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Commissioner Of Income-Tax, Madras (Central) v. N.D Georgopoules.
Judgment Summary — Ramanujam, J.
Factual and Procedural Background
The revenue referred two questions under section 256(1) of the Income-tax Act regarding (1) whether the assessee had been assessed by way of regular assessment for the assessment year 1965–66 on February 15, 1966; and (2) whether the charge of interest under section 217 in the original assessment could be cancelled by rectification under section 154.
The assessee, engaged in the hides and skins business, was charged penal interest under s.217 for assessment years 1967–68 and 1968–69 when the ITO completed assessment on March 29, 1972, on the ground that the assessee had failed to furnish estimates of advance tax as required by s.212(3). The assessee applied to the ITO on November 9, 1972 to rectify the assessments so far as the levy of that interest was concerned, contending that he had been assessed for 1965–66 on February 15, 1966 and therefore was not obliged to furnish estimates under s.212(3). The ITO refused rectification.
The assessee's appeal to the AAC was dismissed in limine. On further appeal the Income-tax Appellate Tribunal held that the assessee had been previously assessed for 1965–66 before the dates on which advance estimates were due (March 15, 1967 and March 15, 1968), and that the penal interest was therefore improperly levied and could be rectified under s.154. The revenue sought the present reference to the High Court.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the assessee had been assessed by way of regular assessment for the assessment year 1965–66 on February 15, 1966?
- Whether, on the facts and in the circumstances of the case, the charge of interest under section 217 in the original assessment could be cancelled by rectification under section 154?
Arguments of the Parties
Assessee's Arguments
- The assessee had been assessed for the assessment year 1965–66 on February 15, 1966 (return filed in response to a notice under s.139(2), accepted by the ITO and the file closed as "N.A", with an assessment form and demand notice under s.156 showing "Nil").
- Because the assessee had been previously assessed, he was not obliged to furnish an estimate of advance tax under s.212(3) for the later years; hence the levy of penal interest under s.217 was a mistake apparent from the record and could be rectified under s.154.
Revenue's Arguments
- The ITO's position was that the assessee's previous year had ended only on December 31, 1965, so that a valid assessment could be made only for assessment year 1966–67; therefore the assessee was not previously assessed for 1965–66 and was subject to s.212(3) obligations.
- The revenue contended that an assessment which has not resulted in any tax liability cannot be taken to be a regular assessment for the purposes of s.212(3), and that the charging of interest under s.217 in the original assessment could not be cancelled by rectification under s.154.
- The AAC was said to be correct in rejecting appeals in limine on grounds that the ITO was under a statutory obligation to charge interest and that, in any event, no appeals lay against the order levying interest under s.217 or against the ITO's refusal to rectify under s.143(3).
- The revenue relied on earlier authorities and urged that provisions on advance tax should be read harmoniously so as not to treat a "Nil" determination as a prior regular assessment for s.212(3) purposes.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Esthuri Aswathiah v. Income Tax Officer, Mysore State, [1961] 41 ITR 539 (SC) | Where the ITO records "no proceeding" it was held to mean acceptance of a return and an assessment of income as "Nil"; and if income has escaped assessment it must be brought in by reassessment. | The court relied on this authority to support the proposition that an order indicating "no proceeding" or acceptance of a nil return constitutes an assessment; this weight supported the conclusion that the assessee had been previously assessed for 1965–66. |
| Commissioner of Income Tax, Madras v. M.K.K.R. Muthukaruppan Chettiar, [1970] 78 ITR 69 | That whether original assessment proceedings had been properly terminated depends on the facts and circumstances of each case. | The court noted the principle and applied it by examining the factual record (notice, nil return, acceptance, assessment form and demand notice) to conclude that the assessment had been properly terminated. |
| Aruppukottai Chandra Bus Lines v. CIT, [1973] 87 ITR 154 (Mad) | In that case the closing of a file as "N.A" was held to amount to a determination of the proceedings as far as returns submitted by the assessee were concerned. | The revenue relied on this case to argue the opposite; the court found that the decision did not assist the revenue's position in the present factual matrix and did not alter the conclusion that a regular assessment had been made here. |
| Commissioner of Income Tax, Madhya Pradesh v. Lady Kanchanbai, [1970] 77 ITR 123 (SC) | The words "assessed", "assessment" and "assessee" have different meanings in different contexts; "assessed" in s.212(3) refers to computation of income or determination of tax payable. | The court used this authority to explain that the term "assessed" in s.212(3) refers to computation/determination and that absence of a tax liability does not negate that the process of assessment occurred. |
Court's Reasoning and Analysis
The court proceeded from undisputed facts. A notice under s.139(2) called for a return for assessment year 1965–66; the assessee filed a nil return explaining the business commencement on December 14, 1964 and accounts closing on December 31, 1965 so no income was assessable. The ITO accepted the return, closed the file as "N.A", and issued an assessment form and a demand notice under s.156 showing the amount demanded as "Nil", all served on February 17, 1966.
