COMMISSIONER OF INCOME-TAX VS SUNDARAM SPINNING MILLS
1999 P T D 270
[225 I T R 214]
[Madras High Court (India)]
Before K.A. Thanikkachalam and N. V. Balasubramanian, JJ
COMMISSIONER OF INCOME-TAX
Versus
SUNDARAM SPINNING MILLS and 2 others
Tax Cases Nos.573 to 575 and References Nos.313 to 315 of 1983, decided on 23/04/1996.
Income-tax---
----Reassessment---Limitation---Section144-Bnotapplicabletoreassessments under 5.147--Extended period of limitation under Expln. 1 (iv) to S.153 not available---" Assessment", meaning of---Indian Income Tax Act, 1961, Ss. 2(8), (40), 143(3), 144-B, 147, 153, Expln. 1(iv).
The expression "assessment to be made under section 143(3)", used in section 144-B of the Income Tax Act, 1961, does not cover a reassessment and this expression is confined only to the assessments to be made originally and, therefore, the procedure prescribed under section 144-B is not available to reassessments to be made under section 147. Consequently, the extended time limit provided for in Explanation (1)(iv) to section 153 is not available to the Department. Unless the extended time limit is available, the reassessments under section 147, cannot be saved from the bar of limitation.
Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) rel.
CIT v. Ganeshram Nayak (1981) 129 ITR 43 (Orissa); CIT v. Padma Timber Depot (1988) 169 ITR 646 (AP); CIT v. Saraf (V.D.) (HUF) (1994) 207 ITR 217 (Bom.); CIT v. Simson and McConechy Ltd. (1989) 177 ITR 526 (Mad.); CIT v. Supreme Constructions Co. (1995) 213 ITR 137 (AP); CIT v' Usha Aggarwal (1989) 178 ITR 406 (P & H); Gates Foam and Rubber Co. v. CIT (1973) 90 ITR 422 (Ker.); Orient Trading Co. v. CIT (1985) 152 ITR 26 (Guj.); Jai Kishan Srivastava v. ITO (1960) 40 ITR 222 (All.); Jayaram (M.R.) v. CIT (1984) 147 ITR 807 (Mad.) and Ritz Ltd. v. CIT (1995) 216 ITR 138 (Bom.) ref.
S.V. Subramanian for C.V. Rajan for the Commissioner.
P.P.S. Janarthana Raja for the Assessee (in T.C. No.573 of 1983).
R. Meenakshisundaram for the Assessee (in T.C. No.574 of 1983).
R. Janakiraman for the Assesgee (in T.C. No.575 of 1983).
JUDGMENT
K.A. THANIKKACHALAM, J.---These three tax cases, relating to three different assessee are for the assessment years 1973-74, 1973-74 and 1968-69, respectively. The Tribunal has referred the following common question for the opinion of this Court at the instance of the Department, under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
"Whether the Appellate Tribunal is correct and justified in law in holding that the expression ' an assessment to be made under section 143(3), used in section 144-B, is confined only to the assessment to be made under section 143 and does not cover reassessment to be made under section 147 of the Income-tax Act with the consequence that the procedure prescribed under section 144-B and extended time limit provided in the Explanation to section 153 is not available to reassessment to be made under section 147?"
Tax Case No.573 of 1983 relates to the assessment year 1973-74, in respect of which the previous year ended on March 31, 1973. The assessee is a registered firm. For the assessment year under consideration, the original assessment was made on March 23, 1976, on a total income of Rs.6,93,636. After completion of the original assessment, action under section 147 was taken, because the income from Kandasamy Spinning Mills was not included in the original assessment, extra-shift allowance by way of depreciation on additions to plant and machinery was not restricted to the actual period of use and for diversion of substantial funds for non-business purposes no disallowance was made. For the notice issued under section 148 on February 17, 1978, the assessee filed a return on March 17, 1978, declaring an income of Rs.3,09,203. As the addition proposed exceeded Rs.1 lakh, the Income tax Officer invoked section 144-B and called for the objections of the assessee and submitted them to the Inspecting Assistant Commissioner and taking into account the directions given by the Inspecting Assistant Commissioner, he completed the assessment on June 29, 1979, on a total income of Rs.14,01,770.
T.C. N0.574 OF 1983:
In this tax case,, the original assessment was completed on March 30, 1976, on a total income of Rs.50,06,557 for the assessment year 1973-74, in respect of which, the previous year ended on December 31, 1972. As there was an audit objection that excess development rebate and extra shift allowance were allowed and omission to disallow difference in foreign exchange on capital account, notice under section 148 was issued and the assessee filed a return with the income, as disclosed in the original return. Reassessment was made on a total income of Rs.1,06,51,718 after securing the permission of the Inspecting Assistant Commissioner under section 144-B on August 29, 1979. The assessment order did not show the reasons for the variation in the assessment except that it was taken at Rs.1,19,67,051 as per draft assessment order.
