Punjab-Haryana High Court
Commissioner Of Income Tax vs S. G. Sambandam & Co. on 14 November, 1997
Equivalent citations: (1999)156CTR(P&H)190
JUDGMENT
N. V. Balasubramanian, J.:
An interesting question of law on the scope of s. 172 of the Income Tax Act, 1961 (hereinafter to be referred to as 'the Act') arises on the facts of the case.
2. The facts of the case leading to the reference are as under : The steamer 'MY. Irenes Pride' arrived at the port of Madras on 11th Jan., 1975, and left the port of Madras on 12th Feb., 1975. M/s S.G. Sambandam & Co., Madras (hereinafter to be referred to as 'the assessee') filed a return of income under the provisions of s. 172(4) of the Act for the assessment year 1974-75, and the Income Tax Officer by an order dt. 3rd March, 1975, found that the gross freight earning, taxable freight earning, determined the tax payable thereon and levied the income-tax at the prescribed rate. Subsequently, the Revenue audit party took a view that the dollar exchange rate that was to be adopted was Rs. 7.50 per dollar under r. 115 of the IT Rules, 1962 (hereinafter to be referred to as 'the Rules'), and not Rs. 7.279 adopted in the order of assessment. The sum of Rs. 7.279 was adopted oil the basis that it was the current exchange rate. On the basis that the report of the audit constituted information for the purpose of the reopening the assessment, the Income Tax Officer initiated proceedings and issued notice under S. 148 of the Act to the assessee for reopening the assessment made under section 172 of the Act. The assessee thereupon filed a return in response to the notice under section 148 of the Act, disclosing the same income as was disclosed in the return filed under section 172 of the Act. The Income Tax Officer completed the reassessment on 22nd March, 1979, and determined the total income of the non-resident at Rs. 4,79,570 and the tax payable thereon at Rs. 3,53,484. After deducting the tax originally paid, the assessee was called upon to pay the difference of Rs. 10,386.
3. The assessee filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) pointed out that the provisions of s. 172 of the Act is a special provision for the assessment on the shipping agent and according to him, the assessee would not automatically be treated as a representative assessee for the assessment or reassessment in the normal course, unless he is treated as a representative-assessee after the issue of notice under section 163 of the Act. He further, held that the provisions of s. 148 of the Act cannot apply to an assessment under section 172 of the Act on the basis that s. 147 of the Act would apply only to the case where there is an omission to make a return under section 139 of the Act or where there is a failure to disclose the material fact in such a return and the assessment made was not a normal assessment and the conditions prescribed under section 147 of the Act were not satisfied and in that view of the matter, he cancelled the 'supplementary assessment' made by the Income Tax Officer for lack of jurisdiction.
4. The Revenue preferred an appeal before the Tribunal and the Tribunal decided the case on jurisdiction as well as on merits of the case on each and every one of the points raised before the Tribunal. The Tribunal held that the provisions of r. 115 of the Rules are not applicable to the facts of the case. The Tribunal also held that the provisions of s. 147 of the Act would not apply to a summary assessment made under section 172 of the Act and further the reassessment made was barred by time-limit prescribed under sub-section (3) of s. 149 of the Act. The Tribunal also held that the assessee was not treated as an agent after complying with the statutory formalities prescribed under section 163 of the Act and the report of the audit would not constitute information for the purpose of reopening the assessment under section 147(b) of the Act. The Revenue has come before us challenging the findings of the Tribunal on each and every one of the points went against it and the Tribunal has stated a case and referred the following give questions of law for our opinion :
"1.Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the reassessment made under section 147(b) in the assessee's case for the assessment year 1974-75 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal's view that r. 115 of the IT Rules, 1962, would not apply to the assessee's case as the assessee has not expressed the income in foreign currency is sustainable in law ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a notice under section 163 should have been issued to the assessee for treating it as an agent of the non-resident owner under section 163, the first assessment having been made on the assessee representing the master of the ship under section 172(4) of the Act ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal's view that the reassessment made under section 147(b) was time-barred in view of the provisions of s. 149(3) is sustainable in law ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal's finding that the decision reported in Indian & Eastern Newspaper Society v. CIT (1979) 12 CTR (SC) 190 : (1979) 119 ITR 996 (SC) 71 would apply to the assessee's case and, therefore, the reopening of the assessment was invalid, is sustainable in law T'
