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Judgment
D.P. Wadhwa, J.—These references numbering fourteen, all consolidated, u/s 256(2) of the Income Tax Act, 1961 (for brevity "the Act"), raise a common question whether the provisions of section 144B of the Act (since repealed) are applicable to proceedings initiated u/s 147/148 of the Act.
The questions of law which have been referred are three and are as under :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 144B were not applicable to assessments made pursuant to the provisions of section 147 in the case of J. Dalmia, (Hindu undivided family), for the assessment years 1947-48 and 1948-49 and in the case of association of persons for the assessment year 1947-48 ?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of section 144B are procedural and apply to all assessments pending at the time when the said provision was introduced by the Taxation Laws (Amendment) Act, 1975 with effect from January 1, 1976 ?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that assessments in the case of J. Dalmia, (Hindu undivided family) for the assessment years 1947-48 and 1948-49 and in the case of association of persons for the assessment year 1947-48 were barred by time ?"
Questions Nos. 1 and 3 have been referred at the instance of the Revenue and question No. 2 at the instance of the assessed.
At the beginning of the arguments, it was submitted before us that question No. 2 was not being pressed. However, in the written submissions of the assessed, it was submitted that question No. 2 as framed failed to bring out the real controversy between the parties and needed to be reframed. It was suggested that question No. 2 be reframed as follows :
"Whether the Appellate Tribunal is right in law in holding that the provisions of section 144B are purely procedural and are not substantive in nature and are, Therefore, applicable to Income Tax assessment proceedings (other than proceedings initiated u/s 147) pending at the time when the said provision was introduced by the Taxation Laws (Amendment) Act, 1975, with effect from January 1, 1976 ?"
u/s 260 of the Act, this court has power to reframe a question so as to bring out the real issue between the parties. However, as we proceed to answer questions Nos. 1 and 3 and hold that the provisions of section 144B of the Act are procedural in nature, we find that question No. 2 becomes quite irrelevant and there is no necessity to reframe the question as proposed.
We may note that it was submitted before us that the assessment years involved are 1947-48, 1948-49, 1949-50, 1950-51 and 1951-52. But the matters relating to the years 1949-50, 1950-51 and 1951-52 have become infructuous and hence need not be considered. The matters relating to the assessment years 1947-48 and 1948-49 in the case of J. Dalmia (Hindu undivided family) are surviving, though the matter relating to the assessment year 1948-49 has become academic in that case as well. The matters for the assessment year 1947-48 are still alive in respect of both assessed ,viz., J. Dalmia (HUF) and the association of persons, Messrs. R. Dalmia, J. Dalmia and S. P. Jain, and hence the questions have to be considered with reference to that assessment year 1947-48 substantially.
Facts are brief and not in dispute. To understand the controversy between the parties, it is stated that, for the assessment year 1947-48, in the case of the association of persons, proceedings u/s 147(a) of the Act were initiated and a notice u/s 148 was served on March 24, 1964. A return of income was filed on June 3, 1964, though it was filed under protest. The Income Tax Officer frame a draft assessment order u/s 144B on March 10, 1978, which was received by the assessed on March 13, 1978, who filed objections on April 1, 1978, which were forwarded to the Inspecting Assistant Commissioner and, on receiving directions from him on September 4, 1978, the Income Tax Officer completed the assessment on the same date on an income of over Rs. 4.52 crores. Now, if the provisions of section 144B are applicable, the assessment would be within the limitation prescribed u/s 153 of the Act and if section 144B is not applicable to the proceedings initiated under sections 147 and 148 of the Act, the assessment would be barred. The contention of the Revenue is that section 144B is applicable, the assessed contending to the contrary. The Revenue is supported by a decision of the Kerala High Court in Kerala Kaumudi (P.) Ltd. Vs. Commissioner of Income Tax, , and the assessed by that of the Punjab and Haryana High Court in Commissioner of Income Tax Vs. Usha Aggarwal, .
Under sub-section (1) of section 153, no order of assessment shall be made u/s 143 or section 144 after expiry of a certain period as prescribed therein. Under sub-section (2) of this section, no order of assessment, reassessment or recomputation shall be made u/s 147 where it is to be made under clause (a) after expiry of four years from the end of the assessment year in which the notice u/s 148 was served. Then, under Explanation 1 to this section, in computing the period of limitation, the period (not exceeding 180 days) commencing from the date on which the Income Tax Officer forwards the draft order under sub-section (1) of section 144B to the assessed and ending with the date on which the Income Tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-section (4) of that section, or, in a case where no objections to the draft order are received from the assessed, a period of thirty days, shall be excluded. If this period in the present case is excluded, the assessment will be within limitation, otherwise not.
Section 144B was inserted in the Act with effect from January 1, 1976. Sub-sections (1) to (5) of this section which are relevant, are as under :
"144B. Reference to Inspecting Assistant Commissioner in certain cases. - (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Income Tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessed and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Income Tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as "the draft order") to the assessed.
(2) On receipt of the draft order, the assessed may forward his objections, if any, to such variation to the Income Tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income Tax Officer may allow on an application made to him in this behalf.
(3) If no objections are received within the period or the extended period aforesaid, or the assessed intimates to the Income Tax Officer the acceptance of the variation, the Income Tax Officer shall complete the assessment on the basis of the draft order.
