# Jai i<aur v. Sher Singh

- **Citation:** [1960] 3 S.C.R. 988
- **Court:** Supreme Court of India
- **Decided:** 1960
- **Bench:** S. K. Das, J. L. Kapur, M. HrnAYATUI, Lah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jai-i-aur-v-sher-singh-1910
- **Pages:** 39

## Headnote

Business Profits Tax-Limitation for assessment-Notice under
Business Profits Tax Act issued beyond four years-Validity-
,, Profits escaping assessm-ent ", meaning of-Excess JYrofits Tax Act,
1940 (15 of 1940), ss.13, 15-Indian Income-tax Act,1922 (II of 1922),
ss. 22(2), 34(1)-Income Tax and Excess Profits Tax Amendment
Act, 1947 (22 of 1947)-Business Profits Tax Act, 1947 (21 of 1947),
SS. II(I), 14.
The assessee firm which was doing business in Bombay \vas
served with a notice on January 21, 1953, by the Income-tax
,
Officer under s. n(1) of the Business Profits Tax Act, 1947· in
respect of the chargeable accounting period from November 13,
1947, to October 31, 1948, calling upon it to submit its return. It
filed the return under protest stating that the notice was barred
under s. 14 of the Act as it was served beyond the period of four
•• -
-
l
..
3 S.C.R. SUPREME COURT REPORTS
989
years. The question was whether in s. II of the Act a limitation
1960
corresponding to the limitation contained in s. 14 must be necessarily read and whether in a case where the profits were not Commissioner of
brought to assessment because notice under s. II was not issued
Income Ta"
in time, they must be deemed to have escaped assessment and
v.
action could only be taken under s. 14 within the time specified N""" N,,gsee
therein ;
&- Co.
Held (per S. K. Das and Kapur, J]., Hidayatullah, J.,
dissenting), (r) that the words "profits escaping assessment" in
s. 14 of the Business Profits Tax Act, 1947, apply equally to
cases where a notice was received by the assessee but resulted in
no assessment, under-assessment or excessive relief, and to cases
where due to any reason no notice was issued to the assessee and
therefore there was no assessment of his income ;
(2) that ss. II and 14 of the Act have to be read together and
·that a notice under s. II cannot be issued against an assessee
beyond the period of four years indicated in s. I4·
Kamal Singh v. Commissioner of Income-tax, [1959] Supp. I
S.C.R. IO and Maharajadhiraj Sir Kameshwar Singh v. Stqt,e of
Bihar, [1960) r S.C.R. 332, relied on.
Gokuldas Ratanji Mandavia v. Commissioner of Income-tax,
[1959] A.C. rr4, distinguished.
Per Hidayatullah, ].-Section II of the Business Profits Tax
Act, 1947, is confined to cases where there has been no prior
assessment, while s. I4 is applicable to cases where after an
assessment there is discovery that profits have escaped assessment due to one reason or another.
The use of the words
" escaped assessment " in the context of the Act has reference
only to those cases where profits of a business were brought to
process once but for some reason some profits escaped assessment
or were μnder-assessed or received excessive relief.
For the
subsequent and re-openert assessment there is a limit of four
years, but for the assessment for the first time there is no limit.
C1vu, APPELLATE JURISDICTION:
Civil Appeal
No. 319 of 1958.
Appeal from the judgment, and order dated
September 5, 1956, of the Bombity High Court in
Income-tax Reference No. 31 of 1956.
Ii. N. Sanyal, Additional Solicilor-General of India,
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
N. A. Palkhivala, S. N. Andley, J. B. Da<lachanji
and Rameshwar Nath, for the respondents.
N. A. Palkhivala, S. S. Shukla and Mrs. Eluri
U dayaratnam, for the intervener {The Punjab National
Bank Ltd.)
128
r960
Commissioner of
Income lax
v.
Nar~ee ]\iogsee
&Co.
J\apur ].
990
SUPREME COURT REPORTS
[1960]
1960. May 6. The Judgment of S. K. Das and
J.L. Kapur, ,JJ"., was delivered by Kapur, J. Hidayatullah, J., delivered a separate Judgment.
KAPUR, J.-This is an appeal against the judgment and order of the High Court of Bombay passed
in Income Tax Reference No. 31of1956. The -appellant is the Commissioner of Income-tax and the
respondent is a firm carrying on business in Bombay
and the question for decision arises under the Business Profits Tax Act (Act 21 of 1947), hereinafter
referred to as the Act.
The assess

## Text

_Characters 0–39,763 of 87,850. This is a partial read: ask again with offset=39763 for what follows._

Jai i<aur
v.
Sher Singh
Das Gttpta J.
Ig60
May 6.
988
SUPREME COURT REPORTS
[1960]
dJ.ughters in posses~ion, would not become full
owners under s. 14. We do not think it would be
proper to consider these questions in the present suit
in this haphazard manner when on the all-important
question of possession, the appellants themselves do
not wish to say whether the mother was in possession
actually or constructively, whether the danghters'
possession was merely permissive, or whether the
daughters were in independent possession, on their
own behalf.