5. Mr. S.V. Subramaniam, learned senior counsel appearing for the Revenue, made an elaborate argument and submitted that the provisions of r. 115 of the Rules are mandatory in nature and prevailing market exchange rate would apply only when the dollar is brought to India and where, the foreign exchange was not brought to India which is otherwise liable to be taxed in India, he submitted, the provisions of r. 115 of the Rules would apply. He submitted that the provisions of r. 115 of the Rules are mandatory in character and that rule has to be applied when the foreign exchange was not brought to India. He relied upon a decision of this Court in SM Syed Mohsin v. CIT (1979) 12 CTR (Mad) 368 : (1979) 119 ITR 826 (Mad) and submitted that 1/6th of the gross earning paid or payable on account of the carriage to the owner or character in respect of the carriage of the passengers, livestock or goods carried in a ship stubbed in a part at India is deemed to be income accrued in India, and liable to be taxed and therefore, the provisions of r. 115 of the Rules would squarely apply to the facts of the case. He submitted that there is a statutory obligation on the part of the non-resident to file the return and to pay the tax and when the master of the ship was required to file the return of income when the ship touches the Indian port for the carriage of the goods, etc. and that the master of the ship in effect acts on behalf of the owner and when the assessee filed the return, though it is stated he acted on behalf of the master of the ship, it must be taken that he was acting as an agent of the non-resident principal. He submitted that when the assessee voluntarily filed the return, it must be taken that the assessee himself accepted the position that he was the agent of the non-resident and the assessee also did not raised any objection when the notice under section 148 of the Act was issued to him and, therefore, there is no necessity to issue further notice under the provisions of s. 163 of the Act. He also submitted that the scope of s. 147 of the Act cannot be limited or confined to the assessment made in pursuance of the return filed under section 139 of the Act, but also extended to the cases where the assessment is made pursuant to the return filed under any other provision of the Act. He also submitted that the Tribunal was not correct in holding that the assessment made was barred by limitation as the income was assessable only for the assessment year 1975-76 and it cannot be said that the action is time-barred. Finally, he submitted that the audit party has not interpreted the provisions of law and merely brought to the attention of the Income Tax Officer the relevant provisions of r. 115 of the Rules which prescribed fixed rate for foreign exchange which should have been applied by the Income Tax Officer at the time of completion of the assessment.
6. Though the assessee was served, there was no representation on behalf of the assessee.
7. We have carefully considered the submissions of the learned senior counsel for the Revenue, and perused the record.
8. Before considering the arguments, it is necessary to examine the scope of s. 172 of the Act. The scope of s. 172 of the Act has been elaborately discussed and set out by a decision of the Supreme Court in the case of Union of India v. Gosalia Shipping (P) Ltd. 1978 CTR (SQ) 76 : (1978) 113 ITR 307 (SC). as under :
"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. The object of the section is to ensure the levy and recovery of tax in the case of ships belonging to or chartered by non-residents. The section brings to tax the profits made by them from occasional shipping, by means of a summary assessment in which one sixth of the gross amount recovered by them in deemed to be the assessable profit. Before the departure of the ship, the master of the ship has to furnish to the Income Tax Officer a return of the full amount paid or payable to the owner or charterer on account of the carriage of passengers, goods, etc., shipped at the port in India since the last arrival of the ship at the port. In the event that, to the satisfaction of the Income Tax Officer the master is unable so to do, he has to make satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf. A port clearance cannot be granted to the ship until the tax assessable under the section is duly paid or satisfactory arrangements have been made for the payment thereof."
