Case Referred No. 4775(W) of 1976

Decided on May 19, 1983

The Judgment of the Court was delivered by

D.K Sen, J.:— New India Investment Corporation Ltd., the petitioner, was at the material time and still is an assessee within the meaning of the I.T Act, 1961. The petitioner's income, it is alleged, consists of, inter alia, profits from dealing in shares, dividends, interest on loans and interest from Government securities. The petitioner maintains its accounts in accordance with the mercantile system.

2. It is alleged that in 1970, the petitioner advanced money on interest to Bagla & Co. At the beginning of the accounting year 1972 the balance due from Bagla & Co. was Rs. 12.10 lakhs. Bagla & Co., it is alleged, had financial difficulties and on the 3rd August, 1972, an agreement was entered into by and between the petitioner and Bagla & Co. which provided that Bagla & Co. would repay the principal amount of the advance in instalments and that no interest would be charged by the petitioner in respect of the amounts outstanding in the past and also in the future. It is alleged that this agreement was entered into by the petitioner on the ground of commercial expediency. In the profit and loss account of the petitioner for the accounting year 1972 the amount of interest accrued up to the 31st December, 1971, being Rs. 32,050.69, was written off as a bad debt. The petitioner alleges that it had also advanced money on interest to Central Cotton Mills Ltd., which became a sick undertaking, closed down on the 1st of June, 1970, and remained closed till the 3rd March, 1972, when the management thereof was taken over by the Govt. of India and thereafter by the National Textile Corporation Ltd. From the balance-sheet of Central Cotton Mills Ltd. as on the 31st March, 1971, it appeared that there was little chance of recovery of the unsecured loan advanced by the petitioner. The Sick Textile Undertaking (Nationalisation) Ordinance, 1974, under which compensation was payable for taking over of the undertaking provided that such compensation would be utilised first for payment of secured loans and other prior claims and thereafter for payment of unsecured loans. By reason of the aforesaid and as advised, the petitioner did not provide for interest due on the said loan amounting to Rs. 1,16,100 in the accounting year 1972.

3. On the 21st June, 1973, the petitioner filed its return of income for the assessment year 1973-74 showing a nil total income and claimed refund of Rs. 45,269, being the tax deducted at source. The audited profit and loss accounts, balance-sheet and directors' report for the accounting year 1972, were filed with the return. In the accounts, the said Rs. 32,050.69 was shown as written off as an irrecoverable debt and deductible in the computation of the total income of the petitioner. It was disclosed that no provision for interest due on the loan to Central Cotton Mills Ltd. had been made. Other particulars of the petitioner's income were fully disclosed.

4. On the 19th March, 1976, the ITO, Central Circle XXXII, Calcutta, the respondent No. 1 herein, made an order of assessment on the 17th March, 1976, under s. 143(3) of the I.T Act, 1961, of the income of the petitioner for the assessment year 1973-74.

5. In the said order the respondent No. 1 determined the total income of the petitioner for the said assessment year at Rs. 50,230. In computing such income the respondent No. 1 disallowed the said claim of bad debt of Rs. 32,051 and also made an addition of Rs. 1,16,100 as interest accrued and receivable from Central Cotton Mills Ltd.

6. The petitioner contends that the aforesaid additions and disallowances were illegal and arbitrary. The petitioner contends further that apart from the said additions and disallowances the respondent No. 1 did not allow relief to the petitioner under s. 80K of the I.T Act, 1961, and made an allowance, less than what the petitioner was entitled to under s. 80M of the said Act.

7. The petitioner also contends that in making the said assessment the respondent No. 1 made variation in the income or loss of the petitioner by an amount exceeding Rs. 1 lakh. On the basis of the said order of assessment the respondent No. 1 issued a notice dated the 17th March, 1976, under s. 156 of the I.T Act, 1961, for the said assessment year and determined the amount of tax refundable to the petitioner at Rs. 10,394 instead of at Rs. 45,269. The respondent No. 1 also issued a notice under s. 274 read with s. 271 of the said Act, dated 17th March, 1976, initiating proceedings for penalty against the petitioner.

