Income Tax Appellate Tribunal - Pune
Income Tax Officer vs South India Corporation (A) Ltd. (Ito V. ... on 25 July, 1995
Equivalent citations: (1995)53TTJ(PUNE)315
ORDER
V. DONGZATHANG, A.M. : March, 1987 These appeals of the Revenue are directed against the orders of the CIT(A). 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 ITO in the status of tramp-ships under S. 172(4) of the IT Act, 1961. In the original assessment, the ITO 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 ITO received a circular from the Board which indicated a different rate of exchange. On the basis of this information, the ITO reopened the assessment of the assessees under S. 147(b) of the IT Act. Rejecting the explanation offered, the ITO completed the reassessment proceedings on the basis of the correct rate of exchange intimated by the CBDT, New Delhi.
3. Aggrieved by the said reassessment, the assessees took up the matter in appeal before the CIT(A) contending that the ITO was not justified in reopening the assessment under S. 147(b) of the IT Act, 1961. At the time of hearing before the learned CIT(A) the various grounds raised in the grounds of appeal as per the memo of appeal filed before him were not properly highlighted. The learned CIT(A) held the reopening to be invalid. According to him, an order under S. 172(4) does not fall under the category of cases which can be reopened under the provisions of S. 147 Sec. 147 applies only to those orders which are based upon the returns filed under S. 139 and not under any other section. Accordingly, the learned CIT(A) held that the provisions of S. 147 are not applicable and hence the reassessment proceedings become invalid. He, accordingly, set aside the reassessment proceedings and restored the original order under S. 172(4) of the IT Act. In doing so, the learned CIT(A) 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 CIT(A) is opposed to law and facts of the case.
2. The CIT(A) erred in holding that the order under S. 144 r/w S. 147(b) and 172(4) passed by the ITO in this case for the asst. yr. 1978-79 is illegal.
3. The CIT(A) erred in holding that an order under S. 172(4) does not fall under the category of cases which can be reopened under the provisions of S. 147.
4. The CIT(A) erred in coming to the conclusion that the provisions of S. 147 applied only to those orders which are passed upon the returns filed under S. 139 (and not under any other section).
5. The CIT(A) ought to have appreciated the fact that the assessment under S. 172(4) in this case was reopened by the ITO by issuing notice under S. 148 for action under S. 147(b) as he had information in his possession to have reason to believe that income chargeable to tax under. 172(4) had escaped assessment and, therefore all the ingredients necessary for action for action under S. 147(b) were fulfilled in this cases.
6. For these and such other grounds that may be urged at the time of hearing it is prayed that the order of the CIT(A) may be cancelled and that of the ITO restored."
At the time of hearing before us, Shri M. Subramanian, learned Departmental Representative appeared for the Revenue 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, S. 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 w.e.f. 1st June, 1975. After this change, assessment under S. 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 the learned counsel of the assessee that the provisions of S. 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 visit during the year. In any case, the option for regular assessment is only given to the assessee under sub-s. (7) of S. 172. Unless the assessee makes a claim for an assessment to be made of the total income of the previous year, the ITO 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 ITO cannot fall back upon the other provisions of the Act so as to reopen the assessment already concluded under S. 172. The only option that is given is to the assessee who can demand reassessment in terms of S. 172(7). Alternatively, it is submitted by the learned counsel of the assessee that the learned CIT(A) 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-s. (3) and as such, the assessee cannot be assessed again under the main provision.
4. 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 non-resident 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 non-resident shipping company would not automatically terminate by the filing of the return under S. 172(3) of the Act. In other words, the option will always be open to the ITO to initiate reassessment proceedings it it is found that the income of the assessee escaped assessment in terms of S. 147. The accrual of income of the non-resident shipping company is to be determined in terms of S. 9 of the IT Act. However, for the convenience of estimate of income in such a case, a special provision in the form of S. 44B has been inserted w.e.f. 1st April, 1976 for computing profits and gains of shipping business in the case of non-resident. However, if the income assessed under S. 172 is found to be not the correct income or assessed at too low a rate, there is no specific provision to prevent the ITO from initiating reassessment proceedings. The provisions of the IT Act are quite clear and there is no bar to such proceedings to be initiated by the ITO. Since the provisions of S. 172 are only assessment procedures, the non-obstante clause will not take away the powers of the ITO under various provisions of the Act in regard to other proceedings.
