Kunduari Buchi Rajalingam vs Commr. Excess Profits Tax

Jaganmohan Reddy, J.—By our order dated 25-2-1953, we had directed the Commissioner, Excess Profits Tax, under Sub-section (3) of Section 48, Excess Profits Tax Act, to state a case upon the following two questions, viz.,

(i) Whether in the circumstances alleged, if true, viz., that the previous E.P.T. Order having examined the books of the Petitioner Assessed the profits and entered the same in the proper registers, the succeeding E.P.T. Order can reject the accounts on the ground that income, profits and gains cannot be deduced from the said account books and assess ''de novo''?

(ii) Whether the addition of Rs. 35,000/- to the profits is justifiable in the circumstances without giving notice to the Petitioner of the material upon which the amount was added?

The Commissioner in compliance with that order has stated a case from which it appears that the Assessee who carries on a commission business and also owns a rice mill, a decorticator, ten cotton gins and two oil expellers at warangal and a similar business at Jammilunta, made a return declaring an excess profit of Rs. 38,128 for the third chargeable accounting period. The Excess Profits Tax Officer after calling for the account books u/s 13(2) and after examining the account books produced by his clerk, had on 23-3-1355F., drawn up in English a draft of an assessment order which was initialed by him.

The Commissioner in his statement of the case observed that in those days the order had to be passed in Urdu and signed by the Officer and that it is only after an order of that nature had been prepared in Urdu and signed by the officer it became an order. He therefore submits that inasmuch as the records show that no order in Urdu was prepared on the basis of the English draft which was initialled by Shri Bashyam Iyengar who was the then E.P.T.O., or that as no notice of demand as required by. the provisions of Section 26 of the E.P.T. Act was served on the Petitioner, no assessment can be said to have been made by the E.P.T. Order It is, however, admitted that Shri Bashyam Iyengar had entered the demand of the Excess Profits Tax as proposed by him in the Demand and Collection Register, but it is contended that this Register has been maintained only for administrative purposes,; it cannot operate as or amount to an assessment order. After the demand was entered in the Demand Register, Mr. Bashyam Iyengar was succeeded by another E.P.T. Order who examined the accounts afresh and after giving an opportunity to the Assessee or his representative, came to an independent decision and accordingly passed an assessment order on 8-6-1355F. This order together with a demand notice was sent to the Assessee.

The statement of the case thereafter deals with the second of the aforesaid questions dealing with the merits of the case. The learned Advocate for the Petitioner (Assessee) concedes that question No. 2 relates purely to facts and consequently he does not press for the determination of that question. We do not, therefore, propose to deal with the facts submitted by the Commissioner in the statement of the case pertaining to that question.

The only question that remains to be considered is whether the E.P.T. Order was competent to pass the order dated 8-6-1355F., inasmuch as there was already an order of another E.P.T. Order dated 23-3-1355F., initialled by him. The contention of the Commissioner that before the order could have the force of an order it should be in Urdu, signed by the E.P.T. Order is, in our view, not warranted by any of the provisions of the Hyderabad E.P.T. Act, which does not provide specifically as provided for in the Hyderabad CPC or the Hyderabad Code of Criminal Procedure relating to judgments being in Urdu in civil and criminal cases that orders passed by the E.P.T. authorities should be in Urdu only. It was always open to the E.P.T. Order if he so chooses to serve the order on the Assessee in English. The only matter for consideration is whether the initialing of the order of 23-3-1355F., by Shri Bashyam Iyengar gives it the force of an order under the Hyderabad Excess Profits Tax Act.

The relevant sections of the Act are 14(1), 18(2) and 26, corresponding to Sections 14 and 17 of the Indian E.P.T. Act and Section 29 of the Indian Income Tax Act respectively. The aforesaid provisions are as under:

14(1). The Excess Profits Tax Officer shall, by an order in writing after considering such evidence, if any, as he has required u/s 13, assess to the best of his judgment the profits liable to excess profits fax and the amount of excess profits tax payable on the basis of such assessment, or if there is deficiency of profits the amount of that deficiency and the amount of excess profits tax, if any, repayable and shall furnish a copy of such order to the person on whom the assessment has been made.

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Section 18 of the E.P.T. Act provides for a right of appeal against orders of demand made on the Assessee. Sub-section (2) of the said Section lays down that:

Under Sub-section (1) an appeal may be presented within 45 days from the date of the receipt of-

(a) the notice of demand relating to the assessment or penalty objected to, or

(b) the copy of the order determining the deficiency in the case of an appeal against the assessment of a deficiency of profits, or

(c) the intimation of the order granting or refusing to grant the relief in the ease of an appeal against the amount of relief granted or a refusal to grant relief.