8. The petitioner contends that under ss. 144A and 144B, which came into force on and from the 1st January, 1976, in an assessment to be made under s. 143 of the I.T Act, 1961, where the ITO proposed to make any variation in the income or loss returned prejudicial to the assessee and if the amount of such variation exceeded the amount fixed by the Board under sub-s. (6) of s. 144B of the Act, the ITO was required in the first instance to forward a draft order of the proposed assessment to the assessee on receipt whereof the assessee was given an option to prefer an objection to the proposed order. If any objection was preferred by the assessee within the prescribed time the ITO had to forward the draft order with the objection to the IAC who was required to give directions for making the assessment on the ITO after considering the records, the draft order and the objections and after affording the assessee an opportunity of being heard.

9. By an order made under s. 144B of the Act the CBDT has fixed the amount of such variation at Rs. 1 lakh for the purpose of s. 144B(1) of the Act.

10. The petitioner contends that, in the instant case, the respondent No. 1 having made a variation in the income or loss returned by the petitioner for the said assessment year 1973-74 exceeding Rs. 1 lakh by reason of disallowance of the said claim of bad debt, and, by reason of the said addition of Rs. 1,16,100 failed to comply with the provisions of s. 144B of the said Act, the petitioner contends further that it was incumbent on the respondent No. 1 to forward a draft order of assessment to the petitioner so that the petitioner could object to the same and that the matter could be finally determined by the IAC. The petitioner contends that in the premises the said order of assessment dated the 17th March, 1976, under s. 143(3) of the I.T Act, 1961, is ultra vires the I.T Act, illegal, without jurisdiction and a nullity. The petitioner contends further that the penalty proceedings following the said purported assessment is also wrongful and illegal.

11. The petitioner contends that on a proper construction of s. 144B of the said Act, the variations referred to therein do not relate to the total income or loss but the income or loss as returned and in the event it is held that the Board in fixing the amount of Rs. 1 lakh has laid down that variation to the extent and over the said amount must be construed to mean the total income as returned and the total income as assessed, then such determination was also ultra vires s. 144B of the Act and must be interpreted to mean variation not in the total income or loss but in the income or loss as returned.

12. The petitioner moved the present application on the 15th April, 1976, when a rule nisi was issued calling upon the respondents, namely, the ITO, Central Circle XXXII, Calcutta; the IAC, Range-V (Central), Calcutta, the CIT (Central), Calcutta, the CBDT and the Union of India to show cause why appropriate writs should not be issued directing them to cancel, recall and withdraw the impugned order of assessment and notices and proceedings following the same, to refrain from proceeding further on the said impugned assessment, notices and proceedings and for setting aside and/or quashing the same.

13. Bimal Chandra Chatterjee, the ITO, Central Circle XXXII, Calcutta, the respondent No. 1, has affirmed an affidavit on the 25th February, 1977, which has been filed in opposition to the petition. It is, inter alia, alleged in this affidavit that at the beginning of the accounting period the balance of the principal amount with interest due from Bagla & Co. to the petitioner was Rs. 12.10 lakhs. This amount included interest of Rs. 32,050.60. During the accounting period Rs. 4.10 lakhs was repaid by Bagla & Co. to the petitioner and subsequently Bagla & Co. paid the balance of the entire principal of Rs. 11.65 lakhs in the agreed instal ments. Interest amounting to Rs. 32,050.60 was, however, not repaid.

14. It is alleged that as Bagla & Co. were able to pay the entire principal amount of Rs. 1165 lakhs, it could not be held to be financially unsound and there is no justification for non-payment of interest of Rs. 32,050.60. It is denied that the petitioner had forgone interest on the ground of commercial expediency.

15. It is admitted that Central Cotton Mills Ltd. remained closed till 1972. It is alleged that thereafter the management of the undertaking of the said company was taken over by the Central Government and ultimately made over to the National Textile Corporation Ltd. The undertaking, it is alleged, has since commenced business and it is premature to anticipate that a loan of Rs. 12.90 lakhs would not be repaid in future. The petitioner did not take any steps for recovery of the said loan undisputed by the National Textile Corporation. It is contended that following the mercantile system of accounting the petitioner should have provided for the interest accrued on the said loan which was considered as receivable and included in the petitioner's income.

16. It is alleged that as the petitioner failed to furnish dividend certificates in respect of a number of items, the ITO had no other alternative but to complete the assessment by allowing credit on certificates already filed allowing deduction under s. 80M of the I.T Act, 1961, on the basis thereof as the assessment would otherwise have become time barred.

