Income-tax---

----Assessment---Limitation---Assessment is completed when tax liability is determined and demand notice is issued---Computation of time for purposes of limitation---Stay order by High Court---Period covered by stay order must be excluded---Indian Income Tax Act, 1961, S.153.

What is required for completion of the assessment is the determination of the tax liability and issue of demand notice but certainly not the service of the same on the assessee.

Reassessment notices for the assessment years 1956-57 to 1958-59 were served and the returns were fled on March 15, 1965. However, prior to that the assessee had fled a writ petition challenging the validity of the notice and the High Court had stayed all further proceedings for all the three years on March 12, 1965. The said stay order was vacated on July 25,1975, when the writ petition was dismissed. Thereafter, the assessee was allowed eight weeks' time in two instalments to enable it to file an appeal from the said order of the Court dismissing the writ petition. The assessment proceedings were thus stayed during the period from March 12, 1965, to September 18, 1975. The Court again stayed the proceedings on September 29, 1975, in the appeal filed against the order dismissing the writ petition and disposed of the appeal with the direction that the respondents would, however, be at liberty to proceed with the reassessment but the final orders, if any, and the notice of demand would not be served on the assessee pending disposal of the application. The order of the High Court was vacated on July 12, 1979, when the appeal was dismissed. Thereafter, the assessee filed a special leave petition before the Supreme Court. The Supreme Court passed an order on January 7, 1980, stating that the assessment proceedings could be continued but final orders could not be passed. That order of the Supreme Court stood vacated on August 4, 1980, when the special leave petition was dismissed. During the assessment proceedings, the draft assessment order was forwarded by the Income-tax Officer to the Inspecting Assistant Commissioner on September 1` 1979, a copy of which was received by the assessee on September 19, 1979, and the directions of the Inspecting Assistant Commissioner after hearing the objections of the assessee were communicated to the Income-tax Officer on October 14, 1980. The Income-tax Officer completed the assessments for all the three years on October 15,1980, which were served on the assessee on October 22,1980. The assessee contended that the assessments were barred by limitation but the contention was negatived by the Income-tax Officer and the Tribunal. On a reference:

Held, that the assessment was completed on October 15, 1980. Normally, the assessment should have been completed by March 31,1969. The period covered by stay orders and section 144-B proceedings was 15 years 139 days. Thus, the assessment could be completed by August 17, 1984. If the period of 3 years and 287 days covered by the stay order of the Division Bench of the High Court was excluded, the assessment could be completed by November 3, 1980 whereas it was completed on October 15, 1980. Thus, the assessment was completed well within time.

JUDGMENT

SHYAMAL KUMAR SEN, J.---The assessee, Messrs India Ferro Alloy Industry (Private) Ltd., is a resident company. The years of assessment involved are 1956-57 to 1958-59. The Income-tax Officer completed the reassessments under section 147(a) of the Act for all these three years on October 15,1980. The assessee filed appeals against the said assessment orders before the Commissioner of Income-tax (Appeals) who disposed of the appeals by a. common order, dated January 24,1985. One of the grounds taken in those appeals was that the assessment were barred by limitation under section 153(2) read with clause (ii) of Explanation 1. The Commissioner of Income-tax (Appeals) held that the assessments were not barred by limitation.

The assessee came up in appeal before the Tribunal. The Tribunal did not accept the contentions and reasonings advanced on behalf of the assessee and held that the assessments were completed well within time.

At the instance of the assessee, the following question of law was referred to this Court by the Tribunal:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessments for the assessment years 1956-57 to 1958-59 were not barred by limitation?"

It has been argued on behalf of learned counsel for the assessee that the assessments were barred by limitation since the notice under section 148 were issued on December 4, 1964, and served on December 7, 1964. The assessments were required to be completed in the normal course under section 153(2) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act"), within four years from the end of the assessment year in which notice under section 148 was issued (1964-65), i.e. latest by March 31, 1969. It has been contended that, in terms of Explanation 1 (ii) and 1(iv) of section 153 of the said. Act, the petitioner is entitled to exclusion of the period during which the assessment proceeding is stayed by order of injunction of any Court. In view of Explanation 1(H) of section 153 of the said Act. March 12,1965, to July 25, 1975, out of which March 12, 1965, to March 31, 1965, falls within the assessment year 1964-65, during which notice under section 148 was issued and served is not to be counted for exclusion being the period of injunction as it is already in usual course not to be counted under section 153(2). The period of injunction is, therefore, counted for exclusion under Explanation 1(ii) to section 153 as under:

April 1, 1965 to July 25, 1975 (the date of the order of the Court vacating the injunction).