These and other questions of fact, and
the questions of law that have to be considered in
deciding a claim by tho first appellant or the other
two appellants under s. 14 of the Hindu Succession
Act, should properly be considered in any suit that
they may bring in future, if so advised. We express
no opinion on any of these questions.
For the reasons which have been mentioned earlier,
we hold that the High Court rightly decreed the snit
in favonr of the plaintiffs in respect of the nonancestral property also, and dismiss the appeal. In
the circumstances of the case, we order that the parties
will bear their own costs throughout.
Appeal dismissed.
THE COMMISSIONER 0]' INCOME TAX,
BOMBAY CITY I, BOMBAY
v.
M/S. NARSEE NAGSEE AND CO., BOMBAY.
(S. K. DAS, J. L. KAPUR and M. HrnAYATUI,LAH, JJ.)
Business Profits Tax-Limitation for assessment-Notice under
Business Profits Tax Act issued beyond four years-Validity-
,, Profits escaping assessm-ent ", meaning of-Excess JYrofits Tax Act,
1940 (15 of 1940), ss.13, 15-Indian Income-tax Act,1922 (II of 1922),
ss. 22(2), 34(1)-Income Tax and Excess Profits Tax Amendment
Act, 1947 (22 of 1947)-Business Profits Tax Act, 1947 (21 of 1947),
SS. II(I), 14.
The assessee firm which was doing business in Bombay \vas
served with a notice on January 21, 1953, by the Income-tax
,
Officer under s. n(1) of the Business Profits Tax Act, 1947· in
respect of the chargeable accounting period from November 13,
1947, to October 31, 1948, calling upon it to submit its return. It
filed the return under protest stating that the notice was barred
under s. 14 of the Act as it was served beyond the period of four
•• -
-
l
..
3 S.C.R. SUPREME COURT REPORTS
989
years. The question was whether in s. II of the Act a limitation
1960
corresponding to the limitation contained in s. 14 must be necessarily read and whether in a case where the profits were not Commissioner of
brought to assessment because notice under s. II was not issued
Income Ta"
in time, they must be deemed to have escaped assessment and
v.
action could only be taken under s. 14 within the time specified N""" N,,gsee
therein ;
&- Co.
Held (per S. K. Das and Kapur, J]., Hidayatullah, J.,
dissenting), (r) that the words "profits escaping assessment" in
s. 14 of the Business Profits Tax Act, 1947, apply equally to
cases where a notice was received by the assessee but resulted in
no assessment, under-assessment or excessive relief, and to cases
where due to any reason no notice was issued to the assessee and
therefore there was no assessment of his income ;
(2) that ss. II and 14 of the Act have to be read together and
·that a notice under s. II cannot be issued against an assessee
beyond the period of four years indicated in s. I4·
Kamal Singh v. Commissioner of Income-tax, [1959] Supp. I
S.C.R. IO and Maharajadhiraj Sir Kameshwar Singh v. Stqt,e of
Bihar, [1960) r S.C.R. 332, relied on.
Gokuldas Ratanji Mandavia v. Commissioner of Income-tax,
[1959] A.C. rr4, distinguished.
Per Hidayatullah, ].-Section II of the Business Profits Tax
Act, 1947, is confined to cases where there has been no prior
assessment, while s. I4 is applicable to cases where after an
assessment there is discovery that profits have escaped assessment due to one reason or another.
The use of the words
" escaped assessment " in the context of the Act has reference
only to those cases where profits of a business were brought to
process once but for some reason some profits escaped assessment
or were μnder-assessed or received excessive relief.
For the
subsequent and re-openert assessment there is a limit of four
years, but for the assessment for the first time there is no limit.
C1vu, APPELLATE JURISDICTION:
Civil Appeal
No. 319 of 1958.
Appeal from the judgment, and order dated
September 5, 1956, of the Bombity High Court in
Income-tax Reference No. 31 of 1956.
Ii. N. Sanyal, Additional Solicilor-General of India,
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
N. A. Palkhivala, S. N. Andley, J. B. Da<lachanji
and Rameshwar Nath, for the respondents.
N. A. Palkhivala, S. S. Shukla and Mrs. Eluri
U dayaratnam, for the intervener {The Punjab National
Bank Ltd.)
128
r960
Commissioner of
Income lax
v.
Nar~ee ]\iogsee
&Co.
J\apur ].
990
SUPREME COURT REPORTS
[1960]
1960. May 6. The Judgment of S. K. Das and
J.L. Kapur, ,JJ"., was delivered by Kapur, J. Hidayatullah, J., delivered a separate Judgment.
KAPUR, J.-This is an appeal against the judgment and order of the High Court of Bombay passed
in Income Tax Reference No. 31of1956. The -appellant is the Commissioner of Income-tax and the
respondent is a firm carrying on business in Bombay
and the question for decision arises under the Business Profits Tax Act (Act 21 of 1947), hereinafter
referred to as the Act.
