Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME TAX, U.P.
Vs.
RESPONDENT:
GURBUX RAI HARBUX RAI
DATE OF JUDGMENT24/08/1971
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
HEGDE, K.S.
CITATION:
1971 AIR 2444 1972 SCR (1) 357
ACT:
Excess Profits Tax Act, 1940, ss. 10A and 15-Scope of.
HEADNOTE:
Section 10A of the Excess Profits Act, 1940, deals with
transactions designed to avoid or reduce liability to excess
profits tax and empowers the Excess Profits Tax Officer to
make appropriate adjustments as respects liability to excess
profits tax. But before any action can be taken under the
section, there should be pending a proceeding for assessment
or reassessment of excess profits tax. Under s. 15, if in
consequence of definite information which has come into his
possession, the Excess Profits Tax Officer discovers that
the profits of any chargeable accounting period have escaped
assessment, he may serve a notice on the assessee and
proceed to assess the profits liable to excess profits tax.
In the present case, the Appellate Assistant Commissioner,
in appeal from the Income-tax officer order, stated that
there was a partial partition in the family of one of the
partners of the assessee. On the basis of that order, the
Excess Profits Tax Officer started proceedings under s. 1OA.
He issued notices to the assessee under both ss. 15 and 10A
on the same-day, but the notice under s. 15 was ordered to
be issued first. After considering the reply of the
assessee the Excess Profits Tax Officer passed an order
under s. 15 modifying the original assessment.
On the questions : (1) whether the Excess Profits Tax
Officer was competent to apply the provisions of s. 10A and
make the revised assessment under s. 15, and (2) whether
there was any definite information by virtue of which the
Excess Profits Tax Officer was competent to reopen the
original assessment..
HELD : (1) Though the notices under ss. 15 and 10A were
issued on the same date, the requirements of law were
satisfied, because, the Excess Profits Tax Officer had
initiated proceedings under s. 15, before issuing notice
under s. 10A by ordering the notice under s. 15 to be issued
first. The assessee also did not take any objection in his
reply to the notice under s. 10A that the notice under s. 15
had not been issued before the notice under s. 10A was
issued. [365 F; 366 B-C]
(2)The information which came into the possession of the
Excess ProfitsTax Officer of partial partition having been
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effected was relevant for thepurpose of s. 15 and once he
had initiated proceedings under that section, he was
competent and had jurisdiction to examine for the purpose of
s. 10A whether partial partition had been effected for
avoidance or reduction of liability to excess profits. [367
B-C]
(a)The Appellate Assistant Commissioner in the proceedings
relating to the assessment of income tax of the assessee had
stated the fact of partial partition which was certainly
information which came into the possession of the Excess
Profits Tax Officer. It was information received from the
decision of superior authorities and not a mere change of
opinion by himself. [366 F-G]
358
(b)The proceedings before the Appellate Assistant
Commissioner related only to assessment of income tax.
Therefore, it could not be said, that because he did not
consider whether the object of the partition was to reduce
liability to excess profits, there was no escapement for
purposes of excess profits tax. [367 A]
Bansilal v. C.I.T., M.P., 70 I.T.R. 74 (S.C.) and Asstt.
Controller of Estates Duty, Hyderabad v. H.E.H. Nizam of
Hyderabad, 72 I.T.R. 376(S.C.), applied.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1225 and
1226 of 1967.
Appeals from the judgment and decree dated May 22, 1964 of
the Allahabad High Court in Income-tax Reference No. 189 of
1953.
S.T. Desai, R. N. Sachthey and B. D. Sharma, for the
appellant (in both the appeals).
M.C. Chagla and A. N. Goyal, for the respondent (in both
the appeals).
The Judgment of the Court was delivered by
Shah, C. J. Gurbux Rai Harbux Rai-hereinafter called ’the
assessee’-is a registered firm carrying on a business in
piece goods and commission agents. It has its head office
at Kanpur and a branch office at Farrukhabad. During the
chargeable accounting periods July 4, 1943 to June 21, 1944
and June 22, 1944 to July 10, 1945 Gurbux Rai and Harbux Rai
(each representing his joint family) were the two partners
of the assessees with equal shares in the profit and loss.