The stay was vacated on September 18, 1975, and since the period of Court's stay was in force during the usual 4-year period of limitation in this case from April 1, 1965 to March 31, 1969, the 4-year period not availed of earlier was allowed with effect from September 18, 1975, i.e., up to September 18, 1979. The draft assessment orders were made on September 17, 1975, by the Income-tax Officer and forwarded to the assessee. Thus, the Income-tax Officer had taken the total period of time taken in full though the draft assessment order could be assumed to have been passed within time marginally. He had only one day left with him for passing the order after receipt of the direction of the Inspecting Assistant Commissioner under section 144-B of the Income Tax Act, 1961. The Division Bench of this Court while admitting the appeal of the assessee on September 29, 1975, against the order passed by a Single Judge dismissing the writ petition of the assessee on July 25, 1975, granted liberty to the Income-tax Officer to proceed with reassessments but directed that final orders, if any, and notice of demand would not be served on the assessee. The appeals were dismissed by the Court on July 12, 1979, and the oral application of the assessee for leave to appeal to the Supreme Court was also rejected on the same day.

It has been argued that there was no restraint or stay on the Income-?tax Officer during the period from September 29, 1975 to July 12, 1979, so far as continuing and completing the assessment proceedings, making the draft assessment orders, forwarding the same to the assessee and then to the Inspecting Assistant Commissioner with the assessee's objections for his direction. There was no stay on the Inspecting Assistant Commissioner also in issuing his directions and even on the Income-tax Officer, in passing the final orders during this period. The Court, in clear words, had stayed only the service of the final orders and notice of demands on the assessee and all other proceedings and actions to be taken by the Income-tax Officer and the Inspecting Assistant Commissioner, which was to continue as directed by the Court.

It has been contended on behalf of the assessee that there was no stay during the period from September 18, 1975 to September 29, 1975 and the Income-tax Officer was free to make assessments during this period.

It has been further submitted that the period of 180 days at the maximum which was available to the Inspecting Assistant Commissioner for giving directions to the Income-tax Officer under section 144-B as per Explanation 1(iv) to section 153 of the Income Tax Act, 1961, is calculated as under: The Income-tax Officer's draft assessment orders are, dated September 17, 1979, and September 17, 1979, is the date when he forwards the draft assessment orders under section 144-B(1) to the Inspecting Assistant Commissioner, Range VII No.4-VII/144-B/22, 23 and 24 of 1979-80, 3072, dated October 13, 1980, was received by the Income-tax Officer on October 14, 1980. It has been submitted that this period of September 17, 1979 to October 14, 1980, covers a period of 393 days, whereas the period allowed under Explanation 1(iv) to section 153 is only 180 days at the maximum. It has been submitted that the 180 days period of limitation from September 17, 1979, expired on March 14, 1980, and the Inspecting Assistant Commissioner had no bar in giving his direction to the Income-tax Officer within this period of limitation. The partial stay was effective for the Income-tax Officer only even after March 14, 1980, latest up to August 4, 1980, the day when the Supreme Court vacated that partial restraint and stay on the Income-tax Officer. As such, since the Income-tax Officer had only one day left at his disposal, he was required to pass the final order on August 5, 1980, latest within the period of limitation. But the Income-tax Officer passed the final order on October 15, 1980, which in the light of the above facts according to the assessee is time? barred by 72 days though he received the directions of the Inspecting Assistant Commissioner on October 14, 1980. It has been submitted that the Income-tax Officer in no case, can avail of the benefit arising out of the delay in respect of the directions from the Inspecting Assistant Commissioner since no extra time was available at his disposal being more than one day from August 4,1980, the rest already consumed by him, earlier.