17. It is contended that the petitioner having submitted a “nil return” and its total taxable income being determined to be Rs. 50,230, the variation did not exceed Rs. 1 lakh and s. 144B of the Act was not attracted.

18. Banechand Malu, a director of the petitioner, has affirmed an affidavit on the 24th October, 1979, which has been filed in reply to the aforesaid affidavit of Bimal Chandra Chatterjee. It is, inter alia, contended in this affidavit that under the Sick Textile Undertakings (Nationalisation) Act, 1974, no legal steps can be taken for recovery of any outstanding loan against the National Textile Corporation and, in any event, the said loan is not repayable by the said Corporation. The petitioner in the circumstances treated the loan as irrecoverable and did not provide for any interest thereon. It is contended further that in the instant case variations exceeding Rs. 1 lakh has been made in respect of the income returned by the petitioner and, therefore, the provisions of s. 144B of the Act were attracted.

19. Apurba Mazumdar, the ITO, ‘L’ Ward, Companies District-II, Calcutta, has affirmed a further affidavit on the 4th February, 1980, which has been filed in this proceeding with leave of court. It is alleged in this affidavit that the petitioner accepted the impugned assessment and demanded Rs. 10,394 found refundable. It is alleged further that on the 17th April, 1976, the petitioner preferred an appeal against the said order of assessment which is pending. One of the grounds taken in the appeal is that the impugned assessment was without jurisdiction. It is alleged that the hearing of this appeal has been adjourned from time to time on the ground of pendency of the present proceeding in this court.

20. It is alleged that the petitioner intends to continue with two parallel proceedings in respect of the same subject-matter and, therefore, is not entitled to any relief in the present writ application which should be dismissed in limine. The petitioner is also not entitled in law to withdraw the appeal already filed.

21. Learned advocate for the petitioner submitted at the hearing that the expression “the income or loss returned” in s. 144B(1) of the Act meant and referred to different heads or items of income or loss shown in the return filed by the assessee. Such income or loss under each separate head had to be computed separately in accordance with the various provisions of the Act relating to each head and were required to be shown in the return separately in different columns. The form of the return was prescribed under the Act and related to computation of income or loss under different heads.

22. Learned advocate submitted further that the expressions “total income” and “income or loss returned” were distinct and separate concepts under the Act and were defined separately. The expression “total income” meant the aggregation of income computed under different heads referred to in s. 14 of the Act.

23. It was next submitted that if the ITO made any variation in any of the items or heads of income or loss returned and such variation exceeded the specified amount, s. 144B(1) would be attracted, irrespective of the fact that the total taxable income or total loss was not varied beyond the specified amount. The income or loss returned could not mean and should not be equated with the expressions “total income” or “total taxable income”. The Legislature advisedly used the expressions “income or loss returned” and the same must be given a specific meaning.

24. Learned advocate submitted that in the instant case an addition of more than one lakh of rupees had been made under the head income from other sources and, therefore, the assessment came within the mischief of s. 144B of the Act.

25. Learned Advocate for the petitioner submitted in conclusion that the pendency of the appeal against the order of assessment did not bar this court from exercising its jurisdiction under art. 226 of the Constitution inasmuch as the petitioner had challenged the impugned assessment as ultra vires the I.T Act and as being without jurisdiction. The petitioner was prepared to give an undertaking that it would not press the above points in the appeal, which otherwise involved adjudication on the quantum and the method of assessment, which could not be dealt with by this court in this application.

26. In support of his contentions learned advocate for the petitioner cited the following:

(a) STO v. Timber & Fuel Corporation, [1973] 31 STC 585 (SC). In this case, the assessee challenged an assessment made under the M.P Sales Tax Act in the. High Court of Madhya Pradesh by an application under art. 226 of the Constitution on the ground that the sales tax authority concerned had no jurisdiction to initiate the said assessment proceedings. Prior thereto, the assessee had preferred an appeal against the assessment. The High Court held that though it was open to the assessee to proceed under the provisions of the Sales Tax Act against the impugned order, in the circumstances of the case it was open to the court to interfere with the impugned order at the initial stage itself and quash the entire proceedings. On further appeal, the Supreme Court declined to interfere with the discretion exercised by the High Court.