The decision of the Supreme Court establishes the proposition that the assessment made under section 172 of the Act is a summary assessment in which one-sixth of the gross amount received by the non-resident is deemed to be the assessable income of the non-resident principal. In other words, the charging provision for the levy of income in the case of shipping at a port in India is found in sub-section (2) of s. 172 of the Act and one-sixth of the amount paid or payable on account of carriage of the passengers, livestock, mail or goods shipped at a port in India to the owner or any other person shall be deemed to be the income accrued in India to the owner or charterer on account of such carriage. The rate of tax is also provided in sub-section (4) of s. 172 of the Act and under that sub-section, the Income Tax Officer shall assess the income and determine the tax payable at the rate in force, applicable to the total income of the company which has not made the arrangements referred to in s. 194 of the Act.
9. It is relevant to notice the provisions of sub-section (1) of s. 172 of the Act at the time when the assessment under section 172 of the Act was made on the non-resident and s. 172(1) at the relevant time stood as under :
"The provisions of this section, shall, notwithstanding anything contained in the other provisions of this Act, 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, livestock, mail or goods shipped at a port in India, unless the Income Tax Officer is satisfied that there is an agent of the non-resident from whom the tax will be recoverable under the other provisions of this Act."
The last portion of s. 172 of the Act beginning from the words, 'unless the Income Tax Officer....' was omitted by the Finance Act, 1975, with effect from Ist June, 1975.
10. The unamended provisions of s. 172 was subject-matter of consideration before the Calcutta High Court in the case of Czechoslavak Ocean Shipping International Joint Stock Co. & Anr. v. Income Tax Officer (1971) 81 ITR 162 (Cal) 33 and the Calcutta High Court held that s. 172 of the Act provided for a provisional assessment and recovery of tax from a tramp-steamer belonging to a non-resident which has loaded carge and taken in passengers in an Indian port before the ship is allowed to leave the Indian port so that there may not be any evasion of tax due on the freight and passenger fare earned which would be income accruing or arising in India. The Court also held that where there is an agent for the non-resident in India by whom expenses can be made on annual basis, no resort under section 172 is permissible. In other words, according to Calcutta High Court, the provisions of s. 172 of the Act would not be applicable where a non-resident owner has an agent in India as contemplated under section 163 of the Act. Applying the principle laid down by the Calcutta High Court, the Income Tax Officer could not have invoked the provisions of s. 172 of the Act, if there was an agent at the time of making assessment under that provision.
11. In M.N. Sidhwa v. CIT (1963) 50 ITR 337 (Bom) 9 the Bombay High Court, no doubt, has taken a view that it is not obligatory on the Income Tax Officer to proceed to assess the agent under general provisions of the Act. The decision of the Bombay High Court also proceeds on the basis that even if there was an existing agent in India on behalf of a non-resident assessee at the time of making the assessment, there is an option left with the Income Tax Officer to proceed either against the non-resident principal by way of summary procedure under section 172 of the Act or against the agent in the normal assessment proceedings. It is significant to notice that in the case before the Bombay High Court, there was an agent in India on behalf of the non-resident principal, and in that context, the Court observed that there is an option vested with the officer to proceed either under section 172 of the Act or under regular assessment procedure. The question that arises here whether the assessee could be regarded as an agent of non-resident principal when the assessment was made under section 172 of the Act. That apart, the decision of the Calcutta High Court in Czechoslovak Ocean Shipping International Joint Stock Co. & Anr., cited supra, makes it clear that when there is an agent in India for the non-resident principal, the Income Tax Officer at the relevant time is not empowered to proceed to make the summary assessment, but to make an assessment on the agent treating him as a representative assessee for the non-resident principal in the normal assessment channel. The logical inference we can draw from the fact that an assessment was made under section 172 of the Act is that the assessee was not treated as an agent of the non-resident principal and the expression, 'unless the Income Tax Officer which was omitted shows that the assessee was not treated by the Income Tax Officer as an agent of the non-resident principal. Therefore, in the instant case, it is legitimate to draw an inference that there was no agent in India for the non-resident principal within the meaning of s. 163 of the Act, when the Income Tax Officer proceeded to make summary assessment under section 172 of the Act.