The court reasoned that these steps constitute the entire assessment process: commencement by notice, consideration of the return, and determination of income (even if resulting in no tax liability). The absence of a resulting tax liability does not, in the court's view, convert the proceedings into something other than a regular assessment. The court emphasized the settled legal principle — derived from the cited authorities — that the existence of an assessment depends on the procedural and substantive steps taken under the Act, not on whether a tax demand ultimately arose.
The court rejected the revenue's contention that because there was "no previous year" in the technical sense the proceedings could not be a regular assessment for the purposes of s.212(3). It held that the word "assessed" in s.212(3) must be read to refer to the computation/determination of income or of tax payable; thus a determination resulting in "Nil" tax still amounts to an assessment. On the dates when advance estimates were due (March 15, 1967 and March 15, 1968) the assessee had already been assessed for 1965–66 and therefore was not obliged to furnish estimates under s.212(3).
On the question of rectification under s.154, the court held that where an assessee who had in fact been previously assessed was erroneously treated as a new assessee and penal interest was charged on that basis, the error is a mistake apparent from the record. Such a mistake does not require elaborate factual inquiry to demonstrate and is therefore rectifiable under s.154.
Holding and Implications
Holding: Both questions referred under section 256(1) are answered in the affirmative and against the revenue.
Concretely:
- Q1: The court held that the assessee had been assessed for the assessment year 1965–66 on February 15, 1966 (acceptance of nil return, file closed as "N.A", assessment form and demand notice under s.156 showing "Nil").
- Q2: The court held that the charge of interest under section 217 in the original assessment could be cancelled by rectification under section 154 because the penal interest was levied as a result of a mistake apparent from the record (erroneous treatment of the assessee as a new assessee required to file estimates under s.212(3)).
Implications: The immediate effect is that the levy of penal interest under s.217 for the assessment years in question must be deleted by rectification under s.154, and the assessee is entitled to costs from the revenue (counsel's fee fixed at Rs. 500). The opinion does not purport to lay down a broad new principle beyond applying established authorities to the facts; its effect is directed at correcting the assessments and the charge of interest in this case.
Costs awarded to the assessee: Counsel's fee Rs. 500 (one set).
The Judgment of the Court was delivered by
Ramanujam, J.:— At the instance of the revenue, the following two questions have been referred to us for our decision under s. 256(1) of the I.T Act:
“(1) Whether, on the facts and circumstances of the case, the assessee had been assessed by way of regular assessment for the assessment year 1965-66 on February 15, 1966?
(2) Whether, on the facts and in the circumstances of the case, the charge of interest under section 217 in the original assessment could be cancelled by rectification under section 154?”
2. The assessee in this case is carrying on business in hides and skins. For the assessment years 1967-68 and 1968-69, the ITO completed the assessment on March 29, 1972, and while doing so he charged interest under s. 217 of the I.T Act, herenafter referred to as the Act, amounting to Rs. 52,110 for 1967-68 and Rs. 57,938 for the year 1968-69 on the ground that the assessee should have filed an estimate of advance tax under s. 212(3) but had failed to do so.
