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B.C Nawn And Bros P. Ltd. v. Commissioner Of Income-Tax, West Bengal-Iii.

Calcutta High Court

Dec 8, 1976

Judgment

Subsequent
References

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Case Summary: Income-tax Reference No. 550 of 1973 (Decided December 8, 1976)

Factual and Procedural Background

The opinion was delivered by Sankar Prasad Mitra, C.J., with Deb, J. concurring. For the assessment year 1963–64 the assessee's return (due under section 139 on 24 October 1963) was filed on 15 December 1964 showing total income of Rs. 29,937. The Income-tax Officer (ITO) made an assessment on 25 September 1967 computing total income at Rs. 2,60,720. On 19 September 1969 the Commissioner of Income-tax, exercising powers under section 263 of the Income-tax Act, 1961, passed an order directing the ITO to levy interest under the proviso to section 139(1) which the ITO had omitted at the time of making the assessment. The ITO levied interest of Rs. 6,046 pursuant to the Commissioner's direction. An appeal was preferred on 15 December 1969 to the Appellate Assistant Commissioner; the assessee (through Mr. Mukherjee) contended that the interest levy was part of the regular assessment and should have been done within the applicable time limits, and that the Commissioner's order was therefore barred by limitation. The Appellate Assistant Commissioner and, subsequently, the Tribunal rejected the assessee's contention. The question referred to the court was whether the assessment order dated 25 September 1967 became merged with the Commissioner's order dated 19 September 1969, and if so whether the merged order was barred by limitation within the meaning of section 153(1)(a).

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the assessment order dated 25 September 1967 became merged with the Commissioner's order dated 19 September 1969.
If merger is found, whether the resulting order is barred by limitation within the meaning of section 153(1)(a) of the Income-tax Act, 1961.

Arguments of the Parties

Assessee's Arguments (as presented by Mr. Mukherjee)

Contended that the word "assessment" under section 143 has a comprehensive meaning and includes a revised assessment; relied on Kalawati Debi Haralalka v. Commissioner of Income Tax, West Bengal.
Argued that the ITO's assessment dated 25 September 1967 merged into the Commissioner's order of 19 September 1969, making the Commissioner's order the only operative order; relied on Commissioner of Income Tax, Bombay v. Amritlal Bhogilal & Co. and Shankar Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat.
Maintained that when the Commissioner exercises powers under section 263 to include a new omitted item, he in effect exercises powers under section 143(3) read with section 263, and thus "pass such order thereon" in section 263 contemplates an order under section 143(3); reliance was placed on State of Orissa v. Debaki Debt (though the court noted the statutes differed).
Sought a harmonious construction of sections 263 and 153(1)(a) so that the Commissioner must pass his order within the four-year period prescribed by section 153(1)(a); alternatively, the Commissioner's two-year limitation (in sub-section (2)(b) of section 263) should be read subject to the four-year bar of section 153(1)(a).
Factually urged that levy of interest under section 139(1) was part of the regular assessment process and should have been completed before the time limit for completing the assessment expired; therefore the ultimate levy by the Commissioner was time-barred.

