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Dhampur Sugar Mills Ltd. v. Commissioner Of Income-Tax, Delhi Central.
Factual and Procedural Background
The reference arose from proceedings between Dhampur Sugar Mills Ltd. (assessee) and the Commissioner of Income-tax. The assessee filed a return of income on 20 June 1961 in Form A under rule 19 showing a loss of Rs. 3,94,196; that return was not accompanied by the profit and loss account and balance-sheet because they were not ready. The profit and loss account and balance-sheet were later submitted on 26 August 1962. The assessee filed a revised return on 30 October 1962 (also in Form A under rule 19), which was otherwise complete.
Procedurally, the first return was filed in compliance with a notice under section 22(2) of the Indian Income-tax Act, 1922. After the revised return was filed, the Income-tax Officer issued a notice under section 143(2) of the Income-tax Act, 1961, and completed assessment under section 143(3) of that Act. The assessee appealed, contending that assessment could not legally be made under section 143(3) of the 1961 Act because the original return had been filed before 1 April 1962 under the 1922 Act.
The Appellate Assistant Commissioner accepted the assessee's contention and cancelled the assessment. The Commissioner of Income-tax appealed to the Income-tax Appellate Tribunal (Tribunal), which allowed the appeal and held that the assessment could validly be made under section 143(3) of the 1961 Act. The Tribunal referred one question of law to this Court: whether, on the facts and circumstances, the assessment was validly made under section 143(3) of the Income-tax Act, 1961.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the assessment was validly made under section 143(3) of the Income-tax Act, 1961 (the question referred by the Tribunal).
- Whether the Tribunal's referred question should have been reframed to ask whether the assessment for the assessment year 1961–62, which purports to have been made under section 143(3) of the 1961 Act, is valid (proposed reframing by learned counsel for the department).
Arguments of the Parties
Assessee's Arguments
- The assessment could not legally be made under section 143(3) of the 1961 Act because the original return had been filed prior to 1 April 1962 under the provisions of the 1922 Act; therefore clause (a) of subsection (2) of section 297 of the 1961 Act should apply.
- The assessee contended that the original return should remain the effective return for assessment even after a revised return was filed; counsel for the assessee argued that because penalty provisions (section 28(1)(c) of the 1922 Act and section 271(2)(c) of the 1961 Act) operate against concealment or inaccurate particulars, the existence of those penalty provisions indicates that the original return must also be treated as effective for assessment purposes.
Revenue's / Commissioner's Arguments
- The Commissioner appealed the Appellate Assistant Commissioner's order cancelling the assessment; the Tribunal held that the assessment could validly be made under section 143(3) of the 1961 Act.
- Learned counsel for the department contended that the question referred by the Tribunal should be reframed in terms of whether the assessment for 1961–62 which purports to have been made under section 143(3) of the 1961 Act is valid.
- The revenue contended (as reflected in the Tribunal's reasoning) that the assessment in fact proceeded under section 143(3)(ii) of the 1961 Act because the Income-tax Officer specifically issued notice under that provision and completed the assessment thereunder; the Tribunal rejected the revenue's contention that the assessment could be deemed to have been made under section 22(3) of the 1922 Act because no proceedings under section 23(3) of that Act were taken.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Gopaldas Parshottamdas v. Commissioner Of Income-Tax, C.P. & U.P. [1941] 9 I.T.R. 130 All. | Applied for the proposition that a revised return, once filed, substitutes and withdraws the original return for assessment purposes. | The Court (Hari Swarup, J.) relied on this authority to support the view that a revised return becomes the effective return for assessment and that the original return is thereby replaced for assessment purposes. |
Court's Reasoning and Analysis
The Court considered the Tribunal's factual findings and legal conclusions and delivered two concurring judgments (Hari Swarup, J. and Pathak, J.), both answering the referred question in the affirmative but with different legal emphases.