12. The scheme of s. 172 as a whole indicates that the provisions of s. 172 of the Act would apply notwithstanding any other provisions of the Act and it has an overriding effect over other provisions of the Act. The master of the ship is empowered to file the return before the ship leaves India, and if it is not possible for the master to file the return, it is open to the master to make satisfactory arrangements for the filing of the return or for the payment of tax on behalf of the master. Under the statutory scheme, when the assessee filed the return under section 172(3) of the Act, it must be taken that the assessee filed the return as an agent of the master as s. 172 of the Act makes a difference between the agent of a non-resident and the agent of the master. It is also not possible to accept the contention of the learned senior counsel for the Revenue that when the assessee filed the return under sub-section (3) of s. 172 of the Act, it filed the return on behalf of non-resident principal. Sub-s. (3) of s. 172 of the Act makes it clear that the assessee was representing only the master of the ship in the summary assessment made on the non-resident principal and in the absence of any notice to the assessee treating him as agent under section 163 of the Act it is not open to the Income Tax Officer to treat the assessee as an agent of the non-resident. Hence, when the Income Tax Officer found that there was an escapement of income, he should have in the absence of an agent in India proceeded under section 163 of the Act by issuing notice to the assessee, as to why he should not be treated as an agent of the non-resident, and then proceeded to make reassessment. Admittedly, the Income Tax Officer has not issued any notice under section 163 of the Act to the assessee to treat him as an agent of the non-resident, but straightaway issued the notice under section 148 of the Act. It is impermissible to straightaway treat the assessee who filed the return on behalf of the master of the ship as an agent of the non-resident as the liability of the agent of the non-resident principal is far different from the agent of the master of the ship. The assessee, no doubt, filed the return under section 148 of the Act repeating the same income as was disclosed in the return filed under section 172 of the Act. The assessee has merely repeated the earlier return which involved no liability. Therefore, we are of the view that the Appellate Assistant Commissioner as well as the Tribunal came to the correct conclusion that it is mandatory on the part of the Income Tax Officer to have issued to notice under section 163 of the Act before treating the assessee as an agent of the non-resident principal.
13. Mr. S. V. Subramaniam, learned senior counsel, placed strong reliance on a decision of the Bombay High Court in Jadavji Narshidas & Co. v. CIT (1957) 31 ITR 1 (Bom) . There the assessee without being called upon to file a return by a notice under section 22(2) of the Indian Income Tax Act, 1922, voluntarily submitted a return as an agent of a non-resident and on the basis of the return an assessment was made treating the assessee as an agent to the non-resident was held to be valid as there was no notice under section 43 of 1922 Act. The decision of the Bombay High Court in JadavjiJ Narshidas & Co. case (supra), in our opinion, has no application to the facts of the case. In that case, the assessee filed the return voluntarily on behalf of the non-resident principal. But, in the present case, the assessee filed the return not voluntarily on behalf of the non-resident under the provisions of s. 172 of the Act, but filed the return after issue of notice under section 148 of the Act and under the statutory compulsion of the notice. Consequently, the decision of the Bombay High Court has no application to the facts of the case.
