Delhi High Court
The Commissioner Of Income Tax, Delhi ... vs Sitaram Jaipuria (H.U.F.) on 21 December, 2001
Equivalent citations: 2002IVAD(DELHI)516, 96(2002)DLT399, [2002]254ITR476(DELHI)
Author: S.B. Sinha
Bench: S.B. Sinha, A.K. Sikri
ORDERLimitation--Issue of second draft assessment order within period of limitation Catch Note: Assessing officer sent draft assessment order to IAC for treating capital gains as long-term capital gains--However, he sent second draft assessment order within period of limitation--Commissioner (Appeals) confirmed order of assessing officer but Tribunal reversed same--Same not justified--More than one draft assessment order could be issued by the assessing officer, and therefore, there was no illegality in the action of the assessing officer in passing two draft assessment orders. Ratio: More than one draft assessment order could be issued by the assessing officer, and therefore, there was no illegality in the action of the assessing officer in passing two draft assessment orders as the second draft assessment order also was well within limitation period. Held: It is beyond doubt whatsoever that section 143 of the Act is a procedural provision, as thereby tax is not charged. Section 143 of the Act in other words cannot be said to be a substantive provision, being not a charging provision. Section 144B of the Act applies to all assessments completed after 1-1-1976. The said provision was amended with effect from 1-10-1984, as in terms thereof for the words "the Income Tax Officer proposes to make any variation" the words "the Income Tax Officer proposes to make, before 1-10-1984, any variation" were substituted. Section 144B of the Act, cannot be construed in isolation. It has to be construed having regard to the object and purport of making a draft order. Such a provision has been made with a view to prevent arbitrariness or unreasonableness on the part of the assessing authority and multiplicity of the assessment proceedings. The procedure laid down therein although mandatory, but it cannot be said that only because an expression "an order" has been used in the circular, more than one draft order cannot be issued. In terms of section 13(2) of the General Clauses Act, 1897, a "singular" would include "plural". For the purpose of interpretation of a procedural provision like section 144B of the Act, the prejudice doctrine may also be invoked. Section 21 of the General Clauses Act, envisages that power to issue an order would include a power exercisable in the like manner and subject to the like sanctions and conditions (if any), to add to, amend, vary or rescind the same. Interpretation of the provisions of law must be made having regard to the object and purport thereof. It may be true that the Income Tax Officer does not have a power of substantive review but the question of exercising a power to review would arise only when the order would otherwise be final. A draft order, is not a final one and merely embodies the opinion of the Income Tax Officer. The reasons for changing his opinion have been stated by the Income Tax Officer, as, would appear from the fact. Once such change in opinion is made and an opportunity of being heard is given, the opinion of the Income Tax Officer together with such objections are required to be forwarded to the Deputy Commissioner before whom also the assessed gets an opportunity of hearing. Guidelines issued by the said higher authority to the Income Tax Officer would be binding on the latter and only on the basis thereof the assessment proceedings shall be finalised. It is, thus, evident that only because a second draft order is served, ordinarily the assessed would not be prejudiced, as the final outcome depends upon the opinion of the Deputy Commissioner. It is also not a case where the second draft order was issued upon considering the objections filed by the assessed. Therefore, it would be incorrect to contend that the second draft order under no circumstances can be issued. It is one thing to say that the Income Tax Officer has absolutely no jurisdiction to issue a second draft order, but it is another thing to say that in the facts and circumstances of the case, he should not have issued the same, therefore, more than one draft assessment order could be issued by assessing officer, and therefore, there was no illegality in the action of the assessing officer in passing two draft assessment orders. Case Law Analysis: Panchamahal Steel Ltd. v. U. A. Joshi ITO (1997) 225 ITR 458 (SC), Sudhir Sareen v. ITO (1981) 128 ITR 445 (Del) and CIT v. Hade Navigation (P) Ltd. (2000) 16 DTC 83, 119 (Bom-Trib) (SN) : (1999) 239 ITR 726 (Bom) dissented from. Aspinwall and Co. Ltd. v. CIT (No. 2) (1996) 220 ITR 617 (Ker) and Ambica Mills Ltd. v. CIT (1999) 235 ITR 264 (Guj) relied on. Application: Not to current assessment year. Decision: In favor of revenue.1 Cases Referred: R. Dalmia v. CIT (1999) 8 DTC 209 (SC) : (1999) 236 ITR 480 (SC) and Sarabjit Singh v. CIT (1998) 234 ITR 641 (Del). Income Tax Act 1961 s.143 Income Tax Act 1961 s.144B JUDGMENT S.B. Sinha, C.J.