Major points in Hari Swarup, J.'s reasoning:
- The Tribunal had held that the June 20, 1961 return was invalid because: (a) it was filed on the wrong form (Form A, not a company form), (b) it was not properly verified (verification mentioned a "firm" instead of "company"), and (c) it was not accompanied by the profit and loss account and balance-sheet. The Tribunal treated the return as defective and effectively deemed it not to be a return until the defects were cured in August 1962.
- Hari Swarup, J. disagreed that those defects rendered the June 1961 filing a nullity. He held that:
- Filing on Form A (a form not meant for a company) does not vitiate the return if no error in the particulars supplied is pointed out.
- The misdescription in the verification clause (mentioning "firm" instead of "company") is not fatal when the verifying signatures clearly identify the assessee as Dhampur Sugar Mills Ltd.
- The absence of accompanying profit and loss account and balance-sheet renders the return incomplete but does not make it a nullity for the purposes of section 297(2)(a) of the 1961 Act.
- Accordingly, the June 1961 filing was a valid return in all essential respects and must be considered filed on that date; the subsequent curing of defects did not re-date the filing to August 1962.
- On the effect of a revised return: section 22(3) of the 1922 Act and section 139(5) of the 1961 Act permit filing a revised return. The Court emphasized that the statute contemplates a correct and complete return, and the law allows the assessee to substitute a revised return if an omission or wrong statement is discovered.
- The Court reasoned that when an assessee files a revised return, he in effect admits that the original return was not correct or complete and substitutes the revised return as the document upon which assessment should be made. Therefore, for assessment purposes the effective return is the ultimately filed revised return.
- The Court rejected the assessee's argument that the possibility of penalty proceedings means the original return remains the effective return for assessment. The Court explained that penalty provisions penalize a past wrongful act (and are not cured by later correction), but assessment should be made on the basis of the correct and complete return that the assessee ultimately places before the authority.
- The Court distinguished between mere correction of a return and filing a revised return: a correction or application to amend retains the character of the original return, whereas a revised return withdraws and substitutes the original for assessment purposes. The Court cited Gopaldas Parshottamdas as supporting this view.
- Finally, the Court interpreted section 297(2) of the 1961 Act: clause (a) is a saving provision permitting continuation of proceedings under the old Act where a return was filed before commencement of the 1961 Act; clause (b) makes it mandatory that when the return is filed after the commencement of the 1961 Act for years ending prior to 31 March 1962, assessment must follow the 1961 Act procedure. The return on which assessment is to be completed is the return that ultimately stands (i.e., the revised return if one is filed), and therefore when an assessee voluntarily files a revised return after 1 April 1962 the assessment must be completed under clause (b) and the 1961 Act procedure.
- On these bases, Hari Swarup, J. concluded that the Tribunal was correct to hold the assessment validly made under section 143(3) of the 1961 Act.
Major points in Pathak, J.'s concurring opinion:
- Pathak, J. agreed with Hari Swarup, J. on several points but disagreed with the conclusion that clause (b) of section 297(2) applied to the case.
- He held that section 297(2)(a) applied because the proceeding (having commenced with the original return filed on 20 June 1961) was in existence on 1 April 1962 and thus, by automatic operation of section 297(2)(a), the proceedings could continue as if the 1961 Act had not been passed — i.e., under the 1922 Act.
- Pathak, J. emphasized that a revised return presupposes that a proceeding has already begun; the revised return would be governed in its terms by the Act applicable to the proceedings that were pending on 1 April 1962 (the 1922 Act in his view). He considered it unlikely that Parliament intended that an assessee, by subsequently filing a revised return, could change the applicable law governing the continuing proceeding.
- Nevertheless, Pathak, J. concluded that the Income-tax Officer had jurisdiction to take and continue the assessment proceedings and that the assessment for 1961–62 was a valid assessment. He therefore answered the question in the affirmative as well.
Holding and Implications
Holding: Question answered in the affirmative. The Court held that, on the facts and circumstances of the case, the assessment was validly made (the Court affirmed that the assessment for the assessment year 1961–62 is a valid assessment).
Direct consequences and costs:
- The Commissioner of Income-tax is entitled to his costs; costs are assessed at Rs. 200.
- Counsel's fee is assessed at Rs. 200.
Implications: The direct effect of the decision is that the assessment completed by the Income-tax Officer (purporting to be under section 143(3) of the 1961 Act) was held valid on the facts before the Court. The opinion focuses on the effect of a revised return and the interplay of section 297(2) clauses (a) and (b) of the 1961 Act with proceedings that straddle the commencement of the 1961 Act. The opinion does not purport to lay down a broader new precedent beyond the resolution of these issues on the presented facts.
Question answered in the affirmative.
Hari Swarup, J.:— This reference has been made by the Income-tax Appellate Tribunal at the instance of the assessee, the Dhampur Sugar Mills Ltd.
2. A return of income was filed by the assessee, a company incorporated under the Indian Companies Act, in Form A under rule 19 on June 20, 1961, showing a loss of Rs. 3,94,196. This return was not accompanied by the balance-sheet and the profit and loss account as the same were not ready. Later on, on August 26, 1962, the profit and loss accounts and the balance-sheet were submitted. Thereafter, the assessee filed a revised return on October 30, 1962. Although it was also in Form A under rule 19 of the old Act, the return was complete otherwise. The Income-tax Officer had issued a notice under section 22(2) of the Indian Income-tax Act, 1922, and the first return was filed in compliance thereof. After the revised return was filed by the assessee the Income-tax Officer issued a notice to the assessee under section 143(2) of the Income-tax Act, 1961, and finally completed the assessment under section 143(3) of the Act. The assessee, feeling aggrieved, filed an appeal against the assessment and, inter alia, took the ground that assessment could not legally be made under section 143(3) of the 1961 Act as the original return had been filed before 1st April, 1962, under the provisions of the 1922 Act. The Appellate Assistant Commissioner accepted the assessee's contention and cancelled the assessment order on the ground that it could not be made under the new Act as the return had been filed originally before the enforcement of that Act. The Commissioner of Income-tax filed an appeal against the order of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal and the Tribunal allowed the appeal holding that the assessment order could be validly made under section 143(3) of the 1961 Act. The assessee applied for referring to this court for its opinion four questions of law. The Tribunal, however, has referred only one question of law which is as follows:
“Whether, on the facts and circumstances of the case, the assessment was validly made under section 143(3) of the Income-tax Act, 1961?”
3. The Tribunal negatived the contention of the revenue that the assessment could be deemed to have been made under section 22(3) of the 1922 Act on the ground that no proceedings under section 23(3) of the said Act were taken and the notice was specifically issued under section 143(3)(ii) of the 1961 Act by the Income-tax Officer before completing the assessment and that the assessment had been in fact completed by him under that section.
4. Learned counsel for the department contended that the question referred by the Tribunal should be reframed in the following terms:
“Whether, on the facts and in the circumstances of the case, the assessment for the assessment year 1961–62, which purports to have been made under section 143(3) of the 1961 Act is valid?”
5. I do not think that the reframing of the question is either necessary or will more correctly represent the controversy between the parties before the Tribunal. I accordingly deal with the question as it is.
6. The Tribunal held, firstly, that the return filed by the assessee on 20th June, 1961, in compliance with the notice tinder section 22(2) of the 1922 Act was invalid as it was given on a wrong form, was not properly verified, and was aot accompanied by the necessary documents; secondly that the defects and shortcomings in the return of 20th June, 1961, having been made good only in August, 1962, the complete return must be deemed to be filed after April 1, 1962, and, thirdly, when the revised return was filed the earlier return was superseded and the assessment was to be made on the basis of the new return filed on 30th October, 1962, i.e, after 1st April, 1962. On these findings the Tribunal held that the case was covered by clause (b) and not clause (a) of sub-section (2) of section 297 of the 1961 Act. The contention of the assessee is that as the return was filed originally before April 1, 1962, the provisions of clause (a) and not clause (b) would be applicable.
