Karnataka High Court
Maratt Rubber Ltd. vs Commercial Tax Officer, District ... on 25 August, 1988
Equivalent citations: ILR1988KAR2894, [1989]72STC18(KAR)
ORDER S.R. Rajasekhara Murthy, J.
1. The petitioner is an assessee registered under the Karnataka Sales Tax Act, 1957 (the "Act" for short). The assessment for the year 1983-84 was completed on 1st October, 1985. The second respondent initiated action under section 22-A(1) of the Act, and issued notice on 17th August, 1987 proposing to set aside the assessment order passed by the Commercial Tax Officer ("CTO", for short), and to remit the case for a de novo assessment, to the Assistant Commissioner of Commercial Taxes (Assessments) ("ACCT").
2. After hearing the petitioner, the Joint Commissioner of Commercial Taxes passed an order on 22nd December, 1987 confirming the proposal made in the show cause notice. This order is challenged in this writ petition on several grounds.
3. The first ground of attack by Sri Ramabhadran, the learned counsel for the petitioner, is that there is no error in the order passed by the CTO, much less any prejudice is caused to the interests of the Revenue, to invoke the revisional powers of the Commissioner, on the facts of the present case.
4. The further contention of the learned counsel is that all errors need not be corrected by the revisional authority and the assessee has accepted the assessment and has also paid the tax and that, therefore, this is not a case of any prejudice having been caused to the interests of the Revenue. On these premises, it is urged that the assessee has to face another round of assessment proceedings and such de novo proceeding is, therefore, an unnecessary exercise. It is argued by the learned Government Pleader that the Commissioner, by his notification dated 13th March, 1980 had conferred the assessing powers in case of assessees whose tax liability exceeded Rs. 50,000, on the Assistant Commissioner of Commercial Taxes (Assessments), Bangalore with effect from 1st April, 1980. The assessment order in the case of the petitioner for the year ending 31st March, 1984 whose tax liability exceeded Rs. 50,000 is, therefore, one made without jurisdiction and the said order was, therefore, rightly set aside by the Joint Commissioner and remanded to the Assistant Commissioner of Commercial Taxes, who had the pecuniary jurisdiction to make the assessment.
5. It is also argued by the learned Government Pleader that there is an error apparent on the face of the assessment order inasmuch as the assessing authority who made the order of assessment was not the designated officer to make an assessment in cases where the tax liability of a dealer exceeds Rs. 50,000. It is also submitted that since the invalidity of the order goes to the root of the matter, the Joint Commissioner rightly exercised his power under section 22-A(1) and set aside the assessment order.
6. The decisions relied upon by the either side will be adverted to later.
7. It can be seen from the order of the Joint Commissioner that the order of assessment was sought to be set aside relying on the decision of the Supreme Court in Commissioner of Sales Tax, U.P. v. Sarjoo Prasad Ram Kumar [1976] 37 STC 533. The Supreme Court held in that case that the Assistant Sales Tax Officer, Sector II, had no jurisdiction to assess the dealer in Sector III, Lucknow, and that the Commissioner had empowered certain other Assistant Sales Tax Officer to assess the dealer in the areas allotted by him in Sector II.
8. Upholding the argument on behalf of the appellant-Commissioner in that case, the Supreme Court held that it was always open to the assessee to raise the question of jurisdiction which goes to the root of the case, and also observed that the assessee cannot be precluded from raising the objection as to jurisdiction at a later stage and challenge the validity of the assessment on that ground.
9. The Joint Commissioner, therefore, relying upon the decision of the Supreme Court, made an order in exercise of his powers under section 22-A(1), set aside the assessment order and remanded the case to the Assistant Commissioner (Assessments), who was the designated authority to assess the petitioner.
10. Sri Ramabhadran has, in elaboration of his contentions, argued that all errors are not prejudicial to the interests of the Revenue though the converse position may provide a ground to invoke the powers of revision. It is argued on the facts of the present case, namely, that the assessee having not raised the question of jurisdiction and having paid the tax, there was no case of any prejudice for the Commissioner to revise the order. It is contended that the petitioner should not be driven to face a second round of assessment proceeding which is wholly uncalled for and not justified in law.
11. Sri Ramabhadran has cited the following decisions in support of his contentions :
(i) V. K. Uchal v. Commissioner of Commercial Taxes, Mysore [1967] 20 STC 67 (Mys).
This was a case under section 22-A of the Karnataka Sales Tax Act. The Commissioner's order was set aside on the facts of that case, holding that it was not prejudicial to the interests of the Revenue.
(ii) B. C. Malliah v. State of Karnataka .
