SUBRAMANYAN P S ITO Vs. SIMPLEX MILLS LIMITED

JUDGEMENT

(1.) THIS is an appeal by the ITO, Companies Circle 1(1). Bombay, and the Union of India, against the order passed by Mr. Justice K. T. Desai, by which he set aside the assessment order dt. 30th July, 1957, passed by the first appellant and the notice of demand issued by him on 3rd Aug., 1957, upon the respondents, and prohibited the appellants from taking any steps or proceedings in enforcement of the said assessment order or the said notice of demand.

(2.) THE respondents are a limited company registered under the Indian Companies Act, 1913. For the asst. year 1952 -53, the respondents made an advance payment of tax amounting to Rs. 10,75,017 -9 -0 under S. 18A(I) of the Indian IT Act. On 30th Aug., 1952, the respondents were regularly assessed under Sub -S. (3) of S. 23 of the Act, for the same assessment year. The total amount of tax assessed was Rs. 6,46,329 -9 -0. Under S. 18A(5) of the Act, as it then stood, the respondents were entitled to interest at 2 per cent on the amount deposited by them on account of advance payment of tax. Under this provision, Rs, 14,720 -14 -0 were due to the petitioners on account of interest. This amount, together with the refund of tax due to the respondents was paid back to the respondents in September, 1952. On 24th May, 1953, the IT Act was amended and a further proviso was added to S. 18A(5) of the Act. Under S. 18A(5) of the Act, as it originally stood, Government was liable to pay interest on the entire amount paid as advance payment of tax. Under the subsection as amended, interest is payable on the amount by which the amount paid on account of advance payment of tax exceeds the sum payable on account of tax determined on regular assessment. This amendment was given retrospective effect and was made effective as from 1st April, 1952. As a result of this amendment, the respondents were entitled to receive, on account of interest, only Rs. 9,404 -5 -0. They had, in fact, received Rs. 14,720 -14 -0. Under the provision, as amended, and excess payment of Rs. 5,316 -9 -0 had, therefore, been made to them. On 18th March, 1957, the respondents were served with a notice, issued by the first appellant, under S. 34 of the IT Act. By this notice, the respondents were required to furnish a return of their total income, assessable for the year ending 31st March, 1953. The respondents then furnished a return showing the same income as they had shown in their previous return. On 30th July, 1957, the first appellant passed a fresh order of assessment for the asst. year 1952 -53 under S. 23(3) and s. 34(1)(b) of the Act. By this order, the respondents were assessed on the same amount of income on which they had been assessed in the original assessment order and the tax assessed was also the same. In the assessment order, the first appellant also stated that as S. 18A(5) had been amended w.e.f. 1st April, 1952, the respondents were entitled to interest of a much smaller amount than what had been allowed to them during the original assessment, that excessive relief had been allowed to the respondents in the original assessment, and that he had taken action under S. 34 in order to enable him to recover the excess interest paid to the respondents. He then issued a notice of demand, calling upon the respondents to pay a sum of Rs. 5,316.56 nP. This notice of demand was issued on 3rd Aug., 1957. On 27th Aug., 1957, the respondents filed a petition, under Art. 226 of the Constitution, in which they challenged the fresh assessment order and the notice of demand dt. 3rd Aug., 1957. They contended that S. 34(1)(b), under which the first appellant had purported to act, had no application the facts of this case, and that consequently the order made by the first appellant and the notice of demand issued by him were without jurisdiction. They prayed for the assessment order and the notice of demand being set aside and for the appellants being prohibited from taking any steps or proceedings in enforcement or in pursuance thereof. The contentions advanced on behalf of the petitioners were accepted by Mr. Justice K. T. Desai, who accordingly allowed the petition and set aside the assessment order dt. 30th July, 1957, passed by the first appellant and the notice of demand dt. 3rd Aug., 1957, issued by him. Against this order, the present appeal has been filed.

(3.) THE relevant part of S. 34(1)(b), under which the first appellant has acted, runs as follows: "Notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income -tax.... have been made the subject of excessive relief under this Act...he may...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 notice under Sub -S. (2) of S. 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." Action under this sub -section can, therefore, be taken only if the income, profits and gains chargeable to income -tax have been the subject of excessive relief under the Act. By paying interest under S. 18A(5) of the Act, on the amount deposited by the assessee, the Government does not grant any relief to him in respect of the tax payable by him on his income, profits and gains. It has no bearing on, nor does it reduce the burden which the assessee has to bear on account of tax assessed on him. The "relief" referred to in S. 34(1)(b) can only be such relief as is granted to the assessee by reason of his income, profits and gains being chargeable to tax. It is, therefore, referable to the various kinds of relief afforded to the assessee under the Act, in respect of his income, profits and gains, such, for instance, as are granted under S. 15A, 15C, 49A, 49B, 49C, 49D and 60 of the Act.