The assessment relates to the year of assessment
1949-50 and the chargeable accounting period was
from November 13, 1947, to October 31, 1948. On
January 12, 1953, the Income-tax Officer issued a
notice on the respondent under s. 11(1) of the Act
in respect of the above-mentioned chargeable accounting period which was served on the respondent on
.January 21, 1953.
The respondent filed a return
under protest. The assessment was completed by
the Income-tax Officer on
November 30, 1953.
Against this order the respondent took an appeal
to the Appellate Assistant Commissioner on the
ground that the respondent was not liable to Business Profits Tax because it was beyond the period
of four years limitation under s. 14 of the Act. This
plea was upheld by the Appellate Assistant Commissioner.
The Income-tax Officer then appealed to the ,
Appellate Tribunal and it confirmed the order of
the Appellate Assistant Commissioner. At the instance of the appellant a case was stated to the High
Court of Bombay on the following two questions of
law:-
,
(1) "Whether the Income-tax Officer had jurisdiction to assess the assessee firm under the Business
Profits Tax Act by issue of a notice under Section
11 (1) of the Business Profits Tax Act on 12-1-1953
in respect of the chargeable accounting period
13-11-1947 to 31-10-1948 without having recourse to
Section 14 of the Business Profits Tax Act ?
(2) If the answer to Question No. 1 is in the
negative whether the B. P. T. assessment could be
considered to have been validly made ? "
,l -
-
3 S.C.R. SUPREME COURT REPORTS
991
The High Court modified the first question by
deleting the words "without having recourse to Section
14 of the Business Profits Tax Act" and answered
both the questions in the negative.
The Income-tax
Appellate Tribunal had held that as under s. 14 of
the Act the period of limitation commenced from the
end of the chargeable accounting period in question
the notice under s. 11 (1) had to be issued before that
period. The High Court did not accept this view.
It held that both ss. 11 and 14 had to be read together and the mention of four years in s. 14 was an
important indication of the period of limitation in
regard to the issue of notice under s. 11 also and
further if profits which escaped assessment, as in the
present case, could only be taxed within four years
of the end of the chargeable accounting period
because of s. 14 of the Act, then inferentially the
escape of assessment must be at sometime anterior
to the period mentioned in s. 14 and as on the facts
of the present case the notice had been issued four
years after the close of the chargeable accounting
period the notice under s. 11 was not valid. .Against
this order the appellant has come in appeal to this
Court on a certificate of the High Court.
It is submitted by the appellant that though ss. 11
and 14 may have to be read together, they apply
to different sets of circumstances ; s. 11 applies to a
case where the Income-tax Officer requires any
person whom he believes to be engaged in any
business to which the Act applies or to have been so
engaged during any chargeable accounting period
and calls upon him to furnish a return with respect
to such chargeable accounting period; and s. 14
applies to a case where, in -consequence of definite
information possessed by him, the Income-tax Officer
discovers in regard to any chargeable accounting
period that the profits of any business have escaped
assessment. In other words, s. 11 applies to original
assessments after the first notice calling upon an
assessee to make a return in regard to the profits of
any chargeable accounting period and s. 14 applies
where such notice was issued, and it either ended in
no assessment at all or there was under-assessment,
Comniissioner of
Income Ta-t""
v.
iVarsee Nagsee
& c~.
Kapur .f•
992
SUPREME COURT REPORTS
[1960]
6960
etc.
According to the argument of the appellant,
. .
therefore, there is no period oflimitation prescribed by
er,:;::;;~··;:;~•! the Act for the first notice to furnish a return in
v.
regard to any chargeable accounting period but if
Narsee Nagsee such notice was given and a return was made and
c;. Co.
for any reason whatsoever the profits were not
Kapur j.
assessed or were under-assessed, etc., Lhen s. 14 comes
into operation and notice has to be served within
four years of the end of the chargeable accounting
period in question.
The provisions of the Act which arise for consideration are ss. 2, 4, 5, 11 and 14.
Section 2 is the
definition section ; s. 4 the charging section and s. 5
deals with the applicability of the Act. Section 11
provides for the " Issue of notice for assessment "
and s. 14 is headed "profits escaping assessment".
Section 2 (2) defines accounting period and s. 2( 4)
chargeable accounting period.
Section 4 provides
that in respect of any business to which the Act
applies there shall be charged, levied and paid on
the amount of taxable profit during any chargeable
accounting period a tax equal to sixteen and two.
third per cent. of the t11xable profits, which in later
years was fixed at a lower figure by the Finance Acts
of 1948 and 1949.
Under s. 5 the Act applies to
every business of which any part of the profits made
during the clrnrgeable accounting period is chargeable to income-tax under s. 4 (1) (b) (i) and (ii) or subcl. (c) of that sub-section. Sections 11(1) and 14 of
the Act may now be quoted:-
S. 11(1). "The Income-tax Officer may, for the
purposes of this Act, require any person whom he
believes to be enaged in any business to which this
Act applies, or to hav-e been so engaged during any
chargeable accounting period, or to be otherwise
liable to pay business profits tax, to furnish within
such period, not being less than forty-five days from
the date of the service of the notice, as may be specified in the notice, a return in the prescribed form
and verified in the prescribed
manner setting
forth (along with such other particulars as may
be provided for in the notice) with respect to any
chargeable accounting period specified in the notice,
r
/
-
..