1. The questions, which have been referred by the Income-tax Appellate Tribunal, Delhi Bench 'D', Delhi (hereinafter referred to as the 'Tribunal') for opinion of this Court are as follows:-
"1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally right in holding that the second draft order which was sent to the assessed before the date of normal limitation was an invalid order?
2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the capital gains should be assessed as long term capital gains?
3. Whether on the facts and in the circumstances of the case, the tribunal erred in holding that its clear finding to the effect that a part of the capital gains was merely academic, and in directing that such short-term capital gains hould be assessed as long-term capital gains?"
2. The relevant facts, which are required to be noticed, are as follows:-
The assessment of capital gains on the sale of 355 Kg. of silver utensils, which were sold by the assessed during the accounting year ending on 07.04.1976, is in dispute. The assessed claimed that the gains arose on the said sale could not be taxed as the personal effect held for personal use by the assessed and the dependant members of his family being exempt under Section 2(14)(ii) of the Income-tax Act, 1961 (in short, the 'Act'). The Income Tax Officer (in short, the 'ITO') passed the draft assessment order dated 09.02.1979 wherein the ITO proposed that the capital gains would be taxed as long-term capital gains, pursuant whereto the assessed filed his objection on 15.02.1979. The ITO thereafter passed another draft assessment order dated 15.03.1979 wherein the ITO changed his opinion on further reflection and held that the capital gains would be taxed as short-term capital gains. The assessed filed objection dated 23.03.1979 questioning the jurisdiction of the ITO to pass second draft assessment order. The Inspecting Assistant Commissioner (in short, the 'IAC') passed the order dated 27.07.1979 under Section 144B of the Act after considering both the draft assessment orders and the objections of the assessed wherein it was directed that the capital gains be assessed as short-term capital gains without giving the exemption under Section 2(14)(ii) of the Act. The assessed preferred an appeal before the Commissioner (Appeals), who held that more than one draft assessment order could be issued by the ITO, and therefore, there was no illegality in the action of the ITO in passing two draft assessment order. It was further held that the silver utensils did not constitute personal effects, and therefore, capital gains on sale thereof was taxable, hence the profits on sale of 213 kgs, of silver utensils were taxable as long-term capital gains and on sale of 142 kgs., as short-term capital gains. The assessed again preferred an appeal before the Tribunal, who held that ITO had no jurisdiction to pass the second draft assessment order.
On being moved by Revenue for reference, the question as set out above, have been referred for opinion of this Court.
3. The questions referred to this Bench thus involve a question as regards interpretation of Section 144B of the Act.
The said provision is in the following terms:-
"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 assessed 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 assessed.
(2) On receipt of the draft order, the assessed 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 his behalf.
(3) If no objections are received within the period or the extended period aforesaid, or the assessed 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 assessed, shall be issued, under this sub-section before an opportunity is given to the assessed 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 purpose of Sub-section(1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amounts 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."
The said Section was inserted by Taxation Laws (Amendment) Act, 1975, which took effect from January 1, 1976. The purpose of the said Section appears to be the reduction of the area of dispute between the ITO and/or the Department making the assessment and the assessed.
4. Mr. Anoop Sharma, learned counsel appearing on behalf of the assessed, submitted that language of the said provision is absolutely clear and explicit. It refers to a draft order, which having regard to the purpose that seeks to achieve must be held to be final, inasmuch as once an objection thereto is filed, the ITO has no other option but to send the same to the Income-tax Appellate Commissioner (in short the 'ITAC') The learned counsel contended that once a draft order is issued, the second one would amount to review of his decision, which is not permissible in law.
The learned counsel further submitted that having regard to the provisions contained in Section 154 of the Act, the only jurisdiction of the assessing authority is to make corrections is relation to clerical errors.
In support of the aforementioned contentions, reliance has been placed on Sudhir Sareen v. Income-tax Officer, Central Circle XVII, New Delhi and Anr. reported in (1981) 128 ITR 445; Aspinwall & Co. Ltd. v. Commissioner of Income Tax reported in (1996) 220 ITR 617; Ambica Mills Ltd. v. Commissioner of Income Tax reported in (1999) 235 ITR 264; and Commissioner of Income Tax v. Hade Navigation (P) Ltd. reported in (1999) 239 ITR 726.