(4) If any objections are received, the Income Tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income Tax Office to enable him to complete the assessment :
Provided that no directions which are prejudicial to the assessed shall be issued under this sub-section before an opportunity is given to the assessed to be heard.
(5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income Tax Officer..."
It was stated before us that the amount prescribed by the Board under sub-section (1) of this section is rupee one lakh. The relevant provisions of sections 147 and 148 may also be set out at this stage :
"147. If - (a) the Income Tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessed to make a return u/s 139 for any assessment year to the Income Tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or....
he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year)....
(1) Before making the assessment, reassessment or recomputation u/s 147, the Income Tax Officer shall serve on the assessed a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.
(2) The Income Tax Officer shall, before issuing any notice under this section, record his reasons for doing so."
Under clause (8) of sub-section (1) of section 2 of the Act, "assessment" includes reassessment and, under clause (40), "regular assessment" means the assessment made u/s 143 or section 144. Since a lot has been said on the applicability of section 144B with reference to various provisions relating to procedure for assessment, it may be useful at this stage to refer to the history of this section, its insertion in the statute with effect from January 1, 1976, and its omission there from with effect from April 1, 1989. The section was introduced following the recommendation of the Wanchoo Committee and then deleted on the recommendation of the Chokshi Committee. Both these recommendations are as under respectively :
"As regards disputed additions in assessments, a point has been made before us that often decisions are taken by the Income Tax Officer behind the assessed''s back and the assessed comes to know of additions and disallowances only after the assessment has been made and an order is received by him. In many cases, the dispute could have been avoided if adequate opportunity had been given to the taxpayer to explain the position. We are aware that such situation do frequently arise. To ensure that the assessed gets a reasonable opportunity of meeting the objections of the Income Tax Officer before an assessment is finalised, we recommend that there should be a provision in the law requiring the Income Tax Officer to send a draft assessment order to the assessed, to start with, in all cases where the additions or disallowances proposed to be made in an assessment under sub-section (3) of section 143 exceed in the aggregate Rs. 25,000. Where the taxpayer objects to the assessment being made on the basis of the draft order, he should intimate his objections within 7 days to the Inspecting Assistant Commissioner who will, after hearing the assessed and the Income Tax Officer, pass the final order of assessment himself. For the purpose, the Inspecting Assistant Commissioner should have the power to accept, reduce, or enhance the income proposed in the draft order. Such a measure will also ensure that major disputes with the tax payer are settled or dealt with at a level higher than that of the Income Tax Officer. (Direct Taxes Enquiry Committee, Final Report, December, 1971).
"Section 144B introduces a new concept of issue of a draft order by the Income Tax Officer to the assessed setting forth additions which he proposes to make to the returned income, followed by consideration of the assessed''s objections and issue of directions to the Income Tax Officer by the Inspecting Assistant Commissioner. The impression which we have gathered from our discussions with the departmental officers and assesseds is that this section has merely resulted in delays in completion of assessments and duplication of proceedings without substantially curbing high pitched assessment or reducing the scope for litigation. We have, elsewhere in this Report, recommended that the Inspecting Assistant Commissioner should be closely associated in the process of assessment on a continuing basis in all scrutiny cases. Implementation of that recommendation would render the existing procedure for issue of draft orders and consideration of the assessed''s objections by the Inspecting Assistant Commissioner unnecessary. Besides, section 144A itself (with some amendments if necessary) can effectively achieve the purpose of section 144B. We, accordingly, recommend that the provisions of section 144B may be deleted. We would like to make it clear that, in recommending the deletion of the procedure for issue of a draft order, it is not our intention to detract in any way from the existing well-established legal position that the Assessing Officer, who exercises quasi-judicial functions, should act fearlessly and without bias, conduct himself in accordance with the principles of justice, equity and good conscience and give sufficient opportunity to the assessed to place his case before the Department. Further, the Income Tax Officer cannot rely on any material in arriving at his conclusions, without first placing it before the assessed and giving him a reasonable opportunity of controverting it. If these principles are scrupulously kept in mind by all Assessing Officers and followed while completing assessments, an assessed can have no cause for grievance." (Direct Tax Laws Enquiry Committee, Final Report, September, 1978).
The Board explained the introduction of section 144B by its circular as under [1977] 110 ITR 17 :
"5. The Amending Act has inserted another provision, namely, section 144B which empowers the Inspecting Assistant Commissioner to issue pre-assessment directions to the Income Tax Officer. Under the provisions of the section, the Income Tax Officer is required to send a draft order of assessment to the assessed in a case where he proposes to make an assessment u/s 143(3) and the proposed addition or disallowance is in excess of the amount fixed by the Board in this behalf. If the assessed objects to such addition or disallowance, he will have to forward his objection to the Income Tax Officer within seven days of the receipt of the draft order. The time available for filing of the objections can, on an application by the assessed, be extended by the Income Tax Officer by a further period not exceeding 15 days. If the assessed intimates acceptance of the variation proposed by the Income Tax Officer or an objection thereto is received from him, the Income Tax Officer shall complete the assessment is received from him, the Income Tax Officer shall complete the assessment on the basis of the draft order. Where, on the other hand, any objections are received by the Income Tax Officer, he will be required to forward the draft order together with the assessed''s objections to the Inspecting Assistant Commissioner. After considering the draft assessment order and the objections raised by the assessed and after examining the assessment record, if necessary, the Inspecting Assistant Commissioner shall issue in respect of the matters covered by the objections such directions as he thinks fit to enable the Income Tax Officer to complete the assessment. While issuing any directions which are prejudicial to the assessed, the Inspecting Assistant Commissioner will have to give an opportunity of being heard to the assessed. The directions issued by the Inspecting Assistant Commissioner shall be binding on the Income Tax Officer. The Board is empowered to fix the amount (which shall not be less than Rs. 25,000), variations in excess whereof proposed by the Income Tax Officer will attract the provisions of this section. The Board is also empowered to fix different amounts for different areas..."
In Kerala Kaumudi (P.) Ltd. Vs. Commissioner of Income Tax, , a question which came up for consideration before the Kerala High Court was whether the Tribunal was right in holding that section 144B of the Act was applicable while making reassessment u/s 147 and whether the reassessment was barred by limitation. The court, after examining various provisions of the Act and certain decisions of the courts, observed that there could be only one assessment for each year and that once proceedings u/s 147 of the Act were initiated by issuing a notice u/s 148 read with section 139(2) of the Act, the assessment proceedings started afresh and that the proceedings for assessment for that year would be pending and would continue until a final order of assessment was rendered. The court held that when the assessment was reopened, section 143(3) was attracted and, if the intended addition to the returned income was more than one lakh rupees, the Income Tax Officer must act in accordance with the provisions of section 144B and, in computing limitation in such a case, the time taken to comply with the provisions of section 144B must be excluded.
In Joseph Kuruvila Vs. Commissioner of Income Tax, , the Income Tax Officer completed the assessment on a total income of over Rs. 1.83 lakhs. It was contended before the Commissioner of Income Tax (Appeals) by the assessed that, since the variation in the returned income and the assessed income was more than rupees one lakh, the Income Tax Officer should have issued a draft assessment order u/s 144B to the assessed and, after receiving the objections, if any, he should have referred the matter to the Inspecting Assistant Commissioner for giving directions for the completion of the assessment. Though the Commissioner (Appeals) accepted the contention and set aside the assessment, he directed the Income Tax Officer to complete the assessment afresh. On appeal before the Tribunal, the assessed again contended that the assessment made ignoring the provisions of section 144B was void and so that\\e assessment order should have been annulled and the matter not remanded back to the Income Tax Officer by the Commissioner (Appeals). The Tribunal held that section 144B was a procedural provision. ON a reference, the High Court of Kerala held that section 144B was only a procedural provision and a breach of that provision was not a fundamental or jurisdictional infirmity which would render the assessment void or a nullity.
In Orient Trading Company Vs. Commissioner of Income Tax, Gujarat, Ahmedabad, , the question before the Gujarat High Court was whether the Tribunal was right in law in holding that the service of notice u/s 148 of the Act prior to the commencement of proceedings u/s 263 did not make the Commissioner''s order legally infirm. While examining this question, the court observed that there was no substance in the argument that a notice u/s 139(2) could not be issued when assessment was already made and consequently on issuance of notice u/s 148 which was deemed to be a notice u/s 139(2), and all that section 148 said was that a notice issued under that section shall contain all or any of the requirements which might be included in a notice under sub-section (2) of section 139. The court also observed that the assessment or reassessment contemplated u/s 147 was confined to income which had escaped assessment and the section did not empower the Income Tax Officer to reopen the assessment of income which had already been assessed. The court, thus, did not accept the argument of the assessed that the notice issued by the Income Tax Officer u/s 148 became a notice u/s 139(2) and, consequently, the assessment made u/s 143 stood set aside. Further, examining the provisions of section 246 of the Act which specifically provided for appeals separately against an order made u/s 143(3) and section 147 of the Act, and sub-section (2) of section 152, the court held that the scheme of the Act clearly indicated that the assessment made u/s 143 and the reassessment made u/s 147 were distinct and independent of each other and that section 147 contemplated a separate order and such order order was not and could not be said to have been made u/s 143 and that the original assessment order made u/s 143 and the reassessment order made u/s 147 could co-exist. In this judgment, the Gujarat High Court referred to a decision of this court in Sharda Trading Company Vs. Commissioner of Income Tax, , which had taken the view that, merely by reopening the assessment or by issue of the notice, the entire assessment was not set aside and that the order of assessment would take the place of the original order of assessment and, till that was done, the original order of assessment would still be operative. The Gujarat High Court did not wholly agree with the view expressed by the court. It did not agree to the extent that, if reassessment was made by the Income Tax Officer in pursuance of proceedings initiated u/s 147 and/or section 148, then on reassessment, the entire original assessment was set aside and ceased to exist with the result that the original order of assessment which the Commissioner was seeking to revise became non est. The Gujarat High Court was of the view that the assessment order made u/s 143 and the reassessment order made u/s 147 were independent and separate orders.
In Commissioner of Income Tax Vs. Usha Aggarwal, , the Punjab and Haryana High Court dealt with a question similar to the one arising in the present case. The court was of the view that there was a clear distinction between the assessment u/s 143 and that u/s 147 read with section 148 and that assessment u/s 147 did not depend upon the authority of section 143 for its completion. It held that section 147 itself authorised the Income Tax Officer to assess, reassess or recompute the loss or the depreciation allowance as section 143(3) enabled the Income Tax Officer to make the assessment. The court was of the view that the assessment u/s 147 was thus a species different from the assessment u/s 143(3) and both had been treated differently in the Act. It was further of the view with reference to the provisions of section 144B that these would show that they specifically mention section 143(3) and not section 147 which showed the intention of the Legislature that the applicability of section 147 was excluded. The court answered the question in favor of the assessed.
In Commissioner of Income Tax Vs. Simson and Mc Conechy Limited, , the question that was raised before the Madras High Court was "whether the Income Tax Appellate Tribunal was right in holding that section 153(2) applied and not section 153(1) and consequently canceling the reassessment made by the Income Tax Officer for the assessment year 1967-68 as time-barred ?" In this case, the assessment which was initially completed was subsequently reopened u/s 147(a) and a notice u/s 148 was issued. The assessed filed the return. The Income Tax Officer proposed to make an addition of over Rs. 4 lakhs and, in accordance with section 144B of the Act, he prepared a draft of the proposed order of assessment and forwarded it to the assessed. After receiving the directions from the Inspecting Assistant Commissioner, the Income Tax Officer completed the assessment. The assessed contended that the assessment was barred by limitation. The Tribunal held this to be so. The court examined the provisions of section 153 and also referred to section 139 and 158 dealing with the procedure for assessment commencing with section 139 relating to filing of the return. The court held that, in a case where a notice u/s 148 of the Act had been issued as way the case before it, the limitation as provided u/s 153(2) would apply and that being so the assessment was time-barred. The court also noted that, u/s 2(8), assessment included reassessment, but was of the view that that definition would apply unless the context otherwise required and the provisions of sections 153(1) and 153(2) maintained a clear-cut distinction between the respective cases contemplated by it which showed that the expression "assessment" occurring in section 153(1) could not be understood as including a reassessment as defined in section 2(8). The court was also of the view that the opening words of section 153(1) could not be construed as including an order of reassessment at contemplated by section 147 with reference to which a separate or independent provision had been made u/s 153(2). It also held that the power to assess or reassess such income or recompute the same, as the case may be, for the assessment year concerned, conferred by section 147 when exercised, could not be interpreted to mean an assessment u/s 143 or section 144 of the Act. It further held that, by reason of section 148 of the Act, the other provisions of the Act were made applicable in making an assessment or a revised assessment, as the case may be, u/s 147 of the Act. But, from that, it was not possible to infer that, where an assessment or revised assessment was made u/s 147 of the Act, it was one falling u/s 143 or section 144 of the Act, as the case might be. It will thus be seen that though in this case the question referred did not per se mention section 144B of the Act, when the court held the assessment to be barred by limitation, it would appear that the time extended by Explanation 1(iv) to section 153 did not come to be considered.
In Commissioner of Income Tax Vs. Ram Chandra Singh, , the question raised was whether the levy and demand of penalty u/s 273(b) of the Act on the basis of the reassessment u/s 34 of the old Act (income tax Act, 1922) after giving deduction for penalty levied u/s 18A(9) of the old Act on the basis of the original assessment u/s 23(3) of the old Act was legal and valid. The court, after examining the provisions of the old Act and the relevant provisions of the 1961 Act, held that an assessment or reassessment contemplated u/s 34(1) of the old Act was not a regular assessment and that a similar provision had been made in section 147 of the 1961 Act. The court then observed that, in section 273 also, the words "regular assessment" had been used and that it was clear from the various provisions of the 1922 Act as well as the 1961 Act that a penalty could be imposed for non-furnishing of an estimate of advance tax only in connection with the regular assessment u/s 143 or 144 of the 1961 Act, and that a proceeding for assessment or reassessment sunder section 147 of the Act was not a proceeding in connection with the regular assessment and so no penalty could be imposed.
In M.R. Jayaram Vs. Commissioner of Income Tax, Madras, , one of the contentions raised was regarding the construction of the provisions of section 187 of the Act and it was said that there was no mention made in that section of reassessment proceedings on a firm u/s 147 of the Act. It was contended that, in some other sections of the Act, a special provision had been made for proceedings u/s 147 and reference in this connection was made to section 159 wherein a special provision was made for assessment on legal representatives. u/s 187, where, at the time of making an assessment u/s 143 or section 144, it is found that change had occurred in the constitution of a firm, the assessment shall be made on the firm as constituted at the time of making the assessment. The court held that absence of any reference to section 147 did not disentitle or disable the Income Tax Officer from applying section 187 even to reassessment proceedings. The court observed as under (pp. 811, 812) :
"After all, section 147 is not what may be called an assessment provision. It is only an enabling provision, which gives the ITO additional power to make an assessment on escaped income - income which was not brought to his notice in the original assessment. There is, Therefore, no need to refer specially to the provisions of section 147 wherever it is intended to cover not merely the original assessment proceedings but also the reassessment proceedings. The fact that the Legislature has made special reference to section 147 in the context of section 159 does not mean that we will have to read the provisions of section 187 in a different manner for lack of reference to section 147 in that provision. The Tribunal in its order had held that section 187 is large enough in its scope to take in proceedings against a firm u/s 147 of the Act and the same consequences will flow following the reassessment of the firm as they flow following an original assessment on it. We feel that this is the correct view of section 147 of the Act for reasons which we have discussed above. This disposes of the first question of law which has been referred to us. Our answer, shortly stated, is in favor of the Revenue and against the assessed."
In Gates Foam and Rubber Co. Vs. Commissioner of Income Tax, , the question was whether the reassessment made u/s 147(a) of the Act was not a regular assessment and, Therefore, the provisions of section 273(b) could not be validly applied to such a case. Section 273(b) uses the expression "regular assessment". It says if the Income Tax Officer, in the course of any proceedings in connection with the regular assessment for any assessment year, is satisfied that any assessed has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of clause (a) of sub-section (1) of section 209A, he may direct payment of penalty. The court referred to the definition of "regular assessment" u/s 2(40) and to the provisions of sections 147 and 148 of the Act. It observed as under (at p. 424) :
"A notice issued u/s 148, which may include the requirements under sub-section (2) of section 139, is really not a notice u/s 139, because section 148 itself states that the provisions of the Act will apply as if the notice issued was under sub-section (2) of Section 139. So the assessment that follows cannot strictly be said to be an assessment u/s 143 of the Act. Apart from this, sections 147, 148, 153, 271 and 246 specifically refer to assessment u/s 147. Assessments made after resort to the provisions in section 147 appear under the scheme of the Act to be assessments u/s 147 and Therefore not assessments u/s 143. If this be so, such assessments are not "regular assessments", because the definition of "regular assessment" in section 2(40) specifically states that "regular assessments are those made u/s 143 or section 144. When an expression is defined in the Act and when that expression again occurs in that statute, it is axiomatic that the meaning of the definition must be given to that expression wherever it occurs in the Act. So it seems to us to be evident that the expression "regular assessment" in section 273 can only mean assessments made u/s 143 or 144. In this case the section - section 273 - cannot apply to the reassessment that has been made on September 11, 1967, which was u/s 147."
In S.B. Ameeruddin Vs. Income Tax Officer, , the contention raised was whether the assessment of a partner could be reopened after his retirement even when there was reassessment of the firm. The court observed as under (p. 368) :
"Section 187 of the Act provides that where, at the time of making an assessment u/s 143 or 144, it is found that a change has occurred in the constitution of the firm, the assessment shall be made on the firm as constituted at the time of making the assessment, provided that the income of the previous year shall, for the purposes of inclusion in the total incomes of the partners, be apportioned between the partners who, in such previous year, were entitled to receive the same. u/s 189(1), where any business or profession carried on by a firm has been discontinued or where a firm is dissolved, the Income Tax Officer shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place. Section 2(8) defines "assessment" as including "reassessment". The reassessment proceedings also could, Therefore, be initiated in respect of a firm in which there has been a change in the constitution of a firm or where the firm is dissolved or discontinued at the time when the proceedings were initiated. We do not find anything in the context of these provisions requiring not to give effect to the definition of "assessment". On a plain reading of section 187, Therefore, the reassessment could be made on the reconstituted firm and if the firm''s reassessment relates to an accounting period in which the petitioner had continued as a partner of the partnership firm, his assessment could be corrected or amended in respect of that assessment year to include the correct share income u/s 155. It is immaterial whether on the day when the reassessment was made against the firm or on the day when rectification of the order u/s 155 was made, the partner continued in the partnership or not."
In Income Tax Officer, Azamgarh and Another Vs. Mewalal Dwarka Prasad, , there was challenge in a petition under article 226 of the Constitution by the assessed to notices issued u/s 148 read with sections 142(1) and 143(2) of the Act relating to the assessment year 1965-66. The court approved the Bench decisions of the Punjab High Court in COMMISSIONER OF Income Tax, PUNJAB, HIMACHAL PRADESH and BILASPUR, SIMLA Vs. JAGAN NATH MAHESHWARY., , and of the Andhra Pradesh High Court in PULAVARTHI VISWANADHAM Vs. COMMISSIONER OF Income Tax, ANDHRA PRADESH., , wherein the courts there considered the provisions of sections 22(2) and 34 of the old Act of 1922 which are quite akin to section 139 and sections 147 to 153 of the present Act. The Supreme Court observed that the view taken by these two High Courts had been supported by the Supreme Court in V. Jaganmohan Rao and Others Vs. Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh, , and, in that connection, referred to the following paragraph of that judgment (at page 380) :
"This argument is not of much avail to the appellant because once proceedings u/s 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the Income Tax Officer cannot be confined only to that portion of the income. Section 34 in terms states that once the Income Tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice u/s 22(2) and may proceed to assess or reassess such income, profits or gains. It is, Therefore, manifest that once an assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started u/s 34 (1) (b), the Income Tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year."
Reference was also made to the following paragraph as well of the judgment of the Andhra Pradesh High Court in PARIMISETTI SEETHARAMAMMA Vs. COMMISSIONER OF Income Tax, ANDHRA PRADESH., :
"... when once an assessment is reopened u/s 34, the Income Tax Officer proceeds de novo under the relevant section of the Income Tax Act, i.e., he issues notice u/s 22(2) and proceeds to assess the assessed. He has to follow the same procedure as in the case of the first assessment as is clear from the clause in section 34 and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. The proceedings u/s 34 must be deemed to relate to proceedings which commence with publication of notice u/s 22(1)."
The Supreme Court, however, in the case before it, set aside the notice issued u/s 148 of the Act on the ground that the notice was issued beyond the period prescribed by law.
A Special Bench (Delhi Bench ''A'') of the Income Tax Appellate Tribunal in (1982) 1 ITD 370 , considered the question which is involved in the present case. In a detailed order rendered by Shri E. M. Narayanan Unni, Vice President, the Tribunal held that provisions of section 144B were applicable to an assessment made pursuant to the provisions of section 147 of the Act. Sampath Iyengar, in his book, ''Law of Income Tax'' (Eighth edition) (Revised by Justice S. Ranganathan, Judge, Supreme Court of India) said as under on the applicability of section 144B :
"Section 144B, being a provision enacted entirely for the benefit of the assessed and with a view to lessening the prospect of harassment in the course of assessment, it will be unreasonable to hold that such a beneficial provision is not applicable to additions and disallowances proposed in the course of an assessment or reassessment, pursuant to the provisions of section 147. A reasonable construction of the provisions of that section, would yield the result that the section applies to all assessments made u/s 143(3), whether by way of original assessment or as a result of a reopening of the assessment u/s 147."
Reliance was placed on the decision of the Special Bench of the Tribunal in (1982) 1 ITD 370 .
Kanga and Palkhivala, in their book The Law and Practice of Income Tax (Eighth edition) have said that section 147 would apply if, at the time of making an assessment u/s 143 or 144 (which would include reassessment u/s 147), it was found that a change had occurred in the constitution of the firm, that section 147 would apply to reassessment proceedings as well. Reliance was placed on the decisions in Ameeruddin''s case [1973] 92 ITR 366 (Mad) and Jayaram''s case [1984] 147 ITR 807 (Mad.) Relying on a decision of the Punjab and Haryana High Court in Commissioner of Income Tax Vs. Usha Aggarwal, , the learned authors have said that the provisions of section 144B are not applicable to an assessment made u/s 147.
A great deal of arguments had been addressed by the parties relying on one judgment or the other in support of their submissions. Reference has also been made to various treaties on the interpretation of statutes. At this stage, however, we may briefly refer to some of the sections falling in Chapter XIV of the Act relating to procedure for assessment as these existed at the relevant time. Section 139 requires furnishing of return of income. A person is bound to furnish voluntarily a return of his total income if such income, during the previous year, exceeded the maximum amount which is not chargeable to Income Tax. Under sub-section (2) of section 139, in the case of any person who, in the opinion of the Income Tax Officer, is assessable under the Act on his own total income during the previous year, the Income Tax Officer may, before the end of the relevant assessment year, issue him a notice requiring him to furnish within thirty days from the date of service of the notice a return of his income in the form prescribed and verified in the prescribed manner and setting forth such other particulars as may be prescribed. u/s 140A (self-assessment), where any tax is payable on the basis of any return required to be furnished u/s 139 or section 148, after taking into account the amount of tax, if any, already paid under any provision of the Act, the assessed shall be liable to pay such tax before furnishing the return and the return shall be accompanied by proof of payment of such tax. Under sub-section (2) of this section, after the regular assessment u/s 143 of section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment. u/s 142 (enquiry before assessment), for the purpose of making an assessment under the Act, the Income Tax Officer may serve on any person who has made a return u/s 139, or to whom a notice has been issued under sub-section (2) thereof (whether a return has been made or not) a notice requiring him to produce accounts and documents and furnish such other information as the Income Tax Officer may require. Section 143 deals with assessment. Under sub-section (1) of this section, where a return has been made u/s 139 of the Act, the Income Tax Officer may, without requiring the presence of the assessed or the production by him of any evidence in support of a return, make an assessment of the total income or loss of the assessed after making certain prescribed adjustments. Then, under sub-section (2), where a return has been made u/s 139 and an assessment has been made under sub-section (1) of section 143, the assessed may object to the assessment within the stipulated period. The Income Tax Officer is also authorised, whether or not he has made assessment under sub-section (1), where he considers necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessed or the production of evidence in this behalf. In both these cases, the Income Tax Officer is to serve a notice on the assessed for the purpose. Then, under sub-section (3) of section 143, after hearing the assessed and considering the evidence that he may produce or such other evidence as the Income Tax Officer may require, the Income Tax Officer shall make an assessment of the total income or loss of the assessed and determine the sum payable by him or refundable to him on the basis of such assessment. This is where the assessment has not been made under sub-section (1) of section 143. u/s 144 (best judgment assessment), where the assessed defaults in filing the return when required to do so u/s 139(2) or in filing the revised return under sub-section (4) or sub-section (5) of that section, or fails to comply with the terms of the notice u/s 142(1) or fails to comply with other directions issued under sub-section (2A) of that section, or having made a return fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the Income Tax Officer can make assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessed or refundable to him on the basis of such assessment. u/s 144A, the Inspecting Assistant Commissioner has been authorised to issue directions to the Income Tax Officer in certain cases. This section is under :-
"(1) An Inspecting Assistant Commissioner may, on his own motion or on a reference being made to him by the Income Tax Officer or on the application of the assessed, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Income Tax Officer to enable him to complete the assessment and such direction shall be binding on the Income Tax Officer :
Provided that no directions which are prejudicial to the assessed shall be issued before an opportunity is given to the assessed to be heard.
Explanation. - For the purposes of his sub-section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessed.
Section 144B deals with reference to Inspecting Assistant Commissioner in certain cases and has already been set out earlier in the Judgment. Section 147 (income escaping assessment) and section 148 (issue of notice where income has escaped assessment) have also been set out above. Section 149 prescribes the time limit for notice u/s 148 in cases falling u/s 147 of the Act. u/s 150, irrespective of the period prescribed for issue of notice u/s 148 or section 149, notice can be issued any time u/s 148 for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed in an appeal, reference or revision under the Act. u/s 151, only after the Board has given sanction can a notice be issued u/s 148 after expiry of eight years from the end of the relevant assessment year. Then, under sub-section (1) of section 147, the tax shall be chargeable at the rate or rates at which it would have been charged had the income not escaped assessment. Section 153 prescribes the time limit for completion of assessments and reassessments. Sub-section(1) prescribes the period for an order of assessment to be made u/s 143 or section 144. Sub-section (2) is as under :
"No order of assessment, reassessment or recomputation shall be made u/s 147 -
(a) where the assessment, reassessment or recomputation is to be made under clause (a) of that section, after the expiry of four years from the end of the assessment year in which the notice u/s 148 was served;
(b) where the assessment, reassessment or recomputation is to be made under clause (b) of that section, after -
(i) the expiry of four years from the end of the assessment year in which the income was first assessable, or
(ii) the expiry of one year from the date of service of the notice u/s 148,
whichever is later."
Clause (iv) of Explanation 1 to this section is also relevant and is as under :
"In computing the period of limitation for the purposes of this section -...
(iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income Tax Officer forwards the draft order under sub-section (1) of section 144B to the assessed and ending with the date on which the Income Tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-section (4) of that section, or, in a case where no objections to the draft order are received from the assessed, a period of thirty days, or...
shall be excluded."
We have considered the judgments referred to above, the arguments of the parties and the relevant provisions of the Act and we are of the opinion that the provisions of section 144B are applicable to an assessment made u/s 147 of the Act. Section 144B is merely procedural in nature and has been enacted for the benefit of the assessed or in other words the provisions of this section are beneficial to the assessed. There cannot be any dispute on this and for this we can refer to the report of the Wanchoo Committee reproduced above which led to the enactment of sections 144A and 144B. In Mithilesh Kumar and Another Vs. Prem Behari Khare, , the Supreme Court has observed that, where a particular enactment or an amendment was a result of the recommendation of the Law Commission of India, it was permissible to refer to the relevant report of the Commission. The court referred to its earlier decision in Santa Singh Vs. The State of Punjab, , where it was considered necessary to trace the historical background and social setting under which a particular section in the Code of Criminal Procedure, 1973, was inserted for the first time and reference was made in that connection to the research done by the Law Commission which had made several recommendations in its report for changes in the provision.
In Halsbury''s Laws of England, Fourth edition, Vol. 44, para 901, it has been observed that "on the other hand, reports of Commissions or Committees preceding the enactment of a statute may be considered as showing the mischief aimed at and the state of law as it was understood to be by the Legislature when the statute was passed."
There appears to us to be no reason as to why section 144B which is procedural in nature and beneficial to the assessed cannot be applied to proceedings initiated under sections 147 and 148 of the Act. Section 147 does not create any charge. Under this section, the income can be assessed, reassessed or recomputed subject to the provisions of sections 148 to 153. These sections have been referred to above. The principal contention pertains to the proceedings after notice u/s 148. The assessed has contended that section 139(2) in terms is not applicable and section 144B specifically refers to assessment made under sub-section (3) of section 143 of the Act. We are of the opinion that assessment has to be made u/s 143(3) after proceedings are initiated under sections 147 and 148 of the Act. A notice u/s 148 may contain all or any of the requirements of a notice u/s 139(2) and then the provisions of the Act shall, so far as may be, apply accordingly, as if the notice were a notice under that sub-section. Thus, a notice u/s 148 is in effect a notice u/s 139(2) of the Act. The expression "so far as may be" has always been construed to mean that those provisions may generally be followed to the extent possible. In order to give full meaning to this expression, section 148, to our mind, should be interpreted to mean that, broadly, the procedure relating to assessment as enacted in sub-section (3) of section 143 shall be followed. There appears to be no justification for deviation from the procedure of assessment contemplated u/s 143(3). Otherwise, an anomalous situation bordering on absurdity may result. Section 144A does not use the expression "in an assessment to be made under sub-section (3) of section 143" and confers the power upon the Inspecting Assistant Commissioner to give directions in a case in which an assessment is pending. The assessment here cannot be confined to that under sub-section (3) of section 143 of the Act only and it will include that under sections 147 and 148 of the Act. We have also noticed above that the expression "an assessment u/s 143" has been used in section 187 as well and wherein it has been held that that would include that u/s 147 of the Act as well. We have not been given any cogent reason as to why a different procedure could be said to have been contemplated for making an assessment u/s 143(3) and for making one u/s 147 of the Act. In fact, all these provisions must be interpreted to mean that section 144B would also be applicable to assessment u/s 147 of the Act and that, in the circumstances, appears to be the only correct interpretation. Explanation 1 to section 153 has reference to the computation of the period of limitation for the purpose of section 143 itself and not particularly to sub-section (2) of section 153 thereof. If we refer to the commentary on the Law and Practice of Income Tax by Kanga and Palkhivala (Eighth edition, Vol. I, page 1127), this is what it says about the word "assessment" :
"The word ''assessment'' is used in this Act as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable, and sometimes the whole procedure laid down in the Act for imposing liability on the taxpayer. The word ''assessment'' must be understood in each section of this Act with reference to the context in which it is used : in some sections it has a comprehensive meaning and includes reassessment (e. g., section 265) and in some sections it has a restricted meaning and is used as distinct from reassessment (e.g., section 147). As the Privy Council pointed out in Seth Badridas Daga v. CIT [1949] 17 ITR 209, in this section and the next the words ''assess'' and ''assessment'' refer primarily to the computation of the amount of income, and ''assessed'' means primarily a person the amount of whose income is being computed."
