Skip to content


Commissioner of Income-tax Vs. Eyre Smelting P. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 137 of 1970
Judge
Reported in[1978]114ITR51(Cal)
ActsIncome Tax Act, 1961 - Sections 154, 192(1), 201, 201(1) and 231; ;Indian Income Tax Act, 1922 - Sections 18(7) and 46(7)
AppellantCommissioner of Income-tax
RespondentEyre Smelting P. Ltd.
Appellant AdvocateSuhas Sen and ;Ajoy Mitter, Advs.
Respondent AdvocateD. Pal, ;R.K. Murarka and ;M. Seal, Advs.
Cases ReferredM. M. Parikh v. Navanagar Transport and Industries Ltd.
Excerpt:
- .....the salary and perquisites payable to woodhouse occurred in the relevant accounting years and the recovery proceedings initiated by the letter dated the 26th june, 1965, were long after the statutory period of limitation.7. it was urged on behalf of the revenue that the assessee would be deemed to have committed a default on the 26th july, 1965, when the income-tax officer issued the impugned letter which had the effect of extending the date of payment of taxes of woodhouse, accordingly, it was submitted that the recovery proceedings were initiated within the time prescribed under section 46(7) of the indian income-tax act, 1922.8. relying on the decision of the calcutta high court in the case of commissioner of income-tax v. blackwood hodge (india) p. lid. : [1971]81itr807(cal) , cited.....
Judgment:

Sen, J.

1. This is a consolidated reference under Sections 66(1) of the Indian Income-tax Act, 1922, and 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, West Bengal-II, Calcutta. The Tribunal has drawn up a case and referred the following question:

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the proceedings under Section 18(7) of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62, and under Section 201(1) of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64, respectively, were barred by limitation '

2. The facts found and/or admitted are that one W. J. Woodhouse had been employed by the Eyre Smelting Private Ltd., the assessee, at the material time. After the personal assessments of Woodhouse for the assessment years 1960-61 to 1963-64, were completed in March, 1963, he left the employment of the assessee and finally left India permanently. Thereafter, the Income-tax Officer served on the assessee a letter dated the 28th July, 1964, addressed to Woodhouse stating, inter alia, that the tax in respect of his income had been under-charged for the said assessment years inasmuch as the commission received by him should have been included for the determination of the value of rent-free quarters allotted to him. Accordingly, the Income-tax Officer proposed to rectify the said assessments.

3. In spite of objections of the assessee to the proposed rectification the Income-tax Officer passed orders under Section 154 of the Income-tax Act, 1961, on the 22nd November, 1964, and amended the assessments of Wood-house enhancing the tax payable by him.

4. Thereafter, on the 26th June, 1965, the Income-tax Officer issued a letter to the assessee demanding the payment of the enhanced amounts payable by Woodhouse for the said assessment years. It was also recorded in the said letter that the assessee was being treated as a defaulter under Section 18(7) of the Indian Income-tax Act, 1922, and/or Section 201(1) of the Income-tax Act, 1961.

5. The assessee filed appeals against the decision of the Income-tax Officer contained in the said letter. The Appellate Assistant Commissioner held that the commission paid to Woodhouse had to be taken into account along with his salary for the purpose of making deduction at source, and such deduction not having been made, the assessee was liable for payment of the additional taxes. The demands raised by the Income-tax Officer were confirmed and the appeals were dismissed.

6. Further appeals were preferred by the assessee before the Income-tax Appellate Tribunal, and it was contended that the proceedings under Section 18(7) of the earlier Act or Section 201(1) of the later Act, were barred by limitation inasmuch as the default, if any, on the part of the assessee in not deducting this tax at source from the salary and perquisites payable to Woodhouse occurred in the relevant accounting years and the recovery proceedings initiated by the letter dated the 26th June, 1965, were long after the statutory period of limitation.

7. It was urged on behalf of the revenue that the assessee would be deemed to have committed a default on the 26th July, 1965, when the Income-tax Officer issued the impugned letter which had the effect of extending the date of payment of taxes of Woodhouse, Accordingly, it was submitted that the recovery proceedings were initiated within the time prescribed under Section 46(7) of the Indian Income-tax Act, 1922.

8. Relying on the decision of the Calcutta High Court in the case of Commissioner of Income-tax v. Blackwood Hodge (India) P. Lid. : [1971]81ITR807(Cal) , cited before it, the Tribunal held that the proceedings in issue were recovery proceedings. After consideration of Section 46(7) of the earlier Act and Section 231 of the later Act the Tribunal took the view that no proceedings for recovery of any sum payable under the Acts could be commenced after the expiry of one year from the last day of the financial year in which any demand would be made under the said Acts. The proceedings having been initiated by the said letter dated the 26th June, 1965, were beyond the said period of one year and were time-barred.