5. Mr. R.D. Jolly, learned counsel appearing on behalf of the Revenue, on the other hand, contended that the aforementioned provision contains a procedure and does not deal with the substantive rights of the parties. According to the learned counsel, once mistake committed by the ITO is rectified by issuing a second draft order and a opportunity of hearing in relation thereto is granted, the assessed does not suffer any prejudice thereby. In support of the said contention, reliance has been placed on Aspinwall & Co. Ltd. v. Commissioner of Income-tax reported in (1996) 220 ITR 617; Sarabjit Singh v. Commissioner of Income-tax reported in (1998) 234 ITR 641; Ambica Mills Ltd. v. Commissioner of Income-tax reported in (1999) 235 ITR 264; and R. Dalmia and Anr. v. Commissioner of Income-tax reported in (1999) 236 ITR 480.
6. Chapter XIV of the Act relates to procedure for assessment. Section 143 of the Act deals with the procedure for making assessment. Sub-sections(1) and (3) of Section 143 of the Act provide for computation of total income of assessed respectively without issuance of any notice as in otherwise provided under Sub-section(2) thereof.
7. It is beyond doubt whatsoever that Section 143 of the Act is a procedural provision, as thereby tax is not charged. Section 143 of the Act in other words cannot be said to be substantive provision, being not a charging provision. Section 144B of the Act applies to all assessments completed after 01.01.1976. The said provision was amended w.e.f. 1.10.1984 as in terms thereof for the words "the Income Tax Officer propose to make any variation" the words "the Income Tax Officer proposes to make before the 1st of October, 1984 any variation" were substituted.
8. By reason of the aforementioned provision, the assessed is given an opportunity to make an objection as regards an order proposed to be passed, which is prejudicial to him. In the event, the amount of variation exceeds the amount specified by the Board, the ITO is required to forward a draft of the proposed assessment to the assessed and upon obtaining his objection, if any, as regards such variation, the draft order is to be forwarded together with the objection filed by the assessed thereto to the Deputy Commissioner, who thereupon issue such directions as he thinks fit for the guidance of the assessing officer to enable him to complete the assessment after giving an opportunity of hearing to the assessed and the ITO makes his assessment accordingly.
9. Section 144B of the Act, in our considered view, cannot be construed in isolation. It has to be construed having regard to the object and purport of making a draft order. Such a provision has been made with a view to prevent arbitrariness or unreasonableness on the part of the assessing authority and multiplicity of the assessment proceedings. The procedure laid down therein although mandatory, but it cannot be said that only because an expression 'a order' has been used in circular, more that one draft order cannot be issued. In terms of Section 13(2) of the General Clauses Act, a 'singular' would include 'plural'. For the purpose of interpretation of the procedural provision like Section 144B of the Act, the prejudice doctrine may also be invoked Section 21 of the General Clauses Act envisages that power to issue an order would include a power exercisable in the like manner and subject to the like sanctions and conditions (if any), to add, amend, vary or rescind the same. Interpretation of the provisions of law must be made having regard to the object and purport thereof. It may be true that the ITO does not have a power of substantive review but the question of exercising a power to review would arise only when the order would otherwise be final. A draft order, as noticed hereinbefore, is not a final one and merely embodies the opinion of the ITO. Reasons for changing his opinion have been stated by the ITO, as would appear from the fact notices hereinbefore. Once such change in opinion is made and an opportunity of being heard is given, the opinion of the ITO together with such objections are required to be forwarded to the Deputy Commissioner before whom also the assessed gets an opportunity of hearing. Guidelines issued by the said higher authority to the ITO would be binding on the latter and only on the basis thereof the assessment proceedings shall be finalized. It is, thus, evident that only because a second draft order is served, ordinarily the assessed would not be prejudiced, as the final outcome depends upon the opinion of the Deputy Commissioner. It is also not a case where the second draft order was issued upon considering the objections filed by the assessed.
10. In our opinion, therefore, it would be incorrect to contended that the second draft order under no circumstances can be issued. It is one thing to say that the ITO has absolutely no jurisdiction to issue a second draft order, but it is another thing to say that in the facts and circumstances of the case, he should but have issued the same.
