Calcutta High Court
Koppind Pvt. Ltd. vs Commissioner Of Income-Tax on 31 March, 1993
Equivalent citations: [1994]207ITR228(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee, the following question has been referred by the Tribunal for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that business loss of Rs. 5,41,220 claimed in the return filed in response to notice under Section 148 of the Income-tax Act, 1961, could not be allowed to be carried forward as the said return could not be treated as a return filed under Section 139(2) and within the time specified in Section 80 of the Income-tax Act, 1961 ?"
2. The facts briefly stated are that the assessee-company, in the period relevant to the assessment year 1978-79, carried on business as dealers in engineering goods and of consultancy. The previous year of the assessee ended on December 31, 1977. The assessee was to submit its return under Section 139(1) of the Act by June 30, 1978. The assessee did not submit any voluntary return even within the time prescribed under Section 139(4) of the Act. Subsequently, in response to notice under Section 148 of the Act which was served on the assessee on September 16, 1981, the assessee-company filed a return on September 25, 1981, claiming business loss of Rs. 5,99,310. The Income-tax Officer, as per his order dated December 26, 1984, computed the business loss including depreciation at Rs. 5,94,370. He allowed carry forward of depreciation of Rs. 53,150 to be set off against profit of subsequent years but refused to allow carry forward of business loss as the income-tax return for the said year was not filed within the time allowed under Section 139(1) of the Act.
3. Being aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals). It was claimed that the return filed in response to notice under Section 148 should be treated as a return filed under Section 139(2) of the Act. Before the Commissioner of Income-tax (Appeals), the assessee relied upon certain decisions of the Calcutta, Madras, Andhra Pradesh and Madhya Pradesh High Courts. The Commissioner of Income-tax (Appeals), after considering relevant material, held that the provisions of Section 147/148 of the Act could not be extended to mean that the assessee was entitled to further time beyond what was allowed under Section 139(4) for filing a return and to claim carry forward of loss. He, accordingly, rejected the plea of the assessee that it be allowed the benefit of carry forward of loss.
4. On further appeal, the contentions advanced before the lower authorities were reiterated before the Tribunal. It was claimed that the return filed in response to the notice under Section 148 was required to be treated as a return filed under Section 139(2) and, therefore, within the time specified under Section 80 of the Act, thus entitling the assessee to have the benefit of carry forward of business loss. It was further submitted that assessment in the case of the assessee was completed under sections 142 and 143 of the Act. Reliance was placed on the decision of the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. .
5. The Tribunal, on a consideration of the rival submissions, held that the return filed by the assessee on September 25, 1981, in response to the notice under Section 148 was not a return under any of the various subsections of Section 139 of the Act. After referring to the provisions of subsection (1) of Section 148, which require the Income-tax Officer to serve a notice upon the assessee containing all or any of the requirements included in a notice issued under Sub-section (2) of Section 139 before making assessment, reassessment or recomputation, the Tribunal held that only the machinery or procedural provisions of Section 139(2) were applicable in proceedings under Section 147/148 of the Act. The Tribunal held that the purpose of notice under Section 148 was different and distinct as was clearly mentioned in the section and the notices issued thereunder. The Tribunal, accordingly, held that the return submitted in response to notice under Section 148 of the Act could not be treated as a return submitted under Section 139(2) of the Act. It further held that the loss claimed in the return filed beyond the time specified by various subsections of Section 139 could not be determined or allowed to be carried forward in view of Section 80 of the Act. Accordingly, the Tribunal confirmed the view of Commissioner of Income-tax (Appeals) and rejected the appeal of the assessee.
6. It was submitted on behalf of the assessee that the assessee is entitled to the carry forward of loss even when it is determined in pursuance of the return which was filed under Section 148 and filed beyond the time under Section 139. Support was drawn from the decisions of this court in Burdwan Wholesale Consumers' Co-operative Society Ltd. v. CIT as well as Himmatsingha Motor Works Ltd. v. CIT .
7. We have gone through the said decisions of this court. But, it is only the decision in Burdwan Wholesale Consumers' Co-operative Society Ltd. , which avails the assessee and not the other one, viz., Himmatsingha Motor Works Ltd. , because in that case, the notice under Section 148 was served and the return of loss filed before the time for filing the voluntary return under Section 139(4) expired. In the former case which is in favour of the assessee, this court has principally relied on the language of Section 148 which is in the following terms :
"Section 148. (1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as in the notice were a notice issued under that sub-section.
