Commissioner of Income Tax vs Sandvik Asia Ltd.

D.P. Madon, J.—This is an application u/s 18 of the Companies (Profits) Surtax Act, 1964, read with section 256(2) of the income tax Act, 1961, by the CIT for an order directing the income tax Appellate Tribunal to state a case and refer to this High Court the following four questions: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that reassessment proceedings u/s 8(b) of the Companies (Profits) Surtax Act, 1964, were not valid and in holding that the Appellate Assistant Commissioner was justified in annulling the reassessment order made by the income tax Officer?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the mere noting of the income tax Officer on the letter dated December 3, 1970, stating that the proceedings were already dropped could not be considered as an order to terminate the proceedings and further holding that the reassessment proceedings were not valid?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income tax Officer could not invoke rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, in order to effect a proportionate reduction in the assessee-company''s capital having regard to the deduction allowed to it u/s 80-I of the income tax Act, 1961, in the computation of its total income?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the reduction of Rs. 17,75,166 in the assessment reopened u/s 8(b) of the Companies (Profits) Surtax Act, 1964, was not in accordance with law and in holding that rule 4 of the Second Schedule to the said Act is not applicable to the case?

The brief facts necessary for an understanding of this matter are that the respondents filed their returns under the Companies (Profits) Surtax Act, 1964, with the ITO for the assessment years 1968-69 and 1969-70 on December 3, 1970, showing no amount payable by way of surtax by them. These returns were forwarded by the respondents along with a covering letter bearing the same date. Thereafter, the ITO issued a notice u/s 8(b) of the said Act for reopening the assessment made. Returns were filed by the respondents in pursuance of the said notice, once again showing that no amount of surtax was payable by them. Thereafter, the ITO passed an order of reassessment u/s 6(2) read with section 8(b) of the said Act by which he held that deductions u/s 80-I of the income tax Act, 1961, from gross total income allowed to the respondents were in respect of amounts not liable to be included in their total income as computed under the said Act and that, therefore, rule 4 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, was applicable and the capital computation had to be reduced accordingly. The respondents filed an appeal against the said order. One of the grounds taken in the appeal by the respondents was that the ITO had no jurisdiction to reopen the assessment inasmuch as the assessment proceedings, pursuant to the returns filed by the respondents, had not been concluded and were pending. The respondents further objected to the disallowance of the said deductions. Both these objections were allowed by the AAC. There was another contention raised by the respondents with respect to dividends, which was disallowed by the AAC and with which we are not concerned in this application. Against the order of the AAC, the department unsuccessfully went in appeal to the Tribunal. The department thereafter applied to the Tribunal to state the case to this court and refer to it the four questions set out above. This application was rejected by the Tribunal. Thereafter, the petitioner has approached this High Court.

In order to show that the ITO had jurisdiction to reopen the assessment what was relied upon by the department was a note made by the ITO on the covering letter dated December 3, 1970, to the said returns. That note stated: "Mr. Kulkarni, we have already dropped the two proceedings. Kindly keep in surtax file." The Tribunal held that this note showed that the proceedings had been dropped earlier. The Tribunal further found that no order dropping the proceedings had been brought on the record. Accordingly, the Tribunal held that the assessment proceedings pursuant to the returns filed by the petitioner were pending and were not concluded and during the pendency of these proceedings no notice of reassessment could issue. In arriving at this conclusion, the Tribunal relied upon the decision of the Supreme Court in Commissioner of Income Tax, Madras Vs. M.K.K.R. Muthukaruppan Chettiar, . In that case, the ITO had made a note stating "no assessment". He thereafter issued a notice to reopen the assessments. The Supreme Court, following its earlier decision in the Estate of the Late A.M.K.M. Karuppan Chettiar Vs. Commissioner of Income Tax, Madras, , held that a notice u/s 34 of the Indian income tax Act, 1922, could not be issued unless the returns which had been filed were disposed of. The Supreme Court further held that that principle applied to the case before it as the material facts were not different.

Mr. Joshi, learned counsel for the petitioner, has, however, referred us to two decisions of the Supreme Court and a decision of the Madras High Court in which it was held that the assessment proceedings in question were concluded by certain notings made by the ITO. In our opinion, none of those cases have any relevance to the facts before us. These notings are, as will be seen presently, different from the noting in the case before us. In the present application, the proceedings are not being dropped nor the assessments being concluded or closed by the noting in question. This noting expressly refers to the proceedings having been already dropped, that is, dropped prior to the date of the noting. If that was so, there would be an order or a noting to that effect in the order sheet. None has been produced, and the Tribunal was, therefore, right in coming to the conclusion that there was no such order concluding the proceedings.

Turning now to the cases relied upon by Esthuri Aswathiah Vs. The Income Tax Officer, Mysore State, , the noting was "no proceeding". The Supreme Court held that on the facts the order "no proceeding" meant that the ITO accepted the return submitted by the appellant. In V.S. Sivalingam Chettiar Vs. Commissioner of Income Tax, Madrasras, , the noting again was "N.A.", that is, "no assessment". The Madras High Court held that the note "N.A." of the ITO was intended to close the returns. This decision cannot be said to be good law in view of the subsequent decision of the Supreme Court in Commissioner of Income Tax, Madras Vs. M.K.K.R. Muthukaruppan Chettiar, , referred to earlier, in which the noting "no assessment" was held not to conclude the assessment proceedings. In Commissioner of Income Tax, Calcutta Vs. Bidhu Bhushan Sarkar (Dead) through his Legal Representative Mihir Kumar Sarkar, , the noting was (p. 281):

Mr. K.B., constituted attorney, appears and submits that the old return already submitted may be treated to be submitted in response to notice u/s 34(1)(a) (of the Indian income tax Act, 1922). The income should be taken in the assessment of the military contract income for which there is another file. The case is, therefore, filed.

It is thus clear that in each of the Supreme Court cases relied upon by Mr. Joshi the order on the noting operated in praesenti. Here in the case before us the case is not closed nor the proceedings dropped by this noting. This noting refers to a fact which has already taken place earlier, namely, the dropping of proceedings. There is no order or noting at all to substantiate this statement of the ITO in the noting in question. It is somewhat surprising that had in fact the proceedings been closed by an order or noting, such a noting should not have been produced before the AAC or the Tribunal. The answer to questions Nos. 1 and 2, which the petitioner applies for being referred to this High Court, turns purely upon the construction of the above noting. The construction is so plain and obvious that it would be a waste of time to ask the Tribunal to state the case and refer questions Nos. 1 and 2 to us.

If the ITO had no jurisdiction to reopen the assessments, questions Nos. 3 and 4, on which the petitioner wants a reference, would not arise and become academic, because these are questions which relate to the merits of the reassessment. However, we may point out that these two questions have already been answered against the department by this High Court in Commr. of Commissioner of Surtax, Vidarbha and Marathwada Vs. Ballarpur Industries Ltd., . In the result, this application fails and is dismissed and the rule is discharged with costs.