5. The reliance of the learned counsel on the decision of the Bombay High Court in the case of M.N. Sidhwa vs. CIT (1963) 50 ITR 337 (Bom) is not well placed. In that case, the limited question before the Honble High Court was whether the assessments made by the ITO were under S. 44B(2) of the Act or under the provisions of the latter part of S. 44A of the Act. In that case, it has been held that the assessment orders orders were orders validly made under S. 44B(2) and the application for refund was time-barred under the provisions of S. 44C of the Act. Their Lordships have not gone into the question whether the ITO has got the power to reopen the assessment under S. 147 of the IT 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 ITO to initiate proceedings under S. 147 of the IT Act is not barred even where assessment has been completed under S. 172(4) of the IT Act is not barred even where assessment has been completed under s. 172(4) of the IT Act if there is evidence to show that there is escapement of income under the IT Act. We, accordingly, uphold the validity of the order of the ITO under S. 147 reopening the assessment and vacate that of the CIT(A).
6. However, the learned CIT(A) has not considered the appeals on 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 deal with all the grounds raised in the memo of appeal. The appeals are accordingly restored to the file of the CIT(A) for fresh disposal as indicated above.
7. In the result, the appeals shall be treated as partly allowed for statistical purposes.
BALASUBRAMANYAM, J.M. :
27th April, 1987 I have had the advantage of reading the order proposed by the learned A.M. As I am unable to persuade myself to agree with the conclusion reached by him, I place on record my views in the matter.
2. The impugned assessments are those framed against agents of non-residents under the provisions of S. 172(4), IT Act. For a reason, the ITO thought fit to reopen the assessments by taking recourse to S. 147(b). The assessees in the returns filed under S. 172(3) have disclosed income in foreign currency. In the assessments framed under S. 172(4) originally, the ITO had adopted telegraphic transfer rate as supplied by the RBI for the propose of converting the income into Indian currency. The circular issued by the CBDT, which the ITO had subsequently received, indicated that the correct conversion rate is as per the intimation given by the CBDT or the RBI. This was taken as "information" and, on the basis of that, the ITO initiated reassessment proceedings taking recourse to S. 147(b) IT Act.
3. The assessee objected to the initiation of reassessment proceedings under S. 147(b) upon many grounds, one of them being that the ITO had no jurisdiction to reopen under S. 147(b) in respect of the assessments completed under S. 174(4). Overruling the objections, the ITO passed fresh assessments adopting the conversion rate furnished by the CBDT.
4. Aggrieved by the reassessments, there were appeals which the CIT(A) disposed of considering the preliminary issue. The CIT(A) held that an assessment made under S. 174(4) does not fall under the category of cases which can be reopened under the provisions of S. 147. He, therefore, held that ITO had no jurisdiction and that the "reassessments were invalid in law". The Revenue, by these appeals, is objecting to the order of the CIT(A).
5. After hearing both sides, I am of the view that the order of the CIT(A) should be sustained. The learned author Sri Sampath Iyengar in his Law of Income-Tax (Seventh Edition, p. 3831) points out that S. 172 and Ss. 174 to 176 constitute exception to the concept of income of previous year. Chapter XIV deals with procedure for assessment of income of a previous year. In an assessment under S. 174(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 S. 174(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 S. 172(7) only gives an option to the owner or the charterer of the ship to have assessed in the normal course on his total income, for, in some case, it may be advantageous to the assessee. Else, the assessment under S. 172(4) is final.
6. Chapter XIV deals with procedure for assessment. Sec. 130 specifies return of income of the previous year. Secs. 140A to 144B are the provisions underlying an assessment. They are all assessment of income of a previous year. Sec. 146 speaks of reopening the assessment at the instance of the assessee. Sec 147 is about reopening the assessment at the instance of the ITO. Looking to the sequence of the provisions from S. 139 upto S. 146, it appears that draftsman had only income of the previous year in mind in wording S. 147.
