Income Tax Appellate Tribunal - Pune
First Income-Tax Officer vs South India Corporation (A) Ltd., ... on 25 July, 1995
ORDER
V. Dongzathang, Accountant Member
1. These appeals of the Revenue are directed against the orders of the Commissioner of Income-tax (Appeals). Since common issues are involved, they are consolidated and heard together and disposed of by a common order for the sake of convenience.
2. The assessees are non-resident shipping companies assessed by the Income-tax Officer in the status of tramp ships under Section 172(4) of the Income-tax Act, 1961. In the original assessment, the Income-tax Officer adopted the rate of exchange per U. S. dollar on the basis of the telegraphic transfer as certified by the local branch of the State Bank of India. Subsequently, the Income-tax Officer received a circular from the Board which indicated a different rate of exchange. On the basis of this information, the Income-tax Officer reopened the assessment of the assessees under Section 147(b) of the Income-tax Act. Rejecting the explanation offered, the Income-tax Officer completed the reassessment proceedings on the basis of the correct rate of exchange intimated by the Central Board of Direct Taxes, New Delhi.
3. Aggrieved by the said reassessments, the assessees took up the matter in appeal before the Commissioner (Appeals) contending that the Income-tax Officer was not justified in reopening the assessments under Section 147(b) of the Income-tax Act, 1961. At the time of hearing before the learned Commissioner (Appeals), the various grounds raised in the grounds of appeal as per the memo of appeal filed before him were not properly highlighted. The learned Commissioner (Appeals) held the reopening to be invalid. According to him, an order under Section 172(4) does not fall under the category of cases which can be reopened under the provisions of Section 147. Section 147 applies only to those orders which are based upon the returns filed under Section 139 and not under any other Section. Accordingly, the learned Commissioner of Income-tax (Appeals) held that the provisions of Section 147 are not applicable and, hence the reassessment proceedings become invalid. He, accordingly, set aside the reassessment proceedings and restored the original orders under Section 172(4) of the Income-tax Act. In doing so, the learned Commissioner (Appeals) did not deal with other grounds raised before him. The Revenue is aggrieved and has come up in appeal before us. In all the appeals, the following common grounds are raised :
" 1. The order of the Commissioner of Income-tax (Appeals) is opposed to law and the facts of the case.
2. The Commissioner of Income-tax (Appeals) erred in holding that the order under Section 144 read with Sections 147(b) and 172(4) passed by the Income-tax Officer in this case for the assessment year 1978-79 is illegal.
3. The Commissioner of Income-tax (Appeals) erred in holding that an order under Section 172(4) does not fall under the category of cases which can be reopened under the provisions of Section 147.
4. The Commissioner of Income-tax (Appeals) erred in coming to the conclusion that the provisions of Section 147 apply only to those orders which are passed upon the returns filed under Section 139 (and not under any other Section).
5. The Commissioner of Income-tax (Appeals) ought to have appreciated the fact that the assessment under Section 172(4) in this case was reopened by the Income-tax Officer by issuing notice under Section 148 for action under Section 147(b) as he had information in his possession to have reason to believe that income chargeable to tax under Section 172(4) had escaped assessment and, therefore, all the ingredients necessary for action under Section 147(b) were fulfilled in this case.
