been passed in September, 1968, and the impugned order was passed in April, 1971, Section 13 covers this case. It was, however, urged that the assessment under the Income-tax Act, 1961, and the proceedings under the Companies (Profits) Surtax Act, 1964, were, independent proceedings and, therefore, any mistake appearing from the record of the income-tax assessment could not be said to be mistake apparent from the record. It was contended that the records were of two independent proceedings and under the two independent statutes. Reliance was placed on the observations of the Andhra Pradesh High Court in the case of Lakshminarayana Chetty v. 1st Addl. ITO [1956] 29 ITR 419 and in the case of ITO v. S.K. Habibullah : [1962]44ITR809(SC) in aid of the proposition that as the assessment of a partner and the firm were different and the record of one could not be treated to be record for the other, similarly, the record of income-tax assessment could not be treated to be the record of the Companies (Profits) Surtax Act, 1964, in terms of Section 13 of the Act. I am, however, unable to accept this contention. Assessment under the Income-tax Act, 1961, and the Companies (Profits) Surtax Act, 1964, are not only closely connected but these are integral parts of each other and interwoven. The 'chargeable profits' upon which the levy of the Companies (Profits) Surtax Act, 1964, is directed cannot be computed without the records of the income-tax assessment and neither the income assessed and determined nor the deductions contemplated by the First Schedule to the Companies (Profits) Surtax Act, 1964, be given effect to. In the premises, I am of the opinion that 'records' in this case under Section 13 of the Act would include record of the income-tax, assessment. After all, the original assessment under the Companies (Profits) Surtax Act, 1964, had to be made on the basis of the original income-tax assessment. Therefore, if such records were available for making the assessment under the Act, then in my opinion the manner in which the super profit tax or surtax is to be livid makes the income-tax assessment records part of the record of the Companies (Profits) Surtax Act, 1964, and, therefore, the ITO. had the jurisdiction to look into those records. The analogy of the records of the partner and of the firm is not quite apposite.

14. Another argument was sought to be based on the ground that as a result of the amendment introduced in Section 14 of the Companies (Profits) Surtax Act, 1964, by virtue of Section 73 of the Taxation Laws (Amendment) Act, 1970, which came into effect from the 1st day of April, 1971, the impugned order could not rectify the previous order dated 16th of September, 1968. Reliance in this connection was placed on the observations of the Division Bench of the Kerala High Court in the case of CIT v. Marikar Motors Ltd. [1978] 111 ITR 36. In my opinion, the view we have taken on Section 13 of the Act is sufficient to dispose of the controversy and it is not necessary to consider the scope and extent of the applicability of Section 14 of the Act.

15. I would, therefore, agree with the order proposed by my learned brother.


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