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State Of Madras v. M.P. Ibrahim Kunhi
Structured Summary of the Opinion (Delivered by Rajagopalan, J.)
Factual and Procedural Background
This petition was preferred by the Government under S. 12-B of the Madras General Sales-Tax Act and concerned assessment proceedings to determine the respondent's turnover for the year 1950–1951.
The respondent (assessee) did not file a return of turnover within the prescribed time. He voluntarily submitted a return on 20th February, 1954, which, according to the opinion, was supported by entries in his account books. The assessing authority accepted that return and on 11th March, 1954 assessed the respondent to tax on a turnover of Rs. 18,651-13-9.
The Commercial Tax Officer confirmed that assessment on appeal. On a further appeal the Tribunal held that the assessment was barred by the limitation period in R. 17(1) of the Madras General Sales-Tax Rules, treating the turnover as one that had "escaped assessment" and applying the two-year period then in force. The Government challenged the Tribunal's decision by way of the present petition.
The opinion repeatedly records the late return as submitted on 20th February, 1954; one later paragraph in the text contains an apparent typographical reference to "20th February 1934." The court's analysis, however, treats the filing as a delayed return submitted in 1954.
Legal Issues Presented
- Whether an assessment made on the basis of a return voluntarily submitted by a dealer after the prescribed period (but accepted by the assessing authority) falls within the scope of R. 17(1) as a turnover that "has escaped assessment" and is therefore subject to the limitation period prescribed by that rule.
- Whether the acceptance by the assessing authority of a late return (after condoning the delay, expressly or impliedly) transforms the assessment into an original assessment under S. 9(2)(a) — thereby placing it outside the limitation regime of R. 17(1).
Arguments of the Parties
Government's Arguments (as presented by Government Pleader)
- There is nothing in the Act or in the rules prescribing a period within which assessment proceedings, once validly started on the basis of a return, must be completed.
- Where a return is filed by the assessee himself, there is no provision in the Act or rules to limit the period within which the assessment should be completed; such an assessment is an original assessment under S. 9(2)(a), not an assessment of an escaped turnover under R. 17(1).
- Because the assessing authority accepted the respondent's return as correct, the assessment made was an original assessment rather than one attracting the limitation of R. 17(1).
Respondent's Arguments
The opinion does not contain a detailed account of the respondent's separate legal arguments beyond the factual circumstance that the respondent filed the return (albeit late) and that the assessing authority accepted it as the basis for assessment.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| The State of Madras v. Louis Dreyfus and Co. (Full Bench) | Definition and meaning of "turnover which has escaped assessment" in R. 17(1): turnover escapes when it is not noticed by the officer because it is not before him by reason of inadvertence, omission or deliberate concealment (including concealment by the assessee or want of care by the officer). | The court relied on this Full Bench decision to determine that a turnover does not "escape assessment" where a return has been voluntarily submitted and accepted by the assessing authority (including cases where delay is condoned). Applying that principle, the court concluded R. 17(1) did not apply to the present assessment. |
Court's Reasoning and Analysis
The court's analysis proceeded from the statutory and regulatory scheme set out in the opinion. Key provisions cited and applied were S. 9 of the Madras General Sales-Tax Act (including S. 9(1), S. 9(2)(a) and S. 9(2)(b)), the definition of "prescribed" under S. 2(f), the rule-making power under S. 19 (including S. 19(2)(f)), and the Turnover and Assessment Rules (notably R. 6, R. 11 and R. 17(1)).
The court identified the respondent's obligations under R. 6(2) and R. 11: the respondent should have submitted a return of his net turnover at least by 1 May 1951. He did not do so and instead filed a return only on 20th February, 1954 (as recorded earlier in the opinion). The pivotal question was whether the late submission, and its acceptance by the assessing authority, permitted a valid assessment under the Act or whether the case fell within R. 17(1) as an escaped turnover subject to the two-year limitation period.
The court noted the following legal propositions, drawn from the statutory text and the Full Bench decision cited:
- Under S. 9(2)(a) an assessing authority, if satisfied that a return submitted under the Act is correct and complete, shall assess the dealer on that basis; the Act and rules do not prescribe any time-limit within which such an assessment must be completed once a valid return is filed.