T.C. N0.575 OF 1983:
For the assessment year 1968-69, the original assessment was made on January 20, 1970. Under section 153 (2)(a) the period of limitation for making reassessment under section 147(a) is four years from the end of the assessment year in which notice under section 148 was served. In this case, notice was served on February 14, 1974, and, therefore, the reassessment had to be completed before March 31, 1978. The Income-tax Officer, however, made a draft assessment on March 25, 1978 and the assessee sent his objections on March 30,1 978, both of which were forwarded to the Inspecting Assistant Commissioner under section 144-B, who gave his directions on September 15, 1978, and the Income-tax Officer made the assessment on September 18, 1978.
On appeal in all these cases, the assessees contended before the Commissioner of Income-tax (Appeals) that the assessment made was barred by limitation and, on the other hand, the Revenue contended that under section 153(3), Explanation 1(iv), the period commensing from the date on which the Income-tax Officer forwarded the draft order to the assessee and ending with the date, on which he received the directions of the Inspecting Assistant Commissioner, under section 144-B, should be excluded in computing the period of limitation. However, the Commissioner held that the question of excluding that period would arise only if the procedure prescribed under section 144-B could apply and since' that section, viz., section 144-B applies only to an assessment made under section 143(3) and nut to a reassessment under section 147, the time taken to follow that procedure, could not be excluded in computing the period of limitation and that, therefore, the assessment made was barred by limitation to these cases.
On further appeal to the Appellate Tribunal, after hearing learned standing counsel and the Advocates and chartered accountants, who joined as interveners, the Tribunal came to the conclusion that the view taken by the Commissioner of Income-tax was unassailable. After tracing the history of section 34 of the 1922 Act, giving due regard to the object of enacting section 144-B of the Income Tax Act, 1961, and the need for associating a superior officer of considerable experience in making assessments in respect of additions exceeding a certain limit, the Tribunal came to the conclusion that the term "assessment" used in section 144-B is confined to assessments to be made originally under section 143(3) of the Act and since the assessment to be made under section 147 is different from the one to be made under section 143(3), neither the procedure prescribed in section 144-B nor the extended time limit associated therewith under section 153(1) was applicable to an assessment to be made under section 147. Therefore, it held that the extended time limit provided for in the Explanation to section 153 was not available to such a case, and that, therefore, the assessment made in respect of these assessee availing of the extended time limit, was barred by limitation.
On a reference by the Department, the Tribunal has referred the common question of law, stated at the outset, for the opinion of this Court under section 256(1) of the Act.
Before us, learned senior standing counsel for the Department, made the following submissions:
(i) The combined effect of the provisions of section 148(1) read together with section 143(3) of the Act is that even the assessment or reassessment to be made under section 147(a), (b) falls within the purview of section 144-B.
(ii) Subsection (1) of section 144-B opens with a non-obstinate clause giving it overriding effect on any other provisions of the Act.
(iii) There is nothing in the context, which could reasonably justify placing a limited construction on the word "assessment" in section 144-B(1), as in section 2(8) the term "assessment" includes "reassessment".
(iv) The fiction created under section 148(1) is to treat the notice as if it were issued under section 139(2) and the applicability of other provisions of the Income-tax Act has to be given full effect.
(v) Separate mention of the order under section 147 sections 246 and 263, is only relevant for the purpose of these sections and the same cannot be carried further so as to affect the proper interpretation of section 144-B.
(vi) If at all there is any ambiguity in the construction of section 144-B, as not covering "reassessments', the construction that makes the Act workable must be preferred and not the construction, which n lakes the Act nugatory.
(vii) By the use of the expression "so far as may be" in section 148, not only the provisions of section 139, but all the provisions of the Act have been made applicable, with the result, the notice issued under section 139(2) must culminate in an assessment to be made under section 143(3), there being no other section, under which an assessment could be made under the Income Tax Act, 1961.
(viii) An assessment made under section 34 of the: 92.x. Act is to be regarded as an assessment made under section 23 of the Act. Then it follows that there was no distinction between an "assessment" and ` "reassessment" in the sense that one could not be regarded as distinct and separate from the other and both the expressions give the same meaning and legal implications.