6. For these and such other grounds that may be urged at the time of hearing it is prayed that the order of the Commissioner of Income-tax (Appeals) may be cancelled and that of the Income-tax Officer restored. "
4. At the time of hearing before us, Shri M. Subramanian, learned Departmental Representative, appeared for the Revenue, and Shri G. N. Gadgil, learned counsel, appeared for the assessees. After hearing both the parties at length, we see merit in the appeals of the Revenue. Undoubtedly, Section 172 is a self-contained Section and is intended to ensure the due recovery of tax from non-resident owners or charterers of ships in respect of profits made by them from carrying passengers, mail or goods from a port in India. The Section has been modified with effect from June 1, 1975. After this change, assessment under Section 172 on the non-resident shipper is not barred even where the shipper has a statutory agent in India. It has been the contention of learned counsel for the assessee that the provisions of Section 172 are not only self-contained provisions, the assessment is to be made with reference to the visit of the ship and not on the basis of the assessment year. In other words, there could be a number of assessments of a particular ship on the basis of the number of visits during the year. In any case, the option for regular assessment is only given to the assessee under Sub-section (7) of Section 172. Unless the assessee makes a claim for an assessment to be made of the total income of the previous year, the Income-tax Officer cannot invoke the general provision in view of the non obstante clause. Since the Section begins with the term "Notwithstanding anything contained in the other provisions of this Act", the Income-tax Officer cannot fall back upon the other provisions of the Act so as to reopen the assessment already concluded under Section 172. The only option that is given is to the assessee who can demand reassessment in terms of Section 172(7). Alternatively, it is submitted by learned counsel for the assessee that the learned Commissioner (Appeals) did not dispose of the remaining grounds of the appeal. Shri G. N. Gadgil further submitted that the liability of the agent terminated with the filing of the return as contemplated under Sub-section (3) and, as such, the assessee cannot be assessed again under the main provision.
5. We are unable to subscribe to the above view. The scheme of the Act only gives a special concession in regard to shipping business of nonresidents to ensure due recovery of tax and at the same time allow the business to continue in the normal course. The agency created by the nonresident shipping company would not automatically terminate by the filing of the return under Section 172(3) of the Act. In other words, the option will always be open to the Income-tax Officer to initiate reassessment proceedings if it is found that the income of the assessee escaped assessment in terms of Section 147. The accrual of income of the non-resident shipping company is to be determined in terms of Section 9 of the Income-tax Act. However, for the convenience of estimate of income in such a case, a special provision in the form of Section 44B has been inserted with effect from April 1, 1976, for computing the profits and gains of shipping business in the case of non-residents. However, if the income assessed under Section 172 is found to be not the correct income or assessed at too low a rate, there is no specific provision to prevent the Income-tax Officer from initiating reassessment proceedings. The provisions of the Income-tax Act are quite clear and there is no bar to such proceedings to be initiated by the Income-tax Officer. Since the provisions of Section 172 are only assessment procedures, the non obstante clause will not take away the powers of the Income-tax Officer under various provisions of the Act in regard to other proceeding's.
6. The reliance of learned counsel on the decision of the Bombay High Court in the case of M. N. Sidhwa, Agent to East and West Steamship Co. v, CIT [1963] 50 ITR 337 is not well-placed. In that case, the limited question before the High Court was whether the assessments made by the Income-tax Officer were under Section 44B(2) of the Act or under the provisions of the latter part of Section 44A of the Act. In that case, it has been held that the assessment orders were orders validly made under Section 44B(2) and the application for refund was time barred under the provisions of Section 44C of the Act. Their Lordships have not gone into the question whether the Income-tax Officer has got the power to reopen the assessment under Section 147 of the Income-tax Act. It is, therefore, not possible to draw any inference from the said decision. We are, therefore, of the view that the power of the Income-tax Officer to initiate proceedings under Section 147 of the Income-tax Act is not barred even where assessment has been completed under Section 172(4) of the Income-tax Act if there is evidence to show that there is escapement of income under the Income-tax Act. We, accordingly, uphold the validity of the order of the Income-tax Officer under Section 147 reopening the assessment and vacate that of the Commissioner (Appeals).
7. However, the learned Commissioner (Appeals) has not considered the appeals on the merits including the various grounds raised before him. It will, therefore, be fair and proper to restore the appeals to his file for fresh disposal in accordance with law and to deal with all the grounds raised in the memo of appeal. The appeals are, accordingly, restored to the file of the Commissioner (Appeals) for fresh disposal as indicated above.
8. In the result, the appeals shall be treated as partly allowed for statistical purposes.
A.V. Balasubramanyam, Judicial Member
9. I have had the advantage of reading the order proposed by the learned Accountant Member. As I am unable to persuade myself to agree with the conclusion reached by him, I place on record my views in the matter.
