Commissioner of Income Tax vs Madras Palayakat Company Private Ltd.

Veeraswami, J.—These are two references before us, one at the instance of the Commissioner of Income Tax and the other of the assessee

u/s 66(1) of the Income Tax Act, 1922. They arise out of a common order of the Tribunal in three appeals relating to the assessment years 1943-

44 to 1945-46. The assessee is a private limited company with branches at Colombo and other places. On November 5, 1960, the assessee

applied for refund of Income Tax on the ground of double Income Tax relief in respect of the first two years and on August 11, 1961, a similar

application was made for refund in respect of the last year. By his order dated March 11, 1961, the Income Tax Officer granted refund for the first

two years. He also granted similar relief on August 31, 1961, for the last of the assessment years. The Commissioner of Income Tax thought in

proceedings u/s 33B that the Income Tax Officer had granted excess relief inasmuch as the additional tax paid by the assessee u/s 20(7) of the

Ceylon Ordinance of 1932 should also be taken into account for the purpose of giving relief. The Commissioner accordingly revised the orders of

the Income Tax Officer and directed the assessee to refund the excess relief that had been granted for the three years. The Tribunal sustained the

Commissioner''s orders only in respect of the last of the years but allowed the assessee''s appeals in respect of the rest of the years. The assessee

succeeded to that extent on the Tribunal''s view that Section 45(4)(b)(ii) of the Ceylon Income Tax Ordinance itself came into force only from

April 1, 1945.

In the Commissioner''s reference, the question is :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the additional rate of 3 per cent. in

Section 20(7)(a) of the Ceylon Ordinance of 1932 should be included in the '' Ceylon tax '' for granting double Income Tax relief for the

assessment years 1943-44 and 1944-45 ?

And the questions in the other reference are :

Whether the Tribunal was right in holding that the Commissioner of Income Tax had power u/s 33B of the Indian Income Tax Act, 1922, and

at the relevant time to revise the orders of the Income Tax Officer for the assessment, years 1943-44, 1944-45 and 1945-46 and that his

(Commissioner''s) order u/s 33B was valid ?

Whether the additional rate in Section 20(7)(a) of the Ceylon Ordinance of 1932 is Ceylon tax within the meaning of Section 45(4)(b) of the

Ceylon Ordinance ?

Whether the Tribunal was right in holding that the sum of Rs. 5,032 was granted as excessive relief in computing the double Income Tax relief

for the assessment year 1945-46 and that the Commissioner''s order cancelling the relief was correct ?

The answer to these questions will really depend on two main points :

Whether the Commissioner had jurisdiction u/s 33B to revise the orders of the Income Tax Officer granting refunds in respect of assessments

relating to the three years long before the coming into force of Section 33B ? and

Whether the additional rate of 3 per cent. u/s 20(7)(a) of the Ceylon Ordinance of 1932 could be properly included in the Ceylon tax for

granting double Income Tax relief ?

We may conveniently dispose of first the question of jurisdiction. The argument for the assessee is that refund proceedings are part of

assessment proceedings and the law applicable to an assessment is the law that existed and had force on the 1st of April of the relevant assessment

year and that as Section 33B came into force only as from March 30, 1948, it conferred no authority on the Commissioner to revise the orders of

the Income Tax Officer granting refunds. It is also argued that assessment proceeding includes appeals and revisions only as provided for by the

law in force on the 1st of April of the relevant assessment year. In support of these contentions, reference has been made to Commissioner of

Income Tax v. Isthmian Steamship Lines, Karimtharuvi Tea Estates Ltd. v. State of Kerala and Kalawati Devi Harlalka v. Commissioner of

Income Tax. But it seems to us that the question of jurisdiction should be decided with reference to the actual language employed by Section 33B

which reads of follows :

33B. Power of Commissioner to revise Income Tax Officer''s orders.--(1) The Commissioner may call for and examine the record of any

proceeding under this Act and if he considers that any order passed therein by the Income Tax Officer is erroneous in so far as it is prejudicial to

the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as

he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or

cancelling the assessment and directing a fresh assessment.

(2) No order shall be made under Sub-section (1)-

(a) to revise an order of reassessment made under the provisions of Section 34 ; or

(b) after the expiry of two years from the date of the order sought to be revised.

(3) Any assessee objecting to an order passed by the Commissioner under Sub-section (1) may appeal to the Appellate Tribunal within 60 days of

the date on which the order is communicated to him.

(4) An appeal to the Appellate Tribunal under Sub-section (3) shall be in the prescribed form and shall be verified in the prescribed manner and

shall be accompanied by a treasury receipt in support of having paid the fee of Rs. 100 and such appeal shall be dealt with in the same manner as if

it were an appeal under Sub-section (1) of Section 33 .