(b) Municipal Council, Khurai v. Kamal Kumar, AIR 1965 SC 1321. This decision was cited for the following observations of the Supreme Court (p. 1324):

“It is true that the High Court would not ordinarily entertain a petition under art. 226 of the Constitution where an alternative remedy is open to the aggrieved party. Though that is so the High Court has jurisdiction to grant relief to such a party if it thinks proper to do so in the circumstances of the case. In the present case, the High Court has chosen to exercise discretion in favour of the respondents and it would not be right for us to interfere with the exercise of that discretion unless we are satisfied that the action of the High Court was arbitrary or unreasonable. Nothing has been brought to our notice from which it could be inferred that the High Court acted arbitrarily in granting the writ prayed for to the respondents.”

(c) Tata Iron & Steel Co. Ltd. v. N.C Upadhyaya, [1974] 96 ITR 1 (Bom). In this case, the petitioner challenged a notice under s. 154 of the I.T Act, 1961, the orders of rectification made pursuant thereto and the notices on demand thereon in an application under art. 226 before the Bombay High Court. It was stated before the High Court that appeals had been filed by the petitioner against the rectification orders earlier and that the petitioner intended to withdraw the pending appeals subject to the orders that may be passed in the proceedings before the High Court. The Bombay High Court accepted the submissions and heard the petition on merits.

(d) J.K Synthetics Ltd. v. O.S Bajpai, ITO, [1976] 105 ITR 864 (All). In this case a learned judge of the Allahabad High Court held that if an order had been passed in violation of the principles of natural justice, is without or is in excess of jurisdiction, or suffered from a patent error, the court could legitimately interfere under art. 226 of the Constitution in spite of the existence of an alternative remedy and in spite of the fact that such alternative remedy had been resorted to.

27. The learned advocate for the Revenue has contended to the contrary. He submitted that this application should be dismissed in limine in view of the pending appeals. In support of his contentions learned advocate cited the following decisions:

(a) Bharat Board Mills Ltd. v. Regional Provident Fund Commissioner, AIR 1957 Cal. 702. In this case, H.K Bose J. (as his Lordship then was), did not entertain a writ application on the ground that the petitioner by pursuing the remedies provided under the Bengal Public Demands Recovery Act had precluded itself from taking recourse to art. 226 of the Constitution.

(b) CIT v. Rai Bahadur Hardutroy Motilal Chamaria, [1967] 66 ITR 443 (SC).

(c) Dhaniram Gupta v. Union of India, [1973] 89 ITR 281 (Cal). In this case, Sabyasachi Mukharji J. (as his Lordship then was), held that where the alternative remedy of an appeal has been resorted to, the same cannot be abandoned as under the scheme of the I.T Act, an appeal against an assessment once preferred by the assessee cannot be withdrawn. His Lordship further held that in order to avoid conflict of decisions, the court would hesitate to entertain an application under art. 226 of the Constitution where an appeal was pending. In the facts of that case the application was dismissed.

28. It is to be considered, first, whether the present application is maintainable in view of the alternative remedy by way of appeal provided under the I.T Act, 1961, which has been availed of Apart from the decisions cited on behalf of the petitioner, the Supreme Court considered this question from time to time and laid down the law. In Union Of India v. T.R Varma , AIR 1957 SC 882, it was observed that the existence of another remedy did not affect the jurisdiction of the court to issue a writ under art. 226 of the Constitution but that the existence of an alternate adequate legal remedy was a thing to be taken into consideration in the matter of granting writs.

29. This has been reiterated by the Supreme Court subsequently: (see A.V Venkateswaran v. R.S Wadhwani, AIR 1961 SC 1506, Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 (SC), Collector of Monghyr v. Keshav Prasad Goenka, AIR 1962 SC 1694, Collector of Customs and Excise, Cochin v. A.S Bava, AIR 1968 SC 13, Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, AIR 1969 SC 556).

30. It has been further laid down by the Supreme Court that where the petitioner challenges the jurisdiction of a statutory authority and seeks a writ in the nature of prohibition the court should not refuse to exercise discretion in favour of the petitioner though there may be an alternative remedy: (see Bengal Immunity Co. Ltd. v. Stale of Bihar, [1955] 6 STC 446; AIR 1955 SC 661, Collector of Customs and Excise, Cochin v. A.S Bava, AIR 1968 SC 13).

31. The Supreme Court also observed in I. Hirday Narain v. Income Tax Officer, Bareilly† , [1970] 78 ITR 26, that once a petition under art. 226 is entertained and heard on merits the same should not be dismissed on the ground of the existence of an alternative remedy.