On the other hand, learned counsel for the assessees submitted as under:
It is wrong to think that the language used in section 34 of the old Act (1922 Act) and section 147 of the new Act (1961 Act) is similar. While section 34 of the 1922 Act uses the expression "proceed to assess or reassess such income", section 147 of the 1961 Act does not use the words "proceed to". But, section 147 of the 1961 Act says "assess car reassess such income or re compute the loss..." and by dropping the words "proceed to", section 147 can no more be said to be a procedural section, as it was interpreted under the old Act and section 147 would be a charging section. According to learned counsel for the assessees, it is not necessary for the Income-tax Officer to call in aid section 143 to make an assessment under section 147. They would then point out that section 148 opens with the words "before making the assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements, which may be included in a notice under subsection (2) of section 139, and the provisions of this Act shall, so far as may be, apply accordingly, as if the notice were a notice issued under that subsection", and the words "before making the assessment, reassessment or recomputation under section 147", also indicate the legislative intent that an assessment could be made under section 147. From the fact that section 30 of the 1922 Act provided for orders, which are appealable and therein there is no provision for an appeal against an assessment made under section 34, but provided for an appeal against an assessment under section 23, learned counsel submitted that section 34 of the 1922 Act was not a charging section, but only a machinery section. He further submitted that since to all assessments initiated under section 34, the provisions of section 23 were made applicable, the assessment made under section 34 was to be regarded as an assessment made under section 23, and it was for that reason that no appeal against an order passed under section 34 was provided for. But, section 246 of the 1961 Act made a departure, in that, it specifically provided for an appeal against an order made under section 147, and that would mean that section 147 is a section, under which assessments, reassessments or recomputation could be made and, therefore, unlike its predecessor section, viz., section 34, it is a charging section. According to them, when section 147 is a charging section, under which an assessment could be made and when no reference was made to section 147 in section 144-B, it means that section 144-B is not made applicable to the assessments to be made under section 147, irrespective of the fact whether it relates to assessments, or reassessments or recomputation. According to him, in addition to sections 147 and 148, section 150 has also provided for an assessment to be made, i.e., in pursuance of an order on appeal. In support of his argument, learned counsel invited our attention to the decision in CIT v. Ganeshram Nayak (1981) 129 ITR 43 (Orissa), to which we will advert a little later. Learned counsel submitted that section 147 was never in contemplation for purposes of section 144-B and that would apply only to assessments made under section 143(3) and not to reassessments and if section 144-B is held not to cover the assessments made under section 147, the extended time limit of six months is not available to the Department and, consequently, the assessments made now are beyond the prescribed time limit under section 147 and consequently, barred by limitation. According to learned counsel, "regular assessment" as defined in section 2(40) would mean the assessments made under section 143 or 144 and in no sense of the term, regular assessment can refer to an assessment made under section 147. According to him, if the assessments made under section 143 are to be regarded as assessments made under section 147, as is now contended by the Revenue, then, there is no need for enacting subsection (2) of section 153 specifically mentioning therein the time limits to be applicable for reassessments to be made under section 147. According to him, this would show that the Legislature never meant the assessment to be made under section 143 to be equal to or the same as the assessment made under section 147. They would further submit that the extension of the time limit set out in Explanation 1 to section 153 applies only to section 153(1) and not to assessments to be made under section 153(2), as according to him, if the assessment made under section 147 is to be regarded as an assessment made under section 143(3), the time limit for making an assessment under section 147 having already expired, that time limit could not be extended again by the Explanation. For this purpose, protection is sought under section 150(2) of the Act, which stipulated that the provisions of section 150(1) shall not apply to any case, where any such assessment, reassessment or recomputation as is referred to in that subsection relates to an assessment year in respect of which, an assessment, reassessment or recomputation could not have been made at the time the order which was subject-matter of the appeal, reference or revision, as the case may be, was made, by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken. They would then submit that the procedure prescribed under section 144-B is to be followed only to an assessment to be made under section 143(3) and not to reassessments to be made, applying the provisions of section 147. According to learned counsel for the assessees, section 34 of the 1922 Act and section 147 of the 1961 Act are not in pari materia, that while the concept is retained in the latter Act, the machinery is provided in several sections, i.e., between sections 147 to 153 thereof. According to them, while section 34 is a procedural section, section 147 is a charging section.
In reply, learned senior standing counsel for the Department, contended that the assessment under section 147 is an assessment to be made under section 143(3), because the notice issued under section 148 is to be regarded as a notice under section 139(2) and all the provisions available to the Income-tax Officer to make an assessment, are automatically made applicable to the notice issued under section 148. Consequently, the assessment made under section 147 is an assessment made under section 143(3). According to him, if sections 148, 150 and 153 have used the words "assessment" and "reassessment" that is only a facility of reference and cannot be the legislative intent.
We have heard learned senior standing counsel for the Department and learned counsel for the assessees at length.
The question that arises for consideration is, whether the meaning of the expression "in an assessment to be made under subsection (3) of section 143" takes in a reassessment, i.e., in a case where the assessment made is a reassessment consequent to the issue of notice under section 148 having reason to believe that income has escaped assessment, where the provisions of section 144-B would be applicable. If the provisions of section 144-B are applicable to reassessments, the further time limit of six months would be available to the Revenue and if section 144-B is not applicable to the reassessments made under section 147, then the time limit for making reassessments would remain un extended finder section 2(8) of the Act, unless the context otherwise requires, "assessment" includes "reassessment". The Act uses the expression "regular assessment" in section 2(40) meaning thereby assessments made under section 143 or under section 144. Section 34 of the 1922 Act is described as the predecessor section of section 147 of the 1961 Act. At this stage, it is relevant to extract section 34 of the 1922 Act and sections 147 and 148 of the 1961 Act.