(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so."
8. In the said decision (Burdwan Wholesale Consumers' Co-operative Society Ltd. ), it has been held that the notice under Section 148 is in effect a notice under Section 139(2) of the Act because Section 148 itself says that the notice under Section 148 shall contain all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139. It further says that the provisions of the Act shall apply thereafter as if the notice were a notice under Section 139(2). The Division Bench deciding that case held that the words of Section 148 give rise to a legal fiction. By virtue of the deeming fiction a notice under Section 148 has the same force and effect for all purposes as a notice under Section 139(2). The said Division Bench further invoked the principle that a legal fiction is to be given the fullest possible effect.
9. The said decision also relied on the decision of the Madhya Pradesh High Court in Co-operative Marketing Society Ltd. v. CIT . But, the facts in that case were different. As in Himmatsingka Motor Works Ltd. , the notice under Section 148 in that case had been issued before the time for filing the return under subsection (4) of Section 139 expired. The Madhya Pradesh High Court held that the notice under Section 148 cannot take away or abrogate the assessee's right to file a belated return voluntarily under Section 139(4). Since the assessee was still left with time for filing the return of loss under Sub-section (4) of Section 139, the intervention of the notice issued under Section 148 did not matter. Section 80 would operate in such contingency. The chance issue of a notice under Section 148 even while the time for filing a voluntary return is still running, cannot abridge the assessee's statutory privilege of filing a voluntary return under Section 139(4). If it does, it will lead to hostile discrimination, for, another assessee not served with such notice shall be entitled to determination of loss under Section 139 coupled with the right to carry it forward for future set off simply because, fortuitously in his case, no notice under Section 148 is served.
20. The basic question before us is as it was before the Division Bench deciding the issue in Burdwan Wholesale Consumers' Co-operative Society Ltd. , whether the language of Section 148 creates a fiction. Even if it creates a fiction, what is the effect and purpose of such fiction and whether any extension of the fiction considered logical is really consistent with the object either of the fiction itself or the object of the provisions which the fiction is created to implement.
21. We consider that, if there be any fiction under Section 148, that fiction has limited use as machinery for carrying out the process of assessment or reassessment of the escaped income, as the case may be, under Section 147. Assessment in pursuance of a notice under Section 139(2) and assessment in pursuance of a return under Section 148 read with Section 147 have distinct and separate character and purpose. The purpose of Section 139 is not only to assess the income but also to assess losses and secure to the assessee the benefits or reliefs as the law avails. But, the purpose of assessment under Section 147, for which the enabling provision is Section 148, is to make up for any escapement of assessment.
22. Its purpose can by no means be assessment of loss for the first time. The Explanation below Section 147 rules out the first assessment of loss or increase in reassessment, of the loss determined in the original assessment. The Explanation leaves no manner of doubt that loss can feature in reassessment only where the loss determined earlier needs to be reduced. The determination of loss in assessment or reassessment under Section 147 is otherwise totally alien to the concept of escapement which is the subject-matter of sections 147 and 148. This will be very clear if we just go through the provisions of Section 147 as it stood at the material time.
"Section 147. If--(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)."
23. It is transparent from the language of the provision that Section 147 has a very limited field of operation. It comes into play only where the income has escaped assessment and in no other contingency. Even the heading of the section itself is "Income escaping assessment". Therefore, where the notice is issued under Section 148, i.e., the machinery provision for assessment in the event of income escaping assessment, an assessee cannot claim to be assessed by way of reassessment under Section 147 at a loss for the first time or at a higher loss than assessed or to claim that the reassessment is necessary to secure to him any benefit which had escaped for not having filed his return or not disclosing fully and truly all material facts. The provision is meant to be a safeguard against the loss of revenue for escapement of assessment. This is also clear from the way in which "escaped assessment" has been defined in Explanation 1 to Section 147. The cases of escapement are exhaustively enumerated in the said Explanation :
(a) where income chargeable to tax has been underassessed ; or
(b) where such income has been assessed at too low a rate ; or
(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance has been computed.
24. The Explanation can also be said to have introduced a fiction. Even loss can be the subject-matter of Section 147 as escapement of income if the loss determined in original assessment is excessive. This precludes the first determination of loss in a proceeding under Section 147. From a reading of Clause (d) of the Explanation, we can clearly visualise a prohibition on determination of loss for the first time in a proceeding under Section 147 on the basis of a return of loss filed in pursuance of a notice under Section 148.