The notice issued under section 12A of the Act was the subject-matter of a revision before the High Court. The question that arose for decision was whether the C.T.O., after he was divested of the power to assess the dealers whose tax liability exceeds Rs. 50,000, could issue a notice to reopen. The High Court held that the notice issued by the C.T.O., who was no longer the assessing authority, was without jurisdiction and further held that it was only the Assistant Commissioner of Commercial Taxes, who was competent to deal with the assessments of the assessee and also to initiate proceedings under section 12A of the Act. The revision petition of the assessee was therefore allowed and the order of the Karnataka Sales Tax Appellate Tribunal, which had upheld the proceedings initiated under section 12A, was set aside.
(iii) Thalibai F. Jain v. Income-tax Officer, Assessment-4, Hubli [1975] 101 ITR 1 (Kar).
This was a case of revision by the Commissioner of Income-tax under section 263, setting aside voluntary assessments made by the Income-tax Officer. The High Court held that the assessments must be held to be prejudicial to the interests of the Revenue, in that the Income-tax Officer had assessed the income of one person in the hands of another person accepting the voluntary return filed. This does not help the arguments of the petitioner in this case.
(iv) Commissioner of Income-tax, Karnataka v. Executors of the Estate of Late H. H. Rajkuverba Dowager Maharani Saheb of Gondal [1978] 115 ITR 301 (Kar).
The High Court was dealing with the powers of the Commissioner under section 263 of the Income-tax Act. The High Court laid down under what circumstances the power of revision by Commissioner can be exercised. One of the requisites for invoking the power being the existence of an order by the Income-tax Officer prejudicial to the Revenue.
(v) H. H. Maharaja Raja Pawer Dewas v. Commissioner of Income-tax .
The High Court was dealing with a case arising under section 144B of the Income-tax Act, 1961. The assessment had been completed without following the procedure laid down under section 144B. The High court held on facts that non-compliance with section 144B did not cause any prejudice to the Revenue on the basis of the assessment order which was in favour of the Revenue.
12. In support of his contention, Sri Dattu, the learned Government Pleader, has relied upon the following decisions :
Firstly, he has relied upon the decision of the Supreme Court reported in :
(i) [1976] 37 STC 533 (Commissioner of Sales Tax, U.P. v. Sarjoo Prasad Ram Kumar), and has argued that the order of assessment being an order without jurisdiction, it was certainly a matter for the Commissioner to interfere with that order to set the records straight and to see that the order of assessment was made by the assessing authority, who was empowered to make the assessment.
In support of his contention he has also relied upon the decision of this Court in B. C. Malliah's case [1981] 47 STC 190, in which the assessee had questioned the notice issued by the C.T.O. who had lost jurisdiction to assess the petitioner.
(iii) Rampyari Devi Saraogi v. Commissioner of Income-tax, West Bengal .
That was a case of exercise of jurisdiction by the Commissioner under section 33-B of the Indian Income-tax Act, 1922. The question that arose in that case was about the place where the assessee had been carrying on the business. The Commissioner set aside the order of assessment on the sole ground that the Income-tax Officer had completed the assessment without enquiring as to the place of business. The order of the Commissioner setting aside the assessment and transferring it to the jurisdictional Income-tax Officer, was upheld by the Supreme Court, observing that the said order, in no way, prejudiced the interests of the assessee.
(iv) Gee Vee Enterprises v. Additional Commissioner of Income-tax, Delhi-I .
The Delhi High Court declined to interfere with the order of the Commissioner made under section 263 on the sole ground that the assessee had a right of appeal against the said order to the Appellate Tribunal, which it had not availed of.
(v) Hindu Bank Karur Ltd. v. Additional Commissioner of Income-tax, Madras .
The High Court observed, that the words "erroneous in so far as they are prejudicial to the interests of the Revenue" have to be taken together and require to be widely construed. Sethuraman, J., speaking for the Bench, held as follows :
"It is not any error that the Commissioner can rectify under section 263. His power is restricted to the errors in so far as they are prejudicial to the interests of the Revenue."
(vi) Commissioner of Income-tax, Mysore v. T. Narayana Pai [1975] 98 ITR 422 (Kar).
The High Court laid down two conditions to be satisfied before the Commissioner of Income-tax can invoke his revisional power under section 263, and, they are (1) that the order proposed to be revised should be erroneous; and (2) such an order should have resulted in prejudice to the interests of the Revenue.
This is a general principle laid down by their Lordships, but what is the prejudice that is caused has to be judged from the facts of a given case.
(vii) Smt. Taradevi Aggarwal v. Commissioner of Income-tax, West Bengal .
The Supreme Court held on the facts, that the assessment in that case was erroneous and prejudicial to the Revenue, in that the assessment had been made on an assessee who had not earned the income, but had filed a voluntary return to help another assessee to help reduce his income.