Indian Income Tax Act, 1922:
"34. Income escaping assessment. ---(1)...
(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too tow a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under .subsection (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection." (provisos omitted)
Income Tax Act, 1961:
"147. Income escaping assessment.---(1) If---
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year; income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,
he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).
(Explanations 1 and 2 omitted)."
"148. Issue of notice where income has escaped assessment. ---(I)
Before making the assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection.
(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so."
Under section 34 of the 1922 Act the Income-tax Officer should serve a notice on the assessee, which may contain all or any of the requirements, as may be included in a notice under section 22(2) and then proceed to assess such income and the provisions that Act shall, so far as may be, apply accordingly as if the notice were a notice issued under the subsection. Section 30 of the 1922 Act did not provide for an appeal against an assessment made under section 34. That would mean that the assessment made as a consequence of initiation of proceedings under section 34 is not to be regarded as an assessment made under that section, but to be regarded as an assessment made under section 23. It was for this reason that section 30 provides for an appeal against an assessment made under section 23, by making it clear that the assessment made under section 34 is to be regarded only as an assessment made under section 23. For the same reason, section 34(3) also providing for limitation, uses the expression "assessment" or "reassessment" falling under clause (c) of subsection (1) of that section, to exclude the limitation applicable generally to all assessments. Section 34 provided that the Income-tax Officer may serve on the assessee a notice, after he has determined to reopen the assessment under section 34 containing all or any of the requirements, which may be included in the notice under subsection (2) of section 22 and may proceed to assess or reassess such income. It means that section 34 is a procedural section, enabling or empowering the Income-tax Officer to initiate the reopening of the assessment. Once the Income-tax Officer reopens an assessment, he may have to follow the same procedure, which he followed to make the original assessment to complete the reassessment. For that purpose, he may have to give notice to the assessee to produce books, lead evidence and then he should make the assessment'. Against that assessment, an appeal is provided for. It is for that reason, the other provisions of the Act were made applicable, so far as they are applicable to assessments made under section 23(3). A similar expression has been used in section 148 of the 1961 Act here also, the subsequent subsection shows that the assessment must be made under section 143(3). As against the assessment made under section 147, there is a provision for appeal. Unlike section 30 of the 1922 Act, section 246(1)(e) of the 1961 Act provides that an appeal can be preferred against an order of reassessment or recomputation under section 147 or section 150 to the Appellate Assistant Commissioner. This is in addition to an appeal provided against an order of assessment made by the Income-tax Officer under section 143(3) or section 144. Thus, the 1961 Act provides for an appeal both against the order of assessment under section 143(3) as well as against an order of reassessment under section 147.
According to the assessee, if the assessment made under section 147 is, as contended by the Revenue, to be regarded as an assessment under section 143(3), the same procedure obtained in the 1922 Act, would have been retained and continued in the 1961 Act and there was no reason to provide for an appeal against an assessment made -under section 147. Therefore, the intention of the Legislature was that an assessment made under section 143(3) and a reassessment made under section 147 are different and are not to be regarded as one and the same.
Section 34 of the 1922 Act was a machinery section and not a charging section. For this finding, support was drawn from some of the decisions, to which we will advert a little later. One view was that a portion of section 34, which deals with the issue of notice and section 148, are machinery sections, while the other portion of section 34 and sections 147 to 15, of the two enactments, respectively are charging sections. That portion of section 34, which deals with the power of assessment now embodied in section 147 of the 1961 Act, could be regarded as a charging section. Section 147 says that if the conditions stipulated in clauses (a) and (b) are satisfied, the Income-tax Officer may assess or reassess the escaped assessment, or recompute the loss, as the case may be. It was pointed out that the words "proceed to assess" used in section 34 of the 1922 Act are significantly omitted in the 1961 Act. Since it charges the income that had escaped the assessment, it can also be said as a charging section. The procedural part of it is found to be embodied in the other sections. In section 147, the words "proceed to" before the words "assess or reassess such income" were dropped. Section 147 confers upon the Income-tax Officer the power to assess or reassess the escaped income and sets out the procedure to be followed to bring to tax such escaped income, in the other sections. Section 148, which deals with notice to be issued where the income had escaped assessment, opens with the words "before making the assessment, reassessment or recomputation under section 147", and indicates that under section 147, it is possible to make an assessment, i.e., in the case the income had escaped assessment or a reassessment in a case where the income had been under assessed or assessed at too low a rate or where such income had been made the subject of excessive relief under the Act or where excessive loss or depreciation allowance has been computed. If an assessment or reassessment or recotriputation under section 147 is not contemplated, section 148 would not have opened with the words "before making the assessment, reassessment or recomputation under section 147". On the basis of the use of the expression in under section 147, the Tribunal came to the conclusion that it is a strong positive indication to come to the conclusion that section 147 is a section, under which an assessment, reassessment or recomputation could be made and that the assessment is a separate assessment from the one made under section 143(3).
