C. K. Banerji, J.
This reference relates to the assessment of Dunlop Rubber Co. (India) Ltd., Calcutta, for the Assessment Years 1958-59 to 1964-65 and has been initiated u/s 256(2) of the Income Tax Act 1961. The relevant accounting years are the calendar years 1957 to 1963 respectively.
The facts found and/or admitted are shortly as under :
2. The assessee had made certain remittances to its parent Company, viz. Dunlop Rubber Co. Ltd., U.K., a non-resident Company. The Income Tax Officer was of the view that the said remittances were incomes chargeable to tax. As the assessee had not deducted tax from the amounts remitted as required u/s 18(3B) of the Indian Income Tax Act, 1922 which corresponds to s. 155(1) of the Income Tax Act 1961, the Income Tax Officer by a letter dt. 5th March 1965 called upon the assessee u/s 201(1) of the Income Tax Act, 1961, to pay within a week from the receipt of the said letter a sum of Rs. 87,59,815/- being the amount of tax which should have been deducted and paid by the assessee.
3. The assessee appealed against the said order of the Income Tax Officer before the Appellate Assistant Commissioner of Income Tax and contended that the assessee had no oligation to deduct taxes from the remittances which though having an element of income or profits did not constitute chargeable income and that the assessee being an agent within the meaning of s. 163(1) of the Act was not liable to deduct such tax or to pay the same. The Appellate Assistant Commissioner on consideration of the agreement between the assessee and the parent Company came to the conclusion that the payments were in the nature of royalty and rejected the contentions of the assessee.
4. The Appellate Assistant Commissioner however, was of the view that the Income Tax Officer should have assessed the assessee as an agent of the parent Company. He also found that the said order u/s 201(1) of the Act was proceeding for recovery of tax and thus had become time barred u/s 231 of the Act whereunder recovery proceedings should have been taken by the Income Tax Officer within one year from each of the last dates of the financial years, in which the assessee was deemed to be in default. The Appellate Assistant Commissioner also found that the assessee did not make any remittance in 1963, i.e., the assessment year 1964-65 and there was no default in the said assessment year. The Appellate Assistant Commissioner accordingly cancelled the order of the Income Tax Officer made u/s 201(1) of the Act.
5. The Commissioner of Income Tax preferred appeals before the Income Tax Appellate Tribunal from the order of the Appellate Assistant Commissioner. The assessee also filed across objections as well as appeals. The only question urged before the Tribunal was whether the demand of the Income Tax Officer u/s 201(1) was recovery proceedings. For the assessment years 1958-59 to 1963-64 the Tribunal found that all payments by the assessee were made prior to 9th February 1963 and defaults were committed thereby. The order u/s 201(1) of the Act initiating recovery proceedings made on the 1st March 1965 was thus clearly out of time. The Tribunal, therefore, confirmed the order of the Appellate Assistant Commissioner including that there was no payment by the assessee in the year 1963 and consequently no default in the assessment year 1964-65.
6. Accordingly all the appeals of the Revenue were dismissed. The cross objection and appeals of the assessee were held to be infructuous as the merits of the assessees contentions had not been considered and the matters being decided on the question of limitation only.
On the application of the Commissioner of Income Tax, West Bengal I, Calcutta, this Court directed the Tribunal to refer the following questions in respect of Income Tax Reference Nos. 407 of 413 of 1917 :
'1. Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the proceedings u/s 201(1) of the Income Tax Act 1961 were recovery proceedings ?
2. Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the recovery proceedings were initiated by the Income Tax Officer when he passed the order on the 1st March 1965 u/s 201(1) of the Income Tax Act, 1961 ?
3. Whether the Tribunal was justified in holding that limitation prescribed in s. 231 of the Income Tax Act, 1961, is applicable to an order passed u/s 201(1) of the said Act ?'
On the application of the assessee this Court directed the Tribunal to draw up a statement of case and refer the following question in Income Tax Reference Nos. 396 to 402 of 1971 :
'Whether on the facts and in the circumstances of the case the Tribunal was right in not dealing with the ground and disposing them on merits ?'
7. Mr. B. L. Pal, learned Counsel for the Revenue, drew out attention to Chapter XVII of Income-Tax Act, 1961, which although headed 'Collection and Recovery of Taxes' is subdivided into several parts :
(a) Ss. 190 and 191 are in part A and are headed 'General'.
(b) Ss. 192 to 206 are in part B and are headed 'Deduction at source'.
(c) Ss. 207 to 219 are in part C and are headed 'Advance payment of Taxes'.
(d) Ss. 220 to 232 are in part D and are headed 'Collection and Recovery'.
(e) Ss. 233 and 234 are in part E and are headed 'Taxes payable on provisional assessment'.
Mr. Pal submitted that s. 201 is not included in the part which related to collection and recovery but is included in the part under 'Deduction at source'.
Mr. Pal submitted that s. 201 therefore cannot be said to relate to recovery and the proceedings thereunder cannot be said to be recovery proceedings.
Mr. Pal further submitted that the letter issued in the instant case u/s 201 was in the nature of a demand notice informing the recipient that its liability to tax has been quantified and called upon it to pay the amount within a certain time. The letter merely imposed liability u/s 201, and only if there was default to pay the amount demanded within the time prescribed recovery proceedings would be started in any of the modes specified in the Act including the modes of recovery provided u/s 232.
8. In support of his contentions Mr. Pal cited the following decisions :
(a) M. M. Parikh, ITO, Special Investigation Circle B, Ahmedabad v. Navangar Transport and Industries Ltd. & Anr. In this case the Supreme Court in considering the scope and effect of s. 23(A) of the Income Tax Act, 1922, and in particular whether an order under the said Section by the Income Tax Officer directing payment of additional super tax was an order of assessment observed as follows :
'But s. 23A does not use the expression assessment in the body of cl. (1) : and to the title of the Section after it was amended, viz, 'power to assess companies to super tax on undistributed income in certain cases, it is impossible to give any exalted meaning so as cover what is an order directing payment of tax into an order of assessment within the meaning of s. 34(3) of the Income Tax Act, 1922. Every order which contemplates computation of income for determination of the amount of tax payable is not an order of assessment within the meaning of the Act; not does prescribing of procedure for determining and imposing tax liability make it an order of assessment. The Income Tax Act contemplates making of diverse orders by Income Tax Officers directing payments of sums of money by tax payers which are of the nature of orders for payment of tax but which are still not order of assessment.'
(b) CIT West Bengal v. Blackwood Hodge (India) P. Ltd. In this case a Division Bench of this Court considered the scope and effect of s. 18(7) of the Income Tax Act, 1922 which corresponds to s. 201 of the Income Tax Act, 1961, and observed as follows :
'Now u/s 18(7) the person responsible for the deduction of tax and payment thereof is deemed to be not merely an assessee but also an assessee in default. There are three well known stages of imposition of tax, namely (a) liability to pay tax, (b) computation of tax payable, and (c) recovery of tax. Keeping these stages in view when we come to the expression deemed to bean assessee in default we have to assume.
1. Fixation of liability :
2. Assessment or computation of income and the tax payable thereon : and
3. Service of a notice of demand on the assessee calling upon him to make payment. It is only when all these stages have passed and the assessee fails to comply with notice of demand, that he can become an assessee in default. When therefore we are dealing with the legal fiction introduced by the expression deemed to be an assessee in default it would be necessary to assume all those facts on which alone a fiction can operate, vide CIT v. S. Teja Singh. We have to assume that all the three stages mentioned above are over, and there has been a failure on the part of the assessee to comply with a notice of demand. In these premises an order pursuant to s. 18(7) made by the Income Tax Officer cannot be said to be an order of assessment. The liability to pay the tax under such an order arises not from the charge created by the Statute but from the order itself.'
9. Dr. Debi Pal, learned Counsel for the assessee contented, on the other hand, that s. 201 is in Chapter XVII of the Act, which deals with collection and recovery of taxes. S. 201 comprises in itself all the provisions of assessment, that is computation or quantification of the tax payable, implied demand for payment of the same and non-compliance therewith whereby the person liable to deduct the tax at source and to pay the same to the Income Tax Authorities automatically becomes an assessee in default in respect of the same under deeming provision of the said section. There was no scope for any further action on the part of the Income Tax Officer to make the person concerned an assessee in default under the said Section.
Dr. Pal contended further that from the facts found by the Tribunal it is clear that recover proceedings as envisaged in the Act in those and s. 231 thereof had become barred by limitation. The letter dated 1st March 1965 clearly recorded that action was being taken to recover the amount alleged to be due.
In support of his contentions Dr. Pal relied on an unreported decision of this Bench in Income Tax Reference No. 137 of 1970 entitled Commissioner of Income Tax, West Bengal II, Calcutta v. Eyre Smelting Pvt. Ltd., Calcutta where it was observed as follows in the context of s. 201 :
'In our view the letter dated the 26th June 1965 records that the assessee is in default u/s 18(7) of the Income Tax Act, 1922 or s. 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) to s. 231, this would amount to initiation of recovery proceedings.
In the plain language of the Section 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 u/s 18(7) of the earlier Act or s. 201 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 u/s 18(7) and/or s. 201(1) of the said Acts the same may not be barred. But as more than four years have passed since the issue of even this letter further recovery proceedings also appears to have become barred'.
10. In the present Reference, however, the contention on behalf of the Revenue is that the letter dated 1st March, 1965, is not a recovery proceedings at all, but it only quantifies the liability and calls upon the person specified in s. 200 of the Act to pay the taxes within the time specified therein and only in case of his failure to do so he will be in default and recovery proceeding may be started thereafter.
The relevant portion of s. 201(1) is as follows :
'201. Consequence of failure to deduct or pay (1) If any such person and in the cases referred to in s. 194 the Principal Officer and the company of which he is the Principal Officer does not deduct or after deduction 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'.
11. On a plain reading of the Section the argument on behalf of the Revenue cannot be accepted. The Section itself contains a deeming provision whereby the person referred to in the said Section in consequence of his failure to deduct and pay the tax which he was liable to deduct and pay the tax which he was liable to deduct and pay to the Revenue Authorities becomes an assessee in default. No further action on the part of the Income-tax Officer is necessary or envisaged under the Section to make such person an assessee in default. We are, therefore, unable to accept the arguments of Mr. B. L. Pal. Following out decision in Eyre Smelting case, we answer the questions Nos. 1, 2 and 3 in Income-tax Reference Nos. 407 to 413 of 1971 in the affirmative and in favour of the assessee.
12. The question in Income-tax Reference Nos. 396 to 402 of 1971 has not been pressed by the assessee and therefore we decline to answer the same.
13. Before concluding we would like to add that in our decision in the case of Eyre Smelting Private Ltd. as also in the present case we have confined our discussion to recovery proceedings under the Income-tax Act, 1922, or the Income-tax Act, 1961. We did not lay down that the right of the Revenue institute a suit in similar circumstances would also be barred by limitation. The period of limitation for a suit to be instituted by the Government of India is specifically laid down by the relevant article of the Limitation Act, 1963 and none of our observations can or were intended to effect the same. There will be no order as to costs.