Gauhati High Court
Commissioner Of Income-Tax vs M. Pyngrope on 31 March, 1992
Equivalent citations: [1993]200ITR106(GAUHATI)
Author: Chief Justice
Bench: Chief Justice
JUDGMENT U.L. Bhat, C.J.
1. The following question has been referred to this court under Section 256(1) of the Income-tax Act, 1961 (for short, "the Act"), by the Income tax Appellate Tribunal, Gauhati Bench, Gauhati, at the instance of the Revenue :
"Whether the Tribunal was justified in holding that the Appellate Assistant Commissioner of Income-tax was justified in entertaining an appeal by the assessee against an assessment order made under Section 143(1) accepting the return of income submitted by the assessee?"
2. The assessee is an employee of the Meghalaya Government. He submitted under Section 139 of the Act his return of income on March 16, 1979, for the assessment year 1978-79, the accounting period being 1977-78. The Income-tax Officer accepted the return as correct and complete and assessed the total income of the assessee and determined the tax payable by him under Section 143(1) of the Act The assessee filed an appeal before the Appellate Assistant Commissioner claiming that his income is exempt from income-tax under Section 10(26) of the Act. The Appellate Assistant Commissioner entertained the appeal, accepted the claim of the assessee for exemption under Section 10(26) of the Act. The Department filed an appeal before the Tribunal contending that the appeal was not maintainable under Section 24G(1)(c) of the Act and also contending that the assessee is not entitled to exemption under Section 10(26) of the Act. The Tribunal upheld the contentions of the assessee and dismissed the appeal. Thereupon, the Department filed a reference application before the Tribunal to refer the question of entertainability of the appeal and also certain other questions arising in regard to the claim under Section 10(26) of the Act. The Tribunal referred only the question of entertainability of the appeal and declined to refer the questions arising on merits.
3. Shri D. K. Talukdar, learned standing counsel for the Revenue, desired to make submissions in regard to the merits of the case which the Tribunal declined to refer to the High Court. We did not permit him to make the submissions as they do not arise in this reference.
4. It is contended for the Revenue that when a return is made and the same is accepted as correct and complete by the Income-tax Officer and an assessment is made on that basis, while it may be open to the assessee to file an application under Section 143(2) of the Act, or to invoke the revisional jurisdiction under Section 264 of the Act, the order cannot be challenged in appeal under Section 246(1)(c) of the Act. These contentions are rebutted by learned counsel for the assessee, according to whom the first part of Clause (c) of Section 246(1) is wide enough to include an appeal preferred by an assessee where assessment is made accepting the return of the assessee who had omitted to claim exemption in the return.
5. Section 139 deals with the return of income. Sub-section (1) provides that every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, before the date stipulated in the section. Sub-section (6) states that the prescribed form shall require the assessee to furnish, inter alia, the particulars of income exempt from tax. Other provisions of Section 139 are not relevant for the purpose of this reference.
6. Section 143 of the Act deals with assessment. According to Sub-section (1)(a) where a return has been made under Section 139, the Income-tax Officer may, without requiring the presence of the assessee or the production by him of any evidence in support of the return, make an assessment of the total income of the assessee after making such adjustments to the income declared in the return as are required to be made under Clause (b), with reference to the return and the accounts and documents, if any, accompanying it, and determine the sum payable by the assessee on the basis of such assessment. The adjustments to be made are mentioned in Clause (b). The Income-tax Officer shall rectify any arithmetical errors in the return, accounts and documents ; allow any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents is, prima facie, admissible, but is not claimed in the return ; disallow any deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents, is, prima facie, inadmissible and give due effect to the allowance referred to in Sub-clause (iv). Sub-section (2)(a) enables such an assessee, within one month from the date of service of the notice of demand issued in consequence of such an assessment, to make an application to the Income-tax Officer objecting to the assessment. Sub-section (2)(b) empowers the Income-tax Officer to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, by serving a notice on him, though in a case where an assessment has been made under Sub-section (1), the notice under Subsection (2)(a) shall not be issued by the Income-tax Officer without obtaining the previous approval of the Inspecting Assistant Commissioner. Sub-section (3)(a) relates to the making of assessment in such cases where no assessment has been made under Sub-section (1). Sub-section (3)(b) relates to cases where an assessment has been made under Sub-section (1) and either it is objected to by the assessee by an application under Subsection (2)(a) or the Income-tax Officer is satisfied that the assessment is incorrect, inadequate and incomplete in any material respect. In such cases, the Income-tax Officer shall make a fresh assessment. Section 144 deals with best judgment assessment in cases of failure to make a return required by any notice given under Section 139(2), or failure to make a return or a revised return under Section 139(4) or 139(5), or failure to comply with all the terms of a notice issued under Section 142(1), or failure to comply with any direction issued under Section 142(2A), or failure to comply with all the terms of a notice issued under Section 143(2).