Section 2(8) of the 1961 Act defines "assessment" as including "reassessment". If this definition is taken into consideration for interpreting section 144-B, then that section would be read as "notwithstanding anything contained in this Act, where an assessment or reassessment is to be made under subsection (3) of section 143", which would mean that the assessment, reassessment or both is to be made under section 143(3). It can be seen that reassessment could be made only under section 147 and it cannot be made under section 143(3). It was pointed out by the Tribunal that from the scheme of the Act (1961 Act) that it is permissible for the Income-tax Officer to make an assessment under section 147 de hors section 143(3), but making use of the powers and procedures prescribed in section 143(3). Section 148 requires that notice should be served on the assessee containing all or any of the requirements, which may be included in the notice under subsection (2) of section 139 and the provisions of this Act shall, so far as may be, apply accordingly, as if the notice were a notice issued under that subsection. After the issue of notice under section 139(2), that Income-tax Officer would press into service the procedural sections, like sections 142 and 143 and then compute the income to be reassessed and levy tax thereon. Section 143(3) enables the Income-tax Officer to make an assessment of the total income or the loss of the assessee and determine the sum payable by or refundable to an assessee on the basis of such assessment. Subsection (3) of section 143 contains two parts. One part is the power to make assessment of the total income or loss of the assessee. The other part is, to determine the sum payable by an assessee or refundable to an assessee on the basis of such assessment. Under the first part, the Income-tax Officer can act under section 147 by following the procedure laid down in the subsequent sections and also the procedure laid down in sections 142 and 143, which is to collect evidence and give the assessee opportunity of being heard. Similarly, for the other part, i.e., determination of the sum payable by the assessee, the Income-tax Officer can fall back upon subsection (3) of section 143. It means, the Income-tax Officer is only making use of the powers provided for to subsection (3) of section 143. Section 148 enables the Income-tax Officer to do so by providing that---"and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that subsection". This would not lead to the conclusion that the assessment made as a consequence of issuing notice under section 148, is an assessment under section 143(3), merely because the procedures provided for in section 143(3) are followed.
Section 153 of the 1961 Act provides for the time limit for completing the assessments and reassessments. Subsection (1) of section 153 opens with the words "no order ,of assessment shall be made under section 143 or under section 144 at any time after" and prescribes the time limit thereafter. Subsection (2) of section 153 provides for the time limit for making assessment, reassessment or recomputation under section 147. According to the Tribunal, this would show again that Parliament maintained the difference to be maintained between the assessments to he made under sections 143 and 144 and the assessments to be made under section 147. Section 246 provided for an appeal against an order made under section 147, unlike section 30 of the 1922 Act, which did not provide for an appeal against an order of assessment made under section 34, because under the 1922 Ace, an assessment made under section 34 is regarded as an assessment made under section 23. For this reason, the Tribunal posed a question that if the assessment made under sections 143(3) and 147 are regarded as one and the same, there is no reason to repeat that a separate provision has been made making an order under section 147 an appealable one. For this reason also, the Tribunal came to the conclusion that an assessment made under section 147 is a different assessment, from the assessment made under section 143(3). Therefore, the Tribunal was of the opinion that section 144-B. when it uses the expression "in an assessment to be made under subsection (3) of section 143" it only refers to an assessment made originally and not to an assessment made under section 147. Accordingly, the Tribunal concluded that since it is possible to make an assessment under section 147, which is definitely contemplated in the definition of "assessment" in section 2(8) of the 1961 Act, "reassessment" cannot be imported or substituted in section 144-B.
It was also pointed out that section 144-B would go to show that it is only to assessments to be made under section 143(3), i.e., the original assessment made by way of providing a protection to the assessee's where the income is likely to vary, so that high pitch assessments are not made and the assessees are not harassed. This protection and guidance is not necessary while making a reassessment under section 147, since sufficient safeguards had already been provided for. In such circumstances, the Tribunal considered that the Legislature would not have thought fit to provide one more safeguard even to assessments under section 147, as otherwise it would be superfluous.
Section 2(40) defines "regular assessment". Regular assessment has been defined to mean an assessment made under section 143 or 144. In section 144-B, for the word "assessment", the Legislature could have used the word "regular assessment". If the Legislature had used the expression "regular assessment", it would have meant an assessment made under section 143 or 144. The assessments made under section 144 are definitely beyond the jurisdiction of the Inspecting Assistant Commissioner. Therefore, the expression "assessment" has been used. It means, for an assessment to be made under section 144, whatever may be the variation in income, the procedure prescribed under section 144-B, cannot be made applicable. But, in case section 144-B is applied, the Inspecting Assistant Commissioner has to give an opportunity to the assessee to explain the variation and since the assessment is made for the assessee's non--cooperation, the Legislature thought that no opportunity need be given to the assessee, who is not co operating with the Department or complying with the notices issued: Therefore, regular assessment has been defined to mean only the assessments to be made under sections 143 and 144 and does not include an assessment made under section 147. Therefore, "regular assessment" does not include an "assessment made under section 147".