10. The impugned assessments are those framed against the agents of non-residents under the provisions of Section 172(4) of the Income-tax Act. For some reason, the Income-tax Officer thought it fit to reopen the assessments by taking recourse to Section 147(b). The assessees, in the returns filed under Section 172(3), have disclosed income in foreign currency. In the assessments framed under Section 172(4) originally, the Income-tax Officer had adopted the telegraphic transfer rate as supplied by the State Bank of India for the purpose of converting the income into Indian currency. The circular issued by the Central Board of Direct Taxes, which the Income-tax Officer had subsequently received, indicated that the correct conversion rate is as per the intimation given by the Central Board of Direct Taxes or the Reserve Bank of India. This was taken as "information" and, on the basis of that, the Income-tax Officer initiated reassessment proceedings taking recourse to Section 147(b) of the Income-tax Act.
11. The assessee objected to the initiation of reassessment proceedings under Section 147(b) upon many grounds, one of them being that the Income-tax Officer had no jurisdiction to reopen under Section 147(b) in respect of the assessments completed under Section 172(4). Overruling the objections, the Income-tax Officer passed fresh assessments adopting the conversion rate furnished by the Central Board of Direct Taxes.
12. Aggrieved by the reassessments, there were appeals which the Commissioner of Income-tax (Appeals) disposed of considering the preliminary issue. The Commissioner of Income-tax (Appeals) held that an assessment made under Section 172(4) does not fall under the category of cases which can be reopened under the provisions of Section 147. He, therefore, held that the Income-tax Officer had no jurisdiction and that the "reassessments were invalid in law". The Revenue, by these appeals, is objecting to the order of the Commissioner of Income-tax (Appeals).
13. After hearing both sides, I am of the view that the order of the Commissioner of Income-tax (Appeals) should be sustained. The learned author, Sri Sampath Iyengar in his Law of Income-tax, (Seventh edition, page 3831), points out that Section 172 and Sections 174 to 176 constitute exceptions to the concept of income of the previous year. Chapter XIV deals with procedure for assessment of income of a previous year. In an assessment under Section 172(4), there is no previous year. It is an ad hoc assessment made in respect of shipping on each call of a ship at an Indian port. Thus, there may be any number of assessments in a year under Section 172(4) which is conceptionally different from the assessment made in respect of the whole of the income in the previous year under the general provisions relating to assessment: Even Section 172(7) only gives an option to the owner or the charterer of the ship to be assessed in the normal course on his total income, for, in some cases, it may be advantageous to the assessee. Else, the assessment under Section 172(4) is final.
14. Chapter XIV deals with procedure for assessment. Section 139 specifies return of income of the previous year. Sections 140A to 144B are the provisions underlying an assessment. They are all assessment of income of a previous year. Section 146 speaks of reopening of the assessment at the instance of the assessee, Section 147 is about reopening of the assessment at the instance of the Income-tax Officer. Looking to the sequence of the provisions from Section 139 up to Section 146, it appears that draftsman had only income of the previous year in mind in wording Section 147.
15. If the language in Section 147(a) and (b) is seen closely, it will be seen that the provision has application only to a case of assessment in the general way regarding income of a previous year only. Clause (a) specifically refers to a return made under Section 139. Therefore, Section 147(a) applies to a case where the assessee has filed a return under Section 139 or is obliged to file a return under Section 139, In Clause (b), the basis for reopening is the consequence of information in the possession of the assessing authority leading to the belief that income "for any assessment year" has escaped assessment notwithstanding that there has been no default or omission on the part of the assessee mentioned in Clause (a).
16. Clause (a) deals with omission or failure on the part of the assessee, vis-a-vis the return filed under Section 139 or obliged to file under Section 139. Clause (b) deals with other cases where there is no omission or failure attributable to the assessee, but income escaped assessment. If we see the scheme, it will be seen that both Clauses (a) and (b) deal with cases where the return is filed under Section 139 or the assessee is obliged to file under Section 139. These are not such cases. The Commissioner of Income-tax (Appeals) was, therefore, correct in holding that Section 147 does not apply to these cases where the returns had been filed under Section 172(3).