3. On November 9, 1972, the assessee filed an application before the ITO seeking rectification of the assessment orders in so far as levy of the said interest was concerned on the ground that he had been assessed to income-tax for the assessment year 1965-66 as early as on February 15, 1966 and, therefore, there was no obligation on his part to file a suo motu estimate of advance tax under s. 212(3). The ITO by his letter dated January 9, 1973, rejected the assessee's contention that “it was not a person ‘who has not been previously assessed by way of regular assessment’” as the assessee's previous year had ended only on December 31, 1965, and as such the first valid assessment could be made only for the assessment year 1966-67.
4. Since the view taken by the ITO was that no assessment for 1966-67 had been made before the dates on which the estimates of advance tax were due for the assessment years 1967-68 and 1968-69, the assessee was liable to furnish an estimate under s. 212(3) and this not having been done, the charge of penal interest was quite proper. He, therefore, declined to rectify the mistake under s. 154.
5. The assessee preferred appeals to the AAC. He, however, rejected the appeals in limine on the ground that the ITO was under a statutory obligation to charge interest and had no option to waive it and that in any event no appeals lay against the order levying interest under s. 217 or the order of refusal of the ITO to rectify his order passed under s. 143(3) of the Act.
6. The assessee filed appeals before the Income-tax Appellate Tribunal contending that the AAC was in error in holding that no appeals lay against an order levying interest under s. 217 and that the assessee having been assessed for the year 1965-66 on February 15, 1966, he should be taken to be a person who has been previously assessed by way of regular assessment and as such he was not under an obligation to send an estimate under s. 212(3) and that, therefore, the levy of interest was clearly a mistake apparent from the records and, therefore, the order should have been rectified under s. 154. Before the Tribunal, the revenue did not question the maintainability of the appeals before the AAC but chose to sustain the orders of the AAC on two grounds, (1) that as there was no previous year for the assessment year 1965-66 the proceedings for 1965-66 cannot be taken to have been terminated in a regular assessment and, therefore, the assessee should be taken to be a new assessee subject to the obligation under s. 212(3), and (2) in any event the charging of interest in the original assessment cannot be cancelled by rectification under s. 154. The Tribunal took the view that on the dates on which the advance estimates were due for the years in question, namely, March 15, 1967, and March 15, 1968, the assessee had already been assessed by way of regular assessment for the year 1965-66 and, therefore, the assessee was not under an obligation to furnish an estimate under s. 212(3) and, therefore, the charge of penal interest was not proper and that the mistaken levy of penal interest in the order of assessment could be rectified under s. 154. It is against this order of the Tribunal that the revenue has sought the present reference.
7. In this case, the facts are not in dispute. For the assessment year 1965-66, a notice under s. 139(2) was issued calling upon the assessee to submit a return. The assessee filed a “nil” return. The reason for showing the income as “nil” was explained by the assessee that the business had been commenced only on December 14, 1964, and the accounts were being closed as on December 31, 1965, and, therefore, there was no income assessable for the assessment year 1965-66. The ITO accepted the return and closed the file as “N.A” He also issued an assessment form and a demand notice under s. 156 mentioning the amount demanded as “Nil”, and these documents were served on the assessee on February 17, 1966. These facts indicate that the assessment proceedings which were commenced with a notice under s. 139(2) came to be terminated by the ITO passing an order “N.A”. There has been a due consideration of the return filed by the assessee in answer to a notice under s. 139(2) and there has been a determination of the income. Merely from the fact that the assessment has not resulted in payment of any tax it cannot be said that there has been no regular assessment.