....__
....
3 S.C.R. SUPREME COURT REPORTS
993
the profits (taxable profits) of the business or the
amount of deficiency, if any, available for relief
under section 6 ".
S. 14. "If, in consequence of definite information
which has come into his possession, the Income-tax
Officer discovers that profits of any chargeable
accounLiug period chargeable to business profits
tax have escaped assessment, or have been underassessed, or have been the subject of excessiv~
relief, he may at any time within four years of
the end of the chargeable accounting period in
question serve on the person liable to such tax a
notice containing all or any of the requirements
which may be included in a notice under s. 11, and
may proceed to assess or reassess the amount of
such profits liable to business profits tax, and the
provisions of this Act shall, so far as may be, apply
as if the notice were a notice issued under that
section".
These sections lead to the conclusion that every
business to which the Act applies is liable to the risk
of being assessed to Business Profits Tax and it is
well settled that income escapes assessment when the
process of assessment has not been initiated as also
in a case where it has resulted in no assessment after
completion of the process of assessment. In our
opinion, the High Court was right when it held that
ss. 11 and 14 of the Act have to be read together.
The Act and the Indian Income-tax Act are both
taxing statutes operating on the same source, i.e.,
profits of business which is similarly defined in the
two statutes. If the provisions relating to escaping
of assessment in the two statutes, i.e., in s. 14 of the
former and in s. 34(1) of the latter as it existed after
the amendment of 1939, employ the same language,
they must receive the same interpretation and not be
construed differently.
Section 34(1) of the Indian
Income-tax Act as amended in 1939 provided:-
S. 34(1). "If in consequence of definite information
which has come into his possession the Income-tax
Officer discovers that income, profits or gains
chargeable to income-tax have escaped assessment
in any year, or have been under-assessed, or have
r960
Commissioner of
Income Tax
v.
Narsee Nugsee
&Co.
Kapur ].
Comniissioner of
Income Tax
v
lVarsee Nagsee
&Cn.
Kapur f.
994
SUPREME COURT REPORTS
[1960]
been assessed at too low a rate, or have been the
snbject of excessive relief under this Act the Incometax Officer may, in any case in which he has reason
to believe, that the assessee has concealed the
particulars of his income or deliberately furnished
inaccurate particulars thereof, at any time within
eight years, and in any other case at any time
within four years of the end of that year, serve on
the person liable to pay tax on such income, profits
or gains, or, in the case of a company, on the principal officer thereof, a notice containing all or any
of the requirements which may be included in a
notice under sub-section (2) of section 22 and may
proceed to assess or reassess such income, profits
or gains and the provisions of this Act shall, so far
as may be, apply accordingly as if the notice were a
notice issued under that sub-section ".
The
words "escaping income" in the Indian
Income-tax Act were interpreted as being applicable
to a case where a person received notice under s. 22(2)
of the Income-tax Act but the process ended in no
assessment as to a case where there was no assessment
at· all because no notice was issued under s. 22(2) of
the Income-tax Act ; in other words, it includes cases
where the process of assessment did not commence
because no notice was given under s. 22(2) of the
Income-tax Act due to inadvertence, oversight, negligence or any other cause as to cases where such notice
proved abortive or ineffective. Both are cases of
escaped assessment: Commissioner of Income-tax,
Bombay v. Pirojbai N. Contractor (1).
In this Court
these words were considered and interpreted in Kamal
Singh v. Commissioner of Income-tax (2 ).
They were
interpreted to comprise a case of no notice being given
for the assessment and notice being given and resulting in no assessment. Gajendragadkar, J., observed:-
" We see no justification for holding that cases of
income escaping assessment must always be cases
where income has not been assessed owing to inadvertence or oversight or owing to the fact that
no return has been submitted. In our opinion,
even in a case where a return has been submitted,
(t) [1937] 5 I.T.R. 338.
(2) [1959] Supp. I S.C.R. 10, 18, 19.
.,
3 S.C.R. SUPREME COURT REPORTS
995
if the Income-tax Officer erroneously fails to tax a
part of assessable income, it is a ease where the said
part of the income has escaped assessment. The
appellant's attempt to put a very narrow and
artificial limitation on the meaning of the word
' escape '
in
section 34( 1 )(b) cannot therefore
succeed".
This passage was quoted with approval in another
case by this Court in Maharajadhiraj Sir Kameshwar
Singh v. State of Bihar (1) (per Hidayatullah, J.). Chatturam Horilrarn Ltd. v. Commissioner of Income-tax(2)
was a somewhat different case.
There assessment
proceedings had been taken but h~Ld failed to result
in a valid assessment owing to some lacuna other
than that attributable to the Assessing Authorities
and it was held to be a case of chargeable income
escaping assessment and not a case of mere nonassessment of income-tax.