7. Chapter XX of the Act deals with appeals and revisions. Section 246 deals with appealable orders. We are concerned in this case with Clause (c) of sub section (1) of Section 246, which reads thus :
"246. (1) Subject to the provisions of Sub-section (2), any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order--. ..
(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;..." (emphasis * supplied ).
8. We may also refer to Sections 263 and 264 of the Act. Section 263 deals with the power of the Commissioner to call for and examine the record of any proceeding under the Act and to revise the order in so far as it is prejudicial to the interests of the Revenue. Section 264 deals with revision of other orders. The Commissioner is empowered suo motu or on an application by the assessee for revision, to call for the record of any proceeding under this Act in which any such order has been passed and may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit. There can be no dispute that if the order of assessment in this case is not appealable under Section 246(1)(c) of the Act, it would be revisable under Section 264.
9. Section 246(1)(c) deals with two contingencies, namely (i) an order against the assessee, where the assessee denies his liability to be assessed under this Act, or (ii) any order of assessment under Sub-section (3) of Section 143, or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed. The order of assessment in this case is not one under Section 143(3) or Section 144. The Appellate Assistant Commissioner and the Tribunal have taken the view that it is an order against the assessee where the assessee denies his liability to be assessed under this Aet, and this finding is supported by the assessee and disputed by the Revenue.
10. The first part of Section 246(1)(c) of the Act refers to denial of liability by the assessee to be assessed under the Act. The words used in the first part of Section 246(1)(c) are of wide import and amplitude and do not contain any restriction regarding the stage of denial. There is no restriction imposed to the effect that the order will be appealable only where the assessee had denied his liability to be assessed under the Act in the return. Such denial could be made at any stage. In relation to the first part of Section 246(1)(c), the Legislature used the words "assessee denies" his liability to be assessed ... In regard to any order of assessment under Section 143(3) or Section 144, the Legislature has used the words "assessee objects" to the amount of income assessed ... The word "objects" relates to the amount of income assessed or to the amount of tax determined, or to the amount of loss computed or to the status under which he is assessed. In other words, the objection is to be in relation to certain findings already arrived at by the Income-tax Officer in his order of assessment. It is clear that even where such a contention has not been raised before the Income-tax Officer, it is open to the assessee to raise such an objection by way of an appeal under Section 246(1)(c). Whenever such an objection is to be raised before the appellate authority, an appeal would lie. The word "denies", in relation to an order against the assessee dealt in the first part of Section 24G(1)(c), has been used deliberately to suggest that denial could be by way of an appeal before the Appellate Assistant Commissioner even if such a denial had not been made in the return filed before the Income-tax Officer. The words "denies" and "objects" are words importing the present continuous state of affairs. They do not import a past state of affairs. There is no warrant to cut down the wide import of the words used in the first part of Section 24G(1)(c) and restrict the right of appeal only to orders where the assessee had in the return denied his liability to be assessed under the Act. The provision would certainly take in cases where the assessee for the first time in the appeal denies his liability to be assessed under the Act even if he had not denied such liability in the return or at any stage before the Income-tax Officer.