Now, coming to the rulings cited by learned senior standing counsel for the Department and learned counsel for the assessees, learned senior standing counsel for the Department, cited the following decisions:
(i) In Jai Kishan Srivastava v. ITO (1960) 40 ITR 222 (All) (FB), it has been held that in respect of proceedings for assessment or reassessment under section 34(1-A) of the Income-tax Act, 1922, the procedure laid down in section 23 as well as the provisions of sections 31, 33, 37 and 66 were applicable, that a proceeding for assessment or reassessment of income, profits or gains under section 34(1-A) was, therefore, governed in the matter of procedure and in the matter of appeals and references to the High Court by the same provisions which governed a proceeding for assessment or reassessment under section 34(1) and section 34(1-A) was not discriminatory as compared with section 34(1) and did not offend ~' Article 14 of the Constitution of India.
(ii) In M.R. Jayaram v. CIT (1984) 147 ITIZ 807 (Mad), this Court has held that merely because there was no mention in section 187 of reassessment proceedings on a firm under section 147, it will not disentitle the Income-tax Officer from applying section 187 even to reassessment proceedings. Section 147 is only an enabling provision giving the Income-tax Officer additional power to make an assessment of income which was not brought to his notice in the original assessment. Hence, it was not necessary to refer specifically to section 147 wherever it is intended to cover not merely the original assessment proceedings, but also reassessment proceedings. Section 187 is wide enough in its scope to take in not only the original assessment under section 143, but also reassessment proceedings against a firm under section 147 and the same consequences which flow following the original assessment of the firm will flow following the reassessment of the firm.
(iii) In CIT v. Usa Aggarwal (1989) 178 ITR 406, the Punjab and Haryana High Court had held that there is a clear distinction between an assessment under section 143 of the Income Tax Act, 1961, and an assessment under section 147 read with section 148 of the Act. The assessment under section 147 does not depend upon the authority of section 143 for its completion. Section 147 itself authorises the Income-tax Officer to assess/reassess or recompute the loss or the depreciation allowance, as section 143(3) enables the Income-tax Officer to make the assessment. The authority in section 147 to make the assessment is quite independent of the authority to make the assessment under section 143. The assessment under section 147 is, thus, a species different from the assessment under section 143(3) and both have, therefore, been treated differently in the Act. It has further been held in that decision that a reference to the provisions of section 144-B showed that they specifically mentioned section 143(3) and not section 147. The intention of the Legislature must be construed thereby to exclude section 147 from its applicability. Therefore, the provisions contained in section 144-B did not apply to assessments under section 147 read with section 148.
(iv) In CIT v. Simson and McComechy Ltd. (1989) 177 ITR 526, this Court has held that though under section 2(8) of the Income Tax Act, 1961, assessment includes reassessment, that definition would apply unless the context otherwise requires and the provisions made under section 153(1) and (2) of the Act maintaining a clear-cut distinction between the respective cases contemplated by them show that the expression "assessment" in section 153(1) of the Act cannot be understood as including a reassessment as defined in section 2(8) of the Act. The opening words of section 153(1) cannot be construed as including a order of reassessment as contemplated under section 147(a) or 147(b) of the Act, with reference to which a separate and independent provision has been made under section 153(2) of the Act. The power to assess or reassess such income or recompute the loss or depreciation allowance, as the case may be, for the assessment year concerned conferred the section 147 of the Act, cannot be interpreted to mean an assessment under section 143 or section 144. In making an assessment under section 147, the other provisions of the Act are made applicable, but it is not possible to infer from this that where an assessment or revised assessment is made under section 147 of the Act, it is one falling under section 143 or section 144 of the Act. Accordingly, in a case where a notice under section 148 has been issued, the limitation as provided under section 153(2) would apply.
(v) In CIT v. V.D. Saraf (HUF) (1994) 207 ITR 217 (Bom.), it hasbeen held by the Bombay High Court that considering the predominantly beneficial purpose behind inserting section 144-B in the Income Tax Act, 1961, the legislative inten behind excluding from the operation of these provisions, the assessment made in proceedings initiated under section 147 cannot be visualised. Section 147 does not create any charge. It is essentially a machinery provision under which income can be assessed or reassessed subject to the provisions of sections 148 to 153. The phraseology of section 144-B makes it absolutely clear that there is an obligation to forward a draft assessment order, wherein making an assessment under section 143(3), the Income-tax Officer proposes to make variations exceeding certain limits prejudicial to the assessee in the income or loss returned by him. Section 144-B provides to the assessee a forum in the nature of a mini appeal against such proposed assessment. Therefore, in truth and substance, section 144-B though inserted as an independent section, is in the nature of a proviso to section 143(3) and should be read as such.