14. As already seen, the scheme under section 172 is clear that when the assessee filed return under sub-section (3) of s. 172 of the Act, he filed the return as an agent of the master of the ship and it cannot be held that the assessee voluntarily treated himself as an agent of the non-resident. No doubt, it may be true the Income Tax Officer is ultimately assessing a non-resident principal or the charterer, but the scheme of s. 172 does not provide for the assessee to treat himself as an agent of the non-resident by filing return under sub-section (1) of s. 172 of the Act. The proviso to sub-section (3) of s. 172 of the Act provides that if the master of the ship is not able to furnish the return before the departure of the ship from the port, the master of the ship can make satisfactory arrangements for filing the return and payment of tax by any other person on his behalf (Emphasis, italicised in print supplied). The words underlined (italicised) clearly show that the assessee filed the return on behalf of the master. Further, under the same proviso, the Income Tax Officer may deem that the filing of the return by the assessee was so authorised by the master and that would be treated as sufficient compliance with the sub-section (3) of s. 172 of the Act. The latter clause of the proviso also gives an indication that the assessee filed the return on the basis of the authorisation given by the master. It may or may not be true that the master was empowered by the non-resident principal to authorise any other person to file the return on behalf of the non-resident principal, but there are no materials to indicate that the assessee has filed the return on the basis of the authorisation of the non-resident principal or the master of the ship was authorised by the non-resident principal to nominate another to file the return on behalf of the non-resident. In the absence of any evidence to show that the assessee acted on behalf of the non-resident principal, it is not permissible for the Income Tax Officer to take proceedings under the provision of s. 148 of the Act without treating the assessee as an agent under section 163 of the Act. 15. Consequently, we are of the view that the order of the Tribunal is liable to be sustained and there is no need to consider any other aspects dealt with by the Tribunal. Further, there is a glaring mistake in the reassessment made in this case on the assessee. Originally the assessment was made on 3rd March, 1975, for the assessment year 1974-75. At the time when the original assessment was completed, the assessment year 1975-76 has not begin as it commences only on 1st April, 1975. It is no doubt true that under the provisions of s. 172 of the Act, it is open for the Income Tax Officer to make an accelerated assessment and complete the assessment during the course of the previous year itself. The assessment was made at the rate of tax provided for the assessment year 1974-75. Under sub-section (3) of s. 149 of the Act which prescribes time-limit for the issue notice under section 149 of the Act, no notice shall be issued on a person treating him as an agent of a non-resident after the expiry of the period of 2 years from the end of the relevant assessment year. The notice under section 148 of the Act was issued only on 4th Jan., 1975, and in the notice, it was also stated that it was issued for the assessment year 1974-75. Mr. S.V. Subramaniam, learned senior counsel for the Revenue submitted that though the income was assessed under section 172 of the Act for the assessment year 1974-75. It really represented the income of the assessee for the assessment year 1975-76. He, therefore, submitted that the notice was issued within the period of 2 years from the end of the relevant assessment year namely, 1975-76. There are more than one difficulties in accepting the contention of the learned senior counsel. As already stated, the assessment was made for the assessment year 1974-75 both in the original assessment and in the subsequent assessment made by the Income Tax Officer. Secondly the notice under section 148 of the Act was issued only for the assessment year 1974-75 and not for the assessment year 1975-76 and without a valid notice for 1975-76, it cannot be held that the assessment for 1975-76 was validly reopened. Thirdly, under provision of s. 172 of the Act, the provisional assessment could be made for the assessment year 1974-75 and it cannot be stated that the Income Tax Officer when he so made the assessment, he made the assessment for the year 1975-76. Fourthly, the option to opt for making an assessment in the regular assessment procedure is available to the owner of the charterer of the ship. As already seen, it is always open to the Income Tax Officer not to proceed under section 172 of the Act, but to proceed to make the assessment against the non-resident principal, and if there is any agent for him in India to proceed against the agent treating him as the agent under section 163 of the Act. The Income Tax Officer admittedly has not adopted that course. The Income Tax Officer proceeded to make an assessment for the year 1974-75 under section 172 of the Act and made assessment for that year. The word, 1 assessment year' is defined in s. 2(9) of the Act to mean the period of 12 months commencing on the 1st day of April, every year and in the context of s, 172 of the Act, we have to hold that the assessment of income was made for the year 197475 and that was the correct assessment year which was rightly adopted by the Income Tax Officer in both the assessment proceedings. Therefore, it is not permissible for us to treat the assessment so as if the assessment was made for the assessment year 1975-76, Therefore, for the assessment year 1974-75, the notice should have been issued before 31st March, 1977, but the notice under section 148 of the Act was issued only on 4th Jan., 1978, and the notice issued is clearly time-barred.
16. In this view of the matter, we are of the view that the reassessment made was time-barred. Hence, we are of the view that it is not necessary for us to consider the other aspects of the case. In fine, we answer the questions of law referred to us as under :
(a) Question of law No. 3 answered in the affirmative and against the Revenue.(b) Question of law No. 4
Revenue.
(c) Question of law Nos. 1,2 and 5 : In view of the answer to questions 3 and 4, we are not providing any answer to these questions.
However, in the circumstances of the case, there will be no order as to costs.