32. In the instant case, the petitioner has admittedly challenged the jurisdiction of the ITO to vary the return submitted and make an order of assessment under s. 143(3) of the Act. A rule nisi has been issued and is now being heard on merits. A question of law arising on a new section of the I.T Act is being considered by the court as a matter of first impression. A large number of rules are pending in this court on the same point.

33. It appears that litigation may be shortened and multiplicity of proceedings can be avoided if the question mooted before the court is disposed of in this application.

34. For the reasons above, I am not inclined to accept the preliminary objection of the Revenue that the rule should be discharged on the ground that an alternative remedy has been invoked by the petitioner.

35. The main point on merits in the present application arises out of the interpretation of s. 144B of the I.T Act, 1961, and the scope and effect thereof. To appreciate the question it is necessary to refer to the relevant provisions of the I.T Act, 1961.

“2. (24) ‘Income’ includes—

(i) profits and gains;

(ii) dividend;

(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution.

Explanation.—For the purposes of this sub-clause, ‘trust’ includes any other legal obligation;

(iii) the value of any perquisite or profit in lieu of salary taxable under clauses (2) and (3) of section 17;

(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid;

(v) any sum chargeable to income-tax under clauses (ii) and (iii) of section 28 or section 41 or section 59;

(va) the value of any benefit or perquisite taxable under clause (iv) of section 28;

(vi) any capital gains chargeable under section 45;

(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule;

(viii) any annuity due, or commuted value of any annuity paid, under the provisions of section 280D;

(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.”

“2.(45) ‘Total income’ means the total amount of income referred to in section 5, computed in the manner laid down in this Act.”

“4.(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate, or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person : …”

“5.(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived…”

“14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:—

A. Salaries. B. Interest on securities. C. Income from house property. D. Profits and gains of business or profession. E. Capital gains. F. Income from other sources.”

“139. (1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.”

“144B. (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.

(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf.

(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order.

(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment:

Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard.

(5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income-tax Officer.

(6) For the purposes of sub-section (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from to time, such amount as it deems fit:

Provided that different amounts may be fixed for different areas:

Provided further that the amount fixed under this sub-section shall, in no case, be less than twenty-five thousand rupees.

(7) Nothing in this section shall apply to a case where an Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under section 125 or section 125A.”

36. From the scheme of the Act, it appears that under s. 139 a person is expected to furnish a return of his income when his total income becomes assessable having exceeded the maximum amount not chargeable to income-tax. Under sub-s. (1) of the said section a person is also entitled to file a return showing a loss for any particular previous year. I take the view that what is expected to be returned is the total income or loss suffered by the assessee in any particular year.

37. Under s. 2(45) of the Act, “total income” means the total amount of income referred to in s. 5, computed in the manner laid down in the Act.

38. I note that under s. 14 of the Act, computation of total income will have to be done under classifications for various heads of income and that in the prescribed form particulars of income under different heads have to be furnished by the assessee.

39. The return, in my view, ultimately relates to and has to show the total income or loss of the assessee. The different heads are required to be shown only for the purpose of computation. I hold that under s. 144B the expression “the income or loss returned” refer to total income or loss as shown in the return of the assessee after computation and not to the amounts shown under different heads of income.

40. It follows, therefore, that if the variation in such total income or loss exceeds the limit prescribed by the Board, only then s. 144B will come into operation and not otherwise. The said section does not refer to the various heads and cannot be invoked if in the calculation a variation over the prescribed limit occurs.

41. In the instant case, the assessee had filed a “nil” return, which has been rejected by the ITO, who has computed the income at about Rs. 50,000. The variation, therefore, is less than the prescribed limit of Rs. 1 lakh and thus s. 144B of the Act is not attracted in this case. To give an example, if the return showed a loss of Rs. 50,000 and the variation was made by computing the income over Rs. 50,000 the total variation might have exceeded Rs. 1 lakh as a negative income of Rs. 50,000 would be converted into a positive income of over Rs. 50,000

42. For the reasons aforesaid, the petitioner fails in this application.

43. The rule is discharged.

44. There will be no order as to costs. It is made clear that the other contention of the petitioner in this application or in the pending appeal have not been adjudicated upon.

45. On the prayer of the learned advocate for the petitioner, the operation of the above order is stayed for six weeks from date.