8. According to the learned counsel for the revenue, the assessee cannot be said to have been subjected to regular assessment in that the assessee himself had admitted that there was no previous year for the assessment year 1965-66 and there could not have been any valid assessment for that year and, therefore, in this case notwithstanding the closing of the assessment file as “N.A” for the year 1965-66, the assessee should be taken as not having been previously assessed by way of regular assessment, in which case he is under an obligation to submit an estimate under s. 212(3). As pointed out by the Supreme Court in Esthuri Aswathiah v. Income Tax Officer, Mysore State, [1961] 41 ITR 539 and Commissioner Of Income Tax, Madras v. M.K.K.R Muthukaruppan Chettiar , [1970] 78 ITR 69, the question whether the original assessment proceedings had been properly terminated has to be considered on the facts and circumstances of each case. According to the learned counsel for the revenue, all the provisions dealing with advance tax should be read harmoniously, and if so read, an assessment which has not resulted in any tax liability cannot be taken to be an assessment by way of regular assessment, for purposes of s. 212(3). We are of the view that the question whether a particular assessee has been assessed earlier to income-tax does not depend upon the question as to whether any tax liability has arisen out of the assessment and that even if there is no actual tax liability the assessment which has been made in accordance with the provisions of the Act does not cease to be an assessment. The word “assessment” has come up for consideration before the Supreme Court on many an occasion, and it has taken the view that the word “assessment” normally connotes the entire process commencing from the submission of the return till the determination of tax liability. In this case as the regular assessment proceedings had commenced for the year 1965-66 by the issue of a notice calling upon the assessee to file a return and it has ended by the issuance of an assessment form followed by a “Nil” demand, it has to be taken that there has been regular assessment proceedings and that the assessee has been assessed for the year 1965-66. The decision in Aruppukottai Chandra Bus Lines v. CIT, [1973] 87 ITR 154 (Mad) has been relied on by the revenue in support of its contention that the disposal of the return as “N.A” has to be taken as “not assessable” and if so taken the assessee cannot be said to have been assessed. However, we do not think that the said decision can be of any help to the revenue in this case. In the particular facts of that case, the Bench, to which one of us was a party, held that the closing of a file as “N.A” amounted to a determination of the proceedings so far as the returns submitted by the assessee were concerned. In Commissioner Of Income Tax, Madhya Pradesh v. Lady Kanchanbai, [1970] 77 ITR 123 (SC), the words “assessee” and “assessed” were considered by the Supreme Court and it had held that the words “assessed”, “assessment” and “assessee” have different meanings in different contexts and that the word “assessment” is used in the I.T Act as meaning sometimes the computation of income, sometimes the determination of the tax payable and sometimes the procedure laid down in the Act for imposing the liability upon the taxpayer. However, there cannot be any dispute that the word “assessed” occurring in s. 212(3) refers only to the computation of the income or to the determination of the amount of tax payable. Merely because the computation of income or the determination of the amount of tax payable has not resulted in any tax liability it does not mean that the process of computation of income or the determination of the amount of tax is not an assessment. Even in a case where the ITO passed an order “no proceeding” and closed the assessment, the Supreme Court has taken the view in Esthuri Aswathiah v. Income Tax Officer, Mysore State, [1961] 41 ITR 539, that the order “no proceeding” meant that the ITO accepted the return submitted by the assessee and assessed the income as “Nil”, that, therefore, it should be taken that there was an assessment, and that if as a result of any non-disclosure of materials or relevant facts for the assessment, the income has escaped assessment, it can be brought to tax only by way of reassessment. In our view, therefore, the Tribunal is right in its conclusion that the assessee was not under an obligation to submit an estimate under s. 212(3) as he has been previously assessed.
9. If the assessee who has been previously assessed has been taken erroneously to be a new assessee and penal interest has been charged on the basis that he had not submitted an estimate as required under s. 212(3), then it is clearly a mistake apparent from the record and no elaborate legal argument or factual investigation is necessary to find out the real position. In that view, we hold that in this case an application for rectification is maintainable for deletion of the penal interest charged in the regular assessment.
10. For the foregoing reasons, both the questions are answered in the affirmative and against the revenue. The assessee will be entitled to its costs from the revenue. Counsel's fee Rs. 500 (one set).
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