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Where in consequence of any order passed under or in pursuance of the Act, any tax or penalty is due or a deficiency of profits arises, the Excess Profits Tax Officer shall serve on the person liable to pay such tax or penalty a notice of demand specifying the sum so payable or on the person in respect of whose business the deficiency of profits arises a notice determining the deficiency of profits in the prescribed form, as the case may be.

It has been strenuously contended by he learned Advocate for the Assessee that these provisions relating to appeal and notice of demand cannot affect in any manner the nature of the order made by the E.P.T.O., nor do they confer any jurisdiction upon the succeeding E.P.T.O. pass another order contrary to the one initialed by Shri Bashyam Iyengar. We are unable to accept this contention as being sound. In our view, there can be no assessment until a copy of the order is furnished to the Assesses and a notice of demand has been made on him.

It is clear from Section 14(1) that it is the duty of the E.P.T. Order to furnish a copy of such order to the person on whom an assessment has been made. If no copy is furnished to the Assessee as required by the Section, it follows that one of the prerequisites provided by law has not been fulfilled, and the so called order of the E.P.T. Order cannot be deemed to be an order. The object of the provision appears to be clear, in that, it is designed to inform the party against whom an assessment has been made, the result of the assessment proceedings in the same way as the CPC has provided for the pronouncement and signing of a judgment under Rule 1 and 3 of Order 20. If a judgment is not so pronounced, it cannot be deemed to be a judgment. Similarly, and order of assessment has the force of an order on its being communicated to the Assessee in the manner provided by Section 14(1) by furnishing of a copy to the Assessee.

Further it is obvious from Section 26 that a notice of demand has to be made on the Assessee before any tax is recoverable from him. The service of such a notice of demand confers upon him also a right u/s 18(2) to file an appeal within the prescribed time.

The ''TERMINUS A QUO'' is the date on which the notice of demand or the copy of the order or the intimation of the order determining the deficiency, as provided for in Clauses (a), (b) & (c) of Sub-section (2) of Section 18, has been communicated to the Assessee.

In a case before the Privy Council, viz., (1938) 6 ITR 414 (Privy Council) (A), the question that arose for determination was whether the Income Tax authorities could re-open an assessment under the provisions of Sections 34 and 35 of the Act alter the lapse of a year. The facts in that case were that the Income Tax Officer made an order in January 1927; but a notice of demand u/s 29 of the Indian Income Tax Act was not served on the Assessee till March of that year. In January 1929, however, the Commissioner purporting to exercise his powers u/s 33 of the said Act passed an order setting aside the order of registration and issued an order and notice of demand in May, 1929, calling upon the Assessee to pay super tax of Rs. 5,468-12-0.

Dealing with the aforesaid question, their Lordships observed at P. 179:

The method consists of the following steps. In the first place the taxable income of the taxpayer has to be computed. In the next place the sum payable by him on the basis of such computation has to be determined. Finally a notice of demand in the prescribed form specifying the sum so payable has to be served upon the tax-payer.

It was also held in that case that though a notice of demand can be made at any time, once it is made the Income Tax Officer cannot go on making fresh computations and issuing fresh notices of demand to the end of all time. As the order of the Commissioner reopening the assessment was not within one year from the date of the notice of demand made in March 1927, it was held to be invalid.

Their Lordships at P. 180 observed:

...the case clearly would have fallen within the provisions of Section 35 had the Income Tax Officer exercised his powers under the Section within one year from the date on which the earlier demand was served upon the Respondents....The Income Tax Officer took no further step however, until May, 1929, and by then he was hopelessly out of time....

In the case of--Berry v. Farrow (1914) 1 KB 632 (B), it was similarly held on the interpretation of the English Income Tax Act and the Taxes Management Act, that no valid assessment was made upon the Plaintiff as notice of the assessment and written demand for payment were not served on the Assessee, who had no knowledge of the same though they were left at the Company''s premises.

It is clear from the above discussion that in this case the order purporting to be made by Shri Bashyam Iyengar was no order, in that it was not communicated to the Assessee u/s 14, nor was a notice of demand made on him u/s 23 of the Hyderabad E.P.T. Act.

In these circumstances, the E.P.T. Order was at liberty to make an assessment in the manner in when he did. The reference is, therefore, answered in the affirmative with costs to the Respondent, which we assess at Rs. 100/-.