In proceedings for assessment of tax under the Excess
Profits for Act 1940 for the two chargeable accounting
periods the assessee informed the Tax Officer that the joint
family of Gurbux Rai had been dissolved and there was a
reconstitution of the business of the partnership with
effect from July 4, 1943. , According to the assessee the
constitution of the firm after partition was that in the
firm at Kanpur the former two partners were interested,
their share being equal, but in the business of the firm at
Farrukhabad there were three partners-Harbux Rai with -/8/-
share, Chameli Devi with -/4/- share and Gopaldas with -/4/-
share.
In assessing tax under the Indian Income-tax Act, 1922 for
the assessment year 1944-45 relevant to the account year
ending June 21, 1944 the Income-tax Officer held that the
case set up by the assessee that there was partition amongst
the members of the family of Gurbux Rai could not be
accepted. In the view of the Income-tax Officer, an attempt
was made "to avoid proper incidence of taxation as an after-
thought to create evidence for camouflaging the Farrukhabad
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business as a separate unit of assessment". The Income-tax
Officer directed that the income be assessed as
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the income of the assessee and not as the income of a
separate firm. The excess profits tax assessment being
consequential upon the income-tax assessment, the Excess
Profits Tax Officer assessed the entire income of the two
businesses at Kanpur and at Farrukhabad, in the hands of the
assessee firm.
Against the order passed by the Income Tax Officer the
assessee appealed to the Appellate Assistant Commissioner
who by his order dated October 10, 1947 observed :
"......that partial partition in respect of
movable property of Gurbux Rai was effected on
a date somewhere near Asadh Samvat 2000, from
which date Farrukhabad was conducted by a
separate firm consisting of Harbux Rai, Mst.
Chameli and Gopaldas".
Pursuant to this order the Income-tax Officer modified the
assessment with respect to the Income-tax assessment of the
assessee for the assessment years 1944-45 and 1945-46. The
Excess Profits Tax Officer however started proceedings under
s. 10-A by notice dated February 6, 1951 calling upon the
assessee to show cause why appropriate adjustments should
not be made in the assessment, and passed orders in that
behalf for both the chargeable accounting periods holding
that the main purpose of the partial partition of the family
business of Gurbux Rai was avoidance of excess profits tax
liability. By order dated February 21, 1951 passed under s.
15 of the Excess Profits Tax Act the Excess Profits Tax
Officer modified the original excess profits tax assessment.
In the revised assessment in pursuance of orders under s.
10-A he included the income of the branch shop at
Farrukhabad in the total income of the assessee for purposes
of excess profits-tax assessment. The assessee appealed
against the order of additional assessment contending that
the Excess Profits Tax Officer was not competent to reopen
the case under s. 15 as he had no definite information
coming into his possession to enable him to discover that
the profits of the chargeable accounting period had escaped
assessment. The assessee contended that all the materials
in the case were before the Excess Profits Tax Officer at
the time of his original assessment and no new information
came into his possession thereafter. The assessee also
contended that the Excess Profits Tax Officer was not
competent to pass any order under s. 10-A merely to make an
adjustment in the revised assessment under s. 15. The
Income-tax Appellate Tribunal held that the Excess Profits
Tax Officer had received definite information regarding the
state of the law in pursuance of the appellate order of the
Appellate Assistant Commissioner who had held that the
family of Gurbux Rai was partially partitioned. The
Tribunal also held that the Excess Profits Tax Officer was
competent to pass an order under s. 10-A, of the Excess
Profits Tax Act.
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The Tribunal thereafter referred the following questions to
the High Court of Allahabad under s. 21 of the Excess
Profits Act read with s. 66 (1) of the Income-tax Act, 1922
:
"(1) Whether on the facts and in the
circumstances of this case there was any
definite information within the meaning of s.
15 by virtue of which the Excess Pro
fits Tax
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Officer was competent to reopen the excess
profits tax assessments ?