7. I am unable to hold that the return filed by the assessee in June, 1961, was a nullity or suffered from such invalidity as to make it equal to no return within the meaning of section 297(2)(a) of the 1961 Act. The defect that the return was in Form A which was not meant for the company will not vitiate the return. No error in the particulars supplied has been pointed out. Similarly, the mention in the verification clause of a “firm” instead of “company” will not make the return invalid as the signatures in the verifying clause did mention the name of the assessee as Dhampur Sugar Mills Ltd. The circumstance that the return was not accompanied by the profit and loss account or the balance-sheet will no doubt render the return incomplete, but will not make it invalid so as to be treated as non est, for purposes of section 297(2)(a) of the 1961 Act.
8. I am also unable to agree with the view of the Tribunal that the return filed in June, 1961, should be deemed to be no return till its defects were removed by the filing of the balance-sheet and the profit and loss account in August, 1962. The ground upon which the return filed in June, 1961, is said to be defective is not so fundamental in nature as to take away from that document its character of a return. The return when filed was a return in all essential respects, and the removal of the defects merely made good the shortcomings from which it suffered. It must be held that the return in question must be considered as filed by the assessee in June, 1961, and not subsequently when the defects were removed.
9. The question however remains as to whether this return will continue to form the basis for purposes of assessment even after it was substituted by a revised return. section 22(3) of the 1922 Act as also section 139(5) of the 1961 Act permit an assessee to file a revised return if he discovers any omission or wrong statement in the return filed by him. The Income-tax Act contemplates the filing by the assessee of a correct and complete return. The law gives him a right to substitute and bring on record a correct and complete return if he discovers any omission or wrong statement in the return originally filed by him. The law cannot contemplate the making of assessment on the basis of a return which even the assessee claims contains wrong statements. When an assessee files a revised return, he in fact admits that the original return filed by him was not correct or complete and substitutes the same by a revised return which according to him is correct and complete. The effective return for purposes of assessment is thus the return which is ultimately filed by an assessee on the basis of which he wants his income to be assessed. Learned counsel for the assessee, to support his contention to the contrary, urged that, as penalty proceedings under section 28(1)(c) of the 1922 Act or under section 271(2)(c) of the 1961 Act are permissible, if the assessee conceals the particulars of his income or deliberately furnishes inaccurate particulars of such income in the original return even though he may subsequently file a correct and complete revised return, it must be held that the original return is also the effective return. I am not inclined to accept the contention. A person is penalised for the wrong act that he does and the offence becomes complete as soon as the act is done. It cannot be cured by subsequent mending. It is on this principle that an assessee can be penalised for concealing the particulars of his income or deliberately furnishing inaccurate particulars of such income. But, when an assessment has to be made the assessee is given a right to file a correct and complete return if he discovers an error or omission in the return filed earlier. The assessment can be completed only on the basis of the correct and complete return. The earlier return, after a revised return has been filed, cannot form the basis of assessment although it may be used to indicate the conduct of the assessee. Hence, for the purpose of assessment of income, the effective return must be the revised return filed by the assessee ultimately.
10. There is a distinction between a revised return and a correction of the return. If the assessee files some application for correcting a return already filed or making amends therein, it would not mean that he has filed a revised return. It will still retain the character of an original return, but once a revised return is filed, the original return must be taken to have been withdrawn and to have been substituted by a fresh return for the purpose of assessment. The same view has been taken in Gopaldas Parshottamdas v. Commissioner Of Income-Tax, C.P & U.P [1941] 9 I.T.R 130 All...
