(1) Dr. Mrs. Alaka Goswami v. (2) Dr. Anil Kumar Goswami

P.P Naolekar, C.J:— The appellant in I.T.A No. 43 of 2003, Dr. (Mrs.) Alaka Goswami, is a medical practitioner and her husband, Dr. Anil Kumar Goswami, the appellant in I.T.A No. 42 of 2003, is an ex-Principal of the Cotton College, Guwahati. Both are assessees under the Income-tax Act, 1961 (for short “the Act”).

2. Search and seizure was conducted on August 21, 1996, under section 132 of the Act at the residence of the appellants. In response to the notice under section 158BC, the appellants filed return disclosing undisclosed income for the block period of April 1, 1986, to August 21, 1996. In the said block period the undisclosed income for the assessment year 1995-96 was also included and the appellants claimed that for the period relevant to the said assessment year 1995-96, comprised in the block period, the Assessing Officer ought to have determined the undisclosed income after allowing deduction for basic exemption, i.e, the maximum amount on which no income-tax was payable for that assessment year. The Appellate Tribunal relying on the provisions contained in section 158BB(1), section 158BA(2), section 113, section 158BC and section 88(1) of the Act did not accept the contentions raised by the appellants and rejected the same. Being aggrieved, the appellants have preferred the appeals before this court. The appeals have been admitted on the following substantial questions of law:

“(a) Whether, on the facts and in the circumstances of the case, the Tribunal was correct, on an interpretation of the provisions contained in Chapter XIV-B and section 113 of the Act, in holding that the Assessing Officer was justified in not deducting/excluding Rs. 35,000 being the amount of basic (initial) exemption available for the assessment year 1995-96 while levying tax on the undisclosed income of the block period?

(b) Whether, on the facts and in the circumstances of the case, the Tribunal was correct, in interpreting the provisions contained in sections 88(1), 158BA(2) and 113 of the Act and in holding that the appellant-assessee is not entitled to get tax rebate under section 88 of the Act?

(c) Whether, on the facts and in the circumstances of the case, the Tribunal was correct and justified in law on consideration of the provision contained in Chapter XIV-B of the Act, particularly section 158B(b), in holding that the income covered by the amount of advance tax paid was not disclosed to the Department for the assessment year 1995-96 (comprised within the block period April 1, 1986, to August 21, 1996) before the date of the search under section 132 of the Act and was rightly held to be ‘undisclosed income’ as defined under section 158B(b) of the Act?”

3. Learned counsel for the appellants did not press questions Nos. (a) and (b) before us and thus we need not consider those questions. Question No. (c) is in relation to the income covered by the amount of advance tax paid and whether it can be treated to be an income not disclosed to the Department for the assessment year 1995-96 (comprised within the block period April 1, 1986, to August 21, 1996) before the date of the search under section 132 of the Act and can be treated as “undisclosed income” as defined under section 158B(b) of the Act.

4. Chapter XIVB of the Act lays down the special procedure for assessment of search cases and provides for assessment of undisclosed income as a result of search. Under section 158BB(1) read with section 158BC of the Act, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed in the normal regular assessment under section 143(3) of the Act. The exercise under section 143(2) and (3) for regular assessment stands on a different footing than the exercise undertaken by the Assessing Officer under section 158BB read with section 158BC(b), where the Assessing Officer has to assess only the undisclosed income of the block period on the basis of the evidence found and material available as a result of the search conducted under section 132 of the Act. The regular assessment is to assess the total income or loss of the previous year where a return is filed under section 139 and the Assessing Officer considers it necessary or expedient under section 143(2) to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid tax in any manner. The proceedings under the regular assessment and the assessment for the block period stand to operate on different fields. Therefore, the considerations which would be attracted while making the assessment in exercise of the powers under section 143(2) and (3) for the regular assessment would stand on a different footing and will be governed by different provisions of the Act whereas the assessment for the block period as a result of the search and seizure would be governed by different provisions of the Act and would be made by the Assessing Officer in accordance therewith. The question really falls for our consideration is “can the income of the assessees be said to have been disclosed to the Revenue when assessees paid advance tax over it and whether on account of such disclosure the income so disclosed shall not be treated to be an income from undisclosed source, while the income-tax authority takes up the proceeding in block assessment?”