17. The "assessment year" in Section 147(a) is in regard to income of the previous year and there can be no doubt about it inasmuch as the clause makes a reference to a return filed or to be filed under Section 139, which is in respect of the income of the previous year. The words used (with grammatical variation) in Clause (b) are "for any assessment year". Both these expressions should have been in the same sense and there is sufficient warrant to interpret in that way. Therefore, "assessment" contemplated in both Clauses (a) and (b) must be in respect of entire income of a previous year assessable in the assessment. In an assessment under Section 172(4), there is no previous year. Therefore, the general provisions of Section 147 are not applicable to a special type of assessment for shipping business. In an assessment under the general provisions of the Act, there could be only one assessment in respect of the whole of the previous year whereas there could be any number of assessments under Section 172(4) even within a year. Indeed, for each visit of a ship to a port, there will have to be an assessment in respect of the freight earned.
18. The agent of the non-resident had declared the income earned by way of freight in foreign currency. The Income-tax Officer applied the telegraphic transfer rate as supplied by the State Bank of India. The basis for reopening is that the rate as intimated by the Central Board of Direct Taxes or the Reserve Bank of India should have been taken and that the rate intimated by the Board constituted "information". There had been no escapement of income chargeable to tax at all. Rule 115 prescribed that conversion of income expressed in foreign currency into rupees shall be at the "telegraphic transfer buying rate" of such currency on the specified date. The Explanation says that "telegraphic transfer buying rate" shall have the same meaning as in the Explanation to Rule 26, according to which it is the rate adopted by the State Bank of India for buying currency. The conversion rate applied by the Income-tax Officer accords with what is prescribed in Rule 115 read with Rule 26. The premise of income escaping assessment is misconceived, and resort to Section 147(b) is without justification.
19. To the argument that the erroneous assessment made under Section 172(4) will remain in force if authority is not conceded to the Income-tax Officer under Section 147, it may be mentioned in passing that rectification (under Section 154) or revision by the Commissioner of Income-tax may be proper.
20. In the result, I hold that the reassessments under Section 147{b) are without jurisdiction and the Commissioner of Income-tax (Appeals) was correct in holding that the same are illegal, and the appeals by the Revenue are to be dismissed.
ORDER OF REFERENCE TO THIRD MEMBER
21. Whereas we are unable to agree on the points set out below for the assessment years under consideration, we refer the following points of difference of opinion to the President for referring to the Third Member under Section 255(4) of the Act :
"1. Whether an original assessment made under Section 172(4) of the Income-tax Act can be reopened on the authority of Section 147(b) ?
2. Whether the reassessment orders passed by the Income-tax Officer were proper and valid in law ?"
ORDER OF THIRD MEMBER Chander Singh, Accountant Member
22. As there was a difference of opinion between my learned brothers regarding application of Section 147(b) of the Act with regard to the original assessment made under Section 172(4) of the Act, the matter was placed before the Hon'ble President under Section 255(4) of the Act, with the following questions to resolve the difference :
" 1. Whether an original assessment made under Section 172(4) of the Income-tax Act can be reopened on the authority of Section. 147(b) ?
2. Whether the reassessment orders passed by the Income-tax Officer were proper and valid in law ?"
23. The facts briefly stated are as under : The assessees are non-resident shipping companies and were assessed to tax in the status of tramp ships under Section 172(4) of the Act. In the original assessment, the Assessing Officer adopted the rate of exchange per U. S. dollar on the basis of telegraphic transfer as certified by the local branch of the State Bank of India. Subsequent to the completion of the assessments, the Central Board of Direct Taxes issued a circular in which a different rate of exchange was indicated. On receipt of the circular of the Board, the Assessing Officer reopened the assessments under Section 147(b) of the Act. The reassessments were completed by him on the basis of the rate of exchange intimated by the Central Board of Direct Taxes in the circular mentioned above.
