Indian Hume Pipe Co. Ltd. vs Commissioner of Income Tax

T. D. Sugla, J.—The Income Tax Appellate Tribunal has referred to this court the following question of law for opinion u/s 256(1) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, surtax assessment order for the assessment year 1965-66 passed by the Income Tax Officer u/s 6(2) of the Companies (Profits) Surtax Act, on January 28, 1972, that is, beyond a period of four years from the end of the assessment year, is valid in law ?"

The assessee is a company and the proceedings relate to its surtax assessment for the assessment year 1965-66, previous year being from July 1, 1963, to June, 1964. The Income Tax assessment for the year was completed on August 20, 1970. The surtax assessment has been completed on January 28, 1972, though the return of income under the Surtax Act was filed on September 14, 1965.

The assessee filed an appeal against the order of surtax assessment on certain points and succeeded in part. It went in further appeal to the Tribunal on certain other points on which it succeeded. However, the additional ground taken by the assessee before the Tribunal on the question of limitation was rejected by the Tribunal. The question referred by the Tribunal arises out of the order of the Tribunal relating to the additional ground.

Fairly admitting that there is no time-limit for completion of assessment provided under the Surtax Act, Shri Mehta, learned counsel for the assessee, stated that u/s 8(b) of the Surtax Act, a notice to reopen the assessment could be issued within four years from the end of the assessment year. Ordinarily, the question of reopening an assessment would arise after the assessment is completed. Therefore, the outer time-limit for completion of assessment should be taken to be four years. In support of his contention, Shri Mehta placed reliance on the following Supreme Court decisions :

(1) The Commissioner of Income Tax, Bombay City I, Bombay Vs. Narsee Nagsee and Co., Bombay, ;

(2) The State of Gujarat Vs. Patil Raghav Natha and Others, ;

(3) Bharat Steel Tubes Ltd. and Another Vs. State of Haryana and Another, .

In all these cases, the Supreme Court is stated to have held that where there is no time-limit prescribed for completion of assessment, the assessment should be completed within a reasonable time. The assessment having been completed after more than seven years, he urged that the assessment must be held as barred by limitation.

Shri Jetley, learned counsel for the Revenue, on the other hand, reiterated that there is no time-limit prescribed for completion of assessment under the Surtax Act. Section 18, whereby a number of sections of the Income Tax are made applicable to the Surtax proceedings, does not include section 153. Section 153 is the section in the Income Tax Act which provide the time-limit within which the assessments under the Income Tax Act are to be completed. In any event, the Income Tax assessment having been completed on August 20, 1970, the surtax assessment completed on January 28, 1972, was within reasonable time. In support, he also relied on the Madhya Pradesh High Court decision in Gwalior Rayon Silk Mfg. (Wvg.) Co. Vs. Commissioner of Income Tax, and the Madras High Court decision in Vijaya Production Private Ltd. Vs. Commissioner of Income Tax, .

Section 5 of the Surtax Act corresponds to section 139 of the Income Tax Act, 1961, and section 8 corresponds to section 147 of the Income Tax Act. 1961. However, unlike section 147(a), there is no time-limit prescribed for the issue of notice u/s 8(a) of the Surtax Act. For completion of assessment, there is no time-limit prescribed under the Surtax Act and section 153 of the Income Tax Act which prescribes the time-limit for completion of the assessment under the Income Tax Act has not been made applicable to the Surtax Act. It is in these circumstances that we have to consider whether the time-limit of four years prescribed for the issue of notice u/s 8(b) can or should be treated as a time-limit for the completion of the assessment under the Surtax Act.

The Supreme Court decision in The Commissioner of Income Tax, Bombay City I, Bombay Vs. Narsee Nagsee and Co., Bombay, , deals with the provisions of the business Profits Tax Act. u/s 11(1), notice for filing the return could be issued by the Income Tax Officer within the financial year which commences next after the expiry of the accounting period or the previous year which includes chargeable accounting period. However, no notice u/s 11(1) was issued within the time, nor had the assessee filed its returns. Subsequently, a notice calling for return was issued. The question was whether such a notice was valid. It was held that, in a case in which no notice u/s 11(1) was issued in time nor was any return filed, notice u/s 14 read with section 11 could be issued within four years. Since the assessee had not filed the returns, the case was held as falling u/s 14 and, therefore, the notice issued within four years was held valid. In the other two decisions in Bharat Steel Tubes Ltd. v. State of Haryana [1988] 70 STC 122 and The State of Gujarat Vs. Patil Raghav Natha and Others, , the Supreme Court has not imported any time-limit where no time limit was prescribed for completion of assessment. What is held is that the assessment even in such cases must be made within reasonable time. What will constitute reasonable time will depend upon the nature of the order and the facts of the case. Thus, these decisions do not support the contention raised on behalf of the assessee.

The Madhya Pradesh High Court in Gwalior Rayon Silk Mfg. (Wvg.) Co. Vs. Commissioner of Income Tax, was directly dealing with the question of limitation for completion of assessment under the Surtax Act. Distinguishing the Supreme Court decisions in The Commissioner of Income Tax, Bombay City I, Bombay Vs. Narsee Nagsee and Co., Bombay, , The State of Gujarat Vs. Patil Raghav Natha and Others, , and another Supreme Court decision, it was held that as there was no time-limit prescribed for the completion of the surtax assessment, provisions of section 8(b) could not be relied upon for holding that the time-limit for completion of the assessment was four years. The Madhya Pradesh High Court, it may be stated, also observed that it was not necessary that the assessment must be made within a reasonable time. However, we do not propose to go that for in this case as we find that, in the present case, the assessment was completed within a reasonable time. In this context, it is pertinent to mention that surtax is a levy on chargeable profits. Chargeable profits are to be computed as provided in the Firts Schedule to the Surtax Act. The starting point for computing chargeable profits is the total income as computed under the Income Tax Act. Thus, surtax assessment must of necessity be completed after the assessment under the Income Tax Act is completed. The time-limit for completion of assessment under the Income Tax Act at the relevant time was four years from the last day of assessment year. The Income Tax assessment in the present case was completed on August 20, 1970. Therefore, the surtax assessment completed on January 28, 1972, i.e., within less than two years, cannot be said to be an unreasonable period. The Madras High Court decision in Vijaya Production Private Ltd. Vs. Commissioner of Income Tax, is on all fours.

Accordingly, we answer the question in the affirmative and in favour of the Revenue. No order as to costs.