11. Section 297(2)(a) of the 1961 Act is a saving clause. It permits the taking of proceedings for the assessment relating to any year prior to the enforcement of the Act in case the assessee had filed a return of income before the commencement of the Act. Normally, after the 1922 Act was repealed, proceedings had to be taken under the 1961 Act. But clause (a) of sub-section (2) of section 297 permits the taking of such proceedings. On the other hand, clause (b) of sub-section (2) makes it mandatory that when the return of income is filed after the commencement of the new Act for the assessment years ending prior to 31st March, 1962, the assessment of the person for that year shall be made in accordance with the procedure specified in the 1961 Act. It appears that for the purpose of continuing proceedings for years ending prior to the commencement of the new Act, the return of the income has been made the starting point. Normally, proceedings for the assessment must be deemed to commence when the notice under section 22 of the 1922 Act of section 139 of the new Act is issued to an assessee, but for continuing the proceedings clauses (a) and (b) of subsection (2) of section 297 make the return the basis for the applicability of the provisions of the old and new Acts. The return contemplated in these two clauses is the return on the basis of which assessment is to be completed. A return which has been substituted by a revised return is, for all practical purposes, the return of income as the assessment has to be completed on the basis of the revised return. After the revised return is filed the assessee has to prove the correctness and completeness of the revised return. Similarly, the assessing authority has to see that the revised return discloses the correct income. Although the proceedings are taken by applying the old Act, when the return is filed prior to April 1, 1962, by virtue of clause (a) of sub-section (2) of section 297 of the 1961 Act, the proceedings get a new form when the assessee voluntarily files a revised return after April 1, 1962, then assessment must be completed by virtue of clause (b) of sub-section (2) of section 297 of the 1961 Act in accordance with the procedure specified in the Act of 1961.
12. I am accordingly of the opinion that the Tribunal was right in holding that, on the facts and circumstances of the present case, the assessment was validly made under section 143(3) of the Income-tax Act, 1961, and answer the question referred to us in the affirmative. The Commissioner of Income-tax is entitled to his costs which I assess at Rs. 200 Counsel's fee is assessed at the same figure.
Pathak, J.:— I agree with my brother Hari Swarup on the several points considered by him, but with great respect I am unable to agree that the case can be said to fall under section 297(2Xb) of the Income-tax Act, 1961. In my opinion, it is section 297(2)(a) which applies. The assessee filed his original return of income on June 20, 1961. A proceeding came into existence. On April 1, 1962, when the Income-tax Act, 1961, came into force, section 297(2)(a) was immediately attracted to that proceeding. Accordingly, the proceedings for the assessment of the assessee for the year to which the return pertained could be taken and continued as if the Income-tax Act, 1961, had not been passed. In other words, the assessment proceedings could be taken and continued under the Indian Income-tax Act, 1922. Subsequently, when the assessee filed a revised return, that could not put a stop to the operation of the Act of 1922. The revised return would, in its terms, be governed by the Act of 1922. A revised return in itself contemplates that a proceeding has begun earlier and a return has already been filed. It will be noted that the provisions of the Act of 1922 apply to a proceeding pending on April 1, 1962, by the automatic operation of section 297(2)(a) I do not think that Parliament ever intended that by his subsequent conduct an assessee could stop that law from operation and substitute for it the operation of another law. It may be that for the purpose of assessment it is the revised return which is the document for consideration. But, in my opinion, for the purpose of section 297(2)(a) it is the first return filed by the assessee.
13. But, the matter does not end there. The Income-tax Officer had jurisdiction to take and continue the assessment proceedings. He enjoyed that jurisdiction under the Act of 1922 by virtue of section 297(2Xa) of the Act of 1961. The conditions and limitations to which that jurisdiction is subject do not differ in any material respect from those governing the corresponding jurisdiction under the Income-tax Act, 1961. Therefore, although the assessment proceedings purported to have been taken in its later stage by reference to the provisions of the Act of 1961, it must be referred to the jurisdiction of the Income-tax Officer under the Act of 1922. In my opinion, the assessment for the assessment year 1961–62 is a valid assessment. The question is answered in the affirmative. The Commissioner of Income-tax is entitled to his costs, which I would assess at Rs. 200. Counsel's fee is assessed at the same figure.
14. By the Court.— For the reasons contained in our respective judgments the question is answered in the affirmative. The Commissioner of Income-tax is entitled to his costs, which we assess at Rs. 200. Counsel's fee is assessed at the same figure.
Question answered in the affirmative.
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