MUTHOOTTU CHARITABLE TRUST VS COMMISSIONER OF INCOME-TAX
1999 P T D 1853
[227 I T R 75]
[Kerala High Court (India)]
Before V. V. Kamat and P.A. Mohammed, JJ
MUTHOOTTU CHARITABLE TRUST
versus
COMMISSIONER OF INCOME-TAX
Income-tax Reference No.47 of 1987, decided on 18/06/1996.
Income-tax---
----Assessment---Limitation---Draft assessment order---Extended period of limitation where 5.144-B applies ---Assessee filing return showing nil income---Draft assessment order assessing income of more than Rs.2 lakhs-- Section 144-B applied---Assessment completed within extended period under 5.153---Assessment was not barred by limitation---Indian Income Tax Act, 1961,Ss.144-B & 153.
In order to attract section 144-B(1) of the Income Tax Act, 1961, there must be a variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation must exceed the amount fixed by the Board under subsection (6). The variation of income contemplated under this section presupposes the existence of two sets of income, one being the income returned by the assessee and the other being the income proposed by the officer.
For the assessment year 1979-80 the assessee-trust filed a return showing the total income of Rs.2,08,400 as the voluntary contribution received and since the amount was claimed towards accumulation the balance taxable income was shown as nil. On the other hand, the Income-tax Officer found that the contribution received from Muthoottu Mini Chitty Fund was Rs.2,08,400 and the said amount was the total income of the assessee. The Income tax Officer as per the draft assessment order, dated February 19, 1982, proposed to assess the income at Rs.2,08,400. The said draft assessment order was forwarded to the Inspecting Assistant Commissioner for approval. Subsequently, the draft proposal was approved by the Inspecting Assistant Commissioner under section 144-B of the Income Tax Act, 1961, on June 22, 1982. After receiving the approval, the Income-tax Officer passed the assessment order on July 1, 1982. The assessee contended that the assessment was barred by limitation. The Commissioner of Income tax (Appeals) upheld the assessee's contention, but the Tribunal, on appeal by the Revenue, held that clause (iv) of Explanation 1 to section 153 would be applicable and hence, the assessment order was not barred by limitation. On a reference:
Held, that this was a case where the assessee had filed a return, showing the taxable income as nil. Therefore, it could not be said that there was no variation between the income returned by the assessee and the income proposed by the Officer. It would, necessarily, lead to the conclusion that section 144-B would apply to the facts of the present case. The Income-tax Officer had forwarded the draft order of assessment alongwith the objection of the assessee to the Inspecting Assistant Commissioner for approval. The draft assessment order was passed on February 19, 1982. The Inspecting Assistant Commissioner by his order, dated June 22, 1982, had directed that the entire contribution received by the assessee, namely, Rs.2,08,400, should be brought to tax. Finally, the assessment order was passed on July 1, 1982. The assessment had been passed well within the time allowed by clause (iv) of Explanation 1 to section 153(1) and was not barred by limitation.
C. Kochunni Nair, Dale P. Kurien and M.A. Firoz for the Assessee
P.K.R. Menon and N.R.K. Nair for the Commissioner
JUDGMENT
P. A. MOHAMMED, J.---This income-tax reference is arising out of the order of the Income-tax Appellate Tribunal, Cochin Bench, in I.T.A. 168 (Cock) 83, dated February 28, 1986. The assessment year in question is 1979-80, the relevant accounting period of which ended on March 31, 1979. The assessee in this case is charitable trust and at its instance the Tribunal has referred the following question of law for our answer:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that section 144-B is applicable to the facts of the present case and that the assessment made in this case was not barred by limitation?"
The facts leading to the above reference can be briefly stated thus: For the aforesaid assessment year, the assessee filed a return on September 29, 1979, showing the taxable income as nil. The Income-tax Officer as per the draft assessment order, dated February 19, 1982, proposed to assess the income at Rs.2,08,400. The said draft assessment order was forwarded to the Inspecting Assistant Commissioner for approval. Subsequently, the draft proposal was approved by the Inspecting Assistant Commissioner under section 144-B of the Income Tax Act, 1961, (for short "the Act"), on June 22, 1982. After receiving the approval, the Income-tax Officer passed the assessment order on July 1, 1982, as originally proposed by him and demanded a sum of Rs.1,67,797 towards income-tax and surcharge. The assessee being aggrieved by the said order filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner, however, found that the assessment order passed by the Income-tax Officer was time-barred. As against the said order, the Revenue filed an appeal before the Income-tax Appellate Tribunal and the, Tribunal held in the appeal that there was a variation between the returned income at nil and the proposed addition of Rs.2,08,400. Therefore, the Tribunal found that section 144-B is applicable in the case. The Tribunal further held that clause (iv) of Explanation 1 to section 153 would be applicable and hence the assessment order was not barred by limitation. The Tribunal accordingly cancelled the order of the Commissioner of Income-tax (Appeals) and restored the order of the Income-tax Officer.