(2) Whether in the circumstances of this
case, the Excess Profits Tax Officer was
competent to apply the provisions of s. 10-A
and make necessary adjustments,in pursuance
thereto in the revised assessment under s. 15
?"
The High Court of Allahabad held that since the Excess
Profits ’Tax Officer purported to reopen the assessment
under s. 15 of the Excess Profits Tax Act "only because of
the order of-the Appellate Assistant Commissioner of Income-
tax holding that the Farrukhabad business was no longer the
business of the assessee and that the family of Gurbux Rai
had partitioned its movable property, all of which proceeded
upon material which was already initially before the Excess
Profits Tax Officer and to which he had applied his mind
when he made the original assessment, it was not a case
where the Excess Profits Tax Officer can be said to have
discovered", in consequence of definite information which
had come into his possession, that profits chargeable to
excess profits tax had escaped assessment. The High Court
accordingly answered the first question in the negative.
The High Court then observed that if the Excess Profits Tax
Officer was not competent to take proceedings under s. 15 of
the Excess Profits Tax Act, it was not open to him to apply
the provisions of s. 10 in the proceedings up= reopening the
assessment under s. 15, for, in the view of the High Court
an order under s. 10-A may be passed only where the Excess
Profits Tax Officer is seized of jurisdiction in a pending
assessment proceeding. As the proceedings initiated by the
Excess Profits Tax Officer under s. 15 were void,: he had no
power to make an order under s. 10-A of the Act. The High
Court accordingly answered the second question also in the
negative.
Against the order passed by the High Court, these two
appeals are preferred.
A parallel proceeding which had come before this Court in
Civil Appeals Nos. 741-743 of 1966 Gurbux Rai Harbux Rai v.
The Commissioner of Income-tax, U.P. decided on August 2,
1968 may also be referred to. It may be recalled that the
Excess
361
Profits Tax Officer at Kanpur had served a notice under s.
10-A of the Excess Profits Tax Act requiring the assessee to
show cause why appropriate adjustments as respects liability
to excess profits tax should not be made so as to counteract
the avoidance or reduction of liability to excess profits
tax by converting the business in the name of Pussulal
Jangalal the Farrukhabad firm -into a separate business.
The contention of the assessee that disruption of the family
was a genuine and bona fide transaction was rejected by the
Excess Profits Tax Officer. The case was therein taken to
the Income-tax Appellate Tribunal. The Tribunal confirmed
the order of the Excess Profits Tax Officer. But at the
instance of the assessee the Tribunal referred the following
question to the High Court of Allahabad :
"Whether on the facts and circumstances of
this case, the transaction in question was one
which could be. avoided under s. 10-A of the
Excess Profits Tax Act ?"
The High Court by order dated July 31, 1969 answered the
question in the affirmative. Against the order passed by
the High Court no further proceedings has been taken by the
assessee challenging the conclusion of the High Court and
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that order has become final.
The High Court has held in the judgment under appeal that
action taken under s. 15 of the Excess Profits Tax Act was
not competent and on that account the Excess Profits Tax
Officer had not jurisdiction in the matter. But in the
judgment of the High Court in Income-tax Reference No. 118
of 1962 decided on July 31, 1969 no question of jurisdiction
arose. The Court had only answered the question whether the
transaction of partial partition was one which could be
avoided under s. 10-A of the Excess Profits Tax Act. The
decision of the High Court (which had become final) about
the authority of the Excess Profits Tax Officer to take
action taken under s. 10-A does not affect the
maintainability of the present appeal.