5. How the income disclosed and the advance tax paid shall be treated, was raised before the apex court in a different context in the matter of CIT v. Shelly Products, [2003] 261 ITR 367. The question raised before the court was whether the assessees are entitled to the refund of income-tax paid by them by way of advance tax and self-assessment tax in the event of the assessment framed being nullified by the Tribunal on the ground of jurisdiction and there being no possibility of framing a fresh assessment. In that case the assessment was framed by the Income-tax Officer under section 143(3) read with section 144B of the Act against the assessee. The assessee preferred appeal. The appeal was partly allowed. Further appeal was preferred by the assessee before the Appellate Tribunal. The Tribunal held that the assessment orders passed by the Income-tax Officer were ab initio void. The Revenue's reference was entertained on the High Court's direction. In the meantime the assessee filed application before the Assessing Officer for refund of the tax paid pursuant to the Tribunal's order. The assessees were informed by the Assessing Officer that the refund may be given for taxes paid on regular assessments which have since been annulled excluding tax paid in advance and on self-assessments. In appeal the Appellate Commissioner directed the Income-tax Officer to refund to the assessees the advance tax and self-assessment tax also. The order was affirmed by the Tribunal and at the instance of the Revenue framed the question of law for decision of the High Court—whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in directing the Assessing Officer to refund the tax with interest paid by the assessee on the income returned? The High Court answered the reference in the affirmative and in favour of the assessees. The matter was taken up by the Revenue before the apex court. The apex court held that subsection (2) of section 4 in terms provides for payment of tax in advance or deduction of tax at source as provided under the Act. For the deduction of tax at source and payment of tax in advance, the relevant provision in section 190. It provides that notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of Chapter XVII. Under section 207 tax is payable in advance in accordance with the provisions of sections 208 to 219 except in the cases of incomes specified therein. Such advance tax is payable during the financial year in accordance with the provisions of section 208. Sections 209 and 210 provides for computation of advance tax and for payment of advance tax by the assessee. Section 211 prescribes the instalments of advance tax and the due dates. The aforesaid provisions therefore, clearly spell out the scheme of the Act which provides for deduction of tax at source and advance payment of tax. On such deduction or deposit of tax credit is given to the assessee for the amount so deducted or paid as advance tax. The provisions of the Act, therefore, cast an obligation on the assessee to pay the advance tax by making the deposits in instalments as required by the provisions of the Act, and after taking into account the tax paid in advance, to pay the balance of the tax and the interest, if any payable, while filing the return of income. It cannot, therefore, be contended that the deposit of advance tax or deduction of income-tax at source is not authorised by law in view of the clear mandatory provisions of the Act.

6. The apex court has approved the decision of the Gujarat High Court Full Bench reported in Saurashtra Cement and Chemical Industries v. ITO, [1992] 194 ITR 659, where it has been said that when the assessee files his return under section 139 and pays tax under section 140A by way of self-assessment claiming allowance of the advance tax or tax deducted at source in the amount of tax payable according to him, there is clear admission of the liability that has arisen under the Act to pay the tax on the total income as is computed by the assessee and duly quantified in the return. The procedure of assessment by the Income-tax Officer is essentially to check the computation of total income done by the assessee. The apex court then proceeded with the question whether the charge itself fails if there is no computation of total income by the Assessing Officer and whether as a consequence thereof the tax paid as advance tax or self-assessment tax or tax deducted at source, cannot be retained by the Department without violating the provisions of article 265 of the Constitution of India. The apex court as held (page 381):

“We have earlier noticed the scheme of the Act. Section 4 of the Act creates the charge and provides, inter alia, for payment of tax in advance or deduction of tax at source. The Act provides for the manner in which advance tax is to be paid and penalises any assessee who makes a default or delays payment thereof. Similarly, the deduction of tax at source is also provided for in the Act and failure to comply with the provisions attracts the penal provisions against the person responsible for making the payment. It is, therefore, quite apparent that the Act itself provides for payment of tax in this manner by the assessee. The Act also enjoins upon the assessee the duty to file a return of income disclosing his true income. On the basis of the income so disclosed, the assessee is required to make a self-assessment and to compute the tax payable on such income and to pay the same in the manner provided by the Act. Thus the filing of the return and the payment of tax thereon computed at the prescribed rates amounts to an admission of tax liability which the assessee admits to have incurred in accordance with the provisions of the Finance Act and the Income-tax Act. Both the quantum of tax payable and its mode of recovery are authorised by law. The liability to pay income-tax chargeable under section 4(1) of the Act thus, does not depend on the assessment being made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and pay the income-tax thereon which involves a process of self-assessment. Since all this is done under the authority of law, there is no scope for contending that article 265 is violated.”