In Sudhir Saree (Supra), a learned Single Judge of this Court interfered with the matter inter alia on the ground that such a second draft order was Issued at the instance of the higher authority. Such is not the position here.
In Hade Navigation (P) Ltd. (Supra), whereupon strong reliance has been placed by learned counsel appearing on behalf of the assessed, it appears that the question had not been viewed from this angle.
11. We do not also, with utmost respect to the learned Judges of this Court and the Bombay High Court, subscribe to the view that once the draft assessment is prepared and the variation in the return income is forwarded to the assessed, the quasi judicial function of the ITO comes to an end the same is final assessment order so far as the ITO is concerned.
Such an observation, in our opinion, overlooks the fact that draft order passed by the ITO together with the objection, which may be made thereto by the assessed, would still not be final inasmuch as the same would be dependent on the final opinion, which may be expressed by the higher authority pursuant to the guidelines, which may be issued.
The Division Bench of the Bombay High Court has relied upon the decision of the Division Bench of the Apex Court in Panchamahal Steel Ltd. v. U.A. Joshi ITO and Anr. reported in (1997) 225 ITR 458, but in the said case, the Apex Court was concerned with absolutely a different situation as therein it was held having regard to the provisions contained in Sub-section (5) of Section 139 of the Act that after a draft order is issued, the assessed cannot file any revised return. The question raised herein had neither been raised nor answered by the Apex Court. It is now well-settled that a decision shall not constitute a binding precedent on a point, which was not argued.
In Aspinwall & Co. Ltd. (Supra), the Kerala High Court has distinguished the decision of this Court in Sudheer Sareen (Supra) stating that:-
"We are unable to accept the process of reasoning because of the inbuilt provisions of the two sections making it clear that the sections came on the statute book for safeguarding the interest of the assessed to the extent that the provisions provide hearing in the matter of there being necessity or expediency to locate situations of escaped assessment. Even otherwise, as observed above occasions of coming to notice situation of irregular assessment or obvious mistakes could not be understood to be legislatively controlled to a single occasion in regard thereto. It will have to be appreciated that the draft order if it is found to be required to be modified could not also be considered to be a second draft order. It appears that the parties have proceeded on the basis that the second draft order has come into emergence when the material on record clarifies the situation to the contrary, bringing on record a situation of modification in the nature of necessary amendment to the original situation. In our judgment, such statutory provisions relating to the matters of procedure cannot be understood in the restrictive sense of literal interpretation and have to be understood that an occasion of issuance of draft assessment has to be meaningfully understood in relation to an occasion for modification. Such occasion cannot be in isolation in continuity of time and such occasion can be legitimately contemplated to occur more than once depending on the situation demanding.
In Ambica Mills Ltd. (Supra), the Gujarat High Court has stated the law in the following term:-
"That Section 144B of the Income-tax Act, 1961 is a procedural provision under which the Income-tax Officer forwards a draft order to the assessed. At the time, such draft order is only a draft of the proposed order of assessment in which the Income-tax Officer proposes to make variations in the income or loss returned, which is prejudicial to the assessed and the amount of variation exceeds the amount fixed by the Board. At that stage of the assessment proceedings taken under Section 143(3) of the Act, nothing is final. Therefore, if the Income Tax officer detects some error or omission in the proposed order and revises it at that earlier point of time forwarding the revised draft order to the assessed, it cannot be said that he has made two independent proposed orders. The proposed order as revised remains the draft order only. The proceedings do not in any way get vitiated especially when he followed again the procedure of sending it to the assessed to enable him to object against the revised proposed order. There is no prejudice whatsoever caused to the assessed nor is any vested right of the assessed adversely affected thereby. Until the assessment is completed by the Income-tax Officer under Section 13(3) of the Act, he remains free to exercise his powers to complete the assessment by sending a revised draft order."
Yet again D.K. Jain, J. on a difference of opinion between the two learned Judges of this Court in Sarabjit Singh (Supra) has clearly held that Section 144B of the Act is a procedural provision.
12. It is now well known that a decision is an authority for what it decides and not what can be logically deduced there from.
13. For the reasons aforementioned, we are of the opinion that the answers to the questions must be rendered in negative, i.e., in favor of the Revenue and against the assessed.
14. This reference is disposed of accordingly.