Full Judgment Text
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PETITIONER:
M/S. JAIPUR UDYOG LTD. & ANR.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, DELHI, RAJASTHANAND ANOTHER
DATE OF JUDGMENT:
24/09/1968
BENCH:
SHAH, J.C. (CJ)
BENCH:
SHAH, J.C. (CJ)
RAMASWAMI, V.
GROVER, A.N.
CITATION:
1969 AIR 470 1969 SCR (2) 193
ACT:
Income-tax Act (43 of 1961), ss. 72, 80, 141 and 210(3)-
Provisional assessment under s. 141-If income-tax officer
can determine disputed claims-Whether s. 80 applies to
provisional assessments-S. 210 (3)-Advance tax payable on
the basis of ’provisional assessment’-Refers to valid
provisional assessment.
HEADNOTE:
The appellant filed its returns for the assessment years
1954-55 to 1964-65. The Income-tax Officer passed orders of
assessment for the years 1954-55 to 1959-60. While the
appeals to the Appellate Assistant Commissioner for those
years, and the, assessment proceedings before the Income-tax
Officer for the years 1960-61 to 1962-63, were still
pending, for the assessment year 1963-64 (the return for
which was flied under s. 139 of the Income-tax Act, 1961),
the Income-tax Officer made a provisional assessment under
s. 141. He held that the appellant was not entitled to
deduct the aggregate amount of losses as claimed by it
during the previous years and allowed only a much smaller
sum as loss which could be carried forward from the earlier
years. For the assessment year 1964-65, the Income-tax
Officer made a provisional assessment without allowing any
deduction of loss claimed by the appellant; and for the
assessment year 1965-66 the Income-tax Officer called upon
the appellant to pay a certain sum as advance tax under s.
210(3). The appellant filed writ petitions in the High
Court for quashing the orders of the Income-tax Officer for
each of the three years, but the petitions were dismissed.
The High Court held: (1) that under s. 141 the provisional
assessment of tax must also be made in accordance with and
subject to the provisions of the Act, and that the combined
effect of ss. 72 and 80 was that a business loss can be
carried forward to subsequent assessment years only when it
has been determined in pursuance of a return flied under
s. 139; and (2) that under s. 210(3) as inserted by Act 13
of 1963 and modified by Act 31 of 1964, the Income-tax
Officer was entitled to make an order for payment of advance
tax for 1965-66 on the provisional assessment for the year
1964-65.
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In appeal to this Court,
HELD: (1) Section 141 bars an enquiry, at the stage of
making a provisional assessment, into disputed questions of
law and fact: it is immaterial that the dispute raised is
complicated or easy. Therefore the Income-tax Officer was
not justified. in ignoring the appellant’s claim.
[198 D-F]
Under s. 80 loss of a previous year under the head of
income from profits and gains may be carried forward only if
it has been determined in pursuance of a return filed under
s. 139; that is, if it is not so determined it cannot be
carried forward and set off against the profit of the
subsequent year or years. But the section applies only to
a regular assessment. In the case of ’a provisional
assessment under s. 141, if there has been such a
determination of the allowances mentioned in sub-s. 2 in a
regular assessment for an earlier year, then under s. 141(2)
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the income-tax officer must whether the assessee has claimed
or not give effect to the allowances so determined. But he
has no power to adjudicate upon a claim for deduction made
by the assessee when making a provisional assessment.
[196 G; 197 A--198 B; 199 B-C]
The section has been enacted with the object of
expediting collection of tax on the basis of the return made
by the assessee. The assessment so made is summary and is
based only on the return and the accounts and documents
filed by the assessee. If there be discrepancy between the
return made and the accounts and documents accompanying the
return the Income-tax Officer may ask the assessee to
explain the discrepancy but he must make a provisional
assessment on the basis of the return initially filed or
clarified, but cannot hold that certain claims made by the
assessee are in law unjustified. The provisional assessment
does not bind the assessee nor the department and the tax
paid pursuant to such provisional assessment is liable to be
adjusted in the light of the final order in the regular
assessment, and it is open to the Income-tax Officer to
impose a penalty in appropriate cases after the regular
assessment is completed. If it is held that the Income-tax
Officer has jurisdiction to hold an enquiry into disputed
matters, the expression ’provisional assessment’ loses all
significance: the Income-tax Officer. may, under such a
summary assessment, without giving an opportunity to the
assessee to explain his claim negative it and the assessee
has no redress under the Act against any erroneous or
arbitrary action because, the Income-tax OffiCer is not
bound to give notice to the assessee or hear witnesses and
an appeal against a provisional assessment is expressly
barred.