7. From the aforesaid judgment of the apex court it is clear that the Act itself provides for payment of the advance tax and the Act enjoins upon the assessee a duty to file the return of the income disclosing his true income and on the basis of the income so disclosed, the assessee is required to make a self-assessment and pay the tax on such income. There cannot be any manner of doubt that when the assessee pays advance tax the advance tax payment is assessed by the assessee on the basis of self-assessed income. The advance tax reflects the income admitted by the assessee. When the assessee pays the advance tax he discloses his income at the particular point of time, which may or may not be taxable on a subsequent date, on the return submitted by him under section 139 or under sub-section (1) of section 142 because of the asses-see's tax planning or he may claim exemption and refund of the tax paid, but for doing so he will have to show the income on which the advance tax is paid and then claim refund or complete exemption, as the case may be, as permissible under the relevant statute. Claim of refund of the tax paid as advance tax or complete exemption from the tax can be asked for by the assessee, only after indicating his income which was assumed to be assessable income by the assessee at the time when the advance tax was paid. Disclosure of the self assessed income by the assessee would only entitle the assessee to claim refund or exemption from tax as the assessee is required to show the income on the basis of which the advance tax is paid or ultimate claim is made. The moment the advance tax is paid the taxable income at that point of time is disclosed to the Revenue by the assessee. It cannot be said by the Revenue that the advance tax paid would or may not be the tax payable on the basis of the ultimate assessment made and, therefore, it cannot be taken to be a representation of the income on which the advance tax was paid. The question is whether the income, which represents the payment of advance tax, would be said to be an undisclosed income when the payment of advance tax itself necessarily implies disclosure of the income on which the advance tax is paid by the assessee to the Revenue.

8. Section 207 of the Act imposes liability for payment of advance tax by the assessee in accordance with the provisions of sections 208 to 219 (both inclusive) in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year and that income is called “current income”. Section 209 provides that the computation of the advance tax shall be made by the assessee in the manner provided under section 209. Sub-section (3) of section 210 authorises the Assessing Officer, if he is of opinion that the assessee who has been assessed by way of regular assessment in respect of the total income of any previous year, is liable to pay advance tax, requiring the assessee by order in writing to pay advance tax. Section 211 is in regard to the due dates on which the assessee is required to pay the advance tax in instalments. The scheme of the Act enjoins a duty on the assessee to pay the advance tax by submission of return before the assessing authority. The advance tax is paid on the self-assessment of the income by the assessee which is an admission of the “current income” by the assessee. Clause (d) of sub-section (1) of section 158BB reads as under:

“where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years;”

9. Under Clause (d) of sub-section (1) of section 158BB while assessing the aggregate of the total income, the income recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous year shall be taken into consideration where the previous year has not ended or the date of filing the return of the income under sub-section (1) of section 139 has not expired. When the assessee is required to file the self-assessment for payment of the advance tax before the income-tax authorities the return of assessment would fall within the documents maintained in the normal course by the assessee and as such the income disclosed on payment of the advance tax would fall within Clause (d) of sub-section (1) of section 158BB. In any case although there is a difference between the regular assessment and the block assessment, as we have already noticed, unless the provisions of the block assessment specifically bar the assessing authority from taking into consideration the income disclosed by the assessee on payment of the advance tax to be taken into consideration, the income disclosed by the assessee on payment of advance tax would be an income disclosed to the Revenue and cannot be treated as an income undisclosed for the relevant assessment year. Learned counsel for the Revenue could not point out any provision on the basis of which we can hold that the income disclosed on payment of advance tax cannot be treated as disclosure of income, by virtue of a particular statutory provision under Chapter XIV-B of the Act. For the discussions aforesaid, we answer the question in the negative and hold that the income disclosed on account of payment of the advance tax cannot be held to be undisclosed income for the purposes of block assessment. The appeals of the assessees are allowed to that extent and the assessment orders would be modified taking the income on payment of advance tax as disclosed income and not as the undisclosed income for the assessment year 1995-96.

10. The appeals stand disposed of.