13. On a consideration of the arguments advanced on both sides and the decisions referred to in support of their respective contentions, the question that arises for decision on the facts of the present case is :
"Whether the order made by the Joint Commissioner under section 22-A(1) of the Karnataka Sales Tax Act is justifiable in law ?"
14. The Commissioner is conferred with the powers of revision under section 22-A of the Karnataka Sales Tax Act. This power is meant to be exercised by the Commissioner if he considers that any order passed under the Act is erroneous and is prejudicial to the interests of the Revenue. It is not merely an erroneous order that can be cancelled, but such order must result in prejudice to the interests of the Revenue. An error to come within the purview of the revisional jurisdiction may be an error of fact, an error of law, or an error of jurisdiction. It is only when any or all these factors exist in the order, that the Commissioner can interfere with the same. It is laid down in decided cases, not all errors can be revised, but only such orders which result in prejudice to the interests of the Revenue can be revised. How the prejudice is caused depends upon the facts of each case.
15. This Court had occasion to deal with a similar argument in B. C. Malliah's case [1981] 47 STC 190. The Commissioner, it is seen, has mainly relied upon the decision of the Supreme Court in Sarjoo Prasad Ram Kumar's case [1976] 37 STC 533. The question that therefore arises for consideration is as to whether, on the basis of the ratio of the said decision, the Commissioner on the facts of the present case, rightly exercised his revisional jurisdiction. The Supreme Court held on the facts of that case, that the assessment order passed by an officer, who was not the designated authority and who had no territorial jurisdiction to assess the assessee, was not a valid assessment. The question of jurisdiction in such cases goes to the root of the case as laid down by the Supreme Court in the said case.
16. The contention of the learned counsel for the assessee is that, a future contingent action on the part of the assessee, which he may not resort to and challenge the assessment order, does not amount to prejudice. According to his submission, the error must be in praesenti and must be found in the order.
17. In order to satisfy the requirements of the contentions, to exercise the revisional jurisdiction by the Commissioner under section 22-A, the order sought to be revised must be an erroneous order and that order must be prejudicial to the interests of the Revenue.
18. On the facts of the present case, the Commercial Tax Officer, who made the assessment was not the competent assessing authority vested with the power to assess a dealer whose liability exceeded Rs. 50,000. But, it so happened, overlooking the notification issued by the Commissioner on 13th March, 1980 by which he had conferred the assessment powers in such cases on the Assistant Commissioner of Commercial Taxes (Assessments), Bangalore District, the C.T.O., Dist. Circle-IV, had completed the assessment. Hence, action was taken to set aside this order of assessment and accordingly by an order made under section 22-A(1), the Joint Commissioner set aside the same and remanded the case to the Assistant Commissioner for de novo assessment.
19. Under section 3B of the Act, the Commissioner may, be general or special order in writing, transfer any specified case or classes of cases to the Assistant Commissioner of Commercial Taxes. He may also assign to the Assistant Commissioners and C.T.Os. the functions in respect of the particular areas or of such dealers or classes of dealers or such cases or classes of cases, as he may direct.
20. The question that, therefore, arises is, what is the scope and ambit of the orders made by the Commissioner under section 3B ? The Commissioner in exercise of his powers conferred on him under section 3B of the Act can demarcate the jurisdiction of each ACTO/CTO, transfer any case or classes of cases to the ACTO. Such allocation of cases and demarcation may be for delimiting the territorial jurisdiction or on the basis of pecuniary jurisdiction or the quantum of tax liability or turnover. This power exercised by the Commissioner, which is conferred on him under section 3B of the Act is meant to be exercised for purpose of administration of the Act. The observations of the Supreme Court that any demarcation as to jurisdiction over particular areas and demarcation on the basis of pecuniary jurisdiction, namely, the tax liability, undoubtedly, involves the question of jurisdiction and goes to the root of the case.
21. Sri Ramabhadran is not able to cite any decision in support of his contention that the possibility of an assessee challenging the order of assessment on the ground of illegality, or want of jurisdiction at any future point of time, cannot form the basis for invoking the revisional power of the Commissioner.
22. On the other hand, the Commissioner while exercising his revisional jurisdiction, in setting aside the order passed by the C.T.O., who was not the competent assessing authority, had in his mind, the want of jurisdiction of the officer, which can, at any time be the ground for questioning the assessment order.
23. Therefore, mere chance or possibility of such an action being taken by the assessee and to ask for refund of the tax paid on that ground, is sufficient to clothe the Commissioner with the power and reason to cancel the assessment.
24. Therefore, the order made by the Joint Commissioner of Commercial Taxes (Vigilance), Bangalore (annexure-D), on the facts of the present case is justified, both on facts and in law, and the writ petition is accordingly dismissed.
25. Writ petition dismissed.