The opinion does not contain a detailed account of the Revenue's specific submissions beyond the procedural facts and the Tribunal/Appellate Assistant Commissioner's conclusions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Kalawati Debi Haralalka v. Commissioner of Income Tax, West Bengal, [1964] 53 ITR 314 (Cal.)	Relied on for the proposition that the term "assessment" under section 143 may have a comprehensive meaning including revised assessments.	The court recorded that the assessee relied on this authority, but did not accept the broad merger argument advanced on that basis; the opinion treats the sections governing limitation as independent and did not adopt an interpretation that would make section 153(1)(a) control the Commissioner's power under section 263.
Commissioner Of Income Tax, Bombay v. Amritlal Bhogilal & Co., [1958] 34 ITR 130 (SC)	Relied on to support the contention that an inferior authority's order may merge into a superior authority's order (this citation concerned an order on appeal).	The court noted the reliance but distinguished the present statutory context; it held that an order under section 263 is neither an order on appeal nor necessarily an order in revision for the purposes of merger in this case, and therefore did not treat the ITO's order as merged on that basis.
Shankar Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat, (1969) 2 SCC 74 : AIR 1970 SC 1	Relied on as authority concerning revisional orders and potential merger of orders.	The court considered the authority but concluded that an order under section 263 is not necessarily an order in revision of the kind that would cause merger here; the Commissioner's direction was held to be an independent exercise of power under section 263.
State of Orissa v. Debaki Debt, [1964] 15 STC 153 (SC)	Relied on by the assessee to support the view that a revisional-type power might attract limitation principles akin to those applied under another statute (second proviso to section 12(6) of the Orissa Sales Tax Act, 1947).	The court observed that the statutory provisions considered in State of Orissa were not the same as those under the Income-tax Act, 1961, and explicitly stated the case was not of assistance in resolving the present question.

Court's Reasoning and Analysis

The court proceeded by reference to the relevant statutory provisions and the sequence in which powers are exercisable:

It identified section 153(1)(a) as prescribing a time limit (four years from the end of the assessment year in which the income was first assessable) beyond which "no order of assessment shall be made under section 143" subject to specified exceptions.
The court noted that section 153(3)(ii) expressly excludes from the four-year bar those cases where assessments, reassessments or recomputations are made in consequence of, or to give effect to, findings or directions in an order under section 263.
Section 263(1) and sub-section (2)(b) were examined: section 263 empowers the Commissioner to revise orders prejudicial to revenue and sub-section (2)(b) imposes a two-year time limit for making such a revisional order from the date of the order sought to be revised.
Having reviewed the assessee's contentions (including reliance on the cited precedents and the argument that the Commissioner's order should be constrained by the four-year period of section 153), the court concluded that sections 153(1)(a) and 263 are independent provisions addressing different authorities and different kinds of orders.
The court emphasized that the two sections specify time limits for two independent authorities (the ITO under section 153 and the Commissioner under section 263) and that neither provision was intended to curtail or enlarge the period prescribed for the other. The key question is whether the Commissioner acted within the period and manner prescribed by section 263, not whether the Commissioner's order falls within the four-year limitation of section 153(1)(a).
To illustrate that the statute prescribes different limitation periods for different powers and authorities, the court cited other provisions (section 154(7) and section 104/106) where differing limitation rules operate for different types of amendments or orders.
The court also addressed the merger argument: it acknowledged that if the Commissioner, by enhancing or modifying an assessment, effectively made an appellate or revisional order of a type that causes merger, then merger could arise; but it held that in the present facts the Commissioner's order directing the levy of interest under section 263 was an independent exercise of power and not an order on appeal or in revision that caused the ITO's assessment to merge into it.
On the specific question of limitation, the court concluded that the Commissioner's order (dated 19 September 1969) was governed by the limitation in section 263 and was not barred by the four-year bar in section 153(1)(a).

Holding and Implications

Holding:

The assessment order dated 25 September 1967 did not merge with the Commissioner's order dated 19 September 1969; the Commissioner's order dated 19 September 1969 is not barred by limitation.

Implications:

The court answered the reference in the negative and in favour of the revenue: the Commissioner's direction to the ITO to levy interest stands and is not time-barred under section 153(1)(a).
The decision emphasizes that section 153(1)(a) (limitation for the ITO's assessments) and section 263 (Commissioner's revisional power with its own two-year limit) are independent and must be applied according to the period each prescribes; one does not automatically curtail or extend the other.
The opinion indicates the direct effect is on the parties to this matter (upholding the Commissioner's order and permitting the levy of interest). The judgment does not state that it establishes a broader novel precedent beyond its statutory interpretation in these circumstances; no specific new rule of general application beyond the court's interpretive conclusion was announced.
There will be no order as to costs.

Judge information (from the opinion): Judgment delivered by Sankar Prasad Mitra, C.J.; Deb, J. agreed.