Learned counsel for the assessee contended that this is a case where there is no variation of income and hence subsection (1) of section 144-B of the Act, as it stood then, will not apply. His further case is that the Department is not entitled to get the benefit of the extended period of limitation provided in Explanation 1, clause (iv), to section 153. He further points out that in the present case the time limit for completion of the assessment is controlled by section 153(1)(a) of the Act alone.
In order to appreciate the contentions advanced by counsel for the assessee, it would be appropriate to reproduce section 144-B of the Act, as it stood then.
"144-B. (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under subsection (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under subsection (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.
(2) On receipt of the draft order, the assessee may forward his objection, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf.
(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order.
(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment:
Provided that no directions which are prejudicial to the assessee shall be issued under this subsection before an opportunity is given to the assessee to be heard.
(5) Every direction issued by the Inspecting Assistant Commissioner under subsection (4) shall be binding on the Income-tax Officer.
(6) For the purposes of subsection (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix from time to time, such amount as it deems fit:
Provided that different amounts may be fixed for different areas:
Provided further that the amount fixed under this subsection shall, in no case, be less than twenty-five thousand rupees.
(7) Nothing in this section shall apply to a case where an Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under section 125 or section 125-A. "
In order to attract section 144-B(1), there must be a variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation must exceed the amount fixed by the Board under subsection (6). The variation of income contemplated under this section presupposes the existence of two sets of income, one being the income returned by the assessee and the other being the income proposed by the officer. When there is variation between these two sets of income it is imperative on the part of the Income-tax Officer to forward the draft of the proposed order of assessment to the assessee calling for objections, if any. In case the assessee objects to the draft order, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting
Assistant Commissioner for approval under subsection (4). In this case the assessee has filed a return showing the total income of Rs.2,08,400 as the voluntary contribution received and since the amount was claimed towards accumulation the balance taxable income was shown as nil. On the other hand, the Income-tax Officer found that the contribution received from Muthootu Mini Chitty Fund is Rs.2,08,400 and the said amount is the total income of the assessee. From the above it would be clear that there is a variation between the income returned by the assessee and the income proposed by the Officer. In view of this variation, the matter was referred to the Inspecting Assistant Commissioner under section 144-B along with the objection of the assessee inasmuch as the income proposed to be assessed exceeds the returned income by more than Rs. l lakh. The Inspecting Assistant Commissioner by his order, dated June 22, 1982, directed the Officer that the entire contribution should be brought to tax.
On behalf of the assessee it was contended that there is no question of variation of income involved in the process of computation under section 144-B of the Act. This is not a case where the assessee has not filed any return. This is a case where the assessee has filed a return, of course showing the taxable income as nil. Therefore, it cannot be said that there is no variation between the income returned by the asses see and the income proposed by the Officer. It would necessarily lead to the conclusion that section 144-B will apply to the facts of the present case.
The next question to be examined is whether the assessment order passed by the Officer for the year 1979-80 was within the time prescribed in that behalf. In this connection, it is appropriate to reproduce the relevant provisions contained in section 153 of the Act.
" 153. (1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of---
(a) two years from the end of the assessment year in which the income was first assessable; or
Explanation 1.---In computing the period of limitation for the purposes of this section---
(iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Assessing Officer forwards the draft order under subsection (1) of section 144-B to the assessee and ending with the date on which the Assessing Officer receives the directions from the Deputy Commissioner under subsection (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days, or ....shall be excluded."
The contention is that the assessment order for the year 1979-80 (Annexure "C") is time-barred. According to the assessee, the said order should have been passed on or before March 31, 1982, in view of clause (a) of section 153(1), but it was passed only on July 1, 1982. We would have accepted this contention if it were a case where section 144-B was not applicable. We have hereinbefore found that section 144-B would apply in the instant case and that being the position, the extended period of limitation provided in clause (iv) of Explanation 1 to section 153(1) is available to the Department. In other words, in a case where objection has been filed by the assessee against the draft order of assessment a period not exceeding one hundred and eighty days shall be excluded while computing the period of limitation provided in section 153(1)(a). The assessment order (Annexure "C") reveals that the Income-tax Officer has forwarded the draft order of assessment alongwith the objection of the assessee to the Inspecting Assistant Commissioner for approval. The draft assessment order was passed on February 19, 1982. The Inspecting Assistant Commissioner by his order, dated June 22, 1982, has directed that the entire contribution received by the assessee, namely Rs.2,08,400 should be brought to tax. Finally, the assessment order (Annexure "C") was passed on July 1, 1982. That means the assessment order has been passed well within the time allowed by clause (iv) of Explanation 1 to section 153(1) of the Act. This would inevitably follow that the assessment order (Annexure "C") passed by the Income-tax Officer is not barred by the period of limitation provided in section 153(1)(a) of the Act.
In view of the discussion hereinabove, the question referred to us is answered in the affirmative, that is to say, in favour of the Revenue and against the assessee.
A copy of this judgment under the seal of this Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.
M.B.A./2040/FCReference answered.