Commissioner of Income Tax vs Tecalemit (I) Ltd.

Suhas Chandra Sen, J.—The following question of law has been referred to this Court by the Tribunal u/s 256(2) of the income tax Act, 1961 (''the Act''):

Whether, on the facts and in the circumstances of the case and on proper interpretation of section 170(2) of the income tax Act, 1961, the Tribunal was correct in holding that the income tax Officer had no jurisdiction to raise an assessment in the hands of Tecalemit (India) Ltd. in respect of the income of Tecalemit (India) Ltd. earned by it during the period 1-8-1963 to 31-3-1964?

The assessment year involved in this reference is the assessment year 1964-65 for which the corresponding period of account is year ending 31-3-1964.

The facts of the case as stated by the Tribunal are as under:

The assessee is Tecalemit (India) Ltd. which was a non-resident company. It had been carrying on business in India and was following as its accounting year, the year ending on 31st July. By an agreement dated 9-10-1964, the business of the assessee in India was taken over by Tecalemit (Hind) Ltd. with effect from 1-4-1964. The assessee filed its return of income for the assessment year 1964-65 corresponding to the previous year ending on 31-7-1963. Thereafter the assessee wrote to the ITO requesting for his approval to the change of the subsequent accounting year from year ending 31st July to the year ending 31st March. It was stated that the request was made in view of the fact that parent company in UK had also changed its accounting year to the year ending 31st March and the parent company required that the subsidiary company should also follow the same accounting year. It was also mentioned that the business of the assessee-company would be closed as on 31-3-1964 and that the assessee would like its accounting year to be changed to 31-3-1964. Thereafter on 1-10-1964 the assessee filed a return stated to be also for the assessment year 1964-65 in respect of the accounting period from 1-8-1963 to 31-3-1964, disclosing a total income of Rs. 1,721,200. This was accompanied by a balance-sheet and profit and loss account as on 31-3-1964. On receipt of this return the ITO made a provisional assessment u/s 141 of the Act raising a total demand of Rs. 11,285.85. The demand raised was paid by the assessee in two instalments on 6-3-1966 and 23-3-1966, respectively. Thereafter on 26-3-1969 another return of income stated to be a revised return was filed, as stated in the return, in respect of the previous year ending on 31-7-1964. The return was accompanied by the same profit and loss account and the balance-sheet for the period ending on 31-3-1964 as in the case of the original return. The revised return showed a total income of Rs. 1,70,360. The return was verified by one Shri K. Mukherjee who described himself as the Secretary of the assessee-company and was signed by him as "For Tecalemit (India) Ltd., Tecalemit (Hind) Ltd. Sd/- 1-K. Mukherjee, Secretary.

The ITO made an assessment u/s 144 of the Act on the basis of the revised return and this was cancelled u/s 146 of the Act and a fresh assessment was made u/s 143(3) computing the total income of the assessee for the period 1-8-1963 to 31-3-1964 on a total income of Rs. 3,07,439. Both, in the original assessment and in the subsequent fresh assessment the assessee was described as Tecalemit (India) Ltd. [through Successor-Tecalemit (Hind) Ltd.]. It may be mentioned that when the original assessment was made, objection was raised on behalf of the Indian company as to the validity or the correctness of the proceedings taken by the ITO and in fact the notices were issued by the ITO which were duly complied with.

On appeal, the AAC held that the assessment made on the Indian company was without jurisdiction. It was argued before the AAC that the Indian company was not successor to the non-resident company. The AAC upheld that contention and held that the assessment was a nullity and had no legal effect.

Further appeal was preferred by the Department. Before the Tribunal, the Department relied on the provisions of section 170(2) of the Act. Section 170(2) provides as follows:

Succession to business otherwise than on death. - (1) ******

(2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.

Therefore, the provisions of section 170(2) can only be invoked in a case of succession of a business when the predecessor cannot be found. In the instant case, the Tribunal''s finding of fact is that the predecessor was found and in fact a provisional assessment was made on the non-resident company.

Moreover, the non-resident company had filed its return and no further action for assessment was taken. The only point that has been taken on behalf of the department is that the Indian company had filed a return. But that does not alter the legal position in any way. The income accrued or arose to the non-resident company. If an assessment was to be made on the successor-company, it must be done in accordance with the provisions of law. If the predecessor-company could be assessed and was available for assessment, no proceeding could be taken against the successor u/s 170(2).

In that view of the matter, the question referred to is answered in the affirmative and in favour of the assessee. There will be no order as to costs.

Banerjee, J.

I agree.