[196 D-E; 198 B-C; B-C;199
(2) Under s. 210(3) the Income-tax Officer is entitled
to make an order for payment of advance-tax on the basis of
provisional assessment under s. 141, but it predicates a
valid provisional assessment. Since the provisional
assessment in the present case, for the year 1964-65 is
invalid, an order for payment of advance-tax or the year
1965-66 could not be made. [200 A-C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 586588 of
1967.
Appeals from the judgment and order dated April 20, 1965
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of the Rajasthan High Court in D.B. Civil Writ Petitions
Nos. 51 F of 1964, and 26 and 67 of 1965.
M.C. Chagla, Bishambar Lal, H.K. Puri, M.K. Garg and
K.K. Jain, for the appellants.
S.T. Desai, N.D. Karkhanis, R.N. Sachthey and B. D.
Sharma, for the respondents.
The Judgment of the Court was delivered by
Shah, J. Jaipur Udyog Ltd.--a Company--registered under
the Indian Companies Act, 1913, established in 1953 a cement
factory at Sawai Madhopur in the State of Rajasthan. From
time to time the Company filed its returns under the Income-
tax Act, 1922, and after the repeal of that Act under the
Act of 1961. The following chart sets out the income or
loss returned by the Company for the years 1954-55 to
1964-65 and the
195
income or loss computed for the years by the Income-tax
Officer on assessment:
Year of Income or loss returned Income or loss compu-
Assessment by the Companyted by the1. ted bythe T.0.
1954-55 61,24,270 (Loss)22,53,457(LOSS)
1955-56 14,59,963(Profit)19,84,447(Profit)
1956-57 12,92,958(Profit)16,88,480(Profit)
1957-58 23,05,305(Loss)12,53,222(Loss)
1958-59 46,44,779(Loss)31,48,707(Loss)
1959-60 28,77,487(Loss)20,62,180(Loss)
1960-61 11,35,365(Loss)Assessmentpending.
1961-62 66,086 (Loss)
1962-63 44,93,236 (Profit)
1963-64 7452402 (Profit)
1964-65 59,89,757 (Profit)
Against the orders of assessment made by the Income-tax
Officer for the years 1954-55 to 1959-60 determining its net
income or loss as set out in the chart the Company appealed
to the Appellate Assistant Commissioner, and the appeals
were pending at the dates of commencement of the petition,
in the High Court of Rajasthan which give rise to the
proceedings in this Court. Assessments for the years 1960-
61, 1961-62, 1962-63, 1963-64 and 1964-65 were however then
not completed. In its return of income for the assessment
year 1963-64 the Company claimed to set off against the
income returned Rs. 1,03,03,935 being the aggregate amount
of loss which it claimed it had suffered in the previous
years and was entitled to set off against the income of that
year. The Income-tax Officer made a provisional assessment
of tax under s. 141 of the Incometax Act, 1961, and against
the income returned by the Company he allowed deduction of
Rs. 39,89,731 as loss carried forward from the earlier
years, and made a demand for Rs. 8,73,873 as tax
provisionally due and Rs. 87,387 as penalty for default in
compliance with the demand. The Company moved petition No.
51 of 1964 in the High Court of Rajasthan and challenged the
order claiming that the Income-tax Officer was bound to
accept the return made by the Company and could not assess
it to tax on income not admitted.
For the assessment year 1964-65 the Company returned a net
income of Rs. 59,89,757 as profit, and claimed to set off
against that amount Rs. 36,01,735 as loss of the previous
years and paid Rs. 12,12,596-65 as tax due by it in
accordance with s. 140A (1) of the Act. But the Income-tax
Officer made a provisional assessment and computed the tax
on the total income of Rs. 59,89,757 returned by the Company
without allowing any deduction claimed and ordered the
Company to pay an additional amount of Rs. 17,32,768-60.
Against that order the Company moved petition No. 26 of
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1965, for an order quashing the demand
196
of tax and for an injunction restraining the Income-tax
Officer from enforcing the demand.
For the assessment year 1965-66 the Income-tax
Officer relying upon s. 210(3) of the Act called upon the
Company to pay Rs. 29,45,365-25 as advance-tax. The
Company moved petition No. 67 of 1965 in the High Court of
Rajasthan, for an order quashing the demand.
The High Court rejected the three petitions. Against
the orders passed by the High Court, these three appeals
have been preferred by the Company.