Section 10-A of the Excess Profits Tax Act, insofar as it
is relevant, provides :
"(1) Where the Excess Profits Tax Officer is
of opinion that the main purpose for which any
transaction was effected
was the avoidance or reduction of liability to
excess profits tax, he may, make such
adjustments as respects liability to excess
profits tax as he considers appropriate so as
to counter-
362
act the avoidance or reduction of liability to
excess profits tax which would otherwise be
effected by the transaction
Section 15, insofar as it is relevant provides
"If in consequence of definite information
which has come into his possession, the Excess
Profits Tax Officer discovers that profits of
any chargeable accounting period chargeable to
excess profits tax have escaped assessment, or
have been under-assessed, or have been the
subject of excessive relief, he may at any
time serve on the person liable to such tax a
notice containing all or any of the
requirements which may be included in a notice
under section 13, and may proceed to assess or
reassess the amount of such profits liable to
excess profits tax
The High Court in the judgment under appeal held that pro-
ceeding under s. 10-A may be commenced only if there be a
valid proceeding under the Excess Profits Tax which was
pending for assessment or reassessment of excess profits
which had escaped assessment and not otherwise. In our
opinion the High Court was right in so holding. S. 10-A
does not contemplate an independent proceeding. Section 10-
A merely confers power upon the Excess Profits Tax Officer
to make adjustments with respect to liability to excess
profits tax : it confers power which the Excess Profits Tax
Officer may exercise in the course of the ,original
assessment or in the course of re-assessment.
It is necessary therefore to determine whether an order was
made under s. 10-A in a pending proceeding for assessment of
Excess Profits tax. But the question whether there was a
pending proceeding under s. 15 in the course of which an
order under s. 10-A could be made cannot be ascertained on
the materials available before us. The High Court had
decided that the proceeding under S. 15 was not valid,
because there was no definite information with the Excess
Profits Tax Officer and on that account proceeding under s.
10-A was not valid. It has been assumed that there was a
pending proceeding under s. 15 in the course of which an
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order under s. 10-A was made. Expression of that opinion of
the High Court is challenged. We are of the view that in
the interests of justice, it is necessary that a supple-
mentary statement of the case should be called for on the
question whether there was any proceeding pending under s.
15. On the question whether the proceeding under section 15
if pending was valid, we express no opinion at this stage.
We direct the Tribunal to submit a supplementary statement
of the case on the question whether the proceeding under
3 63
s. 10-A was started in the course of assessment or re-
assessment proceeding commenced under s. 15. The
supplementary statement to be submitted to this Court within
three months from the date on which the papers reach the
Tribunal. At this stage we express no opinion on the
question whether the High Court was right in holding that
the proceeding under s. 15 was not competent.
[The following judgment was delivered after the Tribunal
submitted the supplementary statement as directed.]
Grover,J. In these appeals this Court by an order dated
January 21, 1971 directed the Income tax Appellate Tribunal
to submit a supplementary statement of the case on the
question whether the proceedings under s. 10-A were started
in the course of assessment or reassessment proceedings
commenced under s. 15 of the Excess Profits Tax Act 1940,
hereinafter called the "Ace’.
The facts set out in the supplementary statement of the case
may be recapitulated. M/s. Gurbux Rai Harbux Rai
hereinafter referred to as the "assessee" is a registered
firm carrying on business in piece goods. During the
chargeable accounting period July 4, 1943 to June 21, 1944
and June 22, 1944 to July 10, 1945 Gurbux Rai and Harbux Rai
(each representing his joint family) were the two partners
of the assessee with -equal shares. In the proceedings for
assessment of tax under the Act for the above two chargeable
accounting periods the assessee informed the Tax Officer
that the joint family of Gurbux Rai bad been partitioned and ther
e
had been a reconstitution of the business of partnership with
effect from July 4, 1943. According to the assessee the constit
ution
of the firm after the partition was that in the firm at
Kanpur the former two partners were interested, their share
being equal but in the business of the firm at Farrukhabad
there were three partners, namely, Harbux Rai with a share
of 8 annas. Mst. Chameli Devi with a share of 4 annas and
Gopal Das with a share of 4 annas. In assessing tax under
the Indian Income Tax Act, 1922 for the assessment year
1944-45 corresponding to the accounting year from October
19, 1942 to October 7, 1943 the Income Tax Officer held that
the partition set up by Gurbux Rai could not be accepted as
the same had been made to avoid proper incidence of
taxation. He, therefore, assessed the income as that of the
assessee and not as the income of a separate firm. The-
excess profits tax being consequential upon the income tax
assessment, the Excess Profits Tax Officer assessed the
entire income of the two businesses at Kanpur and
Farrukhabad in the hands of the assessee. Against the order
passed by the Income Tax Officer in the income tax
assessment
3 64
the assessee appealed to the Assistant Commissioner. On
October 10, 1947, that Officer held that only partial
partition had been effected in the joint family of Gurbux
Rai. This is what he held.