All these cases show that the words "escaping
assessment " apply equally to cases where a notice
was received by the assessee but resulted in no assessment at all and to cases where due to any reason no
notice was issued to the assessee and, therefore, there
was no assessment of his income. It is also clear
from the language of s. 14 of the Act that when a
notice is issued under that section all the requirements
of the notice under s. 11 apply and the Income-tax
Officer has to proceed in the manner as if the notice
was issued under s. 11.
Therefore, any advantage or
relief which was available to the assessee under
s. 11 as to allowable deductions, deficiency, etc., would
be equally available, if the notice is issued under
s. 14.
, The legislature has adopted the language of s. 34(1)
of the Income-tax Act in s. 14 of the Act and it must,
therefore, be considered to have adopted the construction of that section applied by the courts. Secondly,
this Court has construed the words "escaping assessment" as used ins. 34(1) of the Income-tax Act. The
same words in the same context as employed ins. 14
of the Act must have the same meaning. It was submitted that in the present case a different meaning
(r) (1960].r S.C.R. 332.
(2)·[1955) 2 S.C.R. 290. ·
.
Commissioner of
Income Tax ·
v.
N arse.~ .lVagsee
&Co.
Kapur /.
Commissioner o_f
!11c1 nie Tax
v
Narsee Nagsee
&·Co.
l{ upur .f,
996
SUPREME COURT REPORTS
[1960]
'
should be given because although ins. 34 of the Indian
Income-tax Act and s. 14 of the Act, the words
"escaping assessment" are used the language of
s.11(1) of the Act and ofs. 22(2) of the Indian Incometax Act is different in so far in the former the notice
requires an assessee to furnish a return of the income
of the previous year and in the latter he has to
furnish the particulars with respect to any chargeable
accounting period of the profits of the business. It
becomes necessary, therefore, to examine the provisions
of the Act as to the chargeable accounting periods
and other provisions relevant thereto. In s. 2(2)
of the Act " Accounting period" in relation to any
business means any period which is or has been
determined as the previous year for the purpose of the
Indian Income-tax Act.
Under s. 2(4) of the Act
"Chargeable accounting period ".means:-
(a) "any accounting period falling wholly within
the term beginning on the first day of April, 1946,
and ending on the thirty-first day of March, 1947;
(b) where any accounting period falls partly
within and partly without the said term, such part
of that accounting period as falls within the said
term''.
According to this definition, therefore, where the
previous year was the financial year 1946-4 7 then the
accounting period and the chargeable accounting
period would be coincident, i.e., they would both be
1946-4 7 ; but if the previous year was the calendar
year or the Diwali year the accounting periods of
nine months in the former case, i.e., April 1, 1946, to
December 31, 1946, and 7 months in the latter, i.e.,
April 1, 1946, to November I, 1946, would be the chargeable accounting periods for the purposes of the Act.
The extent of the periods will vary according to the
determination of the previous year under the Incometax Act. It might be a full year or less which appears
to be the reason for adopting the nomenclature which
has been adopted in the Act instead of the previous
year. It would be incongruous to call a period ofless
than a year as the previous year. For the chargeable
accounting periods mentioned above the Business
Profits Tax would be charged, levied and paid in the
~
I
-
,..
' -
'--
-
·-,
3 S.C.R. SUPREME COURT REPORTS
997
financial year 1947-48 at the rate mentioned ins. 4 of
the Act on every business falling under s. 5.
But for
all these periods the assessment year would be the
financial year 1947-48. Keeping this in view we may
now see what changes were made by the :Finance Act
of 1948.
By that Act the Act was continued for
another one year and for the figure "1947" in the
definition of chargeable accounting period in s. 2(4)(a)
the figure " 1948 " was substituted and the following
proviso was added :
"Provided that where an accounting period falls
partly before, and partly after, the end of March,
1947, so much of that accounting period as falls
before, and so much of that accounting period as
falls after, the end of March, 1947, shall be deemed
each to be a separate chargeable accounting
period ".
By this proviso the accounting period or the
previous year was split up in cases where it was not
the preceding financial year or 1947-48.
Thus the
calendar year 194 7 became two chargeable accounting periods of 3 months and 9 months, i.e., from
January 1, 194 7, to March 31, 194 7, and April 1, 194 7,
to December 31, 1947, and the same would apply to
accounting period from Diwali to Diwali, i.e., 5
months and 7 months. In effect the whole year's
profits thus became chargeable to Business Profits
Tax instead of only of a part of the year as was the
case for the financial year 194 7 -48.
Other changes
made by the Finance Act of 1948 were in s. 4 where
under s. 10 of the Finance Act the rate of tax for
the chargeable accounting period up to the end of
March, 194 7, remained at 16 2/3 per cent. 'but for the
chargeable accounting period after that date was to
be fixed by the Annual Finance Act and by s. 11(1)
of that Act the rate was fixed at ten per cent. Thus
Business Profits Tax rates also were to be fixed by the
Annual Finance Act as were the Income-tax rates.
Then came the Finance Act of 1949 which continued
the Act for another year and under s. 4 fixed the
rate chargeable in respect of any chargeable accounting period after March 31, 1948. The Finance Act
of 1950 did not continue the Act and it thus came to
i29
Commissioner of
Income I'a:r
v.