Section 141 of the Income-tax Act, 1961, authorises
the Income-tax Officer to make a provisional assessment
of the income of the assessee on the basis of the return
made under s. 139 and the accounts and documents, if any,
accompanying the return. The assessment so made is summary
and is based only on the return and the accounts and
documents filed by the assessee. The Income-tax Officer is
not bound to make any enquiry before making a provisional
assessment: he is not bound even to give to the assessee any
notice of his intention to make a provisional assessment,
nor to hear the assessee.. He may, if he desires, call
upon the assessee to elucidate the return or the entries
posted in the accounts and documents, but he is not
obliged to do so. Section 141 has been enacted with the
object of expediting collection of tax on the basis of the
return made by the assessee. The Act contains several
provisions for collection of tax before regular assessment,
e.g. payment of advance-tax, deduction of tax at source
from salary and dividends, provision for self-assessment
etc. The object of these provisions is to collect tax on
certain classes of income before regular assessment. The
provisional assessment does not bind the assessee nor the
Department: the quantum of tax computed and levy
thereof are not binding upon the assessee and the Revenue.
Tax paid pursuant to provisional assessment is liable to be
adjusted in the light of the final order in the regular
assessment. An appeal against the order is expressly
prohibited. The Income-tax Officer must, however, apply the
rate operative in the assessment year by virtue of the
Finance Act and give effect to the allowances mentioned in
sub-s. (2) of s. 141 whether the assessee has claimed
them or not. But the assessee has no right to be heard or
to explain or elucidate and has no right of appeal against
the computation or the levy of tax.
The Company claimed that it was entitled to deduct the
aggregate of losses which it had suffered since the year
1954-55 year after year from the profits of the year 1963-
64. It is true that the loss returned by the Company year
after year was in excess
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of the amount of loss determined by the Income-tax Officer.
But in respect of the orders of assessment appeals were
pending. Counsel for the Revenue concedes that assessment
under s. 141 being provisional, the Income-tax Officer
cannot make an enquiry into disputed questions of fact or
law, but he submits, relying upon sub-s. (2) of s. 141, that
the assessee cannot claim, and the Income-tax Officer cannot
allow, loss in respect of previous years in excess of the
loss certified by the Income-tax Officer. That he says is
the effect of ss. 72 and 80 of the Income-tax Act, 1961.
Section 72 provides:
"( 1 ) Where for any assessment year,
the net result of the computation under the
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head "Profits and gains of business or
profession" is a loss to the assessee, ....
and such loss cannot be or is not wholly set
off against income under any head of income in
accordance with the provisions of section 71,
so much of the loss as has not been so set off
or, .... or where he has no income under any
other head, the whole loss shall, subject to
the other provisions of this Chapter, be
carried forward to the following assessment
year, and---
(i) it shall be set off against the
profits and gains, if any, of any business or
profession carried on by him and assessable
for that assessment year:
Provided that the business or
profession for which the loss was originally
computed continued to be carried on by him
in the previous year relevant for that
assessment year; and
(ii) if the loss cannot be wholly so
set off, the amount of loss not so set off
shall be carried forward to the following
assessment year and so on.
(2)
(3) No loss shall be carried forward
under this section for more than eight
assessment years immediately succeeding the
assessment year for which the loss was first
computed."
Section 80 of the Act provides:
"Notwithstanding anything contained
in this Chapter, no loss which has not
been determined in pursuance of a
return filed under section 139, shall be
carried forward and set off under sub-section
(1 ) of section 72 or "
Under s. 72(1) read with s. 80 loss of a previous year under
the head of income from profits and gains of business,
profession
198
or vocation may be carried forward to the next succeeding
year only if it has been determined in pursuance of a return
filed under s. 139. If it is not so determined in the
assessment of the subsequent year the loss cannot be carried
forward and set off against the profit of the subsequent
year or years. By sub-s. (2) of s. 141 the Income-tax
Officer is enjoined to give effect to the loss so
certified and carried forward. But it does not follow
therefrom that when the assessee claims that out of the
income of the year returned by him certain amounts are
liable to be deducted in computing the taxable total income,
the Income-tax Officer may adjudicate upon the validity of
the claim in making a provisional assessment. In our
judgment, if it be granted that the Income-tax Officer has
jurisdiction to hold an enquiry into disputed matters, the
expression "provisional assessment" may lose all
significance: the income-tax Officer may under a summary
assessment without giving an opportunity to the assessee
to explain his claim negative it and the assessee has no
redress under the Act against any erroneous or arbitrary
action. The Court would not, unless compelled by the
phraseology of the statute or by the clear implication
arising therefrom, be justified in accepting that view.
The clearest implication of s. 141 bars an enquiry at the
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stage of making a provisional assessment into disputed
questions of law and fact: it is a matter of no moment that
the dispute raised is complicated or is easy of solution.