Show all summary ...

Income-tax Reference No. 550 of 1973

Decided on December 8, 1976

The Judgment of the Court was delivered by

Sankar Prasad Mitra, C.J:— This is a reference under section 256(1) of the Income-tax Act, 1961. For the assessment year 1963–64, the assessee filed a return on 15th December, 1964, showing the total income of Rs. 29,937. The return was due under section 139 on 24th October, 1963.

2. On September 25, 1967, the Income-tax Officer made the assessment and computed the total income at Rs. 2,60,720. On the 19th September, 1969, the Commissioner of Income-tax passed an order under section 263 of the Act of 1961 and directed the Income-tax Officer to levy interest under the proviso to section 139(1) which he had omitted to do at the time of making the assessment. The Income-tax Officer in accordance with the Commissioner's direction levied the interest of Rs. 6,046. An appeal was preferred on the 15th December, 1969, to the Appellate Assistant Commissioner. On behalf of the assessee it was urged before the Appellate Assistant Commissioner that interest under section 139(1) was not levied at the time of the original assessment by the Income-tax Officer. The levy of interest under section 139(1) was a part and parcel of the regular assessment proceedings. It should normally be done before the time limit for completing the assessment was over. In this case, the Commissioner of Income-tax passed the order under section 263 on a date which fell beyond the time limit prescribed for completing the assessment. The ultimate levy of interest, therefore, was barred by limitation. The Appellate Assistant Commissioner did not accept this contention. The Tribunal also in the appeal against the Appellate Assistant Commissioner's order agreed with his conclusions.

3. The question referred to us is as follows:

“Whether, on the facts and in the circumstances of the case, the assessment order dated the 25th September, 1967, became merged with the order of the Commissioner of Income-tax dated the 19th September, 1969, and if so, whether it was barred by limitation within the meaning of section 153(1)(a) of the Income-tax Act, 1961?”

4. An Income-tax Officer makes an assessment under the provisions of section 153 of the Act. Section 153 provides, inter alia, as follows:

“153. Time limit for completion of assessments and reassessments.—(1) No order of assessment shall be made under section 143…… at any time after—

(a) the expiry of four years from the end of the assessment year in which the income was first assessable;……”

5. Section 153(3)(ii) prescribes, inter alia, that the provisions of subsection (1) shall not apply to certain cases of assessments, reassessments and re-computation, which may be completed at any time. One of those cases is assessment, reassessment or recomputation in consequence of or to give effect to any finding or direction contained, inter alia, in an order under section 263.

6. We now come to the relevant provisions under section 263. They are as follows:

“263. Revision of orders prejudicial to revenue.—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

(2) No order shall be made under sub-section (1)—…….

(b) after the expiry of two years from the date of the order sought to be revised.”

7. The first contention of Mr. Mukherjee appearing for the assessee is that the word “assessment” under section 143 has a comprehensive meaning and includes a revised assessment. In support of this proposition he has relied on Kalawati Debi Haralalka v. Commissioner Of Income Tax, West Bengal, [1964] 53 ITR 314 (Cal).

8. His second contention is that the Income-tax Officer's order of assessment made on September 25, 1967, became merged in the Commissioner's order of September 19, 1969. The Commissioner's order became, in the circumstances, the only operative order. Mr. Mukherjee relies on Commissioner Of Income Tax, Bombay v. Amritlal Bhogilal & Co., [1958] 34 ITR 130 (SC) and Shankar Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat, (1969) 2 SCC 74 : AIR 1970 SC 1. The first case is a case relating to an order on appeal and the second case is a case of revisional order. We shall examine later in this judgment whether an order under section 263 is either an order on appeal or a revisional order.