7. If the language in S. 147(a) and (b) is seen closely, it will be seen that the provision has application only to a case assessment in the general way regarding income of a previous year only. Clause (a) specifically refers to a return made under S. 139. Therefore, S. 147(a) applies to a case where the assessee has filed a return under S. 139 or is obliged to file a return under S. 139. In cl. (b), the basis for reopening is 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 cl. (a).
8. Clause (a) deals with omission or failure on the part of the assessee vis-a-vis the return filed under S. 139 or obliged to file under S. 139. Clause (b) deals with other cases where there are no omission or failure attributable to the assessee, but income escaping assessment. If we see the scheme, it will be seen that both cls. (a) and (b) deal with cases where return is filed under S. 139 or the assessee is obliged to file under S. 139. These are not such cases. The CIT(A) was, therefore, correct in holding that S. 147 does not apply to these where returns had been filed under S. 172(3).
9. The "assessment year" in S. 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 S. 139 which is in respect of the income of the previous year. The words used (with grammatical variation) in cl. (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 cls. (a) and (b) must be in respect of entire income of a previous year assessable in the assessment. In an assessment under S. 172(4) there is no previous year. Therefore, the general provisions of S. 147 are not applicable to a special type 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 S. 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.
10. The agent of the non-resident had declared the income earned by way of freight in foreign currency. The ITO applied the telegraphic transfer rate as supplied by the State Bank of India. The basis for reopening is that rate as intimated by the CBDT or 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 prescribes 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. Explanation says that "telegraphic transfer buying rate" shall have the same meaning as the Expln. to r. 26, according to which it is the rate adopted by the State Bank of India for buying currency the conversion rate applied by the ITO accords with what is prescribed in r. 115 r/w 26. The premise of income escaping assessment is misconceived, and resort to S. 147(b) is without justification.
11. To the argument that erroneous assessment made under S. 172(4) will remain in force if authority is not conceded to ITO under S. 147, it may be mentioned in passing that rectification (under S. 154) or revision by CIT may be proper.
12. In the result, I had that the reassessments under S. 147(b) are without jurisdiction and the CIT(A) was correct in holding that the same are illegal, and the appeals by the Revenue are to be dismissed.
ORDER OF REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 25th June, 1987 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 S. 255(4) of the Act :
1. Whether an original assessment made under S. 172(4) of the IT Act be reopened on the authority of S. 147(b) ?
2. Whether the reassessment orders passed by the ITO were proper, and valid in law ?
CHANDER SINGH, A.M. (AS THIRD MEMBER) :
As there was a difference of opinion between my learned Brothers regarding application of S. 147(b) of the Act with regard to the original assessment made under S. 172(4) of the Act, the matter was placed before the Honble President under S. 255(4) of the Act, with the following questions to resolve the difference.
"1. Whether, an original assessment made under S. 172(4) of the IT Act be reopened on the authority of S. 147(b) ?
2. Whether the reassessment orders passed by the ITO were proper, and valid in law."
2. 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 S. 172(4) of the Act. In the original assessment, the Assessing Officer adopted the rate of exchange per US $ on the basis of telegraphic transfer as certified by the local branch of State Bank of India. Subsequent to the completion of the assessments, the CBDT 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 S. 147(b) of the Act. The reassessments were completed by him on the basis of rate of exchange intimated by the CBDT in the circular mentioned above.
3. The assessee was aggrieved and filed appeal before the CIT(A) who was of the opinion that the assessment made under S. 172(4) could not be reopened under S. 147 of the Act. The CIT(A) accordingly cancelled the assessment.
4. 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 S. 172(4) could be reopened under S. 147 of the Act.
5. The learned Judicial Member, on the other hand, disagreed with the opinion of the learned Accountant Member and examined the various provisions of the IT Act. He was of the view that the provisions of S. 172 and Ss. 174 to 176 constituted exceptions to the concept of income of the previous year. After examining the relevant provisions of the IT Act, he expressed an opinion that the assessment completed under S. 172(4) could not be reopened under S. 147 of the Act. He therefore, upheld the order of the CIT(A).
