AMPEE INDUSTRIES (P.) LTD. VS COMMISSIONER OF INCOME-TAX, 1998 PTD-GAUHATI-HIGH-COURT-INDIA 2779 (1996)

Income-tax---

----Return---Loss---Scope of S.139(10)---No distinction between positive and negative income in S.139(10)---Income disclosing loss filed after 31st July of relevant assessment year is not deemed to be a return filed by the assessee-- Assessment cannot be made on the basis of such a return---Indian Income Tax Act, 1961, S.139(10).

Subsection (10) of section 139 of the Income Tax Act, 1961, provides that a return of income which shows that total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished and proviso (d) to subsection (10) of section 139 of the Act provides that the provisions contained in this subsection shall not apply to a return of loss which has been furnished before the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained.

Subsection (10) of section 139 does not make any distinction between positive and negative income. If an assessee wants his loss to be carried forward then he may have recourse to subsection (3) of section 139 of the Act. It is completely independent of the provisions of subsection (10) of section 139. Proviso (d) to section 139(10) states that the provisions of subsection (10) shall not apply to a return of loss which has been furnished before the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained. If the income is below the maximum limit of chargeable income, whether there is loss or not, it will come within the ambit of subsection (10) of section 139:

Held accordingly, that assessment proceedings could not be initiated for the assessment year 1988-89 on the basis of the return showing loss submitted on January 10, 1989.

J.P. Bhattacharjee and R.K. Joshi for the Assessee.

Dr. A. K. Saraf and K. K. Gupta for the Commissioner.

JUDGMENT

D.N. BARUAH, J.---At the instance of the assessee, the following two questions have been referred by the Income-tax Appellate Tribunal under section 256(1) of the Income Tax Act, 1961, (for short, "the Act"), for opinion of this Court:

"(i)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Assessing Officer was justified in initiating the assessment proceeding for the assessment year 1988-89, on the basis of loss return submitted by the assessee on January 10, 1989, without any claim for carry forward loss and in not holding that the return so submitted was never to have been furnished in view of the provisions contained in section 139(10) read without the proviso (d) of the Income Tax Act, 1961?

(ii)Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in its interpretation of sections 139(3) and 139(1) of the Income Tax Act, 1961, and was justified in law in holding that the Assessing Officer validly initiated the assessment proceeding on the basis of the loss return submitted by the assessee on January 10, 1989, and completed the assessment for the assessment year 1988-89 under section 143(3) of the Income Tax Act, 1961?"

The brief facts of the case are as follows:

The assessee is a private limited company. The company has a factory for the purpose of manufacturing biscuits. For the assessment year 1988-89, the company filed its return in January 10, 1989, showing a loss of Rs.18,280. After obtaining approval from the authority, concerned, the Assessing Officer served notices under section 143(2)/142(1). Against the aforesaid disclosed loss of Rs. 18,280, the Assessing Officer assessed the taxable, income at Rs.9,03,720 after making various disallowances and additions. Against the said order of the Assessing Officer, the company filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed the appeal holding that the order of assessment made by the Assessing Officer was illegal and accordingly annulled the said assessment on the technical ground without entering into the merits of the appeal on other points concerning the quantum. 'The Revenue took up the matter by way of appeal before the Tribunal. The Tribunal, however, set aside the order of the Commissioner of Income-tax (Appeals), holding that the order passed by the Commissioner of Income-tax (Appeals), was unjustified and that-the Commissioner of Income tax (Appeals), had misconstrued various circulars and the provisions of section 139(10) of the Act. Thereafter, at the request of the assessee the above questions have been referred to this Court under section 256(1) of the Act for opinion of this Court.

We have heard Mr. J.P. Bhattacharjee, learned senior counsel, assisted by Mr. R.K. Joshi, learned counsel appearing on behalf of the assessee, and Dr. A.K. Saraf, learned special counsel appearing on behalf of the Revenue.

Mr. Bhattacharjee submits that the order of the Tribunal holding that the assessee is not entitled to the benefit of section 139(10) is contrary to the established principles of law and also various provisions of the Act. According to Mr. Bhattacharjee, there are two modes of making assessment. One by the assessee himself by filing a return and the other mode is, on the failure of the assessee to furnish the return the Assessing Officer may initiate a proceeding for assessment of tax under section 139(2) of the Act. There is no other mode provided in the Act for making assessment. If a return is not filed by the assessee, the Assessing Officer may serve a notice under section 139(2) of the Act and after giving him one month's time the Assessing Officer may initiate an assessment proceeding. In this connection Mr. Bhattacharjee draws our attention to section 139(10), which was incorporated by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1986, and later on deleted by Finance Act, 1990, with effect from April 1, 1990. As per the provisions of section 139(10) of the Act, the return of income which shows the total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished. However, if the return is filed prior to 31st day of July of the relevant assessment year in that case the provisions of subsection (10) of section 139 would not apply. Mr. Bhattacharjee submits that in this case the assessee had filed the return only on January 10, 1989, i.e., long after the 31st day of July of the relevant assessment year.

