COMMISSIONER OF INCOME TAX Vs. RATNAM PILLAI S

JUDGEMENT

(1.) At the instance of the Revenue, the Income tax Appellate Tribunal has referred the following two questions of law, for the decision of this Court:

(2.) The respondent is an assessee to Income tax. He is engaged in the export of prawns to foreign countries. We are concerned with the assessment year 1979-80, for which the accounting period ended on 31-3-1979. The assessee was claiming deduction on account of his liability towards payment of purchase tax under the K.G.S.T. Act every year. Such deductions were allowed for the assessment years 1977-78 and 1978-79 (Year ending 31-3-1977 and 31-3-1978). The Government of Kerala, by notification dated 29-3-1979, granted exemption in respect of the tax payable on purchase of marine products during the period 1-4-1977 to 31-3-1979. This will cover the assessment years 1977-78, 1978-79 and 1979-80. The notification was one passed under S.10 of the Kerala General Sales Tax Act. The total liability claimed by the assessee and allowed as deduction as purchase tax, for the assessment year 1978-79, amounted to Rs.3,53,398/-. The Income Tax Officer did not consider the applicability of S.41(l) of the Income tax Act in respect of the remission of this liability. So, the Commissioner of Income tax took the view that the assessment order dated 7-9-1982, passed by the Income tax Officer for the assessment year 1979-80, was erroneous and prejudicial to the interests of the Revenue. He issued notice to the assessee under S.263 of the Income tax Act and passed an order, dated 18-8-1984, holding that in view of S.41(l) of the Income tax Act the deduction allowed to the assessee as purchase tax for the assessment year 1978-79 is erroneous and the sum of Rs.3,53,398/- should be added to the income in the assessment year 1979-80. It was so ordered since the notification issued by the Government granting exemption is dated 29-3-1979, which is admittedly within the accounting period relevant for the assessment year 1979-80. The assessee submitted before the Commissioner of Income tax that the Government notification or order dated 29-3-1979 granting the exemption was published and made available to the public only in April, 1979 and so the amount could be considered only for the assessment year 1980-81. This plea was negatived holding that the benefit accrued to the assessee as soon as the Government passed the order (notification) dated 29-3-1979 and so it was rightly taxable for the assessment year 1979-80, by invoking S.41(l) of the Act. Against the aforesaid order passed by the Commissioner of Income tax, the assessee filed an appeal before the Appellate Tribunal and assailed the same. Two points were raised: (1) The Government notification No.G.O.M.S.54/79/TD dated 29-3-1979 granting exemption was published and made available to the public only on 3-4-1979. So, the notification became effective only from 3-4-1979. It fell within the accounting year 1979-80 relevant to the assessment year 1980-81. In this view, the amount could be brought to tax under S.41(l) of the Act only for the assessment year 1980-81. The view taken by the Commissioner to the contrary is illegal. (2) The Commissioner was incompetent to pass the order under S.263 of the Act. The assessment order, for the assessment year 1979-80, dated 7-9-1982 was the subject matter of appeal before the C.I.T. (Appeals) on some other issues. The assessment order got merged in the order of the CIT (A) dated 20-10-1983. Thereafter, the Commissioner of Income tax has no jurisdiction to invoke S.263 of the Act and to pass the order appealed against. The Income tax Appellate Tribunal, after referring to the relevant provisions of the statute and the case law, by order dated 4-12-1986, held in favour of the assessee on both counts. It is thereafter, at the instance of the Revenue, the two questions of law formulated herein above have been referred for the decision of this Court.

(3.) We heard counsel for the Revenue, Mr.P.K.R. Menon as also counsel for the respondent/assessee Mr. Roy Chacko. Counsel for the Revenue stressed two aspects: