L. Alagusundaram Chettiar vs Commissioner of Income Tax

Rangarajan, J.—The admitted facts stated by the Tribunal are as follows :

The assessment for the assessment year 1961-62 was initially completed, taking a sum of Rs. 7,81,500 as deemed dividend, thus determining the

total income at a loss of Rs. 3,11,975. Subsequently, on appeal, the Appellate Tribunal held that the sum of Rs. 7,81,500 cannot be treated as

dividend and, consequently, the loss to be carried over in the assessment was quantified at Rs. 11,94,684. The Income Tax Officer gave effect to

this order for the subsequent assessment year Later, on a reference to this court, the order of the Tribunal was reversed, and the original

assessment was restored on this point. Consequently, the Income Tax Officer sought to amend the assessment, thereby reducing the amount of

loss to be carried forward and set off in the year in question as well as in the subsequent years.

The case of the assessee is that such a rectification has to be made either u/s 154, or by way of revision u/s 147(b), for both of which there

would be a period of limitation of four years from the year in which the order requiring the amendment was made. The Appellate Tribunal held that

the amendments made by the Income Tax Officer for that year as well as subsequent years were only consequential orders giving effect to the

decision of the High Court and could not be affected by the bar of limitation prescribed in those sections. On these facts, the following questions

were referred to this court :

(1) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in holding that the order passed by the

Income Tax Officer dated July 30, 1977, in relation to the assessment year 1965-66 consequent to the order passed by him in the assessment for

1961-62 pursuant to the decision of the Madras High Court was only a consequential order and, therefore, the same could be passed without any

period of limitation ?

(2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in holding that the order passed by the

Income Tax Officer dated July 30, 1977, consequent to the order passed by him in the assessment for 1961-62 was not an order either u/s 143(3)

or u/s 154 and, consequently, the period of limitation under the said section will not apply ?

(3) If the answer to the above question is in the negative and if answer is that the order is u/s 154, whether, on the facts and in the circumstances of

the case, the order dated July 30, 1977, passed by the Income Tax Officer in the assessment for 1965-66 without notice to the assessee is valid in

law ?

(4) If the answer to question No. 2 is in the negative and if the answer is that the order is made u/s 154, whether the order dated July 30, 1977,

passed in relation to the assessment year 1965-66 is not barred by limitation ?

(5) Whether, on the facts and in the circumstances of the case, the order dated July 30, 1977, passed by the Income Tax Officer in relation to the

assessment year 1965-66 was bad in law as it was passed beyond the period of limitation ?

Before us, it was submitted by learned counsel for the assessee that as far as the subsequent assessment years are concerned, they were not

amendments made to give effect to any direction within the meaning of section 153(3)(ii) for which only Explanation 2 has provided that an income

excluded from one assessment year could be included in the total income of subsequent year without any bar of limitation. On the other hand,

learned counsel for the Revenue brought to our notice a decision of this court in Kanaka Films Private Ltd. Vs. Income Tax Officer, where the

Revenue had taken such an objection, but was overruled by this court.

We find that the questions raised are practically concluded by that decision. The amendments carried out by the Income Tax Officer were only

consequential orders and cannot be fettered by the bar of limitation u/s 154 or u/s 147(b). This situation has arisen only because of the

considerable time taken in the appellate and reference proceedings which go beyond four years and never envisaged in the Act. If the appeals of

the earlier years had been disposed of as expected within a year or two, this question itself would not have arisen. If we were to apply the

provisions of section 154 or section 147(b) strictly, to the amendments of the assessments of the subsequent years, then, such amendments would

be practically impossible in any case. Even in the present case, it is stated that an appeal to the Supreme Court is pending against the decision of

the High Court. On the same reasoning advanced by the assessee, if the assessee were to succeed in the Supreme Court, the benefit would not be

available because of the bar of limitation. Therefore, we are of the considered opinion that the limitations prescribed u/s 154 or u/s 147(b) were

not meant to be applied to amendments made consequential to the decisions of the High Court or the Supreme Court even though the power of the

Income Tax Officer to amend the assessments in consequence of these decisions may be traceable to either section 147(b) or section 154. Our

answers to questions Nos. 1 and 2 referred to above are in the affirmative. Questions Nos. 3 and 4 do not arise. Our answer to question No. 5 is

in the negative. No costs.