An argument was raised that a fiscal and revenue statute should be strictly construed. This principle does not apply here. In fact, there is no scope for play of such a rule. It is not that any duty is being claimed by the Revenue under the statute and there is any ambiguity about it that it should be construed in favor of the assessed. The construction which we are placing is in fact in favor of an assessed, but may be not in the case of the present assessed before us, because he wants to take advantage of the law of limitation prescribing a time limit for completion of assessment and reassessment. A fair and reasonable construction is to be given to the language used without leaning to one side or the other. The present is not a case of taxation but of tax administration confined only to the procedural aspect of the matter. The long drawn arguments in the present case do suggest ambiguity. As stated by Halsbury (para 158), "if the words of the statute are ambiguous, the intention of the Parliament must be sought first in the statute itself, then in the other legislation and contemporaneous circumstances and finally in the general rules laid down long ago and often approved, normally by ascertaining (1) what was the ''common'' law before the making of the Act; (2) what was the mischief and defect for which the ''common'' law did not provide; (3) what remedy Parliament resolved and pointed to counter the disease of the commonwealth; and (4) the true reason of the remedy." It has also been the principle of construction that statutes must be construed so as to make them operative and they are also to be construed as a whole. Construction should be such as is most agreeable to justice and reason. The language of section 148 of the Act may appear to raise some difficulty but we are of the firm opinion that it was never intended that the provisions of section 144B would not apply. If it is not so, it results in an apparent contradiction. How can it be that Parliament would have applied the provisions of section, 144B to assessment u/s 143(3) of the Act and not to those under sections 147 and 148 of the Act. It is well established that "where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence... where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman''s unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used. Nevertheless, the courts are very reluctant to substitute words in a statute, or to add words to it, and it has been said that they will only do so where there is a repugnancy to good sense." : See Maxwell on Statutes (Tenth edition) p. 229. In Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155,Denning L. J., said :
"When a defect appears, a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament... and then he must supplement the written words so as to give ''force and life'' to the intention of the Legislature... A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out ? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases." (See in this connection the judgment of Sarkar J. in M. Pentiah and Others Vs. Muddala Veeramallappa and Others, ).
No doubt, the provisions of sections 139 to 143 relate to normal assessment and those of section 147 operate in different fields, but section 147 is merely a machinery section and enables the Income Tax Officer to reopen the assessment which had already been completed or even to bring to charge, for the first time, income which had escaped assessment. The assessment, Therefore, has to be completed either u/s 143(1) or section 143(3) or u/s 144 of the Act. Section 147 cannot be said to be a self-contained section. As noted above, the Income Tax Officer has to exercise his power u/s 147 subject to the provisions of sections 148 to 153 of the Act. When section 148 says that the notice shall contain all or any of the requirements that may be included in a notice under sub-section (2) of section 139 and, thereafter, the provisions of the Act shall, so far as may be, apply accordingly as if a notice is one under sub-section (2) of section 139 of the Act, the provisions as contained in the Act after issue of notice u/s 139(2) of the Act would apply in the same manner as in a normal assessment and the resultant assessment, Therefore, has to be one made either u/s 143(3) or 144 of the Act. The provisions of section 144B, Therefore, in any case shall apply.
Considering the diverse arguments of the parties, various authorities cited at the Bar and the principles of construction of statutes, we are of the opinion that Delhi Bench ''A'' (Special Bench) of the Income Tax Appellate Tribunal in (1982) 1 ITD 370 , has taken a correct view of the matter. We are also of the opinion that a provision for separate appeal against an order of assessment, reassessment or recomputation u/s 147 as provided u/s 246 of the Act is of no consequence while interpreting the provisions of section 144B as to its applicability to the proceedings under sections 147 and 148 of the Act. Further, sub-section section (2) of section 263 of the Act prohibits the Commissioner from making any order under sub-section 147 (and not to assessment or recompilation )and does not conflict with the view that section 144B would be applicable to proceedings under sections 147 and 148 of the Act. We note, however, that this bar on the power of the Commissioner has been deleted by an amendment made in 1984. For the purpose of answering the questions referred, we do not consider it necessary to refer to the arguments with reference to sections 214 and 215 of the Act relating respectively to payment of interest by the Central Government and by the assessed on the basis of the date of the regular assessment, the provisions as these existed at the relevant time and the subsequent amendments thereto. We, Therefore, answer the reference in favor of the Revenue and against the assessed. There will be no order as to costs.