Therefore, the provisions of subsection (10) of section 139 shall, very much, be applicable and, as such whatever return has been filed it would be treated as non-est and in the absence of a return the Assessing Officer had no jurisdiction to initiate an assessment proceeding.

Dr. Saraf, on the other hand, supports the order passed by the Tribunal.

On the rival contentions of counsel appearing on behalf of the parties it is to be seen whether the Tribunal was justified in holding that the Assessing Officer had jurisdiction to initiate a proceeding on the basis of the return filed on January 10, 1989, as the return for the purpose, of assessment.

Before we decide the matter in controversy, it will be apposite to look to some of the provisions of section 139 of the Act.

As per subsection (1) of section 139 of the Act, every person, if his total income or the total income of any other person in respect of which he is assessable under the Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner. Under subsection (3) of section 139 of the Act, if any person who has not been served with a notice under subsection (2), has sustained a loss in any previous year under the head "Profits and gains of business or profession" or under the head "Capital gains" and claims that the loss or any part thereof should be carried forward under subsection (1) of section 72 or subsection (2) of section 73 or subsection (1) or subsection (3) of section 74 or subsection (3) of section 74-A, he may furnish, within the time allowed under sub section (1) or by the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained; a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under subsection (1). Subsection (10) of section 139 of the Act provides that a return of income which shows the total income below the maximum amount which is not chargeable to tax shall not deemed never to have been furnished and proviso (d) to subsection (10) of section 139 of the Act provides that the provisions contained in this subsection shall not apply to a return of loss which has been furnished before the thirty-first day of July of the assessment year relevant to the previous near during which the loss was sustained.

In the instant case, the Tribunal set aside the order of the Commissioner of Income-tax (Appeals), by holding that the provisions of section 139(10) were applicable in the case of positive income or positive total income which was below the maximum amount which was not chargeable to tax. We quote the relevant portion of the Tribunal's judgment:

"As indicated above, section 139(10) provides that notwithstanding anything contained in any other provision of this Act, a return which shows the total income below the maximum amount not chargeable to tax shall have to be ignored. In other words, it is seen that this subsection (10) deals with the return which shows positive income or positive total income which is below the maximum amount which is not chargeable to tax, but this subsection did not speak or refer anything to return which shows a loss. This is so in view of the fact that section 139(3) has been provided to take care of a case where an assessee has sustained a loss from which he claimed that such loss would have to be carried forward under section 72(l), etc. Thus, subsection (10) is completely independent. As stated in this subsection itself is independent of subsection (3) of section 139. Both deal with separate and different situations. Thus, sub section (10) deals with the return which shows a total income below the taxable limit and not of a loss. In this connection, we have to refer to the definition of the word 'total income' as would be found in section 2(45) in which it has been defined that 'total income' means the total amount of income referred to in section 5, computed in the manner laid down in this Act ...."

We are unable to agree with the findings arrived at by the Tribunal. Subsection (10) is very clear on this point. It says that a return of income which shows the total income below the maximum amount, which is not chargeable to tax shall be deemed never to have been furnished. We do not find that it is not applicable where there is no loss. We fail to understand why the Tribunal has referred to two types of income, i.e., positive income and negative income. This means income earned or loss sustained. In our considered view, subsection (10) does not make any distinction. If an assessee wants his loss to be carried forward then he may take recourse to subsection (3). In our opinion, it is completely independent of the provisions of subsection (10) of section 139. This position of law will be very clear if we look to the proviso (d) to subsection (10) of section 139 of the Act which speaks that the provisions of subsection (10) shall not apply to a return of loss which has been furnished before the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained. If the income is below the maximum limit of chargeable income, whether there is loss or not, it will come within the ambit of subsection (10) of section 139. If that is so, the return showing the loss being filed after the 31st day of July of that particular assessment year, cannot be deemed to be a return filed by the assessee and on that basis no assessment proceeding can proceed. In this respect, we disagree with the decision of the Tribunal.

Accordingly, we answer both the questions in the negative, in favour of the assessee and against the Revenue. A copy of this judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the Income-tax Appellate Tribunal, Guahati.

M.B.A./1548/FCOrder accordingly.