Commissioner of Income Tax vs Orissa Forest Development Corporation Ltd.

B.P. Das, J.—On an application filed by the Commissioner of Income Tax, Orissa u/s 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has referred the following questions of law by its order dated 8.4.1991 passed in R.A. No. 9 (CTK)/1991 arising out of I.T.A. No. 126 (CTK)/1990 for opinion of this Court.

(1) Whether on the facts and in the circumstances of the case, the learned Tribunal has interpreted the statutory language as is contained u/s 153 appropriately and legally and whether the learned Tribunal is legally justified to come to the conclusion that "the present assessment order is clearly barred by limitation and is valid?

(2) Whether on the facts and in the circumstances of the case on reading of the agreement it is correct to interpret that the assessee-company is not a selling agent and as such an independent contractor under this agreement and that the act of the Principal i.e. the Orissa Forest Department or the State Government?"

(3) Whether on the facts and in the circumstances of the case on reading of the agreement entered into between the parties and by reading the resolution period but with retrospective effect, the learned Tribunal was legally justified to conclude that the income as accrued during the accounting period to the assessee company was not eligible to tax and therefore, they were correct to come to a finding that there was diversion of income by an over-riding title?

The brief facts of the case are as follows:

The Orissa State Legislature passed a legislation called the Orissa Kendu Leaves (Control) of Trade) Act, 1961 (the Act, in short) for the regulation of trade in Kendu Leaves prohibiting any person other than the Orissa Government or its Officers or agent to purchase or transport Kendu Leaves. It fixed the purchase price at which the Kendu Leaves would be purchased for a year in consultation with an Advisory Committee. The Government had power to appoint agents for the purchase of Kendu Leaves. u/s 10 of the said Act, the Kendu Leaves purchased by the Government or the officers or the agents would be sold or otherwise disposed of in such manner as directed by the Government. In the year 1977, the Government of Orissa in Forest Department entered into an agreement with the Orissa Forest Corporation Ltd. (hereinafter ''assessee'') and appointed it as the selling agent u/s 10 of the Act for disposal of the Kendu Leaves purchased by the Forest Department. During the period relevant to the assessment year 1978-79, Kendu Leaves were sold at a price higher than the price fixed and specified in Clause 16 of the Agreement, i.e., Rs. 285/- per quintal. The Kendu Leaves Coordination Committee decided in its meeting held on 9.8.1978 that the Agreement between the Government and the assessee should be adopted with the modification that in case the average selling price of Kendu Leaves would be more than the amount (cost of production + royalty + marketing expenses) indicated in the Agreement, the excess would be paid to the Government. The Committee also declined to grant rebate on the royalty for 1973 and 1974 crops. The assessee''s accounting period ended on 31.3,1978 and it made a provision for payment of collected additional amount of Rs. 1,35,92,730/- to the State Government. The Assessing Officer was of the opinion that the extra profit earned was assessable in the hands of the respondent-assessee whereas the case of the assessee was that the same was not its income because the assessee was merely an agent of the Government and the said amount belonged to the Government from the very time of physical receipt of the same by the assessee. The order of assessment was passed by reopening notice u/s 148 of the Income Tax Act, 1961 (hereinafter I.T. Act), and after a number of assessments made u/s 144 of the I.T. Act were set aside by order passed u/s 146 of the I.T. Act, the final position was that the reopening order was passed u/s 146 on 18.3.1983 indicating therein that the assesee was prevented by sufficient cause not to comply with the order of the Assessing Officer. Therefore, the assessment u/s 144 was cancelled and assessment was reopened. The assessee filed third revised return on 20.3.1985 and the order of assessment was passed on 21.1.1986. The assessee preferred appeal against the aforesaid order of assessment dated 21.1.1986 before the Commissioner of Income Tax (Appeals), who by order dated 21.2.1987 passed in I.T.A. No. 505/ORA/85-86 set aside the order of assessment with a categorical direction over the issue of additional royalty payable to the Government of Orissa. Notices were issued under Sections 143(2) and 142(1) and the order of assessment for the assessment year 1978-79 was passed by the Assessing Officer on 31.3.1989. The said order was again challenged before the Commissioner of Income Tax (Appeals) on various grounds including on the ground that the order of assessment made was barred by limitation. It was contended that since the assessment had been reopened u/s 146 of the I.T. Act, fresh assessment was to be completed within the time limit prescribed under Sub-section (2A) of Section 153 of the I.T. Act. It was further argued before the Commissioner of Income Tax (Appeals) that since proceedings had been initiated by issuance of notice u/s 148 of the Act, the time limit u/s 153(1)(c) of the Act did not apply. The Commissioner of Income Tax (Appeals) upheld the order of assessment and dismissed the appeal preferred by the assessee (respondent herein) being devoid of any merit. On the point of limitation, the Commissioner of Income Tax (Appeals) held that due to assessee filing a revised return, the period of limitation for assessment got extended and as the last assessment completed on 21.1.1986 and the same was set aside on 21.2.1987, a fresh order of assessment is permissible within two years from the end of the financial year of the set aside order in terms of Section 153(2A) of the Act.