24. The assessee was aggrieved and filed an appeal before the Commissioner of Income-tax (Appeals) who was of the opinion that the assessment made under Section 172(4) could not be reopened under Section 147 of the Act. The Commissioner of Income-tax (Appeals) accordingly cancelled the assessment.
25. Aggrieved, the Revenue has come up in appeal before the Tribunal. The learned Accountant Member examined the issue in the light of the arguments advanced by the parties to the dispute and was of the view that the assessment completed under Section 172(4) could be reopened under Section 147 of the Act.
26. The learned Judicial Member, on the other hand, disagreed with the opinion of the learned Accountant Member and examined the various provisions of the Income-tax Act. He was of the view that the provisions of Section 172 and Sections 174 to 176 constituted exceptions to the concept of income of the previous year. After examining the relevant provisions of the Income-tax Act, he expressed an opinion that the assessment completed under Section 172(4) could not be reopened under Section 147 of the Act, He, therefore, upheld the order of the Commissioner of Income-tax (Appeals).
27. Before me, the assessees, vide their letter dated June, 1995, stated that the appeals may be decided on the merits. In the absence of the assessees, I have heard the learned senior Departmental Representative, Dr. Sunil Pathak, at length. He pointed out that while completing the original assessment, the Assessing Officer did not apply the correct rate of exchange on the specified, date and, therefore, the assessees were assessed at too low a rate. There was, therefore, escapement within the meaning of Section 147 of the Act. In such a situation, the assessment could be reopened and, therefore, the Assessing Officer was within his legal rights to invoke the provisions of Section 147 of the Act. The assessment could also be reopened on the basis of the Board's circular in which the correct rate of exchange was notified to the Assessing Officer. The circular of the Board constituted an information within the meaning of Section 147 of the Act. In this regard, the learned Departmental Representative has placed reliance on the decision of the Kerala High Court in the case of CIT v. West Coast Industrial Co. Ltd. [1987] 168 ITR 72. He also agreed with the view taken by the learned Accountant Member. He, therefore, urged that the view expressed by the learned Accountant Member may be favoured to the view expressed by the learned Judicial Member.
28. I have considered the submissions of the learned senior Departmental Representative and have also gone through the facts of the case. Before I consider the applicability or otherwise of the reassessment machinery provided under Section 147 of the Act, I consider it necessary to briefly deal with the provisions contained in Section 172 of the Act. Sub-Section (1) to Section 172 lays down that the provisions of that Section shall apply for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India. Section 172 occurs in Chapter XV which is entitled "Liability in special cases" and the sub-heading of the Section is "Profits of non-residents from occasional shipping business". It creates a tax liability in respect of occasional shipping by making a special provision for the levy and recovery of tax in the case of a ship belonging to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped at a port in India. In addition to Section 172, Section 44B also contains a special provision for computing profits and gains of shipping business in the case of non-residents. There is, however, a difference between Section 44B and Section 172 of the Act. In Section 44B no procedure for assessment and collection of tax is provided. The use of a non obstante clause refers only to Sections 28 to 43A. In other words, income from shipping accrued or deemed to have accrued to a non-resident shipowner or charterer falls outside the scope of trade and business normally so understood. The incidence of tax under Section 44B of the Act is on a non-resident engaged in the business of operation of ships owned or chartered by him or it and if such income constituted the amounts earned on account of the carriage of passengers, livestock, mail or goods shipped from any port in India and the amount so received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods, etc. In contrast, Section 172 of the Act does not refer to a non-resident assessee. It only refers to levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped from a port in India. A non-resident engaged in shipping business subject to the qualification of carrying goods, passengers, livestock, mail or goods, etc., being an assessee shall be assessed in accordance with Section 143 of the Act and not in accordance with the procedure prescribed for a non-resident shipowner or charterer covered by Section 172(1) and (2) of the Act. Therefore, the inevitable conclusion is that the shipowner or charterer in Section 172(1) of the Act is not an assessee as defined in Clause (7) of Section 2. He is a mere shipowner who is a nonresident or a charterer of a ship, also a non-resident. In other words, the heading under "H" in Chapter XV assumes some significance in interpreting Section 172 of the Act. The said heading is as follows :
" H.--Profits of non-residents from occasional shipping business."
