RAMBHAI JETHABHAI PATEL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case, at the instance of the assessee, the following three questions have been referred to us by the Income -tax Appellate Tribunal for our opinion :

(2.) THE short facts leading to this reference are as follows : The assessment year under reference is assessment year 1962 -63, the relevant previous year being the financial year 1961 -62. The assessee belongs to Gujarat and before he settled down in Gujarat, he was practicing as an auditor at Nairobi in East Africa. He returned to India in the year of account relevant to the assessment year 1962 -63, and settled at Vallabh Vidyanagar, Anand, Kaira District. The assessment year 1962 -63 was the first year of assessment of the assessee and he filed his return to income disclosing 'nil' income in the status of 'resident' for the said assessment year. During the course of assessment proceedings, the Income -tax Officer noticed that the assessee had started construction of an immovable property at Anand in the year 1958 which was completed by the end of the financial year 1961 -62. As the Income -tax Officer was not satisfied with the explanation of the assessee regarding the source of the funds with which the said property was constructed, he included a sum of Rs. 16,640 as the assessee's income from other sources. The other income assessed and Rs. 13 earned by way of interest and thus the total income assessed came was Rs. 16,653. By an order dated December 16, 1965, the Income -tax Officer determined the assessee's status as 'resident but not ordinarily resident'. However, in the order which was served upon the assessee, the status of the assessee was stated as 'resident and ordinarily resident'. Subsequently, it appears, that on the records of the department the status of the assessee was corrected to 'resident but not ordinarily resident'. It is the contention of the department that the assessment order was thus corrected to 'resident but not ordinarily resident' before the assessment order was actually served on the assessee. On the other hand, it is assessee's case that the copy of the order of assessment which was served upon him was not corrected and the status of the assessee as shown in the copy received by him was 'resident and ordinarily resident'. It is important to note that while calculating the tax payable by the assessee, the status of the assessee was treated as 'resident and ordinarily resident'. When the assessee realised that the Income -tax Officer had made this mistake, he applied for rectification under section 154 of the Income -tax Act, 1961. The assessment order was passed by the Income -tax Officer on December 16, 1965. Thereafter on November 11, 1966, the assessee applied under section 113 of the Income -tax Act, 1961, declaring that the tax payable by him on his total income shall be determined with reference to his total world income and though by sub -section (3) of section 113 he was required to make that application on June 30, 1962, which was the material date for the purposes of making such a declaration, he submitted that he was prevented by sufficient cause from making the declaration under sub -section (3) of section 113 and, therefore, he contended that his case fell within sub -section (5) of section 113. The application for rectification was made on March 23, 1968. The Income -tax Officer held by his order dated June 17, 1968, that the order of assessment required to be rectified in so far as the tax was worked out on the footing of the status of the assessee being resident and ordinarily resident. By the rectification order the tax was worked out on the footing that the assessee's status was 'resident and not ordinarily resident' and the tax liability was accordingly corrected. The application for declaration under sub -section (5) of section 113 was rejected so far as the assessment year 1962 -63 was concerned on the ground that the assessment for that year was already completed when the declaration under section 113, sub -section (5), was sought to be made by the assessee. The Inspecting Assistant Commissioner with whom the power of approval of such declaration lay under section 113 refused to consider the assessee's prayer that the option may also be made applicable to assessment year 1962 -63. The assessee was aggrieved by the order passed by the Income -tax Officer under section 154 and before the Appellate Assistant Commissioner he contended that the Income -tax Officer had erred in not taking into consideration the declaration under section 113, sub -section (5), of the Act for the purpose of determining the rate of tax in the status of 'resident but not ordinarily resident'. The Appellate Assistant Commissioner upheld the assessee's claim that the declaration under section 113, sub -section (5), of the Act was effective for the assessment year 1962 -63 also. In the view taken by the Appellate Assistant Commissioner, the assessment order dated December 16, 1965, passed by the Income -tax Officer was in the status of 'resident and ordinarily resident' and the order in the status of 'resident but not ordinarily resident' was passed only on June 17, 1968, when the order in rectification proceedings was passed. The Appellate Assistant Commissioner was of the opinion that the assessment in the status of 'resident but not ordinarily resident' was pending on November 11, 1966, that being the date on which the assessee had applied for condoning the delay in filing the declaration under section 113, sub -section (3), of the Act.

(3.) IT may be pointed out that a provision similar to section 113 of the Act of 1961 was to be found in section 17, sub -section (1), of the Indian Income -tax Act, 1922. When the Income -tax Act, 1961, was enacted, section 113 took the place of section 17, sub -section (1), of the Act of 1922. By the Finance Act, 1965, section 113 was deleted from the Act with effect from April 1, 1965, and section 2, sub -section (46), of the Act of 1961, was also deleted. Section 2, sub -section (46), defined 'total world income'. After 1965, non -residents as well as those who are resident but not ordinarily resident are assessed at the rate appropriate to their total income and their total world income can no longer be taken into account for any purpose of assessment. Prior to its deletion in 1965, section 113 provided for tax in case of non -residents and persons not ordinarily resident. It may be pointed out that under section 2, sub -section (30), of the Act of 1961, 'non -resident' means a person who is not a 'resident', and includes a person who is not ordinarily resident within the meaning of sub -section (6) of section 6. Under sub -section (1) of section 113, where a person is a non -resident and is not a company, the tax payable by him or on his behalf, on his total income was to be an amount equal to the income -tax which would be payable on his total income at the maximum rate, plus either the super -tax which would be payable on his total income at the rate of nineteen per cent. or the super -tax which would be payable on his total income if it were the total income of a resident, whichever was greater. Under sub -section (3), any non -resident other than a company, might, on or before the 30th day of June of the assessment year in which he first became assessable as a non -resident, by notice in writing to the Income -tax Officer, declare (such declaration being final and being applicable to all assessments thereafter) that the tax payable by him or on his behalf on his total income shall be determined with reference to his total world income, and, thereupon, notwithstanding the provisions of sub -section (1), such tax shall be determined in accordance with sub -section (4). Sub -section (4) of section 113 provided that where under the provisions of sub -section (3) any non -resident had exercised his option to be taxed with reference to his total world income, the tax payable by him or on his behalf was to be the tax payable on his total income as if it were the total income of a resident or an amount bearing to the total amount of tax which would have been payable on his total world income had it been his total income the same proportion as the total income bore to the total world income, whichever was greater. Sub -section (5) of section 113 is material for the purpose of our judgment and it reads as follows :