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" ...... that partial partition in respect of
movable property of Gurbux Rai was effected on
a date somewhere near Asadh Samwat at 2000,
from which date Farrukhabad business was
conducted by a separate firm consisting of
Harbux Rai, Mst. Chameli and Gopal Das."
The income tax assessments were consequently modified for
the two assessment years 1944-45 and 1945-46. The Excess
Profits Tax Officer also started proceedings under s. 10-A
of the Act by serving a notice dated February 3, 1951 on the
assessee. The notice required the assessee to show cause
why proper adjustment should not be made on the footing that
the main purpose of the partial partition of the family of
Gurbux Rai was the avoidance of ’the excess profits tax
liability. By an order dated February 21, 1951 passed under
s. 15 of the Act the Excess Profits Tax Officer modified the
original assessment for both the chargeable accounting
periods. In the revised assessment he included the income
of the branch shop at Farrukhabad in the total income of the
assessee for the purpose of assessment of Excess Profits
tax.
The assessee went up in appeal against the orders of the
Excess Profits Tax Officer to the Appellate Assistant
Commissioner. These appeals were dismissed. The Appellate
Tribunal confirmed the order of the departmental
authorities. Thereafter the Tribunal referred the following
two questions of law to the Allahabad High Court under s. 21
of the Act read with s. 66(1) of the Income Tax Act, 1922.
(1) "Whether on the facts and in the
circumstances of this case there was any
definite information within the meaning of s.
15 by virtue of which the Excess Profits Tax
Officer was competent to reopen the excess
profits tax assessments ?
(2) Whether in the circumstances of this
case, the Excess Profits Tax Officer was
competent to apply the provisions of s. 10-A
and make necessary adjustments in pursuance
thereto in the revised assessment under s.
15."
The High Court answered both the questions in the negative.
Pursuant to our previous order dated January 21, 1971 the
Tribunal has submitted the necessary material to enable us
to give our decision. It has stated that the notices under
s. 15 of
365
the Act were issued for both the chargeable accounting
periods and they were served on the assessee on February 3,
1951. According to these notices the assessee was called
upon to show cause why provisions of s. 10A of the Act
should not be invoked. The assessee submitted a written
reply objecting to the applicability of s. 10-A. The Excess
Profits Tax Officer obtained approval of the Inspecting
Assistant Commissioner and passed an order under s. 10A on
February 21, 1951. According to the Tribunal the
proceedings under s. 15 were pending for both the chargeable
accounting periods when the proceedings under s. 10A of the
Act were started by the Excess Profits Tax Officer. It has
been added that the notices under s. 15 and under s. 10 were
issued on the same date, namely, February 3, 1951 but from
the order-sheet it was clear that notice under s. 15 was
issued first and the, notice under s. 10A was issued
thereafter.
It is abundantly clear from the annexures to the
supplementary statement of the case that on February 3, 1951
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the assessee’s counsel and K. S. Kalra and Gurbux Rai were
present before the Excess Profits Tax Officer. Receipt of a
notice alleged to have been issued under s. 10A of the Act
previously was denied by them. The Tax Officer proceeded to
record the following order
"Issue notice u/s 15 requiring the return to be filed within
60 days of the date of service.
Sd. E.P.T.O.
Also issue notice u/s 10A as per draft.
Sd. E.P.T.O."
The order-sheet further shows that on February 15, 1951
reply to the notice was received along with the return and
it was directed that the same be placed on the record. It
is common ground that no objection was taken in this reply
that the notice under s. 15 had not been issued before the
notice under s. 10A was issued.
Section 15 of the Act provides that if in consequence of
definite information which has come into the possession the
Excess Profits Tax Officer he discovers that profits of any
chargeable accounting period have escaped assessment, etc.,
he may at -any ,time serve a notice containing all or any of
the requirements which may be included in a notice under s.
13 and may proceed to assess or reassess the amount of such
profits liable lo excess profits tax. The power so
conferred can be exercised in the course of the original
assessment or reassessment. It is essential, according to
the law laid down by this Court that before any action can
be taken or an order made under s. 10A there should be a
proceeding which should be pending for assessment or
reassessment of
LI 340Sup CI/71
366
excess profits tax. In other words in the present case
before the provisions of S. 10A could be applied the Tax
Officer was bound to initiate proceedings under s. 15.
According to what the Tribunal has said in the supplementary
statement of the case the proceedings under s. 15 had been
commenced before action was taken under s. 10A. We have
already referred to the orders which were made on February
3, 195 1. It, is true that the orders to issue notices under
s. 15 and s. 10A were made at the same time but the notice
under S. 15 was ordered to be issued first. ,Thus the Tax
Officer had initiated proceedings under s. 15 before the
notice was issued under s. 10A and it would be a’ mere
hypertechnicality to say that simply because the notice
under s. 15 and the notice under s. 10A were issued on the
same date the requirements of the law were not satisfied.
The finding of the Tribunal also is to the effect, as
noticed before, that proceedings under s. 15 were pending
when the proceedings under s. 10A were taken. The second
question, therefore, had to be answered against the assessee
and in favour of the Revenue.
On the first question the submission of Mr. M. C. Chagla.
for the assessee is that there was no definite information
which had, come into possession of the Tax Officer from
which it could be said that he had discovered that profits
of the relevant chargeable accounting period had escaped
assessment. We are unable to agree. The Appellate
Assistant Commissioner had made an order on October 10, 1947
in the proceedings relating to the assessment of income tax
of the assessee that there had been only a partial partition
in respect of the movable property (business) of Gurbux Rai.
That was certainly an information which came into the
possession of the Excess Profits Tax Officer not because of
any change of opinion by himself but because of the decision
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of the Appellate Assistant Commissioner in the income tax
proceedings. This Court has consistently held that the
Income Tax Officer would have jurisdiction to initiate
proceedings under s. 34 (1) (b) of the Income Tax Act, 1922,
which is in pari materia with s. 15 of the Act if he acted
on information received from the decision of the superior
authorities or the court even in the assessment proceedings.
(See R. B. Bansilal Abirchand Firm v. Commissioner of Income
Tax, M.P.(1) and Assistant Controller of Estate Duty,
Hyderabad v. Nawab Sir Osman Ali Khan Bahadur, H.E.H. The
Nizam of Hyderabad & Others.(2) It has next been urged that
the alleged object of having a partial partition, namely, of
reducing the liability to excess profits --ax had never been
examined by the Appellate Assistant Commissioner in the
Income tax proceedings and therefore it could not be said
that there had been escapement of income as a result of
information
(1) 70 I.T.R. 74.
(2) 72 I.T.R. 376
367
derived from his- order. The Appellate Assistant
Commissioner apparently did not go into that question
because the proceeding& before him related to assessment of
income, tax. Section 10A of the Act is a special provision
which deals with the transactions designed to avoid or
reduce liability to excess profits tax. The information
which came into possession of the Excess Profits Tax.
Officer of partial partition having been effected was
relevant for the purpose of s. 15 and once he had initiated
proceedings under that section he was perfectly competent
and had jurisdiction to, examine for the purpose of s. 10A
whether partial partition had been effected for avoidance or
reduction of liability to excess, profits tax. The first.
question, therefore, should have been answered against the
assessee and in favour of the Revenue.
The appeals succeed and are allowed with costs. The
answers, to both the questions are returned in favour of the
Revenue. Onehearing fee.
V.P.S. Appeals allowed.
368