- R. 17(1) was framed under S. 19(2)(f) to deal with turnover "which has escaped assessment" and prescribes a period (two years, in the form of the rule applied by the Tribunal) within which such escaped turnover may be determined and assessed.
- The Full Bench in The State of Madras v. Louis Dreyfus & Co. explained that "turnover escapes" when it is not before the officer because of inadvertence, omission or deliberate concealment — which can include failure to file a return or concealment by the assessee, or want of care by the officer. Where no return is submitted at all, R. 17(1) would apply; where a return is filed but is incorrect or not submitted in time and the delay is not condoned, the turnover may still be treated as escaped.
- By contrast, where a return is voluntarily submitted (even if late) and the assessing authority, after scrutiny, accepts it (the delay being condoned either expressly or impliedly), the assessment is an original assessment under S. 9(2)(a) and not an assessment of an escaped turnover falling under R. 17(1).
Applying these principles to the facts before it, the court held that because the respondent had voluntarily submitted a return which was accepted by the assessing authority (and no rule in the Act or rules fixed a period within which an assessment on such a return had to be completed), R. 17(1) in terms could not apply to bar the assessment. Thus the Tribunal's conclusion that R. 17(1) applied was incorrect.
Holding and Implications
The petition is allowed; the order of the Tribunal is set aside and the order of the Commercial Tax Officer is restored.
Direct consequences for the parties:
- The assessment made on 11th March, 1954 on the respondent's return (for turnover Rs. 18,651-13-9) is upheld by restoring the order of the Commercial Tax Officer.
- The Tribunal's contrary finding that the assessment was barred by R. 17(1) is quashed.
- The petitioner (Government) is given costs; a counsel's fee of Rs. 100 is ordered.
Broader implications: The opinion applies the established Full Bench principle that R. 17(1) is concerned with turnovers not before the assessing authority by reason of inadvertence, omission or deliberate concealment. The court confined application of R. 17(1) to cases of escaped turnover as so defined and held that an assessing authority's acceptance (with condonation of delay) of a late return results in an original assessment outside the scope of R. 17(1). The opinion does not purport to lay down a new precedent beyond applying that Full Bench decision to the facts; its practical effect is to confirm that accepted late returns (where delay is condoned) produce original assessments not subject to the limitation in R. 17(1).
(Delivered by Rajagopalan, J.)
This petition preferred by the Government, under S. 12-B of the Madras General Sales-Tax Act, arose out of proceedings taken under the Act, to assess the turnover of the respondent for the year 1950-1951. The assessee did not file any return of his turnover for 1950-1951 within the time prescribed. After other proceedings had been taken by the assessing authorities, he voluntarily submitted a return of his turnover on 20th February, 1954. That return, supported by the entries in his account books, was accepted by the assessing authorities, and on 11th March, 1954 the respondent was assessed to tax on a turnover of Rs. 18651-13-9.
That assessment was confirmed by the Commercial Tax Officer on appeal. But on further appeal by the assessee the Tribunal held that the assessment fell within the scope of R. 17(1) of the Madras General Sales-Tax Rules, and that the assessment made on 11th March, 1954 was barred by the period of limitation prescribed by the rule. The view of the Tribunal was that the turnover of the assessee had escaped assessment and that the period of two years prescribed by the rule before it was amended applied to the respondent. It was the correctness of that decision that the Government challenged.
Apparently the Tribunal overlooked the main feature of the case, that the assessee filed a return of his turnover, though he filed it only on 20th February, 1954. That return was accepted as correct, and he was assessed to tax on the basis of that return.
As the learned Government Pleader pointed out, there was nothing in the Act or in the rules framed thereunder prescribing the period within which assessment proceedings once validly started should be completed. The contention of the Government Pleader was that, where there was a return filed by the assessee himself, there was nothing in the Act or in the rules to limit the period within which the assessment should be completed. Such an assessment would be an original assessment and not an assessment, which would fall within the scope of R. 17(1) of the Sales-Tax Rules.
The material provisions of the Act and the rules which have a bearing on the present question we shall now set out. S. 9 of the Madras General Sales-Tax Act runs thus:
“9(1) Every dealer whose turnover is ten thousand rupees or more in a year shall submit such return or returns relating to his turnover in such manner, and within such period as may be prescribed.