·Narsee .J.Vagsee
&- Co.
Kapur].
C?mmissi(Jner of
/nr,ome Tnx ·
v.
N arsf'l1 J,.7 ag.~te
r1Y Cn.
/(aj1t1Y J.
998
SUPREME COURT REPORTS
[1960]
an end except for liabilities which had already arisen
or accrued under the Act.
· As the tax under the Act is charged, levied and
paid on the taxable profits of a chargeable accounting period but assessment is in respect of the financial year in which the Act operates it is not an unreasonable inference that notice for the chargeable
accounting period must issue in the financial year
following that period. No difficulty would arise in
regard to accounting periods which coincide with
previous years, i.e., 1946-47, 1947-48 and 1948-49.
For these years the notice will issue in the following
chargeable accounting period which again will be
the financial year in which the Act would be operative. But the question is how the proviso to s. 2(4)
added by the Finance Act of 1948 would affect this
rule. Taking a calendar year 1946 as the accounting
period, for the financial year 1947-48 the chargeable
accounting period would be the nine months period
from April l, 1946, to December 31, 1946, and notice
under s. ll(l) of the Act must issue in the financial
year because the tax is leviable and assessment is
made for the year beginning April 1, 1947, when the
Act came into force and remained operative during
the year 1947-48.
After the Finance Act of 1948 the
accounting year, if it was a calendar year, became
divided into two parts and both were assessable in
the assessment year beginning with April 1, 1948,
and, therefore, notice had to be given in the financial
year 1948-49. Similarly in the financial year 1949-50
notice would have to be given in that year for the
preceding chargeable accounting period. In this
view of the matter the contention that there is no
provision ins. 11(1) of the Act as to the chargeable
accounting period as there is for the previous year
in s. 22(2) of the Income-tax Act is not well-founded.
That the notion of the previous year or the aceounting period is as much
applicable to the Act
as to the Indian Income-tax Act is shown by reference to Computation of Profits Rules in the Schedule
to the Act.
There the computation is related to the
accounting periods. . The previous year is shown
applieable by reference to. the Rules under the Act
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"
•
3 S.O.R. SUPREME COURT REPORTS
999
by which some ofthe Rules of the Income-tax Act
arc made applicable to the Act; and some of the
sections of that Act are made applicable by s. 19 and
by the Rules under the Act.
Amongst the Rules
applicable is r. 8 which, inter alia, related to allowances
under s. 10(2)(vi) of the Indian Income-tax Act. The
first and the second provisos to this rule are as
follows:-
"Provided that if the buildings, machinery,
plant or furniture have been used by the assessee
in his business for not less than two months during
the previous year, the percentage shall be increased
proportionately according to the number of complete
months of user by the assessee :
Provided further that in the case of a seasonal
factory worked by the assessee during all the working seasons of the previous year, the percentage
shall be increased as if the buildings, machinery,
plant, or furniture had been in use throughout the
period the assessee was the owner thereof during
the previous year ".
Both these provisos use the word previous year which
is same as the accounting year under the Act.
By r. 4(A) of the Rules made under the Act certain
sections of the Indian Income-tax Act have been
adapted with modifications therein mentioned. Of
those s. 50 of the Income-tax Act is one. In the Act
it has been substituted by the following :-
" No claim to any refund of tax under the Act
shall be allowed unless it is made within four years
from the last day of the financial year commencing
next after the expiry of the accounting period
which constitutes or includes the chargeable accounting period in respect of which the claim to such
refund arises ".
All these sections show not only that the two statutes,
i.e., the Act and the Indian Income-tax Act, have to be
read together but also that the notion of the previous
year has been inducted into the Act.
The modified s. 50, as introduced into the Act by
the rules, means this that the refund, if any, can only
be allowed within four years of the financial year
which commenceoi after the expiry of the accounting
Conimissioner of
Income Ta.x
v.
Narsee 1\Tagsre
& Co.
Kapur].
Commissioner of
Income Tax
v.
Narsee Nagsee
& Co.
Kapuy ].
1000
SUPREME COURT REPORTS
[1960]
period which itself constitutes the chargeable accounting period or includes in it the chargeable accounting
period in respect of which the refund is claimed. If
the contention of the appellant is correct then this
section will be wholly otiose where the assessment is
levied after say 10 years from the end of the chargeable accounting period because by no method of calculation will a refund of tax in that circumstance be
claimable under s. 50.
This furnishes a key to when
a notice under s. 11(1) has to be given. It must be
given within the financial year which commences next
after the expiry of the accounting period or the
previous year which is by itself or includes the chargeable accounting period in question.
Section 48 of the
Income-tax Act, as amended and applied to the Act,
does not affect the operation of s. 50 because the two
sections have to be read together and the assessee
must apply for the refund within the period specified
by s. 50:
Adam Haji Dawood & Go. Ltd. v. Commissioner of Income-tax, Burma (1).