The authority of the Commissioner to call for record of any proceeding and, after enquiry, to pass such order thereon as the circumstances of

the case may justify under the section, is wide and not confined to any proceeding under the Act not related to an assessment year prior to March

30, 1948. "" Any proceeding under the Act "" not being related to any assessment year, the words would cover any proceeding factually taken

under the Act. It is not necessary for us to decide for purposes of these references whether the section would cover proceedings taken under the

Act prior to the coming into force of Section 33B. Certainly, any proceeding under the Act taken subsequent to March 30, 1948, would, in our

opinion, clearly fall within the ambit of Section 33B. The applications for refund, as we mentioned earlier, were filed as late as 1960 and 1961. We

are unable to accept the contention for the assessee that in interpreting Section 33B, we should bear in mind the general principle that the law that

governs an assessment is the law in force on the 1st of April of the assessment year relevant to that assessment. Learned counsel for the assessee

does not contend that it is not open to the legislature to depart from that position. We think that effect ought to be given to the clear language of

Section 33B, namely, ""any proceeding under the Act"". As we said, we see no reason whatever, why the applications filed in 1960 and 1961 are

not proceedings under the Act within the meaning of the section. On that view, it follows that the Commissioner was well within his powers u/s 33B

in revising the orders of the Income Tax Officer.

That takes us to the second point we formulated earlier and that turns on the interpretation of Section 20(7)(a) read with Section 45(4)(b)(ii) of

the Ceylon Income Tax Ordinance, 1932. Section 49A of the Income Tax Act provides for grant of relief in respect of double taxation or for

avoidance thereof. Under this provision, the Central Government may enter into an agreement with a country outside India for granting such relief

in respect of income on which have been paid both Income Tax under the Indian Act and in the country outside India. Power also has been given

under this section to the Central Government to frame rules by notification in the Official Gazette for implementing any such agreement. This section

has beer amended more than once and the latest of them was by the Finance Act, 1953. We are in these references concerned with the section as

it stood at the relevant three assessment years. The difference between the present and the old section as it stood at the relevant period is only that

in respect of an agreement with a country outside India, the procedure for relief was to be as prescribed by a notification issued by the

Government of India. Under this power, rules have been framed called the Income Tax (Double Taxation Relief) (Ceylon) Rules, 1942. Rule 3 in

substance directs that relief may be given to the extent of one-half of the Ceylon Income Tax or Indian Income Tax whichever may be less on the

doubly taxed income. It is in that context the question arises as to the amount of Ceylon Income Tax charged for each of the assessment years in

question. Section 20(7)(a) of the Ceylon Income Tax Ordinance charges tax,

for the year of assessment commencing on the 1st day of April, 1937, and for each subsequent year of assessment ending prior to the 1st day of

April, 1947, at twice the unit rate increased by an additional rate of 3 per centum......... upon the taxable income for that year of every

company......

Section 45 of the Ordinance deals with relief in cases of double taxation and Sub-clause (ii) of Clause (b) of Sub-section (4) of this section

defines "" Ceylon tax "" as meaning,

the amount of such tax before deducting any relief under the '' Ceylon Act '' and the following section, but does not include--.........

(ii) any additional tax charged under any of the following provisions, that is to say, Sub-sections.........(7).........

The argument of the assessee is two fold : (1) Section 20(7) visualises only one tax and there is, therefore, no question of any additional tax

being included in it, and (2) Section 45(4)(b)(ii) speaks of additional tax whereas Section 20(7)(a) uses the expression "" additional rate "" and not

additional tax "". It is said that, therefore, in determining the Ceylon tax for purposes of double Income Tax relief, no deduction u/s 45(4)(b)(ii)

could be made. In our opinion, the contention is not sound. It is true that what is charged u/s 20(7) is a single tax, but it has got two components,

(1) twice the unit rate, a unit being five per centum and (2) an additional rate of three per centum. When, therefore, Section 45(4)(b)(ii) speaks of

any additional tax u/s 20(7), it has reference to the additional rate. For this purpose, as it appears to us rate and taxes have been treated by the Act

as synonymous. We are of the view, therefore, that the Tribunal''s view that the Ceylon Income Tax for the purpose of double Income Tax relief

would be tax as computed u/s 20(7) less the deduction u/s 45(4)(b)(ii) of the Ceylon Income Tax Ordinance, is correct.

So far as the question in the Commissioner''s reference is concerned, it is easily answered. The Tribunal made a mistake in assuming that

Section 45(4)(b)(ii) had no application to the first two assessment years. It is true that that provision came into force with effect from April 1,

1945, but its predecessor, couched in identical language, was definitely in force during the first two assessment years as well.

The questions under the references are all answered in favour of the revenue with costs, one set ; counsel''s fee Rs. 250.