25. Thus, underassessment of income or non-assessment of income is the subject-matter and also the purpose of this provision and underassessment may by fiction include over-assessment of loss. Therefore, the fiction, as referred to in the earlier decision of this court, is for the limited purpose of bringing to charge income not assessed and cannot overstep the said purpose.
26. The decision of the Division Bench of this court in the earlier case cited before us has discovered a fiction in Section 148. The decision held that the fiction, by its natural logical corollary, shall lead to all the consequences that a notice under Section 139(2) can. There is another fiction in Explanation l(d). That fiction is that the loss over-assessed is also deemed to be underassessment of income. Thus, we are actually in the midst of two fictions--the first fiction is that Section 148 activates Section 139(2) with all its resultants ; on the other hand, escapement of income by fiction includes over-assessed loss. This fiction thus limits and contains the other fiction in Section 148. The limitation is that there is no assessment or reassessment of loss as the ultimate result of the proceeding, unless notice under Section 148 is issued to reduce the loss earlier assessed. The fiction visualises two inhibitions --(i) there can be no assessment under Section 147 of a loss ; (ii) there can be only recomputation of loss under Section 147 for the purpose of reducing the earlier assessment of the loss. This aspect of the related provisions and the net outcome of the total reading has not come into focus in the said earlier decision, which we are urged to follow.
27. A fiction shall have its logical consequences but shall not go further than warranted by law. This position is also a well-entrenched principle. A fiction cannot be overworked to militate against the legislative intent. In this connection, we may refer to State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, , where it has been held that the fiction must be limited to the purpose for which it is created.
28. In any case, the fiction under Section 148 cannot be said to have the logical consequence of entitling an assessee in filing any return of loss to be assessed at a loss for carry forward and set off against future profit. The fiction is intercepted by the fiction in Clause (d) of Explanation 1 which allows loss to be a subject-matter of the proceedings under Section 147 only in the contingency of an earlier assessment of loss being excessive and needing to be cut back. The fiction stands in the way of a loss being determined for the first time under Section 147 read with Section 148. In our view, the true import of the expression "escaped assessment" precludes determination of the first return of loss not filed under Section 139 but filed under Section 148 after the time for filing voluntary return under Sub-section (4) of Section 139 has expired.
29. Section 148 only seeks to assess what has not been assessed and not brought to tax ; and as thu machinery to effectuate that function, it can avail itself of the same machinery available in a proceeding under Section 139(2). This does not mean a total and complete equation between sections 139(2) and 148. Nor does it allow the provisions of Section 148 to surpass its purpose.
30. Beaumont C. J. said in Madhavjee Thachersay v. CIT --"under Section 34 of the Act (repealed Act of 1922), it is income which has escaped assessment which can be subsequently charged and it is not open to an assessee when charged in that way .... to seek to be allowed credit in respect of some items which have been over-assessed...."
31. A Full Bench of this High Court in Satyendra Mohan Roy Chowdhury, In re , had also applied the same principle. If, in reassessment proceedings, it is found that the assessee's total income is actually less than the income assessed, the assessee would not be entitled to have the assessment revised under this section (see Kashinath Bagla v. CIT . Similarly, the assessee cannot claim a refund if the reassessment shows such refund to be due--Satyendra Mohan Roy Chowdhury .
32. In the said Full Bench decision, the assessee's counsel conceded and the Bench presided by Rankin C. J. approved that the step taken under Section 34 (of the Act of 1922) corresponding to the present Section 147 cannot give rise to a right in the assessee to make a claim for a refund and that the income-tax authority may at any time abandon the proceeding under the section. Rankin C. J. observed that the section (Section 34 ofthe Act of 1922) (at page 629) : "begins by contemplating a case in which income, profits or gains has escaped assessment and it says that the Income-tax Officer may serve a notice upon the person liable to pay tax on such income. The notice may contain all or any of the requirements which may be included in a notice under Section 22(2) (corresponding to present Section 139). The ultimate step is that the Income-tax Officer may proceed to assess such income. . . . Broadly speaking, as the section is expressed, it deals with income which has escaped assessment and it provides how the Income-tax Officer may proceed to assess it". Therefore, this court itself proceeded on the basis in that case that Section 147 is not a provision which seeks to do anything else than bringing to charge the escaped income.