(vi) In CIT v. Supreme Constructions Co. (1995) 213 ITR 137, the Andhra Pradesh High Court has held that a perusal of sections 2(8), 139, 144-B, 147 and 53 of the Income Tax Act, 1961, makes it clear that whenever a notice is issued under section 148 by the Assessing Officer, the provisions of the Act, so far as may be, would come into play as if the notice was issued under section 139(2). Whenever a notice is issued under section 139(2), an enquiry is held under section 142 and an assessment is made under section 143. In assessments made under section 143, it is specifically laid down by section 144-B that the draft assessment procedure should be followed. Thus, the procedure laid down by section 144-B is part of the procedure contemplated under section 143(3). A reading of section 144-B, at first sight, may give the impression that assessment or reassessment proceedings under section 147 are outside its purview since it mentions only section 143(3). Such a construction ignores the specific language employed in section 148 under which the assessing authority gets power to issue notice for reopening the assessments under section 147. Section 148 lays down that the provisions of the Act shall, so far as may be, apply to a reassessment made under section 147. The phrase "so far as may be" implies that if there is anything inconsistent in the statutory provisions that come into play pursuant to a notice under section 139(2), to the extent of that inconsistency resort cannot be made to any other section of the Act. The expression "so far as may be", has always been construed to mean that those provisions may be generally followed to the extent possible. Section 144-B not being inconsistent with section 148, that procedure has to be followed in an assessment or reassessment under section 147. The opening words of Explanation 1 to section 153 "in computing the period of limitation for purposes of this section" refer to assessments and reassessments under subsections (1) and (2) of section 153. Moreover, under section 147, assessment can be made, for the first time also, in cases where no return was filed and no assessment had been made earlier and information had reached the assessing authority that income assessable to tax had escaped assessment. Without reference to section 143(3), reassessment cannot be made under section 147 and, by virtue of the specific language employed in section 148, there is no embargo on the assessing authority to invoke the provisions of section 144-B introduced for the protection of the assessee by providing for a pre-assessment notice.
On the other hand, learned counsel for the assessees, placed reliance on the following decisions:
(i) In Gates Foam and Rubber Co. v. CIT (1973) 90 ITR 422, the Kerala High Court has held that reassessments made after resort to the provisions in section 47 of the Income Tax Act, 1961, are not assessments under section 143. If its be so, such assessments are not regular assessments", because the definition of "regular assessment" in section 2(40) specifically states that "regular assessments" are those made under section 143 or 144. So, the expression "regular assessment" in section 273 can mean only assessments under section 143 or section 144 and section 273 (penalty proceedings), cannot apply to reassessment under section 147.
(ii) The Orissa High Court in CIT v. Ganeshram Nayak (1981) 129 ITR 43, has held that a deeming provision incorporated in section 148 to make the assessment machinery applicable to proceedings taken pursuant to action under section 147 of the Act. Under section 246, which provides for appeals, a distinction has, however, been maintained. Clause (c) relates to assessments under sections 143 end 144, while clause (e) relates to assessment or reassessment under section 147 of the Act. If the statute contemplated that the assessment proceeding after action was taken under section 147 of the Act was also an assessment under section 143 or section 144, as the case may be, there was no necessity for providing a separate clause in section 246 of the Act.
(iii) In Orient Trading Co. v. CIT (1985) 152 ITR 26, the Gujarat High Court has held that the only power which the Income-tax Officer derives under section 147 of the Income Tax Act, 1961, is to assess or reassess the income chargeable to tax which has escaped assessment. The section does not empower the Income-tax Officer to reopen the entire assessment already made by him under section 143 and to reassess or recompute the income which was the subject matter of the assessment made by him. The notice under section 148 is deemed to be a notice under section 139(2) only for the limited purpose of taking the aid of the relevant provisions of the Act for making an assessment. The Legislature instead of repeating or re enacting the same provisions which deal with assessment for the purpose of assessment or reassessment of income escaping assessment, has, for the sake of convenience, laid down that the relevant provisions of the Act shall apply as if the notice under section 148 were a notice under section 139(2). This is a well known legislative device which is adopted to avoid repetition of identical provisions. The assessment made under section 143 does not depend upon the validity or otherwise of the proceedings under section 147. The assessment, which is described as an original assessment made under section 143 stands on its own and even if the proceedings under section 147 are validly initiated, it does not get obliterated or wiped off. The scheme of the Act clearly indicates that the assessment order made under section 143 - and the reassessment order made under section 147 are distinct and independent of each other. Section 246 of the Act, which deals with appealable orders specifically makes an order under section 143(3) and an order made under section 147 appealable. The order under section 143(3) is made appealable under clause (c) while the order under section 147 is made appealable under clause (e) of subsection (1) of section 246. Section 152 contemplates an appeal under sections 246 to 248 or revision under section 264 against the original assessment order even when an assessment is reopened in the circumstances falling under clause (b) of section 147. Hence, mere initiation of proceeding under section 147 and section 148 would not take away the jurisdiction of the Commissioner to revise an assessment order.