29. This heading denotes the persons intended to be covered by Section 172 of the Act. They are persons who are not regularly in the shipping trade or business in India. Hence, when Section 172 is attracted, only that procedure which is contemplated under Section 172 of the Act under Sub-sections (3) to (7) should be followed and no other. In other words, Section 172 of the Act is a complete code and is not dependent upon any other provisions of the Income-tax Act. Under this Section, the assessment is completed under section 172(4) on the basis of the visits of a ship. The said ship may visit any number of times during the year and on each and every visit a separate assessment is required to be made. The assessment under Section 172 does not envisage terms like "previous years" or "assessment years". There can be as many assessments as visits of the ship to an Indian port. These provisions are self-contained and the determination of the recovery of tax is governed by the procedure laid down in Section 172 of the Act.
30. Section 147 of the Act, as it stood at the relevant time, had Clauses
(a) and (b) which were as under :
"If --
(a) the Assessing 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 Assessing 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 Assessing 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. ..."
31. The assessment or reassessment proceedings under these provisions are initiated by the issue of notice which must relate to a particular assessment year. It is with reference to that assessment year that the conditions precedent for action should be considered. Where a notice is issued with reference to one particular assessment year, only the assessment for that year can be reopened. It is only the income that is assessable for that assessment year that can be included in such an assessment.
32. The expressions used in Section 147(a) are "for that year" and "any year". These words refer to the assessment year which is the relevant one. These expressions have been used with reference to the failure on the part of the assessee to file a return or to make a full and true disclosure of material facts for a specific year. Thus, the provisions of Section 147, in my view, can be applied where the assessee has failed to file the return under Section 139. The proceedings can be initiated for the previous year relevant to any assessment year. In other words, for putting into operation Section 147 of the Act, there should be a return under Section 139 and the reopening should pertain to a previous year relevant to an assessment year. When the assessment is completed under Section 172(4) of the Act, there is neither any return under Section 139 nor any assessment year is involved. As already stated above, there is no previous year in an assessment under Section 172(4) of the Act. For the purpose of computation of tax and its recovery under Section 172, no return of income is required to be filed under Section 139 of the Act. It, therefore, appears that the provisions of Section 172 are independent of the other provisions of the Income-tax Act. I, therefore, agree with the findings of the learned Judicial Member. In my view, the reassessment machinery under Section 147 cannot be put in motion to rectify a mistake, if any, in the assessment completed under Section 172(4) of the Act.
33. I also consider it necessary to mention that the Assessing Officer had reopened the assessment in view of the Board's circular mentioned above. The Board's circular had intimated the different rate of exchange in view of Rule 115 of the Income-tax Rules, 1962. The said rule was examined by the Bombay High Court in the case of Chowgule and Co. Ltd. v. CIT [1992] 195 ITR 810. It was held by the jurisdictional Bombay High Court that no tax can be imposed by any bye-law or rule or by regulation unless the statute, under which the subordinate legislation is made, specially authorises the imposition, even if it is assumed that the power to tax can be delegated to the executive. The basis of the statutory power conferred by the statute cannot be transgressed by the rule-making authority. A rule-making authority has no plenary power ; it has to act within the limits of the power granted to it. On the facts and in the circumstances of the case, Rule 115 of the Income-tax Rules, 1962, was declared ultra vires. Since the said rule was struck down by the jurisdictional Bombay High Court, no reopening of assessment under Section 147 could be justified. Even on the merits, therefore, the issue is covered in favour of the assessee and against the Revenue.
34. In view of the above, I agree with the view expressed by the learned Judicial Member. The points of difference are answered accordingly and the case will now go back to the Bench for passing a consequential order in accordance with the opinion of the majority.