33. It is also clear from the further observation of Rankin C. J. that the operation of Section 139(2) as companion to Section 148 is not the same operation of Section 139(2) in its regular independent sphere. He observed (at page 630) : "as a matter of the true construction of this section, Section 34 of 1922 Act (corresponding to Section 147 read with Section 148), it appears to me that, if the Legislature had meant to say that, if, in any case, it appears to the Income-tax Officer that an assessee has been assessed upon too low a figure or at too low a rate, the Income-tax Officer may issue a fresh notice under Section 22(2) (corresponding to Section 139(2)) and may proceed to reassess such assessee afresh, the language employed would have been noticeably different from that which we find in the present section. It is clear that the initial duty of the Income-tax Officer is merely to assess the income which has escaped".
34. This leaves no room for the question that this court in that old decision had already ruled out Section 139(2), in the context in which it occurs in Section 148, having a scope and ambit larger than the assessment of escaped income demands. This precludes the assessee from claiming his loss to be determined in a proceeding under Section 148.
35. There are quite a few decisions which are directly on the question of allowance of carry forward of loss under the old Act. And the courts had as early as in the thirties concluded the question against the assessee. If, in reassessment, it is found that actually there is a loss which the assessee could have carried forward, the assessee would not be entitled to claim that the Income-tax Officer should assess the loss-S. Natarajan v. CIT ; Ahamed Sahib (O. M.) v. CIT ; (K. Ch.) Narasimhulu v. CIT . In Kevaldas Ranchhodas v. CIT , the Bombay High Court has observed (at page 845) : "It is clear from the provisions of the section itself that it was not intended for the benefit of the assessee but only for the benefit of the Revenue."
36. All these decisions clearly indicate that Section 147 or, for that matter, Section 148 is a provision meant exclusively and singularly for protection of the public exchequer from loss of revenue. It is a section meant to be beneficial exclusively to the Revenue.
37. The view that we have taken is fortified by the basic principle as enunciated by this court in the case of Satyendra Mohan Roy Chowdhury . Though it is a case decided in the thirties, yet it still holds good because the fundamental ingredients of reassessment have remained unaltered. Therefore, despite the decision in the recent past, viz., Burdwan Wholesale Consumers' Co-operative Society Ltd. , which has been relied upon, we draw inspiration from the principles laid down in the older decision.
38. It is unfortunate that the earlier Bench decisions of this court were not cited at the Bar before the Division Bench which decided the case in Burdwan Wholesale Consumers' Co-operative Society Ltd. in favour of the assessee. The said Bench did not have the benefit of examining the earlier decisions of this court as well as the other High Courts. With respect, we fail to share the view in the decision of this court in Burdwan Wholesale Consumers' Co-operative Society Ltd. as cited by counsel for the assessee. We have to choose between the two opposing decisions of this court and we follow the other one because it was a decision of the Full Bench and accords with our perception of the law on the issue. We follow the principle as laid down by this court in Satyendra Mohan Roy Chowdhury , and, by applying the same, hold that by filing a loss return in pursuance of a notice under Section 148 but beyond the time available for filing a voluntary return under Section 139(4) the assessee cannot be entitled to determination of the loss for the purpose of carry forward and set off, because Section 80 has a clear mandate that it is only the loss determined in pursuance of a return filed under Section 139 that is eligible for carry forward and set off.
39. Above all, the construction placed on the words of Section 148 equating Section 148 with Section 139(2) leads to an absurd position, particularly in the context of the amended provision of Section 80 which, with effect from April 1, 1985, completely prohibits determination of loss and its carry forward and set off except where the return is filed either under Section 139(1) or under Section 139(2). So, under the amended law contained in Section 80, even a loss returned belatedly under Section 139(4) is not eligible for carry forward. But, the equation accepted in the decision relied upon shall entitle an assessee to have his loss carried forward simply by virtue of not having filed the return under Section 139 and having been served with a notice under Section 148, while a more diligent or less negligent assessee filing his return of loss under Section 139(4) shall stand deprived of the same benefit though in his case the blame is of lesser degree.
40. For the reasons aforesaid, we answer the question referred to in this case in the affirmative and in favour of the Revenue.
41. There will be no order as to costs.
Shyamal Kumar Sen, J.
42. I agree.