11. We have been referred to a number of decisions by both sides. We will presently advert to the same.
12. Rani Anand Kitnwar v. C/r[1940] 8 ITR 126 (Oudh), is a decision of a Division Bench of the Oudh Chief Court under the provisions of the Indian Income-tax Act (XI of 1922) (for short, "the 1922 Act"). The assessee in that case submitted returns on receipt of notices and the Income-tax Officer accepted the returns without any further notice and assessed her on that basis. The assessee appealed before the Assistant Commissioner of Income-tax under Section 30 of the 1922 Act denying her liability to be assessed under the Act and the appeals were dismissed. It was argued for the Revenue that there was no denial before the Income-tax Officer and, therefore, no appeal lay under Section 30 of the 1922 Act which contained the words "Any assessee . . . denying his liability to be assessed under this Act . . ,". The Chief Court observed (at page 129) :
"The words 'denying his liability to be assessed under this Act' in Section 30(1) are not confined to the denial of liability before the Income-tax Officer but include, and must include, his denial in the appeal filed by him."
13. The court also observed (at pages 128 and 129) :
"There is nothing in the Indian Income-tax Act to justify the view that it is incumbent upon the assessee to deny his liability to assessment before the Income-tax Officer to invest him with a right of appeal under Section 30 of the Act."
"Mere filing of a return, therefore, cannot be said to be tantamount to an admission by the person submitting the return that he is liable to assessment ... It is contemplated that this assessment may be made without any further notice to the assessee, and, therefore, in case the Income-tax Officer has accepted the return, there is no opportunity for the assessee to appear before him and put forward his objection on the ground that he is not liable to assessment at all."
14. The following observation also has to be noticed (at page 129) :
"To hold otherwise would be to deny the right of appeal to persons whose returns have been accepted by the Income-tax Officer although they had no opportunity of appearing before him. The words of Section 30(1) are very general and eonfer a right of appeal in unqualified terms under the conditions and contingencies enumerated in that clause."
15. It is brought to our notice that ultimately on the merits the assessee had to face an unfavourable verdict in the decision reported in Rani Anand Kunwar v. CIT [1943] 11 ITR 235 (Oudh). That has no bearing on the proposition laid down in the earlier decision. The observations of the Chief Court of Oudh support our conclusion.
16. Our attention is invited to a decision of the Madras High Court in M. M. Muthuwappa v. CIT [1962] 46 ITR 1107. The case relates to a best judgment assessment. The decision is not helpful except to the extent it lays down that an assessee in appeal can raise the question of non-liability to assessment under the Act and this right to raise the question cannot be denied on the ground that he has not raised the contention before the Income-tax Officer.
17. The decision of the High Court of Mysore in Honorary Secretary, Kaniyara Seva Samaj v. State of Mysore [1969] 23 STC 155, arose under the parallel provisions of the Mysore Sales Tax Act (25 of 1957). It was a case of assessment under Section 12(3) and the question was whether appeal would lie under Section 20. It was held that an appeal would lie and the fact that the assessment was made by consent did not take the order out of the purview of Section 20. This decision also supports the stand taken by the assessee.
18. Our attention is also invited to the decisions of the Allahabad High Court in Mohan Lal Khemka v. CIT [1971] 81 ITR 89, of the Supreme Court of India in CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 and of the Gujarat High Court in Mandal Ginning and Pressing Co. Ltd. v.
CIT [1973] 90 ITR 332. We do not find these decisions to be of much assistance.
19. In Chhat Mull Aggarwal v. CIT [1979] 116 ITR 694, a Division Bench of the Punjab and Haryana High Court held that an assessee is entitled to file an appeal against the order of the Income-tax Officer before the Appellate Assistant Commissioner in case of denial of liability to be assessed under the Act even in a case where the assessment order was passed on the admission of the assessee.
20. The observations of the Chief Court of Oudh, of the High Court of Mysore and of the Punjab and Haryana High Court support our view that an order of assessment passed by the Income-tax Officer accepting as correct and complete the return filed by an assessee is appealable if he denies, in the appeal, his liability for assessment under the Act, even though he had not raised such an objection before the Income-tax Officer.
21. The question referred to us is, therefore, answered in the affirmative, that is, against the Revenue and in favour of the assessee. A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Appellate Tribunal. No costs.