9. In order to appreciate the controversy in this reference it is necessary to consider the relevant statutory provisions.

10. Section 18 of the Indian Income-tax Act, 1922, inter alia, provides as follows :

'18. Payment by deduction at source.--(1) .........

(2) Any person responsible for paying any income chargeable under the head ' Salaries' shall, at the time of payment, deduct income-tax and super-tax on the amount payable at a rate representing the average of the rates in force for the financial year in which he is required to deduct the tax which are applicable to the estimated total income of the assessee under this head : ......

(7) If any person or the principal officer of a company does not deduct tax or after deducting fails to pay the sums deducted as required by or under this section, he, or the company, as the case may be, shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : ...... '

11. Section 46 of the 1922 Act, inter alia, provides as follows :

' 46. Mode and time of recovery.--.........

(7) Save in accordance with the provisions of Sub-section (1) of Section 42, or of the proviso to Section 45, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the financial year in which any demand is made under this Act: ......

Explanation.--A proceeding for the recovery of any sum shall be deemed to have commenced within the meaning of this section, if some action is taken to recover the whole or any part of the sum within the period hereinbefore referred. ...'

12. In the later Act we have to consider Section 192, the relevant portion whereof is as follows :

'192. Salary.--(1) Any person responsible for paying any income chargeable under the head ' Salaries ' shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.........'

13. Section 200 reads as follows :

' 200. Duty of person deducting tax.--Any person deducting any sum in accordance with the provisions of Sections 192 to 194, Section 194A, Section 194B, Section 194C, Section 194D and Section 195 shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.'

14. The relevant part of Section 201 is set out as follows :

'201. Consequences of failure to deduct or pay.--(1) If any such person and in the cases referred to in Section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax......'

15. Section 231 of the later Act provides, inter alia, as follows :

' 231. Period for, commencing recovery proceedings.--Save in accordance with the provisions of Section 173 or Sub-section (7) of Section 220, no proceedings for the recovery of any sum payable under this Act shall be commenced after the expiration of one year from the last day of the financial year in which the demand is made, or in the case of a person who is deemed to be an assessee in default under any provision of this Act after the expiration of one year from the last day of the financial, year in which the assessee is deemed to be in default.........

Explanation 2.--A proceeding for the recovery of any sum shall be deemed to have commenced within the meaning of this section, if some action is taken to recover the whole or any part of the sum within the period hereinbefore referred to.'

16. Dr. Debi Pal, learned counsel for the assessee, contended at the hearing that in the instant case when the proceedings were sought to be initiated by the letter dated the 26th June, 1965, the earlier Act, that is, the Indian Income-tax Act, 1922, had been repealed and the Income-tax Act, 1961, had come into force. It is the admitted case that no proceeding had been initiated against the assessee under Section 18(7) of the earlier Act and, therefore, the proceedings must be deemed to have been taken under the new Act under Section 297(2)(j) of the Act which reads as follows:

'297. Repeals and savings.---(1) The Indian Income-tax Act, 1922 (XI of 1922), is hereby repealed.

(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),--... (j) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act. '

17. Dr. Pal submitted further that following the principle laid down by the Supreme Court in the case of Third Income-tax Officer v. M. Damodar Bhat : [1969]71ITR806(SC) , the assessee must be proceeded against under the sections relating to the recovery and collection as applicable to him and, therefore, the old Act had no relevance.

18. The clear provision of the later Act is that recovery proceedings in the case of a person who is deemed to be an assessee in default under any provision of the Income-tax Act, 1961, shall not be commenced after the expiration of one year from the last day of the financial year in which the assessee is deemed to be in default.

19. The duty of the assessee as an employer in the instant case was to deduct the salary in the financial years relevant to the assessment years in question, that is, from 1959 to 1963. The assessee must be deemed to be in default in those years and by June, 1965, recovery proceedings in respect of all the said financial years against the assessee had become barred.

20. In support of his contentions Dr. Pal cited a decision of this court in the case of Associated Pigment Ltd, v. Income-tax Officer : [1971]80ITR631(Cal) . The facts in this case were that by an agreement in writing dated the 21st December, 1953, entered into by and between the assessee and a Japanese company, the assessee undertook to make certain payments and to allot certain of its shares to the Japanese company in const-deration of the latter providing the assessee with technical assistance and ' know-how'. Pursuant thereto, the assessec allotted 33 fully paid-up shares of the face value of Rs. 16,500 to the Japanese company on the 3rd December, 1955, and in the years 1954-1956 and 1960, respectively, remitted U.S. dollars 7,000, 3,500 and 1,050 to the. Japanese company. The matter being brought to the notice of the income-tax department at the instance of the Reserve Bank a letter dated the 4th January, 1966, was issued by the Income-tax Officer concerned informing the assessee that remittances to the Japanese company represented income of the Japanese concern on which tax should have been deducted at source under Section 18(3B) of the Indian Income-tax Act, 1922, and the assessee was required to show cause why it should not be treated as a defaulter in respect of such tax under Section 18(7) of the Act. This letter was followed by another letter dated the 19th January, 1966, whereby the Income-tax Officer called upon the assessee to pay tax on the remittances already made and on the value of the shares issued.