(iv) In CIT v. Padma Timber Depot (1988) 169 ITR 646, the Andhra Pradesh High Court held that the expression "regular assessment" has been defined in section 2(40) as an assessment made under section 143 or 144. The definition contained in section 2 prevails unless the context requires otherwise. Only orders passed by the Income-tax Officer under sections 143 and 144 could be considered as regular assessments within the meaning of section 2(40) of the Act and it is not possible to expand the scope of the expression "regular assessment" to include other orders. In that case, the assessee did not file a return under section 139(1) nor was any notice issued to it under section 139(2). The return could not, therefore, be regarded as one filed under section 139(2). The return under section 139(4) for the assessment year 1976-77 could be filed by the assessee under sub-clause (iii) of clause (b) within two years from the end of the assessment year, that is to say, on or before March 31, 1979. The assessee filed the return on June 1, 1979, so that it could not be regarded as one filed under section 139(4). A return filed by an assessee after the expiry of the time limit specified in section 139 is non est in law and it is not open to the Revenue to take note of such a return and proceed to make an assessment. It was for this reason that the Income-tax Officer took proceedings under section 148 and regularised the assessment proceedings. As the assessment was made under section 143(3) read with section 147, it was not a "regular assessment" and the levy of interest under sections 139(8) and 217 was not valid.
(v)The Bombay High Court in Ritz Ltd. v. CIT (1995) 216 ITR 138, has held that section 2 of the Income Tax Act, 1961, which contains the definitions of various expressions, says that the meaning of words defined therein shall be applicable "unless the context otherwise requires". Hence, the meaning of expressions given in the definition may be departed from, if the context so requires. No individual word can be considered in isolation---its meaning has to be determined by other words in the section in which it occurs. Though the expression "assessment" has been defined to include "reassessment", assessment and reassessment connote two different subject-matters, which have been dealt with separately in the Act for various purposes, e.g., initiation of proceedings, time-limit for issue of notice, time-limit for completion of assessment, appeals, etc. The language of section 153, which prescribes time-limits for completion of assessments and reassessments, is clear and unambiguous. It prescribed different time-limits for each of them. Subsection (1) prescribes the time-limit for completion of assessments under section 143(3) and section 144 of the Act, whereas subsection (2) prescribes the time-limit for completion of assessments or reassessments under section 147. That being so, the orders of assessment or reassessment under section 147 would obviously be governed by the period of limitation prescribed by subsection (2) of section 153. The contention that the limitation prescribed under section 153(1) will apply to "reassessment" also, because assessment includes reassessment, is not sustainable.
(vi) In Modi Industries Ltd. v. CIT (1995) 216 ITR 759, the Supreme Court has held that it must be presumed that the Legislature was aware of the wide interpretation of the word "assessment" given under the Income Tax Act. "Assessment" has been given an inclusive meaning in subsection (8) of section 2. It includes reassessment. "Regular assessment" has been defined in section 2(40) to mean the assessment made under sections 143 or 144. In the context of sections 140-A. 141 and 141-A, "regular assessment" could only mean the original assessment made under sections 143 or 144. Having regard to the scheme of the Act and the use of the phrase "regular assessment" to various sections of the Act, in section 214 "regular assessment" has been used in no other sense than the first order of assessment passed under section 143 or 144. If any consequential order has to be passed by the Income-tax Officer to give effect to an order passed by the higher authority. that consequential order cannot be treated as "regular assessment" nor can the date of the consequential order be treated as the date of the regular assessment.
In view of the foregoing discussions made in the light of various judicial pronouncements made by the various High Courts and also by the Supreme Court in the case of Modi Industries Ltd. v. CIT (1995) 216 ITR 759, we are of the opinion that the Tribunal was correct in stating that the expression "assessment under section 143(3)" does not cover "reassessment" and this expression is confined only to the assessments to be made originally and, therefore, the procedure prescribed under section 144-B is not available to reassessments to be made under section 147. Consequently, the extended time-limit provided for in Explanation 1 to section 153 is not available to the Department. Unless the extended time-limit is available, the assessment cannot be saved from the bar of limitation. On the facts of these cases, we are also of the opinion that the Tribunal is correct in holding that the reassessments made are time-barred, as section 144-B is not applicable to the facts of this case. Accordingly, we hold that the common order passed by the Tribunal in dismissing the appeals filed by the Department in the case of all the assessees herein is in order. In that view of the matter, we answer the common question referred to us in the case of each of the assessees in the affirmative and against the Department. No costs.
M.B.A./1676/FCOrder accordingly.