The language of s. 14 and particularly the words
" may proceed to a8sess or reassess the amount of
such profits to Business Profits Tax" support the
contention of the respondent that it applies to cases
of no assessment due to notice not being given as to
cases of no assessment after notice was given and
proceedings proved ineffective. The words " assess "
and "reassess" do not mean the same thing and
signify two differrent cases.
The former applies to
cases where there was no assessment to tax due to
notice not being given and the process has to commence with the issuing of such notice and the latter
to cases where the assessment process is recommenced
by issuing a second notice, the previous notice having
proved abortive or resulting in under-assessment, etc.
Construing in this manner effect is given to the
words "profits of any chargeable accounting period
......... have escaped assessment" and it also avoids
the anomaly that some cases where there was no
assessment can be dealt with under one section with
a time limit as under s. 14 but other equally clear
cases- of non-assessment are dealt with under s. 11
(I1 (1y36] 4 IT. R. IDD (Rang.).
I •
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3 S.C.R. SUPREME COURT REPORTS
1001
without there being any limitation of time. If the
contention of the appellant is accepted then it would
come to this that it would depend upon the lncometax Officer as to which of the two sections he uses for
the purposes of assessment and would lead to this
absurdity that in a case of definite information of profits having escaped assessment there will be a limitation
of four years and in cases where there is no such
information but only belief there will be no such
limitation.
If the words "profits escaping assessment " are
applicable to original assessments, i.e., where the
process of assessment did not commence, as also
to assessments where the process of assessment was
commenced but proved wholly abortive or partially
so, thens. 14 would apply to both such cases. Thus
construed s. 11 would apply to normal original assessments and s. 14 to profits escaping assessment as
construed above whether the assessment is an original
assessment or is a re-assessment.
In determining the scope of s. 14 of the Act
reference may be made to another statute which is
relevant for the purpose, i.e., the Excess Profits
Tax Act (Act XV of 1940), ss. 13 and 15 of which are
identical in language with ss. 11 and 14 of the Act.
Section 13 deals with the issue of a notice for assessment and s. 15 with profits escaping assessment.
Before the Income Tax and Excess Profits Tax (Amendment) Act, 1947 (Act 22of1947), there was a 5 years'
period oflimitation prescribed in s. 15 in the following
terms: " within five years of the end of the chargeable accounting period in question". By the aforesaid
amendment these words were deleted. The Act,
being Act 21 of 1947, as well as the Amendment Act
above referred to were enacted about the same time
one after the other. The legislature thought it necessary to remove the period of limitation and thereby
made profits escaping assessment liable to taxation
under the Excess Profits Tax Act without any period
of limitation but in the Act the legislature thought it
expedient to prescribe the period of limitation of
four years in s. 14. It cannot be said that this was
Comm1ssioner of
Income Tax
v.
iVarsee .iVagsee
& Co.
Kapur],
r960
Connnissione,. uf
lnconie Tax
v.
l'Vutsee 1,ragsee
& Co.
Kapur J.
1002
SUPREME COURT ltEPORTS
[19oOJ
without any purpose and the argument that prescrib.
ing the period of lirnito,t.ion in s. 14 of the Act was
deliberate and was iutended to prevent taxing under
the Act of profits which had escaped assessment for
four years from the end of the chargeable accounting
period in question is not without substance.
It was argued for the appellant that s. 11(1) construed o,ccording to the plain meaning of the words
used therein o,pplies to original assessments and s. 14
to assessments in which notice was given but due to
any cause whatsoever the proceedings resulted in no
assessment or in under-assessment. He referred to
the words "require any person whom he believes to
be engaged in any business ............... or to have been
engaged during any chargeable accounting period or
to be otherwise liable", and submitted that these
words mean that if an Income-tax Officer has such
belief in regard to a person who is engaged in any
business or was engaged in any business during any
chargeable accounting period in question he can issue
a notice at any time without limitation of time
requiring a return to be filed. etc. In support counsel
for the appellant relied upon two judgments, Gokuldas
Ratanji Mandavia v. Commissioner of Income-tax (1 )
which was an appeal from East Africa and Telu
Ram Jain & Go. v. Commissioner of Income-tax (2), a
case decided by the Punjab High Court. In the
former case a notice was issued to the assessee under
s. 59(1) of the East African Income Tax (Management)
Act, 1952, which provided:-
"The commissioner may, by notice in writing,
require any person to furnish him within a reason.
able time, not being less than thirty days from the
date of service of such notice, with a return of
.
,,
mcome ........ .
Sections 71(1) and 72 provided:-
" S. 71(1). The commissioner shall proceed to
assess every person chargeable with tax as soon as
may be after the expiration of the time allowed
to such person for the delivery of his return ...... "
"S. 72.
Where it appears to the commissioner
that any person liable to tax has not been assessed
l•) [1959] A.C 114,
(2) (1955) 27 l.T.R, 94.