(2)(a) If the assessing authority is satisfied that any return submitted under Sub-S. (1) is correct and complete, he shall assess the dealer on the basis thereof.
(2)(b) If no return is submitted by the dealer under Sub-S. (1) before the date prescribed or specified in that behalf or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority shall assess the dealer to the best of his judgment.”
“Prescribed” is defined by S. 2(f) of the Act to mean “prescribed by the rules made under the Act.” Under S. 19 the State Government is empowered to makes rules to carry out the purposes of the Act; and among those particularly set out in this section is the provision in S. 19(2)(f), which reads:
“Such rules may provide for the assessment to tax under this Act of any turnover which has escaped assessment, and the period within which such assessment may be made, not exceeding three years.”
Turning to the rules, R. 6 of the Turnover and Assessment Rules, enjoins on dealers the duty of submitting to returns. It runs:
“Every dealer commencing business after the first day of October, 1939 whose estimated net turnover for the first twelve months of his business is not less than Rs. 10,000 shall within thirty days of commencing his business submit to the assessing authority of the area in which his principal place of business is situated a return in Form A-1 showing his estimated gross and net turnover for the first twelve months of his business.
(2) Every dealer commencing business who has not submitted a return under Sub-R. (1), but whose net turnover reaches Rs, 10,000 in any year for the first time shall within 30 days of the day on which his net turnover reaches Rs. 10,000, submit to the assessing authority of the area in which his principal place of business is situated a return in Form A.1”
If the assessing authority, after making such scrutiny of the accounts of the dealer and such enquiry as such authority may consider necessary, is satisfied that the return submitted under R. 6 is correct and complete, he shall fix provisionally on the basis of the return the annual tax or taxes payable at the rate or rates specified in S. 3 or 5 or notified under S. 6(1).
Rule 11 of the same set of Rule provides:
“11(1) Every dealer liable to submit a return under R. 6, except those who have elected to be assessed by the method described in R. 13, shall, on or before the 1st day of May in every year submit to the assessing authority of the area in which his principal place of business is situated a return in Form A showing the actual gross and net turnover of the preceding year and the amounts by way of tax or taxes actually collected during that year: Every dealer not liable to submit a return under R. 6, who has a net turnover of not less than Rs. 10,000, in any year, shall unless he has elected to be assessed by the method described in R. 13 submit to the assessing authority of the area in which his principal place of business is situated a return in Form A showing the actual gross and net turnover for that year and the amount by way of tax or taxes actually collected during the year on or before the 1st day of May of the succeeding year and thereafter for every year on or before the 1st day of May immediately following such year.
Provided that every dealer who discontinues his business during the course of a year in which he has been provisionally assessed under R. 7 or 8 shall submit to the assessing authority concerned a return in Form A for the period upto and inclusive of the date of discontinuance of business in the manner prescribed in this sub-rule, within 30 days from the date of such discontinuance,
(2) On the receipt of a return in Form A the assessing authority shall, if he is satisfied after such scrutiny of the accounts and such enquiry as he considers necessary that the return is correct and complete, finally assess on the basis of the return the tax or taxed payable under Ss. 3, 5 or S-B(2) or under the notification or notifications issued under S. 6(1) for the preceding year or for the year to which the return relates as the case may be.
(3) If no return is submitted or if the return submitted appears to the assessing authority to be incorrect or incomplete, the assessing authority may, after following the procedure prescribed by Rr. 8 and 9 finally assess the tax according to the best of his judgment.”
The rule framed in pursuance of the power to deal with turnover which has escaped assessment under S. 19(2)(f) is R. 17(1) of the Madras General Sales-Tax Rules, 1939, which the Tribunal has held applicable to the present case, and it is in these terms:
“17(1) If for any reason the whole or any part of the turnover of business of a dealer or licensee has escaped assessment to the tax in any year or if the licence fee has escaped levy in any year, the assessing authority or licensing authority as the case may be, subject to the provisions in Sub-E. 1-A may, at any time within two years next succeeding that to which the tax or licence fee relates, determine to the best of his judgment the turnover which has escaped assessment and assess the tax payable in such turnover or levy the licence fee, after issuing a notice to the dealer or licensee and after making such enquiry as he considers necessary.”