9. The third contention of learned counsel is that in the exercise of the power conferred by section 263 when the Commissioner revises an assessment by the inclusion of a new item omitted by the Income-tax Officer, the Commissioner actually exercises powers under section 143(3) read with section 263 determining the exact sum which the assessee has to pay. The expression “pass such order thereon” in section 263 postulates the order under section 143(3). Reliance was placed on the Supreme Court's decision in State of Orissa v. Debaki Debt, [1964] 15 STC 153 (SC), on the applicability of limitation provided in the second proviso to section 12(6) of the Orissa Sales Tax Act, 1947. The provisions of the statute which the Supreme Court considered in this case were not the same as the provisions we have to consider in the instant reference. It seems to us that this case would not be of any assistance in answering the question referred to us.

10. The fourth contention of Mr. Mukherjee is that both the sections, namely, section 263 and section 153(1)(a) should be construed harmoniously so that the Commissioner's order under section 263 is made within 4 years within the meaning of section 153(1)(a). In other words, sub-section (2)(b) of section 263 does not enlarge the period of limitation which has been fixed by section 153(1)(a), but restricts the Commissioner's power to pass an order under section 263 within two years of the order passed by the Income-tax Officer. The scope of section 153(1)(a) cannot be extended by implication. Mr. Mukherjee has strongly urged that the Commissioner must pass an order under section 263 within the four years prescribed by section 153(1)(a) subject to the limitation that it must also be an order passed within two years of the Income-tax Officer's order. He has urged that if the Income-tax Officer passes an order within a year of the filing of return the Commissioner gets only two more years for passing his order under section 263 irrespective of the fact that section 153(1)(a) enables the order of assessment to be passed within four years.

11. On a careful consideration of all the above contentions which Mr. Mukherjee has raised, it seems to us that the provisions of section 153(1)(a) and those of section 263 are independent provisions in the Income-tax Act, 1961. These two sections are invoked by two independent authorities and the periods for exercise of powers by these two independent authorities have been specified in the Act itself. Neither of these sections can curtail or enlarge the period prescribed by the other section. It has further to be remembered that the Commissioner's power can be exercised only after the Income-tax Officer has passed an order. All that one has to see is whether the Commissioner has made an order within the period prescribed by scction 263 and in accordance with the provision thereof. The court would not be justified in imposing additional limitations on the Commissioner. We may in this connection refer to other instances of specified periods in the Act itself. For example, section 154 deals with rectification of mistake. And under sub-section (7) of section 154 no mistake can be rectified save as otherwise provided in section 155 or section 186(4) after the expiry of four years from the date of the order sought to be amended. Similarly, section 104 provides for imposition of super-tax on undistributed income of certain companies. Under section 106 the period of limitation for making orders under section 104 is 4 years from the end of the assessment year relevant to the previous year referred to in sub-section (1) or one year from the end of the financial year in which the assessment or reassessment of the profits and gains of the previous year aforesaid is made, whichever is later. We have given these instances just to show that the statute prescribes different periods of limitation for different types of orders by different authorities. Section 153, in our opinion, deals with the period of limitation so far as the Income-tax Officer's assessment order is concerned. It cannot affect an order which the Commissioner is entitled to pass under section 263 within the special period of limitation prescribed by that section. We do not agree with Mr. Mukherjee that the Income-tax Officer's assessment order merged in the Commissioner's order under section 263. The Commissioner's order was neither an order on appeal nor was it an order in revision. The Commissioner by exercise of his independent power under section 263 directed the Income-tax Officer to levy interest. Such an order by no stretch of imagination can be said to be an order of a superior court or authority in which the order of an inferior court or authority became merged. It may be that when the Commissioner in exercising power under section 263 enhances or modifies an assessment, the Income-tax Officer's order would merge in the Commissioner's order. But even in that case the period of limitation of the Commissioner's order would be the one prescribed by sub-section (2)(b) of section 263.

12. In the premises our answer to the question is that the assessment order dated the 25th September, 1967, did not merge with the order of the Commissioner of Income-tax dated the 19th September, 1969. The Commissioner's order dated the 19th September, 1969, is not barred by limitation. The answer, therefore, is in the negative and in favour of the revenue. There Will be no order as to costs.

Deb, J.:— I agree.