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3 S.C.R. SUPREME COURT REPORTS
1003
............ the commissioner may ............ assess such
person at such amount ............... as, according to
his judgment, ought to have been charged ........... "
The notice requiring the assessee to furnish returns of
his income for the years of assessment 1943-53 was
issued but no return was filed and assessment was
made under s. 72 of the East African Act for the
vears 1943-51. The assessee contended that s. 72 did
i'10t apply until the machinery under s. 71 had been
put into operation and that the assessments were
1J,ltra vires and void because they were made before
the time allowed by s. 71. It was held that s. 71
applied to all original assessments and s. 72 with
reopening of cases which had been settled under a
normal procedure. Accepting the contention of the
assessee Lord Somervell of Harrow observed :-
"If the power to make an assessment under
section 72 applies to the making of an original
assessment their Lordships are unable to imply
a term restl'icting it to back cases or making it
ultra vires to operate it at any time.
One would
expect an opportunity to make a, return to be a
condition precedent to assessment .. This is supported by the provisions for personal allowances in
Part VI of the Act. · If the respondent is right any
person can be assessed without having any such
opportunity. There would be two concurrent jurisdictions one providing reasonable protection for the
taxpayer and the other providing no protection
quoad the original assessment, apart from a right
to appeal. Such a construction seems to their
Lordships inconsistent with the general and mandatory provisions of s. 71.
That section is providing how all original assessments are to be made".
The language of these ss. 59(1), 71 and 72 is different
from that of ss. 11 and 14 of the Act. Section 72 was
held not applicable because there would be two
concurrent jurisdictions, one providing reasonable
protection for the taxpayer and the other providing
no protection which would be contrary to the provisions of s. 71.
According to the Privy Council it was
necessary to restrict the words of s. 72 to cases in
which the machinery of s. 59(1) having been operated
Commissioner of
Incon-w Tax
v.
N arsee /ll agsee
&- Co.
]{rtpur ].
1004
SUPREME COURT REPORTS
[1960]
r
r960
no assessment resulted. The words of s. 14 are entirely
-
_,
different. It applies to cases of profits escaping
'
Commission.er of
fncvmr Tax
assessment and the words "escaping assessment"
v.
have already been interpreted under s. 34 of the
,Varsee Nagsee Income-tax Act and there is no reason why the same
&
Co.
words occurring in a statute which is in pari materia
f<apur J.
should be given a different meaning in the two Acts.
Further the difficulty which the Privy Council felt in
~-
regard to there being two jurisdictions, one giving
protection to the assessee and the other not giving
such protection, docs not exist in the present case -
because the process of assessment under s. 14 of the
Act is ex11ctly the same as it is where notice is given
under s. 11(1) of the Act and all the adv11ntages which
an assessee would have under s. 11(1) are available to
I
him under s. 14.
-
The Punjab case to which our attention has been
drawn was a case under the Excess Profits Tax Act
11nd it was held that because of the removal of the
limitation clause ins. 15 of that Act assessments were
not hit by any period of limitation and a further
observ11tion not necessary for the decision of the case
w11s made that even otherwise the hnguage of s. 13 of
that Act was wide and there was no substance in the
contention that after the assessment period a notice
under s .. 13 of that Act could not be issued and that the -
only notice which could be given was one under s. 15.
In view of the construction we have placed on s. 14
of the Act on the words" profits escaping assessment"
that they apply to assessments where notice has been
,.___....
given and has resulted in no assessment and where
due to inadvertence, oversight or other circumstances
no notice was given, it is difficult to interpret s. 11 in
the manner contended for by the appellant.
In our opinion, the assessment which was sought to
be made was without jurisdiction and the appeal must,
therefore, fail.
We accordingly dismiss the appeal with costs.
Hidayatultah ].
HrnAYATULLAH, J.-The Commissioner of IncomeL
tax, Bombay has filed this appeal against the judgment and order of the High Court of Bombay dated
September 5, 1956, with the certificate of the High
.
. . . . .
.
3 ~.C.R. SUPREME COURT REPORTS
1005
Court granted under s. 19 of the Business Profits Tax
Act, 194 7 (hereinafter
called the Act) read with
s. 66(1) of the Indian Income-tax Act, 1922.
Messrs.
N arsee N agsee & Co., Bombay (hereinafter referred to
as the assessee firm), are the respondents.
The assessee firm, at all material times, was doing
business in Bombay. For the chargeable accounting
period, November 13, 1947, to October 31, 1948, a
notice was issued on January 12, 1953, by the Incometax Officer under s. 11(1) of the Act calling upon the
assessee firm to submit its return. This notice was
served on the assessee firm on January 21, 1953, and
it filed a return under protest, stating that the notice
was barred under s. 14 of the Act. It may be mentioned that the assessment for purposes of income-tax
for the same year was completed on :February 17, 1953.
The objection of the assessee firm was overruled by
the Income-tax Officer, who completed the assessment
under s. 12(1) of the Act on November 30, 1953. The
assessee firm then appealed to the Appellate Assistant Commissioner, who upheld the objection that the
notice was invalid under s. 14(1) of the Act. On
appeal taken by the Commissioner of Income-tax,
Bombay, the Appellate Tribunal concurred with the
Appellate Assistant Commissioner.