In our judgment, once a dispute is raised by the assessee
the Income-tax Officer has no discretion. By sub-section
(2) of s. 141 the
Income-tax Officer is enjoined to give effect to the
provisions of s. 32(2), 72(1), 73(2) and 74(1) of the Act:
sub-s. (2) does not enlarge his jurisdiction under sub-s.
(1).
The High Court was of the view that the basic scheme of
the Act is that tax is to be charged at the rate or rates
prescribed for the year on the total income of the assessee
and in accordance with the provisions of the Act, and that
this basic scheme applies alike to a provisional assessment
as to a regular assessment. Consequently in construing the
provisions of s. 141 of the Act, assessment of tax must
also be made in accordance with and subject to the
provisions of the Act, i.e. in making u provisional
assessment the "necessary facts" about the income of the
assessee must be taken by the Income-tax Officer from the
return and the documents accompanying it and he should not
travel beyond, but in making the provisional assessment he
cannot ignore the other statutory provisions: he must apply
the law correctly to the admitted facts as per return.
The High Court proceeded to observe:
"The combined effect of the two
sections, namely, sections 72 and 80 of the
Act, is that a business loss can be carried
forward to the subsequent assessment years
199
only when it has been determined in pursuance of a return
filed under section 139 of the Act."
The claim of the Company that it was entitled to the benefit
of carry forward losses of previous years, merely because it
had shown such losses in the returns, could not, in the view
of the High Court, be accepted: to give effect to the claim
of the Company, in the view of the High Court, will be to
ignore the provisions of s. 80 which apply both to a regular
assessment and a provisional assessment under s. 14].
We are unable to accept the opinion of the High Court.
If it be assumed that provisional assessment has to be made
in accordance with and subject to the provisions of the Act,
distinction between a provisional assessment and a regular
assessment gets completely blurred. The scheme of s. 141 is
to call upon the assessee to pay tax provisionally at the
appropriate rate on what he admits is his taxable income,
subject to the benefit of the allowances under sub-s. (2).
The section does not permit an enquiry to be made whether
the total income returned by the assessee exceeds the amount
admitted by him, nor whether the allowances or deductions
claimed are admissible. If there be a discrepancy between
the return made and the accounts and documents accompanying
the return, the Income-tax Officer may ask the assessee to
explain the discrepancy, but he must make a provisional
assessment on the basis of the return initially made or
clarified and the accounts and documents filed. He cannot
make a provisional assessment by holding that certain claims
made by the assessee are in law unjustified. If it
transpires that the assessee has without reasonable cause
concealed particulars of his income or has furnished
inaccurate particulars of his income, it may be open to the
Income-tax Officer to impose penalty upon him after the
regular assessment is completed. But it is not open to him
to determine whether there has been any concealment of
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particulars of income or to decide whether claims which
have been made are unwarranted. In the view we have
expressed, the Income-tax Officer was not justified in
holding that the claim made by the Company for carrying
forward and seeking to debit against Rs. 74 lakhs odd an
amount of Rs. 103 lakhs odd was liable. to be rejected.
For the same reasons in making the provisional
assessment for the year 1964-65 the Income-tax Officer was
not entitled to ignore the claim made by the Company that
against the income of Rs. 59,89,757 returned, Rs. 36,01,735
should be permitted to be debited. The order demanding tax
of Rs. 17,32,768-60 for the year 1964-65 also was, in our
view, erroneous.
For the year 1965-66 the Income-tax Officer demanded
payment of advance-tax on the provisional assessment for the
year 1964-65. It is true that under subs. (3) of s. 210 as
inserted by
200
Act 13 of 1963 and later modified by Act 31 of 1964 the
Income-tax Officer is entitled to make an order for payment
of advance tax on the basis of provisional assessment made
under s. 141, and he is not obliged to demand advance-tax
only for the amount provisionally assessed by way of regular
assessment in respect of any previous year. Sub-section (3)
of s. 210, however, predicates a valid provisional
assessment on the basis of which advance-tax may be
demanded. But the provisional assessment for the year 1964-
65 made by the Income-tax Officer was invalid, and tax could
not be demanded on that invalid assessment. No order for
payment of advance-tax for the year 1965-66 could then be
made, relying upon the provisional assessment for the
year 1964-65.
The appeals will be allowed and the orders passed by the
High Court set aside. The orders of provisional assessment
made by the Income-tax Officer in respect of the years
1963-64 and 1964-65 will be set aside and the order for
payment of advance-tax for the year 1965-66 is also set
aside. There will be no order as to costs in these appeals.
The order of penalty in respect of the year 1963-64 is also
quashed.
V.P.S. Appeals allowed.
201