The appellate order was challenged before the Income Tax Appellate Tribunal. The Tribunal ultimately allowed the appeal and held that the amount of Rs. 1,35,92,730/- was not the income of the assessee-respondent and consequently the same could not be taxed in its hands. Thereafter on the application of the Commissioner of Income u/s 256(1) of the Income Tax Act, the Tribunal has referred the above questions of law for opinion of this Court.

Let us now take up question No. 1.

The admitted fact is that the last assessment was completed on 21.1.1986 and the same was set aside by the Commissioner of Income Tax (Appeals) on 21.2.1987. According to the learned Counsel for Revenue, the Assessing Officer could pass fresh assessment orders within two years from the end of the financial year of the set aside order in terms of Section 153(2A) of the I.T. Act. Accordingly, learned Counsel for the Revenue submitted that there was no infirmity in the order of the Commissioner of Income Tax (Appeals) who rightly held that there was no limitation in passing the order of assessment. In this regard, Mr. S.N. Ratho, learned Counsel for the respondent-assessee submitted that the language of Section 153(1)(2A) was clear and that the assessment order should have been passed on or before 31.3.1985 and therefore the present order of assessment was clearly barred by limitation, According to him, Clause (c) of Sub-section (1) of Section 153 deals with period of limitation regarding filing of revised return but Sub-section (2A) was silent in that regard. Let us now see the provisions of Section 153, which deals with completion of assessment arid re-assessment.

A bare reading of the provisions of Section 153(1) will go to show that the same deal with time limit for completion of normal assessment made u/s 143(3) or 144 of the I.T. Act. Sub-section (2) of Section 153 deals with the time limit for assessment u/s 147 to assess or re-assess the escaped income. Section 153(2A) pertains to fresh assessment made in pursuance of an order of the Assessing Officer u/s 146 of the I. T. Act. Section 146 of the I.T. Act as it stood then is the provision for reopening assessment at the instance of the assessee or in pursuance of an order u/s 250, Section 254, Section 263 or Section 264, setting aside or cancelling ah assessment made at any time before the expiry of two years from the end of financial year in which the order u/s 146 cancelling the assessment is passed by the Income Tax Officer or the order u/s 250 or Section 254 is received by the Commissioner or as the case may be. From the aforesaid provisions of law, it is clear that Sub-section (1)(c) of Section 153 deals with period of limitation regarding revised return but Sub-section (2A) of Section 153 is silent regarding that and makes no reference to revised return. So, the case of the appellant comes within the purview of Section 153(2A) and fresh assessment in this case has to be made before two years from the end of financial year in which the order u/s 146 cancelling the assessment order was passed. The order in this case u/s 146 was passed on 18.3.1983. The period of two years expired on 31.3.1985 and the assessment order was passed on 21.1.1986. The argument of the learned Counsel for the Revenue that as the respondent has filed the revised return showing its willingness to be assessed, the question of limitation is not material and the assessing officer had the option to make the assessment after expiry of two years'' period is not acceptable because there is no provision u/s 153(2A) like that of the provision u/s 153(1)(c) of the Income Tax Act which provides for completion of assessment within one year from the date of filing of a return or revised return. Considering the facts and looking to the provisions of law governing the field, we are of the opinion that the order of assessment is clearly barred by limitation and is an invalid one. Accordingly question No. 1 is answered in favour of the respondent-assessee. In view of our answer to question No.1, question Nos. 2 and 3 have become academic and do not require any answer.

The reference is accordingly answered.

A.K. Samantaray, J.

I agree.