The only point for determination in this case is as to whether the reassessments made under section 147(a) of the Income Tax Act, 1961 (for brevity, "the Act"), for these three assessment years 1956-57 to 1958-59 were barred by limitation. Section 153(2) read with clause (ii) of Explanation 1 thereto reads as under:

"153: -(2) No order of assessment, reassessment or recomputation shall be made under section 147---

(a) where the

assessment, reassessment or recomputation is to be made under clause (a) of that section, after the expiry of four years from the end of the assessment year in which the notice under section 148 was served;

Explanation 1---In computing the period of limitation for the purposes of this section---

(ii) the period during which the assessment proceeding is stayed by an order or injunction of any Court, or--------"

As already noted, the notice under section 148 of the Act for all the three years was served upon the assessee, on December 7, 1964. After having repeatedly sought time for filing the returns of income for those three years in compliance with the said notice, the assessee filed the returns on March 15, 1965. However, prior to that, the assessee had filed the writ petition before this Court challenging the validity of the said notice and this Court had stayed all further proceedings for all the three years on March 12, 1965. The said stay order was vacated on July 25, 1975, when the writ petition was dismissed. Thereafter, the assessee was allowed eight weeks time in two instalments to enable it to file an appeal from the said order of the Court dismissing the writ petition. The assessment proceedings were thus stayed during the period from March 12, 1965 to September 18, 1975. The Court again stayed the proceedings on September 29,1975, i.e. the appeal filed against the order dismissing the writ petition and disposed of the appeal with the direction that the respondents would, however, be at liberty to proceed with the reassessment but the final orders, if any, and notice of demand will not be served on the petitioner pending disposal of this application. The said order of the High Court stood vacated on July 12, 1979, when the appeal was dismissed and, thereafter, the assessee filed a special leave petition before the Supreme Court. The Supreme Court passed, inter alia, the following order on January 7, 1980:

?"That all further proceedings in respect of the three purported draft orders of assessment all dated 17th September, 1979, for the assessment years 1956-57 to 1958-59 as contained in the three purported letters and/or notices all dated 17th September, 1979, issued by the Income-tax Officer'!' Ward, Camp District II, Calcutta, shall go on but final orders shall not be passed in the matter above? mentioned."

That order of the Supreme Court stood vacated on August 4, 1980, when the special leave petition was dismissed.

It is also relevant to mention that, during the assessment proceedings, the draft assessment order was forwarded by the Income-tax Officer to the Inspecting Assistant Commissioner on September 17, 1979, the copy of which, was received by the assessee on September 19, 1979, and the directions of the Inspecting Assistant Commissioner after hearing the objections of the assessee were communicated to the Income-tax Officer on October 14, 1980. The Income-tax Officer completed the assessments for all the' three. years on October 15, 1980, which were served on the assessee on October 22, 1980. The contention of the assessee before the Commissioner of Income-tax (Appeals) was that all the assessment orders were bad since they were barred by limitation. The assessee has now raised before us the following objections as to the computation of the period of limitation. Though the said order of stay was passed by the Court on March 12, 1965, the period of 19 days from March 12, 1965 to March 31, 1965, is not available to the Department in computing the period of four years since it is to be computed from April 1, 1965. The Inspecting Assistant Commissioner took a long period of more than one year in communicating the directions under section 144-B to the Income-tax Officer but the Department cannot avail of even the period of 180 days for two reasons, first, that most of the period taken by the Inspecting Assistant Commissioner was covered by the period during which the assessment proceeding was stayed by the High Court and the Supreme Court. Secondly, it was not necessary to make reference under section 144-B since the said provision is not, applicable to reassessment proceedings under section 147.

It was contended on behalf of the assessee that the date of completion of assessment should be taken as October, 22, 1980, on which date the assessment order was served on the assessee and not op October 15, 1980, when it was signed by the Income-tax Officer.

In our opinion, what is required for completion of the assessment is the determination of the tax liability and issue of demand notice but certainly not the service of the same on the assessee. Accordingly, it should, therefore, be taken that the assessment was completed on October 15,1980.

In our view, the total period to be excluded is as under:---

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Normally, the assessment should have been completed by March 31, 1969 the period covered by stay orders and section 144-B proceedings was 15 years 139 days. Thus, the assessment could be completed by August 17, 1984. If the period of 3 years and 287 days covered by the stay order of the Division Bench of this Court is excluded, the assessment could be completed by November 3, 1980, whereas it was completed on October 15, 1980. Thus, in any event, the assessment was completed well within time.

Accordingly, the question is decided in the affirmative and in favour of the Revenue,

There will be no order as to costs.

AJTT K. SENGUPTA, J: --I agree.

M.BA:/41/T.F????????????????????????????????????????????????????????????????????????????????????? Order accordingly