The respondent's was not a case which came within the scope of R. 6(1) of the Turnover and Assessment Rules, for he had not been assessed to tax under the Act on the turnover of any year prior to 1950-1951, the assessment for which year is now in dispute. His case fell within the scope of R. 6(2) and also of R. 11(2). As regards R. 6(2) itself, it is not clear at what precise point of time during 1950-1951 his turnover exceeded Rs. 10,000 but it may not be necessary to call for further information on the point or to decide it. In any event the obligation cast upon the respondent by Rr. 6(2) and 11 of the Turnover and Assessment Rules should have arisen at least by the 1st of May 1951.
The position of the assessee as a dealer under S. 9, therefore, was that he should have submitted a return of his net turnover at least before the 1st of May 1951. Admittedly he did not file such a return, and he filed it only on 20th February 1934. The question is, whether, by reason of the submission of this return on 20th February 1954, proceedings could validity be taken to assess him under the Act.
If the assessee had filed this return within the period prescribed by R. 6(2) or R. 11, the assessment in question would have been one under S. 9(2)(a), and as no limitation of time is set within which the assessment should be completed, the assessment, whenever made, would be valid. In the present case a return was submitted by the assessee, but beyond the period prescribed by R. 6 or R. 11. In so submitting that return, the assessee would have contravened the provisions of S. 9(1). Further the powers vested in the assessing authority under S. 9(2)(b) would have been attracted and would have empowered that authority to make the assessment to the best of his judgment. That, however, was not done in the present case. On the other hand, what the assessee did was to submit his return, though beyond the period prescribed by S. 9(1). That was certainly a valid return in the sense that there was no legal bar to its acceptance by the assessing authority in the exercise of his discretion, though it was filed beyond the period prescribed by Rules under S. 9(1); and as we have stated before, as no period of limitation is prescribed by the Act for completing an assessment on a return validly filed, the only question that could arise is, whether it was a case of an escaped turnover which attracted the rule of limitation prescribed by R. 17(1) of the Madras General Sales-Tax Rules. The meaning of the expression “turnover escapes assessment” has been the subject of express decision by the Full Bench of this Court in The State of Madras v. Louis Dreyfus and Co. (1). The Court there pointed out that
“turnover escapes when it is not noticed by the Officer because it is not before him by reason of any inadvertence, omission or deliberate concealment on the part of the officer, and that this would be the natural and normal meaning of the expression “turnover which has escaped” in R. 17(1).
Inadvertence, commission, or deliberate concealment on the part of the assessee, or want of care on the part of the officer may be with reference to a return filed by the assessee, in which case R. 17(1) would be attracted. In the present case the return voluntarily submitted by the assessee was accepted, and R. 17(1) in terms could not apply. That the assessee filed the return late did not bar its acceptance by the assessing authority. If in the exercise of his discretion he refused to condone the delay in the submission of the return, the assessee could claim no legal right that his delayed return should be accepted, even if he could prove it was a correct return. If however the delay in the submission of the return was condoned, either expressly or even impliedly, the assessing authority had the jurisdiction to accept it as the basis of assessment after verifying the correctness of the return. That would be a case of an original assessment and not an assessment of an escaped turnover within the meaning of R. 17(1). If R. 17(1) did not apply, obviously the period of limitation prescribed by that rule would not apply either.
The position where no return is submitted at all would be different. Failure to submit a return would be a violation of the statutory obligation imposed on the dealer. That in our opinion would fall within one or more of the categories of “inadvertence, omission or deliberate concealment” to which we have referred above. A return voluntarily submitted beyond the prescribed date would be a valid return only if the delay in the submission is condoned by the assessing authority. If the delay is not condoned, it would be a case of a return non est in law. In either case, if there is to be an assessment, it can be only under R. 17(1); the turnover in such a case would be one which had escaped assessment within the meaning of that rule.
The Tribunal, in our opinion, was wrong in holding that the assessment in question fell within the scope of R. 17(1). The order of the Tribunal is set aside; and the order of the Commercial Tax Officer has to be restored. The petition is allowed with costs. Counsel's fee Rs. 100.
V.C.S
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