21. The petitioner applied under Article 226 of the Constitution challenging the said letters dated the 4th January and the 19th January, 1966. On these facts a Constitution Bench of this court consisting of a single judge held that recovery in such a case would be barred under the provisions of Section 46(7) of the earlier Act and Section 231 of the later Act.

22. Dr. Pal has also drawn our attention to Blackwood Hodge (India) P. Ltd.'s case : [1971]81ITR807(Cal) . The facts of this case were that a company in the United Kingdom sublet some land in New Delhi to the assessee and the assessee in consideration therefor paid to the foreign company a sum in the assessment year 1956-57. The Income-tax Officer took the view that the assessee would be an assessee in default under Section 18(7) of the Indian Income-tax Act, 1922, inasmuch as the assessee had not deducted income-tax and super-tax at the time of payment of the said sum and accordingly he directed the assessee to pay the amount of tax. The Appellate Assistant Commissioner set aside the order of the Income-tax Officer on the ground that the payment was in the nature of rental and as such was a gross earning in the hands of the non-resident company. The Tribunal dismissed the further appeal of the revenue on the ground that the order passed under Section 18(7) was an order of assessment and having been made beyond a period of four years from the end of the assessment year concerned, was barred by limitation under the provisions of Section 34(3) of the Indian Income-tax Act, 1922. On these facts, the following question was referred to this court :

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of the Income-tax Officer under Section 18(7) of the Indian Income-tax Act, 1922, was barred by limitation under the provisions of Section 34(3) of the Act '

23. This court, following the decision of the Supreme Court in the case of M. M. Parikh v. Navanagar Transport and Industries Ltd. : [1967]63ITR663(SC) , held that the order was not an order of assessment, which would mainly assess the income and determine the charge in accordance with the charging sections of the Act. It was held further that under Section 18(7) the person responsible for deduction of the tax and payment thereof was deemed to be not merely an assessee, but also an assessee in default, and, therefore, by a legal fiction it would be assumed in an order passed under that section that the three stages of imposition of tax, viz., determination of the liability to pay tax, computation of tax payable and the recovery of tax, were over and there was a failure on the part of the assessee to comply with a notice of demand. An order under Section 18(7) was not an order of assessment and the liability to pay tax under such an order would arise from the order itself.

24. The main contention of Mr. Suhas Sen, learned counsel for the revenue, has been that, as laid down in the case of Blackwood Hodge (India) P. Ltd. : [1971]81ITR807(Cal) , the liability of the assessee in the instant case arose from the order of the Income-tax Officer contained in his letter dated 26th June, 1965. This was not an order of assessment and brought into existence a liability of the assessee which was not in existence earlier. Therefore, the assessee would be deemed to be in default only in the financial year in which such an order was made. Even if this letter is construed to be the initiation of recovery proceedings, the same cannot be held to be barred by limitation as the period of limitation would run from the 26th June, 1965, the date of the letter itself.

25. In our view, the letter dated the 26th June, 1965, records that the assessee is in default under Section 18(7) of the Indian Income-tax Act, 1922, or Section 201(1) of the Income-tax Act, 1961. The said letter also calls upon the assessee to make payment of the outstanding tax demand. Under Explanation 2 of Section 231, this would amount to an initiation of recovery proceedings.

26. In the plain language of the sections an employer is under an obligation to deduct the tax due from' the salary which he pays to his employee and if he fails to do so he commits a default. This default occurs when such salary is paid and not when an order is made under Section 18(7) of the earlier Act or under Section 231 of the later Act. Therefore, the said letter dated the 26th June, 1965, to the extent it can be considered to initiate recovery proceedings by calling upon the assessee to pay the outstanding tax is barred by limitation. To the extent the said letter records that the assessee is in default under Sections 18(7) and/or 201(1) of the said Acts the same may not be barred. But as more than four- years have passed since the issue of oven this letter, further recovery proceedings alsoappear to have become barred.

27. To the extent as indicated above, we answer the question in the affirmative and in favour of the assesses. There will be no order as to costs.

C. K. Banerji, J.

28. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //