P.P.M.S. NAGARATHINAM VS COMMISSIONER OF INCOME-TAX
1991 P T D 713
[Madras High Court (India)]
Before Ratnam and Bakthavatsalam, JJ
P.P.M.S. NAGARATHINAM
versus
COMMISSIONER OF INCOME-TAX
Tax Case No.909 of 1979, decided on 31/01/1989.
Income-tax---
----Income--Business--Remission of liability--Time of accrual of income- Deduction allowed in respect of provident fund contribution--Assessee objecting to claim of provident fund Commissioner for such contributions by means of writ petition--Writ petition allowed by order passed on 12-8-1969--Appeal against decision barred by time--Dismissal of petition for condonation of delay--No effective appeal against order dated 12-8-1969--Remission of liability took place on 12-8-1969--Amount was thus assessable in assessment year 1971-72--Merger of order of lower authority in that of higher authority--No effective appeal--Mere filing of writ petition for condonation of delay in filing appeal--Order of lower authority does not merge in order dismissing writ petition--Indian Income-tax Act, 1961, S.41(1).
In order to treat an adjudication of a lower authority as having merged it the order of a higher or superior authority, it must be established that the higher or superior authority, in the proceeding properly brought before it, had considered the grounds upon which the decision of the lower authority was based and had either upheld or disapproved it. The mere filing of an application for condonation of delay and its subsequent dismissal without there being an effective appeal would not amount to the order merging in the order dismissing the application for condonation of delay.
The assessee was a Hindu undivided family. While completing the assessments for the assessment years 1968-69, 1969-70, 1970-71 and 1971-72, the Income-tax Officer allowed amounts of Rs.15,174, Rs.17,063, Rs.19,480 and Rs.21,762, respectively, totalling Rs.73,479, on account of amounts payable by the assessee under the provisions of the Provident Funds Act. A writ petition was filed by the assessee objecting to the claim of the Provident Fund Commissioner and on August 12, 1969, the writ petition was allowed holding that, to the employees of the assessee, the provisions of the Employee's Provident Funds Act and the Employees' Provident Funds Scheme were not applicable and the demand made on the assessee stood quashed. Against that, the Regional Provident Fund Commissioner purported to file an appeal and there was considerable delay in filing the appeal. The Regional Provident Fund Commissioner filed a petition for condonation of delay. On December 8, 1971, the petition for condonation of delay was dismissed, on the ground that there was negligence and that no sufficient cause was made out to condone the long delay. The Income-tax Officer reopened the assessment for the assessment year 1971-72 and concluded that the amount of Rs.21,762 was not an admissible deduction for 1971-72. In respect of amounts allowed as deduction in the earlier assessment years, the Income Tax Officer withdrew those allowances under section 41(1) of the Income-tax Act, 1961, and brought to tax a sum of Rs.73,479 in the reassessment made. The Appellate Assistant Commissioner deleted the addition. But the Tribunal took the view that as the order in the writ petition became final on August 12, 1969, and the remission having occurred on a date in the accounting period ending on June 30, 1970, the Income-tax Officer correctly brought to tax the amount of Rs.73,479 in the assessment year 1971-72 and accordingly restored the addition as made by the Income-tax Officer. On a reference:
Held, that the decision in the writ petition attained finality on and from . August 12, 1969, when it was rendered and not from December 8, 1971, when the, application for condonation of delay in preferring an appeal therefrom was dismissed. The sum of Rs.73,479 was, therefore, assessable under section 41(1) in the assessment year 1971-72.
Chiranjilal Daga v. C.I.T. (1978) 113 ITR 363 (Mad.) and Erode Yarn Stores v. State of Madras (1963) 14 S T C 724 (Mad.) ref.
V. Narayanamurthy for the Assessee.
C.V. Rajan for the Commissioner.
JUDGMENT
RATNAM, J.---Under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") at the instance of the assessee, the following two questions of law have been referred to this Court for its opinion:
"(1) Whether the reopening of the assessment under section 147 for the assessment year 1971-72 was valid in law?
(2) Whether, on the facts and in the circumstances of the case, the sum of Rs.73,479 was assessable under section 41(1) of the Income-tax Act, 1961 for the assessment year 1971-72?"
The assessee is a Hindu undivided family. While completing the assessments for the assessment years 1968-69, 1969-70, 1970-71 and 1971-72, the Income-tax Officer allowed the amounts of Rs.15,174, Rs.17,063, Rs.19,480 and Rs.21,762, respectively, totalling Rs.73,479, on account of the amounts payable by the assessee under the provisions of the Provident Funds Act.
A writ petition in W.P. No. .2764 of 1966 was filed by the assessee objecting to the claim of the Provident Fund Commissioner and on August 12, 1969, the writ petition was allowed holding that to the employees of the assessee, the provisions of the. Employees' Provident Funds Act and the Employees' Provident Funds Scheme are inapplicable and the demand made on the assessee stood quashed. Against that, the Regional Provident Fund Commissioner purported to file an appeal and there was considerable delay in preferring that appeal to condone which the Regional Provident Fund Commissioner filed C.M.P. No. 6738 of 1971 in the intended writ appeal sought to be preferred against W.P. No. 2764 of 1966. On December 8, 1971, the petition for condonation of delay was dismissed on the ground that there was negligence and that no sufficient cause was made out to condone the long delay. The Income-tax Officer reopened the assessment for the assessment year 1971-72 and concluded that the amount of Rs.21,762 was not an admissible deduction for 1971-72. In respect of the amounts allowed as deduction in the earlier assessment years, the Income-tax Officer withdrew those allowances under section 41(1) of the Act and brought to tax in the reassessment made a sum of Rs.73,479. Aggrieved by this, the assessee preferred an appeal and the Appellate Assistant Commissioner held that only on December 8, 1971, it was established that no provident fund contributions were payable by the assessee to the Provident Fund Commissioner and, therefore, the disallowance should have been made only for the assessment year 1972-73 and not for 1971-72. In that view, the Appellate Assistant Commissioner deleted the addition of Rs.73,479. Against that, the Department preferred an appeal before the tribunal contending that the adjudication in the writ petition became final on August 12, 1969, when the writ. petition was allowed and no effective writ appeal had been filed against that and that the dismissal of the application for condonation of the delay would not in any manner affect the decision so that the assessment of the sum of Rs.73,479 for the assessment year 1971-72 was in order.
The Tribunal took the view that as the order in the writ petition became final on August 12, 1969, and the remission having occurred on a date in the accounting period ending on June 30, 1970, the Income-tax Officer correctly brought to tax the amount of Rs.73,479 in the assessment year 1971-72 and accordingly restored the addition as made by the Income-tax Officer.
Learned counsel for the assessee contended that the proceedings in the writ petition became final on December 8, 1971, and therefore, no amount could be brought to tax in the assessment year 1971-72. On the other hand, learned counsel for the Revenue maintained that the order dated December 8, 1971, did not in any manner affect the adjudication in the writ petition made on August 12, 1969, and, it has, therefore, to be taken that the proceedings in the writ petition attained finality on August 12, 1969, and so, the allowances granted earlier were rightly brought to tax in the assessment year 1971-72.
There is no dispute that the writ petition filed by the assessee in W.P. No. 2764 of 1966 was allowed on August 12, 1969. No doubt, there was an attempt by the Regional Provident Fund Commissioner to file an appeal against the order in W.P.No. 2764 of 1966, but there was considerable delay in doing so, which necessitated the filing of an application in C.M.P. No. 6738 of 1971 in the intended writ appeal. However, by an order dated December 8, 1971, that application was dismissed. While on the one hand, the assessee claims that the order in the writ petition can be considered to have attained finality only on December 8, 1971, and, therefore, the amounts allowed in the earlier assessment years cannot be brought to tax in the assessment year 1971-72, the Revenue maintains that such finality was attained even on August 12, 1969. We have, therefore, to consider whether the filing of the application for condonation of delay in C.M.P. No. 6738 of 1971 in any manner affected the adjudication in the writ petition disposed of on August 12, 1969.