6. Before me, the assessees vide their letter dt. June, 1995 stated that the appeals may be decided on 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 S. 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 S. 147 of the Act. The assessment could also be reopened on the basis of Boards circular of which the correct rate of exchange was notified to the Assessing Officer. The circular of the Board constituted an information within the meaning of S. 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 vs. West Coast Industrial Co. Ltd. (1987) 168 ITR 72 (Ker). 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.
7. 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 of otherwise of the reassessment machinery provided under S. 147 of the Act, I consider it necessary to briefly deal with the provisions contained in S. 172 of the Act. Sub-s (1) to S. 172 lays down that the provisions of that section shall apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, live-stock, mail or goods shipped at a port in India. Sec. 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 S. 172, S. 44B also contains a special provision for computing profits and gains of shipping business in the case of non-resident. There is, however, difference between S. 44B and S. 172 of the Act. In S. 44B no procedure for assessment and collection of tax is provided. The use of non-obstante clause refers only to Ss. 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 S. 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, S. 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 or carrying goods, passengers, livestock, mail or goods, etc. being an assessee shall be assessed in accordance with S. 143 of the Act and not in accordance with the procedure prescribed for a non-resident shipowner or charterer covered by S. 172(1) and (2) of the Act. Therefore, the inevitable conclusion is that the shipowner or charterer in S. 172(1) of the Act is not an assessee as defined in cl. (7) of S. 2. He is a mere shipowner who is a non-resident 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 S. 172 of the Act. The said heading is as follows :
H. Profits of non-residents from occasional shipping business.
8. That this heading denotes the persons intended to be covered by S. 172 of the Act. They are persons who are not regularly in the shipping trade or business in India. Hence, when S. 172 is attracted, only that procedure which is contemplated under S. 172 of the Act under sub-ss. (3) to (7) should be followed and no other. In other words, S. 172 of the Act is a complete code and is not dependant upon any other provisions of the IT Act. Under this section, the assessment is completed under S. 172(4) on the basis of 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 S. 172 does not envisage the terms like previous years or assessment years. There can be as many years of assessments as visits of the ship on an Indian port. These provisions are self-contained and the determination of the recovery of tax is governed by the procedure laid down in S. 172 of the Act.
9. Sec. 147 of the Act, as it stood at the relevant time, had cls. (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 S. 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 cl. (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 Ss. 148 to 153, assess or reassess such income."
10. 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 with 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.
11. The expressions used in S. 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 full and true disclosure of material facts for a specific year. Thus, the provisions of S. 147, in my view, can be applied where the assessee has failed to file the return under S. 139. The proceedings can be initiated for the previous year relevant to any assessment year. In other words, for putting into operation S. 147 of the Act, there should be a return under S. 139 and the reopening should pertain to previous year relevant to assessment year. When the assessment is completed under S. 172(4) of the Act there is neither any return under S. 139 nor any assessment year is involved. As already stated above, there is no previous year in an assessment under S. 172(4) of the Act. For the purpose of computation of tax and its recovery under S. 172, no return of income is required to be filed under S. 139 of the Act. It, therefore, appears that the provisions of S. 172 are independent of the other provisions of the IT Act. I, therefore, agree with the findings of the learned Judicial Member. In my view, the reassessment machinery under S. 147 cannot be put in motion to rectify a mistake, if any, in the assessment completed under S. 172(4) of the Act.
12. I also consider it necessary to mention that the Assessing Officer had reopened the assessment in view of the Boards circular mentioned above. The Boards circular had intimated the different rate of exchange in view of r. 115 of the IT Rules, 1962. The said rule was examined by the Bombay High Court in the case of Chowgule & Co. Ltd. vs. CIT (1992) 195 ITR 810 (Bom). 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, r. 115 of the IT Rules, 1962 was declared as ultra vires. Since the said rule was struck down by the jurisdictional Bombay High Court, no reopening of assessment under S. 147 could be justified. Even on merits, therefore, the issue is covered in favour of the assessee and against the Revenue.
13. 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 consequential order in accordance with the opinion of the majority.