In order to effectively question the correctness of the decision in W.P. No. 2764 of 1966, an appeal therefrom ought to have been preferred within the time prescribed for the filing of such appeals. That, however, was not done and there was enormous delay and the appeal itself was filed out of time with an application for condonation of the delay. That application was dismissed on December 8, 1971. The dismissal of that application did not imperil the decision in the writ petition and left its effect and operation totally untouched. We have, therefore, to hold that the decision in the writ petition attained finality on and from August 12, 1969, when it was rendered and not from December 8, 1971 when the application for condonation of delay in preferring an appeal therefrom was dismissed, The analogy of the merger of the order is also inappropriate. We can conceive of an order of a lower authority being upheld by a higher or superior authority in a properly constituted appeal or other appropriate proceedings as merging in the order of the higher or superior authority. In order to treat an adjudication of a lower authority as having merged in the order of a higher or superior authority, it must be established that the higher or superior authority in the proceeding properly brought before it had considered the grounds upon which the decision of the lower authority was based and had either upheld or disapproved it. The mere filing, as in this case, of an application for condonation of the delay and its subsequent dismissal without there being an effective appeal against the order in the writ petition, cannot enable the assessee to put forward the plea that the order in the writ petition merged in the order dismissing the application for condonation of the delay. The order dismissing the application for condonation of the delay cannot by any stretch of imagination be construed as in any manner affecting the grounds on which the order in the writ petition was passed. Indeed, the dismissal of the application for the condonation of delay had left the decision in the writ petition on the grounds stated therein wholly and totally unaffected. We are, therefore, of the view that the finality in the writ proceedings was attained on August 12, 1969 and not on December 8, 1971, and, in that event, on the strength of that adjudication, the allowance of the amounts paid towards the provident fund could be assessed only in the assessment year 1971-72 invoking section 41(1) of the Act.
We may also refer in this connection to the decision in Erode Yarn Stores v. State of Madras (1963) 14 S.T.C. 724 (Mad.), where the assessee contended that once an appeal is filed before the Tribunal, the Board is precluded from invoking its powers under section 34 of the Tamil Nadu General Sales Tax Act, which was disputed by the State on the ground that before the jurisdiction of the Board to exercise its powers under section 34 can be held to be taken away, the appeal filed before the Tribunal must have been an effective appeal. This Court held that the words "subject of an appeal" mean "subject to an effective appeal"; as, otherwise, it would enable an assessee, who wants to avoid or stifle the Board's suo motu power of revision, to file a time-barred appeal and get it dismissed. Similar would be the situation in this case also in that the acceptance of the contention of the assessee that the finality was attained only on December 8, 1971, would result in the assessee being enabled to rely on an incidental order in an ineffective appeal to effectively prevent the assessment of the irregular allowance of the amounts claimed by the assessee in the prior assessment years either in the assessment year 1971-72 or even subsequently owing to the operation of the bar of limitation. We may also point out that in Chiranjilal Daga v. C.I.T. (1978) 113 I T R 363 (Mad), an assessment was completed ex parte and against that order, an appeal wag preferred, which was rejected on the ground that it was barred by time. A further appeal to the Tribunal was also filed out of time and though the delay was condoned, ultimately, the order of the Appellate Assistant Commissioner rejecting the appeal as time-barred was confirmed without going into the merits. Thereupon, the assessee filed a revision before the Commissioner of Income-tax under section 264 of the Act, but that was rejected on the ground that the assessee had gone on appeal before the Appellate Assistant Commissioner and also before the Tribunal and, therefore, the revision preferred by the assessee cannot be maintained. It was held that the filing of an ineffective or incompetent appeal before the Appellate Assistant Commissioner or the Tribunal did not deprive the assessee of the right of revision under section 264 of the Act and that the revision before the Commissioner of Income-tax under section 264 of the Act was maintainable. In other words, the decision rendered was to the effect that an ineffective or incompetent appeal was, in the eye of law, no appeal at all precluding the assessee from invoking the revisional powers of the Commissioner of Income-tax under section 264 of the Act. Applying the principle of this decision also, we have to hold that there was no appeal at all against the decision in W.P. No. 2764 of 1966 and that order became final on and from August 12, 1969, which would justify the assessment of the amounts allowed earlier, in the assessment year 1971-72 by applying section 41(1) of the Act. We, therefore, answer the question referred to us in the affirmative and against the assessee. The Revenue will be entitled to the costs of this reference. Counsel's fee Rs.500.
Z.S./719/T Order accordingly.